BUBBLE MARKETS
and
BOOM & BUST CYCLES
PARADIGM
REVOLUTIONS IN THE
INFORMATION AGE
by
Khafra K Om-Ra-Seti
Edited by
Darlene M. Justice
SMASHWORDS EDITION
This book is also available in print at Amazon.com
* * * * *
PUBLISHED BY:
KMT Publications at Smashwords
Copyright © 2010 by Khafra K Om-Ra-Seti
All rights reserved. Without limiting the rights under copyright reserved above, no part of this publication may be reproduced, stored in or introduced into a retrieval system, or transmitted, in any form, or by any means (electronic, mechanical, photocopying, recording, or otherwise) without the prior written permission of both the copyright owner and the above publisher of this book.
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* * * * *
BUBBLE MARKETS
and
BOOM & BUST CYCLES
* * * * *
Bulls make money, bears make money, but pigs get slaughter
Old Wall Street Adage
* * * * *
CONTENTS
PARADIGM REVOLUTIONS
Introduction
Chapter
One
Father
Destiny
Chapter
Two
Information
Age Revolution
Chapter
Three
Economic
Cycles
BOOM AND BUST CYCLES
Chapter
Four
Roaring
20s and the Great Depression
The
Japanese Connection
Chapter
Seven
FUTURE SHOCK
Terrorism and Natural Disaster
Long Wave Cycle: Myth or Reality
The European Economic Community
Pre-Crash Point Loss: Crash of ‘87
Post-Crash Dow Jones Volatility: Crash of ‘87
World’s Ten Largest Banks: 1990
Crash of 1990: Nikkei Declines
Historic Share Prices of Tech Leaders
* * * * *
This book is the result of a long journey and deep economic and financial experience for me. The point of initiation is the year 1987, when a major stock market crash wiped out nearly $1 trillion in paper wealth. This was the starting point of many years of research and careful examination of historical, political, financial and economic world events.
Within the last 20 years we have witnessed three remarkable boom and bust cycles that were all related in some way to the current Information Age Revolution. These cycles gave the world of finance some exciting and extremely profitable opportunities. This is worth talking about from many points of view. However, in this current publication I will be more concerned with fundamental analysis and in providing commentaries with some analytic assessments. The overall purpose here is to present relevant data for strategic planning, and to broaden the scope and language of investor analysis in regards to boom and bust cycles.
This is not a book about forecasting, but more concerned with presenting observations and facts about boom and bust cycles, and with establishing a deep understanding and awareness about this fascinating phenomenon. I’m particularly interested in not having this book read like another economic disaster story, complete with all of the gory financial details. Experience has taught me not to come to hard and fast conclusions about economic developments and business cycles, especially when observing America and the global economy. Recessions come and go; boom and bust periods come and go in a never-ending succession. Properly understood and analyzed, recessions (and even major depressions) can be profitable and present some major opportunities if one is skillful in the art of timing and in understanding the events of the day.
Economic analysis is not an exact science even when all of the tea leaves are lined up in a clear pattern suggesting an obvious truth. The American Institute for Economic Research clarifies this point by telling us that, “As the many ‘false signals’ given during prior business episodes strongly indicate, business forecasting is a science of statistical probabilities - i.e., although the odds may favor a particular development, there is no certainty that it will occur.”1 There are theories and more theories, and one must be careful about making predictions and establishing dogma in reference to economic affairs. Things can change very quickly as many of us observed during the boom and bust cycle of 1995-2000.
Thus, the focus here is to understand the continuing nature of business cycles and boom and bust periods. What’s important is not to be dogmatic here, but to remain patient and carefully observant of the economic phenomenon.
Of particular interest in this study is the irrational behavior of stock markets and investors during boom periods. A herd mentality is clearly prevalent and contagious, and no matter how rational and systematic one may be, the atmosphere is so charged and the news commentary is so thrilling, that it moves one to throw caution to the wind. When 50 percent of the American public (or Japanese public, etc.) is in the markets, it generates an enormous aura of optimism, greed and a greater sense of prosperity.
