Monday, June 04, 2007

The Crash Seems Like Just Yesterday

Here is a link (subscription required) to an article by Gary Rivlin in the "News in Review" section of yesterday's New York Times. It is entitled "In Silicon Valley, the Crash Seems Like Just Yesterday". Here are a few quotes from the article which I found interesting.

"...[T]he digerati of Silicon Valley endured the 1990's dot-com bubble, and since then have lived with the psychic shock of its ignoble end."

"The average valley entrepreneur tends to spot bubbles everywhere, much the way granddad [scarred by the Great Depression] feared financial ruin every time a grandchild carelessly scraped leftover food into the trash."

In the article, Paul Kedrosky, an expert on entrepreneurism and technology advancement at the University of California at San Diego, observes, "There is such a heightened sense of bubble awareness in Silicon Valley that people confuse any expression of enthusiasm for a bubble. ....[Now people in the valley are so hyperaware of bubbles] that if they even hear what they think is a lit fuse, they're scurrying for the exits, yelling, 'Bubble,bubble, bubble' ".

Rivlin summarizes his observations on the psychic state of Silicon Valley thus: "Life is good. Money is pouring in. But almost everyone is anxious".

I think Rivlin's observations apply much more widely. I think the crash of 2000-2002 scarred a whole generation of investors, not just those those who rode the tech bubble up and then all the way down again. That is why nowadays investors seem to see bubbles everwhere: in US stock prices, in China, in the housing market, etc.

The implication of this psychological state seems clear, at least to me. (See this post too.) We are not going to see another episode like the 2000-2002 crash for a generation. The long term trend in US stock prices will be steadily higher until then.


Anonymous said...

A generation??? Well, you know human life span in a few years time may well be around 120-150 years. Whatever you are smoking, I want some of that.

Carl Futia said...

You, sir, are an idiot.

A generation is typically taken to be the typical span of time between the birth dates of parents and of their offspring.

As a rule a generation is 20-25 years.

See this link :

Anonymous said...


For us newbee longer-term investors, I wonder if you could guide us with suitable entry points for this market. I'm not a trader like yourself, and prefer a long term approach. My problem with investing here is that your Lindsay posts seem to be calling for a top in the next several months followed by a nasty dip into the 10,000-11,000 area in the DOW. I guess my question is, for those with a longer term bent, wouldn't it be best to wait for the reaction, or is this market in a good risk-reward situation right here for a buy.


Carl Futia said...

If you are a long term investor whose holding period is anything more than 3 years or so, then I would shut my eyes and buy here. In my opinion the most costly mistake you can make is to be out of a rising stock market. Given my very bullish long term outlook the cost of having to sit through a 15-20% reaction is small in comparison.

Anonymous said...

Hi Carl:

thanks for taking your time on this blog to write your opinion.

A quick question regarding the article you posted yesterday. you mentioned that you expect a near term top in the market. did you mean a short term top in the market, before we make another bull market high? or do you mean we go much higher from here and then we have 10% correction or so? would like your thoughts.

Also, is there any target you would have on the downside of where you believe the market can go on QQQQ and SPY? thanks
have a good weekend.


Anonymous said...

OK! Thanks for the great advice. My re-fi is closing today and I want to jump into the housing stocks now that the bottom is over.

Anonymous said...


Do you think one of the ways this could be accomplished is stocks going up 15%/year on average, but inflation going up at 10-15%/year so the net purchasing power gain is zero?

Anonymous said...

i guess im a skeptic yet basically
agree to some extent . the problem is there will be some large downdrafts coming in the future
and those who buinto the market now will have to really have faith to hold on . and if you are correct then what we should really be doing is simply not reading your short term thoughts at all .
after all if we are going to not look at our account statements then why should we even read the newspaper or even other to read anyones opion on what is happening in the stock mkt . so if your correct then we should all just
find a new way to spend our time and forget the stock market .
we should stop watching the news
forget about politics and not watch cnbc . we should all just go camping and leave te radio to the music channel . forget technical analysis , throw out all forcasting methods and in effect
leave ourselvse totally in blind faith that we will retire with more wealth by simply maxing out our 401 k and retirement accounts
if all that is true , then the work of george lindsay should be thrown out the door along with eliott wave thoery and RN elliots long term high that he forcast
about 70 yrs ago for a top in 2012
should be forgotten . the demographic picture should be thrown out the door since it only
has a relationship to spending cycles . so the consumer will spend
into oblivion well past there death and the stock market will continue to rise as corprqate earnings go higher and higher even as there is less and less people working . to wrap this up .
if what you are saying is correct
then absolutely nothing will matter , we can go to war and stocks will rise . we can have hurricanes and natural disasters
and stocks will rise . people will just keep buying stocks even though they are not working and stocks wil rise . maybe a good
new venture would be retirement mortgages , where we will borrow
500,000 at 5 percent with no money down and the money will be put into the stock market and all we have to do is make our monthly retirement payment each month to pay down the
debt on our retirement account .
forget financial responcibilty
just remember te rule of the more we owe the more we own .
dont worry be happy .
all technical and fundemetal anlaysis is now considered irrelivant .

pleadership said...

I concur with you. Every time the market is beset with a large % decline all sentiment indicators spike to the negative side. Traders / investors are fighting this rally every step of the way for the same reason you state...they do not want to get caught in another major decline. This will keep prices buoyant for some time.