What the Economic Collapse Really Means (The Collapse of the Stock Market, Part 1)
Posted Sun Mar 18 16:38:31 2001 by steveg |
This
week, NetSlaves will run a multipart series on the collapse of the
stock market and its effect on IT and its employees. We would like our
readers to send in their experiences with their investments, options
and 401K's. Our first two installments will deal with how the market
imploded and who got hurt in it.
By Steve Gilliard
Here's a simple fact: 70 million Americans, nearly one out of four, are directly invested in the stock market.
Stock values now dominate the way that Americans see their economic
future. Anywhere you turn, Motley Fool, PBS, advice columns, it is
expected that someone looking to secure their future by investing in
the stock market.
For those working in IT, they could be in a major economic crisis
from which there could be no real recovery. Even those investing
heavily in tech stocks may have placed their financial futures at risk.
With the shift in bankruptcy laws, bought and paid for by the credit
card industry, not only may people face crippling financial problems,
but be unable to enter bankruptcy when they need to.
The laws of the market
You don't have to do much to understand the market. Think of
brokers as bookies in pinstripe suits. Forget the gloss, stocks are a
bet on the future of a company, and the people who run this casino are
action junkies. Real casino owners like other people's money. Stock
brokers will play with their own. It is the real gambling industry.
But as in a casino, the men who play blackjack and read cards are
going to do better than the roulette players. You can always minimize
your risk in the market and do well. The problem is that people assumed
that risk had been eliminated from the marketplace.
How did this happen? Why are millions of people now stuck with
losing investments, where their future stability is now at risk? What
happened in the market to screw so many people?
Since we do not shrink from assigning blame, we're going to explain how people got in this mess.
The uncritical press
The press did very little to explain to people the nature of the
volatile marketplace. Sites like Motley Fool and the Yahoo discussion
boards made people feel safe and comfy when talking about stocks. They
encouraged becoming fans of certain stocks. Yes, the Fools gave the
best single set of advice on becoming investors, but with the back of
their hand, they also encouraged the worst kinds of investing with
their chat rooms,
Did anyone besides Chris Bryon of MSNBC/The New York Observer
actually suggest that these companies had no long-term prospects? His
lonely voice was one of the few to state that many of these companies
were flawed. Instead you had the kind of hustling which people had
consigned to PT Barnum and William Randloph Hearst. Maria Bartiromo,
who was hyped because of her modest good looks (the boys on the floor
were unimpressed, having grown up with Italian girls in Brooklyn and
dating them at NYU), and whose husband, coincidentally, was a player in
dotcom mania. Yeah, perspective there. Hell, Lou Dobbs quit CNN and
formed his own dotcom. Others fled TV and print to play the game, those
left behind were envious as hell.
No one wanted to run the real story, which went like this:
1) Get VC funding
2) Pay way too much for everything
3) IPO within 18 months
4) Have reality smack you in the balls as no one buys what you sell
5) April 2000: logic returns
6) Desperate financing plans hatched, stock price starts dive
7) First round of layoffs, much crying, promise of reform.
8) New CEO
9) Creditors talk of serious layoffs, stock price gets close to delisting
10)Company collapses, stock price near bottom, mass layoffs, sale of office equipment
11) Sale or bankruptcy.
Every half wit with a business plan, and a few without, thought
they could cash in. Their idea of business was between frat house
antics and Tom Vu financing plans. They cherished hard work as a sign
of success, not as the ingredient of success. Internet time was bandied
about as an excuse for people to do anything to their employees. Work
them like Russian slave laborers, sleep with them, cheat them out of
money, fire them without dignity.
The stories which ran made no sense. Teenage CEO's, plans which
required people to change the way they shopped, investment in shaky
technology, planning to be bought as their exit strategy. All of these
things made no sense at the time. They just weren't reported as being at variance with reality.Why? Because there was money in it.
Let's take one example: advertising shops. When the going was good,
dotcoms were their best clients. They benefited from billions in VC
cash as they flooded the air with dotcom ads. Not that even the ads
made sense, they didn't. But someone got rich off of them. As soon as
these companies developed problems, ad agencies were among the first
people to drop them as clients.