There are some universal characteristics that are evident during these business cycles. And to this end, our fundamental goal here is to understand the three major boom and bust cycles of the past 20 years within the context of the Information Age Revolution. By documenting these remarkable cycles and examining their chronicles, the strategic result should present a solid foundation and set of guidelines (not dogma) to evaluate future boom and bust periods of the 21st century. Without a doubt, we are living in an absolutely fascinating period of time.
Boom and bust cycles are mesmerizing events with stock markets charged to the hilt. The boom period is intoxicating, full of promise and unbridled optimism. The dealmakers and major players are running at full blast with opportunities. During the bear or bust period, people are more pessimistic about the future and the markets. The media is presenting more negative reports and the money spigot has slowed to a trickle, while multi-billion dollar venture capitalist war chests are just sitting on the sidelines waiting for the next upward movement in the markets. What’s interesting and should be clearly understood is that these cycles are continuous, with pausing transitions that slowly drift into the next major or minor period. The next bull or boom market generally starts off slowly at the end of a bear or bust period. It is therefore safe to assume that the economic and financial story is always to be continued, open-ended and without closure.
Thus, this book is not about supporting a particular prediction, forecasting a coming Great Depression, or presenting academic assessments on what’s right or wrong in the global markets. Again, the concern is centered on providing a basic awareness of the markets and their driving forces during these dynamic periods. And it is also my hope that this book can serve as a useful primer and reference source to spot patterns and similarities that occur as the cycles unfold. The goal is to deepen the discussion of fundamental analysis on these historic periods. As investors or analysts, it is very important to have convictions, strategies, systems and guideposts to follow when investing in the markets. Many people (including myself) were caught off guard during the Dot-Com Era bubble collapse of the year 2000, and this is one of the main reasons I felt compelled to write this book as a continuation of my roughly 15-year odyssey.
In 1994, I published a book entitled, World Economic Collapse: The Last Decade and the Global Depression. This book supported a thesis that the decade of the 1990s would witness a global depression and that America’s superpower status was fading as we headed towards the 21st century (the reverse happened: America’s superpower status actually grew stronger).
There were several major macroeconomic events that supported the book’s main premise, which included the fall of the Soviet Union, collapse of the Japanese stock and real estate bubble markets, the Savings and Loan disaster of the 1980s, and other potentially critical economic and financial issues. In regards to Japan and its status as the second largest economy in the world, I was convinced that when its bubble markets began to unravel in 1990, its economic problems would ultimately have a deep impact on the world economy throughout most of the decade. As this publication will reveal, this scenario did play itself out, however, not in a totally negative context. Japan remained in an economic slump throughout the 1990s, but the world economy was not derailed and Japan didn’t stumble into a deep depression.
The end result of misjudging these economic and financial outcomes in World Economic Collapse was a deep expansion in my economic thinking and to learn to resist the fatal temptation of trying to predict major global economic events. I’ve been humbled to the point of being very suspicious of predictions that point to particular time frames and outcomes in regards to financial and economic issues. I consider this type of thinking different from what “visionaries” provide in their futuristic interpretations of things to come. There is a difference, and I’ll raise that point in some of the pages in this current volume. Indeed, hard lessons acquired in the markets and on the battlefields of life, should always deepen one’s awareness and broaden one’s vision in preparation for a new season. I’ve learned my lesson!
Despite the fact that World Economic Collapse missed the boat on forecasting a global depression during the late 1990s (and that was a relief), the book did, however, present considerable relevant material that chronicled specific developments during prior boom and bust cycles. As a historical document, it was essentially unfinished in its analysis and presented only a partial picture of things to come. Thus, this current publication includes some chapters (and bits and pieces of others) from World Economic Collapse, brought together here to provide a cohesive and updated analysis on what I’m convinced is one of the most exciting subjects of our time.
Approached with an open mind, free of economic dogma, Bubble Markets and Boom & Bust Cycles will reveal some “food for thought” and challenging insights into the magic and chaos of these highly volatile periods of market activity. Understanding the dynamics of boom and bust periods and the major players and factors that come together to generate such an amazing phenomenon, can be beneficial in the short and long run. And finally, it’s also hoped that this edition will encourage the attitude of remaining watchful and observant of the massive changes unleashed and initiated by the Information Age Revolution.
