Wednesday, October 29, 2008

The second greatest depression EVER.

I'm a bit of a weather nut. I don't talk about it often. I don't really have anything interesting to say. The the past few months however, it occurs to me that the stock markets and the economy really do have a lot in common with weather. I'm not going to make the standard cliche of "it's like a tornado". Duh! What I am talking about people is how people react to these events.

All summer long I was on hurricane watch. I felt this was something that would affect the economy greatly. So, a well known hurricane blog was a daily read for me. Towards the end of summer, I started to become struck by a pattern. No matter what the event... a small center of circulation, or a large hurricane that filled the gulf of Mexico - the reaction was always the same. "The world is ending - this storm is exactly like this other storm that caused a lot of damage". It didn't matter how not similar the impending event was - it was always compared to a devastating CAT5 hurricane. Now, we did have hurricane that ruined a lot of lives (hopefully temporarily), but I've come to understand that no event is ever the same as...anything.

Which brings me to today. When I see people starting to behave like what I saw on the hurricane forums - I have to start calling bullshit. For example, the phrase "This is the biggest crisis since the great depression".

Honestly people - normally I have a big crush on economists. But, cut the bullshit already. We are being told this is one of the greatest depressions ever. But, oh could be over by the first couple of months 2009. Seriously? What pussies we've become. Growing up, depressions lasted years. Not months. Unemployment is expected to rise to 10%. Which isn't great. But, that would make it the worst depression since.... the 1980's.

It also trikes me as odd that in the last market pullback - economists loved to pull out the misery index. I haven't seen anyone point to the beloved index this time. It's okay. I'll give you the link. Last month the index was at 11.04. In 1980 - the index was upwards of almost 22.00. Which honestly is striking considering our whole banking system completely melted. Also striking? Outside of construction, banking, and cars - the layoffs have been less severe than I ever anticipated. Will we get there? Sure, maybe. I guess that is as good of a guess as most economists. But, considering what our nation has been through - we have proved way more resilient than I ever imagined.

I only point this out, because I myself have been gripped by incredible fear. I was in a panic many days of the last month. I'm surprised I have any stomach lining left. Life in Silicon Valley depends on consumers. Without consumers, there would be no Silicon Valley. Yes, we are the center of the universe. So when consumers get sick, we want to run in with tissues. But honestly I will never look at a recession the same way. Ever. Things will probably get worse - for a while. But, it would have to get a 100% worse to even reach the horrible 1980's. Hair bands not withstanding.

All things considered, we have held up pretty well. This is something I think deserves to be said, because no one else is.


  1. Make no mistake, we're only in the first inning of this game. We'll get an election rally in November, but it will take years to sort out these problems. I'm not sure where unemployment will top out at, but it only took 5% of the people defaulting on their mortgages to bring the economy to the brink. If we hit 10% unemployment levels it will create a downward spiral that can't be stopped. I hope to be wrong about this one, but most credible economists are saying end of 09 at best and even then I'm doubtful.

  2. I don't know what inning we are in. I don't think it's the 1st, or the 4th. We might just bump along the bottom for a while. But, you of all people know this stuff has been working its way through the system for at least 2 years. The market is the last to follow. I don't have to tell you that.

    You don't think the economy couldn't have weathered the 5% default, if it wasn't for 5 buck diesel, 4.5 gas, hedge funds, banks runs, hedge fund bank runs, a dysfunctional banking system, high food costs.

    I mean, if 5% of the population can bring down the US economy, and the economies of other countries - wow.. how powerful those 5% must feel. It's an envinable position that many other countries can only dream about.

    And while, I'm the first to be paranoid about layoffs, so far they have been in sectors that are pretty dysfunctional in the best of times. Others will follow, sure. But, I still assert this is a very different time than the 80's, or the 30's. Sometimes too different for its own good. Consumers are too rapid cycling these days.