That applied to a much greater degree with the financial markets,
Companies made money with IPO's, offered the stocks to their best
clients and told then when to cash out, and had the public so hungry
for more that the prices popped and stayed high. Of course, the lucky
few cashed in and sold out early. When people were clamoring to be
included in the Red Hat IPO, they were warned how risky this was. Some
people wanted to buy in with their book money, their tuition money.
There was a sense that entering an IPO was the thing to do. Chris
Nolan, formerly of the San Jose Mercury News lost her job over an IPO
she participated in. The madness, because it was more than greed,
spread across the country like a bush fire.
The world of the never-ending bull market was being pimped on CNBC
every day. Mary Meeker and Henry Blodget pimped companies which seemed
to have limitless futures.
Part II
So what happened and who got hurt when the shell cracked?
|
Name: suma
Email:
Date: Tue Mar 20 15:13:21 2001
Comment:
I sure hope 'internet time' is over. I pretty fucking sick of everybody
thinking that just because a project involves computers we have to
complete a 9 month project in 6 weeks. I'd say that's probably the
worst thing I've experienced out of the whole stinking mess. I know
what the project is going to take because of my past experiences. For
years we'd been progressing to doing IT projects like real projects and
folllowing methodologies in order to deliver what the business needs.
Now all of a suden I'm expected to be a magician and get it done in a
fraction of the time because of 'internet time'. Screw that. The thing
is, I'll bet that people still will think that it has to be done in a
couple weeks. |
Name:
Email:
Date: Tue Mar 20 08:01:21 2001
Comment:
kurt, you're right, it's kind of like lying on one's resume. . . eh. .
. looking at the bottom line, and only the bottom line is as bad as not
looking at it at all? |
Name: Kurt Nimmo
Email: nimmo@zianet.com
Date: Mon Mar 19 14:44:35 2001
Comment:
If older Americans are blaming younger Americans, well then they
are blaming the wrong people. It has nothing to do with age. It has to
do with greed, pure and simple. It has to do with the media hyping the
latest thing - without a realistic frame of reference - and it's about
stock gamblers, witless CEOs, opportunistic VCs, and the entire
business mentality of profit over everything else, of making the next
quarter's ledger shine, regardless of the costs in human capital. If
older Americans are to blame, it is because they were foolish enough to
believe they could bank their retirement on stock gambling, which is a
rigged game, a fixed race contrived by brokerages who are essentially,
as Steve said, bookies. There's plenty of blame to go around, but as
usual the wrong people will be accused and blamed. Our rulers, and the
wealthy 3 percent of the population they work for, will escape blame,
as usual. |
Name: MasterPo
Email:
Date: Mon Mar 19 12:14:02 2001
Comment:
Gotta agree. The Fool aint' want they used to be. When the
abandoned their Dow approach they seemed to be buying into the trading
mentality. I know they're a business and have to appeal to the audience
but still...
BTW, even if only 40% are in the market themselves (does that count
401k, 403b, Pensions etc. too?) what happens in the market effects
everyone. Even if you don't own any stock, bond, 401k etc you're still
effected. Can't seperate the two any more. |
Name: Stepehen Ertischek
Email:
Date: Mon Mar 19 10:13:51 2001
Comment: But, as usual, the rich will escape out the back door with their women..
|
Name: Paul
Email: winopaul@yahoo.com
Date: Mon Mar 19 04:14:05 2001
Comment:
A big part of the dot com debacle was company founder's confusing
"Investment" and "Revenue". It looks like people here are too. An
investment is meant to grow over a 10 year period, not fund dinner and
consumer electronics. Use it like a checkbook and you will get burned,
either in lost opportunity or no returns at all. Now's a good time to
invest. Maybe wait a few months to verify the bottom has been hit. As
for me-- no worry-- the startup might tank but there are more startups.