NOTES
1. C. Edgar Murray (editor), What Will the Next Recession Mean to You?, ( Great Barrington, Massachusetts: American Institute for Economic Research, 2001), p. 30.
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PARADIGM REVOLUTIONS
* * * * *
By mid-2001, the financial markets of the world had clearly sobered up from the incredible drunken stock market party of the Dot-Com Era . The boom and bust cycle of 1995-2000 was explosive and full of surprises, and its abrupt ending made and shattered many fortunes and fabulous dreams of enormous wealth. During this period of unbridled optimism, many traditional attitudes regarding investment analysis were temporarily suspended in favor of New Economy beliefs and mantras. By some estimates, this boom period was “bigger than any bubble the world has ever seen.” In some respects the markets had broken through a financial sound barrier and operated, for a time, in unchartered territories.
Comparisions to the time of Tulip mania, the Dutch mania for tulips that peaked over a two month period in 1636 to 1637, were cited as an omen of things to come. During that brief time, some individual tulip bulbs traded as high as the price of a house! When the collapse finally came, it was swift and brutal, and the whole thing was over: a brief period of what historians have cited as “mass insanity and greed”.
However, like previous manias and panics of bygone eras, sanity returned to the markets and stock prices couldn’t ultimately defy gravity. And once again the business cycle was not repealed (as some financial writers began to speculate), and earnings and solid business models came back into vogue. The dichotomy of the New Economy versus the Old Economy began to blur, as the highly charged atmosphere settled into a simmering mold to prepare for the next major upward move in the markets.
The primary mission of this current volume is to provide, in layman’s terms, a unique and passionate understanding of the amazing boom and bust cycles of our times. And given the fact that we are in the midst of one of the greatest technological revolutions in the history of the world, I sense that there is an urgency to come to a much greater understanding of how and when future boom and bust periods will emerge. Will cycles be longer or shorter in duration as we move forward into the 21st century? Is the Long Wave Cycle a myth or reality, and what is its connection to the Information Age Revolution? Major paradigm shifts in the industry sectors of energy, communications, travel, infrastructure, medicine and other fields are scheduled to transform our world in ways that we have only imagined in Hollywood. As these events unfold, global markets are going to react, and in many cases, irrationally to barrier-breaking technologies.
Perhaps by design, this is a search for a formula or set of principles to unlocking the secrets of these explosive periods in the markets. As investors and analysts, we want to know how best to navigate these historic periods and to always come out on top. We want tools, theories and guideposts that are reliable and appropriate for our historic setting.
Although my main purpose here is not to provide techniques for timing or to emphasize recommendations, what should emerge however from these observations and chronicles, are good independent principles and guidelines to properly aid in the decision-making process during these volatile periods in the markets. The topics and discussions are not meant to be purely academic, but to be put to practical use, shed light on complex issues, and to expand one’s awareness in regards to the markets. I expect that each person who carefully reads this book, will come away from these studies with something different, and hopefully with a stronger foundation on these matters. The purpose here is not to present dogma or absolute truth, but to provide clarity and sharper vision on a complex economic phenomenon. Read this publication with a flexible attitude, let the pieces fall in place, and your intuition respond to the various gems of insights.
If this book were a major motion picture, boom and bust cycles might be viewed as the main protagonist, and the economic, financial, technological and political events would be the main plots and subplots of our drama.
Part One, “Paradigm Revolutions,” examines the foundation, framework and model for economic evaluation of boom and bust cycle developments. In Chapter One, a fictional account is presented in regards to the issues of investor analysis and market timing during boom and bust periods. Important issues are raised concerning strategic planning and market signals during cyclic periods.
Chapter Two examines the impact and emergence of the Information Age Revolution. Here, a connection is established between the ongoing developments in the revolution and the boom and bust cycles of this era. In Chapter Three some basic economic issues and theories are discussed. In addition, specific topics are presented as relevant factors in determining how economic turning points are affected by policies and systems.
