coming financial armageddon

Rob Schaap rws at
Wed Feb 24 22:51:01 PST 1999

G'day Max,

Policy analysts and economists often assume things about the rest of us that just don't hold up. They might tend to think, for instance, that unprecedented p/e ratios, bull runs of unprecedented length, a runaway US CAD, the prospect of a continental crash just to your south, the ever decreasing capacity of feds to manipulate interest rates (they may be approaching zero in some spots, but it'd take a brave man to raise rates in such conditions of generalised debt-financed speculation) etc etc would be good reasons for a tank.

'Course, if they were good reasons to the rest of us, the tank would have happened by now.

Anyway, I agree with James Wilson that a hideous event lies before us, but I think the reasons he gives (of the variety stabbed at above) are not the sort of reasons that warrant bets on specific drops within designated three-month windows. They're just reasons why there should be a tank. And anyway, if we're talking NASDAQ specifically, who here has the prescience to contest the values set on information technology stocks?

Nope, I reckon 2YK is the wasp in the knickers here. The establishment is gonna have to be very careful with its PR campaign (I assume one is in the offing). It really doesn't matter, y'see, whether 2YK proves itself to be an inspired mode of making programmers rich or a sad glitch that will ignite every ICBM in the world. After the cable channel gurus have had their way with us - we'll all know the Book of Revelations by heart by December, for a start - we'll be in a pro-active frame of mind. We'll stock up on household goodies and turn our digital assets into paper stuff. We won't do it because we expect a technical and social disaster (we don't generally know how to envisage disasters), but we'll do it for the same reasons we've been bloating the stock-markets.

We'll behave according to our expectations of what others think the rest of us might do.

Just as we'll happily take a p/e from 43 to 45 (without any reference to the company in question, and regarding only our guess at where the share price will be at some date in the relatively near future) so will we make for the fire escape the minute the index has a hiccough near the end of the year.

My guess is this game of the greater fool depends as much on crashing markets as it does on bloating them - the two events reflect the same reasoning. And by that reasoning, you should hedge - sell a share for every bet you make on this list - er, thus contributing to the probability of your losing the bet.

Anyway, if ever Dave, Chas and Paula should make thier bet, it's now. I'd have a bet myself, only I reckon I might be on the bad end of some serious currency differentials before year's end.

Cheers, Rob.

More information about the lbo-talk mailing list