|
Name: Sir Damon Eric Harrell
Email: http://d3design.bizland.com
Date: Mon Mar 19 03:00:16 2001
Comment:
I used to hate Monday mornings...the alarm beeping lika a bulldozer
going through a midlife crisis...getting the kids off to
school...staring at my bowl of raisin bran capped off with a mound of
sugar higher than the Himalayas and of course all those Van Halen MP3's
ripped from Napster. Yeah Monday, Monday....so good to
me....oops....wait.....but I forgot just one thing.......waz dat
homes?....CNBC
Yeah...that's right, well then...forget the soaps, your wife
telling you what's the latest gossip at her office...your neighbors
cordless phone conversations you picked up on your police
scanner...errrrrrrrr...baby monitor, you have CNBC and the fun and
excitement of watching people lose their asses in living color. Living
color you say????? Well yes, like when on the CNBC self promo
commercials they explain to you the color symbols and what each ticker
means. Like when you explain to your eight year old that the Red arrow
means Taco Bell for dinner and the Green arrow means Red Lobster plus a
quick jaunt to Sharper Image. Like that sad-faced NASDAQ dude who acts
like he cares and "looks concerned" when talking about the next
support-level and the fact that the bottom is dropping out of YOUR
portfolio (his paycheck stays the same irregardless of his Oscar
winning performance).
Wow, watching fortunes go POOF before my very eyes has never been
better....hey CNBC...keep up the good work, your ratings have never
been higher....what's that???? Your dot.com insiders are saying that
some "heads are gonna roll because of this dot.com shakeout and VC
screw job?!?!?!?" Thanks for the tip.....and oh, by the way...I'll be
very careful watching out for those 'rolling heads' while I'm driving
to the Sharper Image. |
Name: steve gilliard
Email: sgilliard@netslaves.com
Date: Mon Mar 19 02:02:56 2001
Comment: Leif,
Staten Island is Brooklyn for stupid people. I detest Staten
Island. But considering that so many people have moved from Bensonhurst
to Todt Hill and other places on SI, am I really wrong? |
Name: Steve Baldwin
Email: Steve_Baldwin@hotmail.com
Date: Mon Mar 19 01:19:57 2001
Comment: Our fault (again)
>My original elequent response got nuked, but I'll leave it at this for Kurt...
We were fixing a headline issue. You people are much faster than we
are - the gap between text editing and FTP'ing nuked us. Sorry -
|
Name: bob
Email: pale_13@usa.net
Date: Mon Mar 19 01:02:34 2001
Comment:
But what amuses me is that older Americans blame the younger Americans.
Excuse me, could they have kept their stock with Quaker Oats if the
weren't being greedy?
Kurt, I think I might have made you point. Everyone/no-one is to blame.
BTW, post your email offline to me if you want. You are
intelligent, and even if we don't agree, I always try learn from
others. I like debating. It keeps the mind sharp. |
Name: Kurt Nimmo
Email:
Date: Mon Mar 19 00:40:02 2001
Comment: Americans say greed led to dot-com demise
http://news.cnet.com/news/0-1007-200-5161277.html?tag=mn_hd
|
Name: bob
Email: pale_13@usa.net
Date: Mon Mar 19 00:39:21 2001
Comment: Damn,
My original elequent response got nuked, bu I'll leave it at this
for Kurt: like the old song says I "can skin a buck and run a trotline,
a country boy can survive."
Short of an asteroid or nuclear impact, my family will eat.
How about yours?
|
Name: Leif Quakeman
Email:
Date: Mon Mar 19 00:25:32 2001
Comment: (the boys on the floor were unimpressed, having grown up with Italian girls in Brooklyn and dating them at NYU).
Steve, you're revealing your lack of years. When I was "on the
floor", and going to NYU, the Italian girls lived in Staten Island. It
really sucked, because I'd have to always get them home in time for the
12:00 ferry. But I'm sorry - I shouldn't digress like this - let's get
back to the Mom and Pa investors eating dog food... |
Name: Kurt Nimmo
Email:
Date: Sun Mar 18 23:26:23 2001
Comment: Bob, nobody said the world was ending, there's no Chicken Little panic floating around.
Bet you don't have a few trillion pubes, Bob - that's how much in
personal investment was lost over the last year. That's going to
translate into a lot of misery. But you don't care, right, because you
can always get a job. Don't count on it.
I detect more "I got mine" dot-commie machismo here. Do you think,
if personal income slips, and there's less for consumers to spend, even
if they manage to sell a few Amway products door-to-door, the dot com
industry will prosper? Uh duh. You'll be out there with them, selling
banner ads door-to-door.