Part Two, “Boom and Bust Cycles,” presents historical reviews and chronicles of major boom and bust periods of the past. Each chapter in Part Two presents a summary/analysis section that highlights significant developments and events of that particular period. In Chapter Four, we take a look at the Roaring 20s and the Great Depression and examine the key events and factors of that era. Chapter Five provides key observations on the developments and excitement of the Booming 80s and the Crash of ‘87. In Chapter Six, we take a long hard look at Japan. We examine the rise of the Japanese juggernaut and the role it occupied in international finance during the Booming 80s. Here, we also pay close attention to the rise and collapse of Japan’s bubble markets, and the deep economic slump it endured throughout the decade of the 1990s. And in Chapter Seven, we take a close look at what occurred during the Dot-Com Era, the extraordinary bubble economy and its ultimate collapse. This examination will cover the period up to mid-2001.
Part Three, “Future Shock,” provides some visionary assumptions regarding technological innovations and paradigm shifts X factor analysis in the 21st century. Chapter Eight examines terrorism and natural disasters. This book refers to these unknown events as the “X factor” in economic analysis. The financial impact of unknown events and catastrophes will continue to play a significant role in the global economy as we move forward in the new millennium. Chapter Nine examines the premise and foundation of the Long Wave Cycle and its relation to the Information Age Revolution. In the Epilogue, we summarize the book’s journey and bring into focus the key issues and set of principles that emerged as reliable tools for evaluating future boom and bust periods.
We have entered a period of enormous change that is sweeping the entire globe. Revolutionary developments are changing the markets at an extraordinary pace, bringing about seamless stock market, bond and currency systems. Given these dynamics, as we move forward into the 21st Century, it will be imperative, particularly for the smaller investor, to have a deeper understanding of boom and bust periods. As this publication will reveal, there is a strong probability that we will witness more frequent boom and bust cycles in the near future. Enormous wealth can be made or lost during these volatile periods, so it’s important to know what’s happening when this process is in full motion. Equally important is to know that it will not last: it will rise and then it will fall, pulled back to financial reality by gravitational forces in the markets. Bubble Markets and Boom and Bust Cycles is about coming to grips with this phenomenon; it’s about markets, people, attitudes and beliefs, and about building a strategic plan for success in the 21st century.
* * * * *
On December 1, 1998, John Destiny sat patiently on stage before an audience of over 2500 business, political and technology professionals at the Marriot Hotel in Downtown San Francisco. As the main speaker of the “Y2K Millennium Crisis” event, John felt a sense of tremendous accomplishment after nearly a fifteen-year battle to convince the world of the imminent uncertainties of the Year 2000 crisis. As he quickly surveyed his audience of esteemed leaders from various fields (some of whom had covertly tried to drive him out of business during the early 1990s), John’s inner spirit felt the need to preach a new millennium gospel of technological sin and damnation on a world that had refused to understand the truth of the hidden demon of Y2K. He thought how interesting it would be to hold up a PC Motherboard in his right hand (as if it were the Bible) and shout to his audience to repent and be saved by a priesthood of programmers that had began this problem in the first place. A Buddha-like smile crept over his face, for he knew that he had to remain true to his mission to deliver a passionate appeal for comprehensive action on what he considered the mother of all technological blunders of the 20th century.
In 1988, John published a book entitled Countdown Year 2000: The Mother of Technological Disasters, and this represented one of the very first detailed documents elaborating on the subject of Y2K. In 450 pages (complete with illustrations, tables, appendices, notes and index) John patiently presented his case of a looming crisis that could wreak havoc on a world civilization that had become heavily depended upon computer technology. The book received very little response from mainstream society, despite the fact that many technocrats and programmers knew exactly what he was talking about. However, the Year 2000 was still considered a distant time period - like another age - and so the book and the problem were left on the shelf. But as Y2K rose to the surface, so did John’s book and the message of his Year 2000 warnings.
