Thursday, May 22, 2008

Déjà vu

During the internet boom of the late 1990s, we saw amazing amounts of money being thrown at internet companies. AOL was going to take over the world back then; they had enough money and chutzpah to take over media giant Time Warner. Ten years on, AOL still exists, but it certainly hasn't taken over the world; in fact its business model has essentially disappeared.

Five years ago, the real estate market started to go nuts. People were flipping houses and making huge profits and the demand seemed insatiable. Mortgage lenders were making loans to anyone who could fog a mirror. I was working at Bank of America during this time and they had a small army of people that they were picking up off the street to scrub applications and process the paperwork. My cube was in a big room that had an unbelievable buzz of voices. Hardly anyone even knew that B of A was operating in the Twin Cities but at the peak probably 300 people were earning good money from the real estate manna that was falling from the sky. The touts on CNBC and Bloomberg were saying that the market had changed forever and that the trend would continue for years to come. Three years later, B of A closed their office and except for a handful of people who moved to Oregon or Virginia, everyone was gone, including me.

Today oil prices have doubled in a year's time. The demand seems insatiable and the speculators have descended on the market. You hear voices predicting oil will double again and that we'll have $12 a gallon gasoline in the very near future. The solons on Capitol Hill are dragging the oil company executives before them to browbeat them over their obscene profiteering. The news reports show hapless SUV drivers stuck with $25,000 car loans and dealerships reporting that they are offering $2,000 in trade for a fully loaded Yukon Denali. The touts on CNBC and Bloomberg are saying that the market has changed forever and the trend will continue for years to come.

I believe all of it, of course. Don't you?


Uncle Ben said...

Some people never learn. Same thing with the '29 Crash. Before it crashed people thought everything had changed. It changed alright!

Some things don't change. Responsible, long-term, diversified investing will pay handsomely. Trying to make lots of money on the cheap will make you a pauper. (Or get you a government bailout.)

Anonymous said...

Nice use of the Mr. Bubble Package. There most definitely is a bubble, and the bubble most definitely will eventually burst.

The problem is that a whole lot of other things will burst if the oil bubble has a longevity that brings gasoline prices much higher than they are now. Individuals, businesses and governments will all feel the pain in the United States as the bubble causes inflation in costs of all things. Meanwhile in the third world people will starve and many will die.

Some things never change, and immoral greed is among them. One can only hope that, when the time comes, the greedy speculators will be forced to eat the same lunch that the deliver to everyone else.