For the first time in over a decade, the DOW closed below 7,000. For a little history, the DOW was around 1,000 in 1982 and then steadily rose to 14,000 over the course of 25 years. We have now returned 50 percent of that and the future does not look very good for getting it back anytime soon. The Nikai in Japan fell from 30,000 in 1989 to just around 7,500, losing more than 75 percent of its value in 20 years.
What is happening is that we are at the end of an era. It is the end of highways, sprawl, cheap everything, and we are also at a the end of globalization as we knew it.
How to move forward is the $64,000 question. What is clear is that we are just thrashing around, like a whale beached on the shore. There is no one around to put us back in the water. Perhaps the best solution would be for someone to slay the whale. In the Farrow Islands, when a whale beaches they come out with knives, jump on its back, and hack it to death. They have a big dinner of whale meat. In California, they call out a team of doctors to examine it and then it dies anyway. No dinner!
The problem is that everyone (read: economists) studied the 1930s and how to get out of the depression. People forgot that what got us into the 1930s depression was the 1920s! What got us into this depression is the 2000s (leverage, borrowing, housing investment, deregulation) – they were just like the 1920s. One thing is clear, the best way to heal this event is perhaps just to wait it out and not spend trillions and trillions to try and save it. We will heal in due time.
March 2nd, 2009 at 5:23 pm
Not to disagree, things are a mess. But note that the Dow dove from over 11,000 in 2000 to 7,600 in 2002 and recovered fairly rapidly. Also that it floated between 700 and 1,000 for 20 years from the mid-’60’s to the mid-’80’s. The thing is nobody knows when to get out or jump in.
Waiting it out vs. spending for recovery reminds me of advice on getting over a cold. If you drink lots of fluids, get bed rest and take vitamin C, you can beat it in just 7 days. Leave it alone and it will linger on for a week.
March 2nd, 2009 at 9:41 pm
I would still bet on an impending boom sometime within the next 6 – 18 months. The TNT has been set beneath of us in the form of low interest rates, global stimulus spending, dropping raw material and shipping costs, and with rising unemployment, cheaper labor costs. Companies are getting leaner and meaner. But the boom will probably produce another bubble and bust, and more general volatility, as all of the depression-busting policies will come to shore at the same time the economy begins to self-recover. We need more innovation and more entrepreneurship, I was very disappointed to see that the SBA programs did not get more heavily funded in the budget. New business creation is the key to sustainable fundamental growth.
March 3rd, 2009 at 4:02 am
But will “healing in due time” simply mean a return to the causes of unsustainable growth? I’d rather see an overhaul.
There is widespread public anger simmering beneath the surface here in the UK, and that has spilled over in parts of Europe (Greece, for example). People seem anxious for the election to boot out Brown, but even then we know that the Opposition will end up exactly the same. There seems to be no alternative to the wasteful boom and bust of capitalism: yes we do need more innovation and entrepreneurship, but used to create viable and credible alternatives that harness the creativity of everyone, not just the establishment, and spread the gains on a more egalitarian basis – things like Web 2.0, beta communities, open sourcing, co-operatives, rather than the profit-driven, credit-fuelled model we’re overly reliant on now.
March 3rd, 2009 at 6:27 am
I’m seeing the same as what Robert described here in the states, but it hasn’t coalesced yet.
Hayden, I doubt a boom in 6 months. Obviously, I’d love for you to be right, as the industry I’m in is shrinking rapidly. But in 12-18 months, I’d put money on a boom starting within 12-18 months.
March 3rd, 2009 at 8:04 am
Markets act like markets, doesn’t really matter if its aluminum cans, corn or real estate. They can [and do] get overactive and frothy and then they are cruising for a bruising. See “dot.com” for what happens next. Problem is, this hasn’t happened here in real estate, at least not for a long time, so folks are pretty twisted about it and the dislocations are both real and nasty. But still, nobody is making more land and everybody needs a roof over their heads. The market will recover because life is going on – people are graduating and having kids and downsizing and doing all those things that will eventually cause them to buy houses. We won’t make gains like we did in the
March 3rd, 2009 at 9:36 am
Swordsman, you’re probably right but I’m going to cling to my optimism for the short-term; but to qualify, the boom would begin in about 6 months, I certainly agree it wouldn’t be realized until later.
In the interim, the SEC needs to step-up. Steve Forbes offered some great suggestions that others have echoed: reinstate the uptick rule and crack-down on naked short-selling; and suspend mark-to-market accounting.