With nearly thirteen months left before the actual event, the Y2K crisis had finally entered the mainstream media consciousness of the world, with the United Nations, governmental think tanks and various international organizations in deep discussions on coordinating efforts to eliminate the potential threats of the millennium bug. John was vindicated after his long years of struggle. His company, ISIS 2000 Inc., was well recognized as a forerunner and technological specialist in working with major corporations resolving their Y2K problems. With the help of his father, he founded ISIS 2000 in 1990 as a privately held corporation. Three years later he took the company public and the stock traded on the NASDAQ under the symbol, ISIS. During that time the stock traded well below $3.00 a share, but in 1996 a turning point came. In the world of nonbelievers, particularly in the insurance and banking industries, Year 2000 problems began to surface, with customers receiving grossly inaccurate statements regarding their accounts in these institutions. ISIS 2000 seized the opportunities, and from an organization of 20 employees it rapidly grew to over 3000 of some of the most brilliant and talented programmers, system analysts and technocrats in the world.
John’s recruitment and hiring efforts were centered on establishing a truly global organization with people from many cultural and ethnic backgrounds. That characteristic of ISIS 2000, along with many other strong attributes, played well with the Wall Street crowd. The company soon started trading on the AMEX and the share price quickly moved into the forties. With a strong reputation, solid revenue stream and capitalization, John was able to recruit top permanent employees with offerings of great salaries, large year-end bonuses and fabulous stock options. What was even more fascinating to him was that his stock survived the Crash of ’98 with minimal damage, and had started trading in the mid-50s by late November. So there was no need for a fire and brimstone speech, he simply needed to lay out the facts and present his case like a seasoned attorney in a well-publicized trial.
After his official introduction and some Y2K commentary, the event’s host and coordinator, Janet Woo, called John to the rostrum (amidst a thunderous applause). Standing before his audience in formal attire (which he detested except on occasions such as these and high powered meetings), his six-foot broad shouldered frame and light-brown complexion, glistened beneath the panoply of lights and camera flashes from several of the media talking heads. For a moment he felt like a real celebrity - a movie star. And as he began to speak, a strong sense of purpose rose to the surface of his consciousness:
“Thank you Janet for that gracious introduction. Ladies and gentlemen, fellow colleagues, friends and distinguish guests, since the early 1950s and the birth of the Computer Age, our world has become almost entirely dependent upon the incredible power, speed and massive efficiencies of the computer. Indeed, the modern high-tech society that has evolved during the 20th century could not have been accomplished without it. But this computer, as the ultimate mechanical mind of this AGE, has brought us face to face with another significant reality: The Y2K Millennium Crisis.”
John’s speech was insightful and informative, and in the end his audience completely understood his mission. John received a standing ovation, which was somewhat of a shock to him. He had given this same speech many times in the past (with some modifications each time) but had never received this kind of a response. Perhaps it was the message that 1999 is the swim or sink year to finally resolve this problem, or maybe they finally understood the “Y2K Gatekeeper” scenario. Whatever the reason, John thought, “this is a good thing”.
A couple of the media talking heads requested follow-up interviews, and several company executives presented their business cards and established appointments over the next several weeks. After the event had concluded, John grabbed his traveling bag and caught the next airporter van to the San Francisco International Airport. He had scheduled a 7:00 PM flight to Los Angeles to visit his father in Palm Springs. John’s father had requested this special visit in order to discuss the upcoming year and to make some critical investment decisions. He hadn’t seen his father in over a year and was looking forward to this visit for many reasons.
Father Destiny, as he is affectionately and professionally known, had established himself as one of the most astute investors in the financial world. Eccentric by nature, he detested the idea of being what he calls a “media darling,” and pretty much avoids publicity. However, despite his reputation, he has a loyal following of 25,000 subscribers to his monthly investor newsletter and annual reports entitled, The Destiny Investor. Father Destiny had seen a lot, and he would often tell his son and close friends that, “I hav’nt worked a regular 9 to 5 job in over 45 years.” His success in the stock market had brought him the kind of financial freedom that many people dream about. At nearly 75 years of age, he had witnessed the grinding poverty of the depression years and the massive human suffering of World War II. After the war, Father Destiny invested all of his savings into a couple of companies that manufactured a new technological medium, television. He also invested into the new developments in network television companies and in the emerging computer industry. In a few short years he had made his first fortune and laid the foundation for his later success.