It's all connected, Bob. Try to look beyond your navel and see the big picture.
|
Name: Kurt Nimmo
Email:
Date: Sun Mar 18 23:13:10 2001
Comment:
So, those of us who look at the stock market, what it means, and
shudder, are naysayers, complainers, and wimps in the face of
adversity.
Here's a few things you can't get around:
Household net worth fell 2 percent in 2000. This has not happened
since the government began taking notes after WWII. Even during the
recession of 1974 - the worst since the 30s - household net worth
realized a modest increase.
401k has largely replaced traditional pensions, where the
investment risk belongs to the beneficiary. If the current stock market
trend continues - or, forbid, worsens over time - look forward to
dumpster-diving retirees.
Corporations, caught up in the high tech mirage, invested heavily
in computers and software. They will have to pay it off sooner or
later, and as consumer confidence lags and sales dip, the result will
be layoffs and unemployment. We are already experiencing this on an
alarming scale.
Add to the above corporations buying back employee issued stocks in
fear of dilution. Chalk that price tag up with the above mentioned and
you got some mightily extended corporate debt.
Mr. Greenspan might be a smart guy, but he still does not seem to
understand how the so-called new economy differs from the old - now,
the economy is structed around stocks, and as stocks take a dive this
puts the brakes on capital spending, which in turn strangles the boom.
Cutting interest rates and taxes will do little now.
Months ago, when we talked about all of this here on the board, and
I speculated that the disease at that time churning in the tech sector
would spread to the general economy, people said I was crazy. Maybe I
am. Even so, I feel vindicated. Add Robert Brusca, Chief Economist for
Ecobest Consulting, adds to my vindication: "The problem is that the
stock market weakness is now spreading beyond tech stocks. Others are
being drawn into the pile-up."
So be it.
|
Name: bob
Email: pale_13@usa.net
Date: Sun Mar 18 22:54:42 2001
Comment:
The NASDAQ dropped sixty percent? Big Deal, I've got pubes older than
the NASDAQ. Even though I'm a certifiable dot commie, I have to agree
with the two points Get Real made. the world is not ending, just
evolving. Those of us who have enough talent, intelligence and
adaptability (read "those with real long term prospects in the field")
will have some tough times, but we'll be better for it.
The rest will learn what Amway sales is like.
Enjoy!
|
Name: Bill Volk
Email: bvolk@youworkit.com
Date: Sun Mar 18 22:34:23 2001
Comment:
It's easy to get mad at the 'messenger' here ... like Mr. Get Real has
done ... but the truth is we had pretty much a Ponsi Scheme going on.
I talked to a early stage VC ... a good guy ... about all of this.
What he told me was that his investments were based on what the VC's
and IPO markets were buying. What they were buying wasn't sound
businesses ... it was whatever would spark the interest of investors.
This Greater Fool theory is what sustained these awful businesses.
I personally took a huge hit in wealth with the Feb. IPO of a
educational company I worked 5 years at ... not a dot-com ... but
crushed in the tide of the reaction to the dot-gones.
Bill
|
Name: Kurt Nimmo
Email:
Date: Sun Mar 18 21:29:13 2001
Comment: Get Real needs to get real himself. People speaking their minds are the bane of the internet?
Your IT pendulum may swing back some, but a 60 percent drop in the
tech NASDAQ is nothing to scoff at, pal. This is a bear market, the
worst in NASDAQ's history. Over the last year, trillions of dollars
were lost - normal, every day people lost retirement funds, college
educations for their kids. If not for the shell shock, and hope that
the market will recover, people would be screaming bloody murder. They
are sitting on their woefully deflated stocks, hoping the market will
rebound. It may, but not any time soon.
A rosy prediction for stock value rebound is pegged at about 15
percent per year. Considering that, it will take Cisco shareholders
about a decade to get to where they were before the market went south.
That's how long Get Real's long term investor will have wait TO BREAK
EVEN (of course, this does not take into account inflation). Get Real's
pendulum is going to swing back (if it does) very slowly.
Get Real seems to suffer from the same disease a lot of people in
this industry suffer from - a false sense of macho (note his foxhole
metaphor). I'll bet he did not invest in the market in hope of building
a nest egg for retirement, or putting his kids through college.