Upon his arrival at the Los Angeles Airport, John picked up a luxury rental car he had reserved and embarked on a roughly two-hour drive to Palm Springs. While driving through the desert and listening to a New Age piece by Yanni, John began to relax and feel good about his decision to take the two-hour drive out of Los Angeles. This gave him time to reflect on the day’s events and on the critical discussions he would hold with his father throughout the weekend. Father Destiny was nearing the completion of his 1999 annual report (which included his long awaited predictions for the coming new year) and he needed input from his son regarding the Y2K crisis. Major investment decisions would ultimately be made based on Father Destiny’s analysis on the upcoming year and the first half of the Year 2000. John’s thoughts began to focus on some of what he would say regarding Y2K.
“Despite the best efforts of governments, global corporations and international agencies, the global response to Y2K didn’t arrive on time. While many companies were literally forced to finally start the necessary repairs in the latter half of 1998, most will never test their data nor will they have time to insure that their suppliers and business customers are fully compliant. In the final six months of 1999, there will even be the temptation for quick fixes and shortcut solutions. Corporate heads will roll and stock prices will reflect mismanagement over the issue. We now have a huge backlog of customers requesting our services immediately following January 1, 2000. Whether they encounter problems or not, they want to make sure that expert programming support will be available, and many are paying $100,000 retainer fees for that insurance. ISIS 2000 will have plenty of work associated with Y2K well into the Year 2002.”
John reached his father’s house shortly after 12 midnight and was greeted at the door by Reah, his father’s latest sweetheart. John’s mother had died nearly 20 years ago from cancer, and his father never remarried but stayed young at heart and active in the dating game.
Father Destiny was still up watching CNN in a spacious living room overlooking the city of Palm Springs. Despite his advanced age, Father Destiny is a man in superb bodily condition, mentally alert and whimsical by nature. He works out daily and that includes three weekly sessions with Billy Blanks’ Tae Bo workout videotapes. At 5 ft 11inches and a slimly built muscular frame, Father Destiny looks more like a man of 60 competing against Jack Lalane. As John entered the room, Father Destiny quickly rose to embrace him in the spirit of a proud father.
“What took you so long...don’t tell me; you drove from LA.”
John smiled and nodded a yes answer.
“Needed some time to think Pop; it was a really nice drive.”
“Good, but you must be tired. Reah has your room ready for you. I was just watching the debate in Congress on what those bozos are going to do about Clinton.”
John’s contacts in Washington had informed him that the situation was not looking good for President Clinton.
“I think they are going to vote
to impeach him Pop.”
Father Destiny laughed loud and hard at
that notion, as if that was utterly ridiculous.
“That’s insane; throw the man out of office for that monkey business in the White House with Monica...those aren’t grounds for impeachment, they’re grounds for divorce. The republicans are running a huge risk here. The American people are much more concerned about the economic crisis in the world and maintaining our leadership status. Their strategy to bring down the Clinton Administration with this rubbish will fail.”
John understood clearly and wondered why, at this critical time in history, our country would have to sit through a boring and wasteful period of congressional and senate hearings. Then John got biblical.
“Let he that is without sin cast the first stone.”
Father Destiny just shook his head in disgust and said in a reverent tone,
“Amen, son!”
He then glanced at what his son was holding in his right hand.
“Ah, you brought me an original copy of the PRINCE “1999” CD. Now we’re talking. That’s going to be my theme song for all of 1999.”
John stepped over to the entertainment system and played the title tune for his father.
“By the way Pop, you know he calls himself “The Artist” formerly known as Prince. And his name is a symbol, that in some ways resemble the ancient Egyptian ankh.”
“I don’t care what he calls himself, he’ll always be Prince to me. But son, he’s a genius in the music industry and I wish he would take his company public one day. I would probably be a major stockholder.”
Father Destiny started dancing a little and singing along with the lyrics. Then he walked over to the room’s entrance and hollered out to Reah.
“Reah, Reah, come in here.”
Reah appeared in her bathrobe, a book in her hand and with her reading glasses on. An attractive forty-five year old Trinidadian with a low cut natural, Reah had been with Father Destiny now for over four years. It was nearly five years ago when Father Destiny ventured to Trinidad on a business trip to scout out some new investments. He met Reah while she was still working as an administrator for the public school system. She revealed to Father Destiny that she had a burning desire to be a great writer one day. The relationship blossomed and Father Destiny brought Reah to America and gave her the opportunity to fulfill her dream.