Of course, gambling your money in the stock market in hope of
realizing a secure future is foolhardy, maybe even stupid, but to
diminish their concern over the fall of markets by telling them to shut
up is callousness and cruelity. |
Name: Public Enemy
Email:
Date: Sun Mar 18 20:56:05 2001
Comment: Get Real
Yes, the IT market will get better over time and find a middle
ground, but I doubt it will ever be where it was in the mid to late
90's again. A lot of money was poured into unproven ideas, and
investors were burned. The future will see the GE's and GM's of the
sector make acquisitions and set up camp permanently in a sector, and
will have their own ups and downs over time. The IT market is coming of
age. Prior to the stock market crash you could have invested in any
number of automobile manufacturers (Duesenberg, Pierce Arrow, hell even
Sears-Roebuck sold cars), there were a lot of manufacturers prior to
the depression, a lot fewer after. Many years later only three
survived. The same thing that happened to the automobile age companies
will happen to the information age companies. Weeding out and mergers
and acquisitions. This is a positive development. so forget about
investing in companies that sell soda online and will deliver you an
icy-cold coke in 2-3 days, or something equally mundane. Don't believe
the hype ever again. You gotta use that grey matter in between your
ears.
|
Name: Get Real
Email:
Date: Sun Mar 18 20:20:17 2001
Comment: To Enough Already:
Why don't you get a life and quit trying to impress everyone with
your uninformed insights here. If there's anything that is more tired
than the "teenage khaki wering dotcom CEO", it's people like you
littering cyberspace with your assinine, unsophisticated analysis.
That is the true bane of the internet - giving a voice to those that should just keep quiet.
You people are so pathetic, you seem to crumble at the slightest sign of adversity. Remind me to never be in a foxhole with you.
For the record:
1) The world is not ending. The market is still up over the last 3
years. If you were greedy and expected to "win the big one", then too
bad. That's gambling. The market is still in good shape for the long
term investor. ( Remember that concept? )
2) The IT market will probably get even better over time. The
pendulum has swung in the opposite direction, and will eventually swing
back to a middle ground. And if you can't get an IT job, you do
something else.
|
Name: steve gilliard
Email: sgilliard@netslaves.com
Date: Sun Mar 18 19:17:16 2001
Comment: Except this isn't hindsight. Warren Buffet and Chris Byron called this early on and were ridiculed.
I think the IT market is in a different situation. A lot of the
work has not been done yet to migrate people to the net in a meaningful
way. There are still billions in reserve to b e invested and a critical
need for workers in many sectors that do not sell widgets online.
You can walk into any school district in the country with any IT
skill set and get hired on the spot. Same for most government agencies
and many private companies.
There is a long term interest here. Also consider that the growth
of the stock market from 1990 to today means that if you bought GE or
Motorola at the start of the Gulf War, you would have made thousands of
dollars with even a small investment.
So even if the market went to 7500, most long term investors would
be far better off. The problem is that the short term investors got
hosed on speculative values. |
Name: Enough Already
Email:
Date: Sun Mar 18 18:20:13 2001
Comment:
My comments below are equally applicable to the IT job market. It may
be many years before we see a job market like we saw from 1996-1999. |
Name: Enough Already
Email:
Date: Sun Mar 18 18:18:18 2001
Comment: Here are a couple of tidbits for you:
From September 1929 to July 1932, the stock market dropped 89.5%.
If you invested in the stock market at the peak in September 1929, you
would not have broken even again until November 1954 (over 25
years!!!!!!!).
From January 1973 to December 1974, the stock market dropped 45%.
If you invested in the stock market at the peak in January 1973, you
would not have broken even again until November 1982 (almost 10
years!!!!!!!!).
Why do I post this? Because there are still way too many people who
are waiting for the market to come back up, any day now. I think the
NASDAQ will hit bottom soon around (1700-1800), but there's an
incredible probability that it will just sit there for a long time.
People have gotten too used to the idea of the market always coming
back after a few months. History suggests otherwise, and it may be a
long time before we see our next bull market. |
Name:
Email:
Date: Sun Mar 18 17:54:03 2001
Comment: of course, hindsight is always 20/20. Yesterday's mad preachers are today's prophets...
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