“What is it Destini?”
Father Destiny grabbed her and started dancing his famous “destiny strut” while Reah reluctantly joined him. John just smiled in amusement; at 75, his father was a Prince fan and had developed his own little dance. Indeed, he was one strange but brilliantly eccentric man. Frank Sinatra had nothing over him, for he clearly lived the meaning of “I did it my way”. When the tune ended, Father Destiny gave Reah a big hug and motioned to a wall calendar.
“We’re going to party because it’s 1999.”
Looking over at John, “Tell the ‘Artist’ that son.”
Reah locked arms with Father Destiny and started him on the way to their bedroom.
“Destini, John must be tired from his trip and needs to get some rest if he’s going to deal with you all day tomorrow.”
As Reah gently moved him forward, he suddenly stopped, and as if in a trance, he made one last statement to his son.
“1999 will be a T-I-M-E to remember; the last big super party in the markets, a time of great opportunity. If you SEE the sky falling, don’t be afraid, it can’t hurt you. Blessed is the man who has the third eye, for he will know the truth, and the truth will emerge in cycles!”
John listened carefully to his father’s words, for Father Destiny had entered into his inner world and came back with a prophecy. John’s father was like a financial sage to him, and whatever this old man was thinking, carried a lot of weight with him. To him, Father Destiny was no fake, but a man who had been an important visionary throughout most of his life. Father Destiny had a blank look on his face as Reah led him out of the room. She indicated to John what time he would be meeting with his father the next day.
“ Your father will be meeting
with you in the study around 12 noon tomorrow. Good night John.”
“OK
Reah, thank you. And I’ll see you tomorrow.”
The next day John entered his father’s study ready for their first round of discussions. Father Destiny was printing out some information from the Internet on one of his systems, and on another he was downloading a huge file from a business associate in Japan. His study is a showcase of the latest in technological equipment, from holographic imagery to satellite transmissions into outer space (what Father Destiny described as his connections to Mars). Father Destiny’s fascination with new technologies had been the basis and subject for most of his investments over the past five decades. He was a self-taught student in economics and finance, developing a tremendous perception of world events and technological advances. After World War II he was ready to stake all of the money he saved during the war on good quality investments. As an infantry soldier in Europe, he saw the massive devastation and knew that Germany and Japan had been bombed backed into the Dark Ages. Somebody had to pull them out of that major devastation. When he returned to the states, he witnessed no bombed out cities and massive death and starvation. America’s economic engine was fully intact and he knew that this would be the main engine that would rebuild the world economy. It was this kind of good economic common sense that served Father Destiny well throughout his entire professional career.
The big story after the war was the coming of new technologies: the electronic revolution with digital computers and integrated circuits, the mass production of television and many other new innovations. Companies such as Radio Corp. of America, IBM, NBC, CBS, Coca Cola Co. and others were great buys and good long term investments. That initial experience provided him with great insight and an uncanny ability to pick stocks and companies that were on the verge of major breakthroughs or significant players in their industry sectors. He also became acutely aware of when the dawn of a new era would take place. This was why 1999 held such a tremendous fascination for him. There was something radically different about this turning point, but this vision wasn’t fully completed in his mind.
Father Destiny had been through several boom and bust cycles in the past and his thoughts were starting to point to a possible bubble bursting in the year 2000. Whether Y2K would be the instigator, didn’t seem to be of major importance to him anymore. There was something greater lurking in the background that needed to be resolved in his mind.
John grabbed a comfortable chair in the small section of the study and Father Destiny broke from his work and joined him.
“I’m downloading some government and economic reports from Takeda in Japan. It’s a lot of critical information; we’re trying to determine when the real economic recovery will take place in Japan. Ther’s been a lot of false starts in the past nine years and several sucker rallies, but nothing real substantial. But in April the Japanese government initiated what is referred to as the Big Bang Reforms, with across the board deregulation of their industries and markets, opening up Japan’s financial institutions and commerce to foreigners. Smart money is starting to move into Japan as we speak: Goldman Sacks, Prudential, Citibank, Merrill, Fidelity, Morgan Stanley, The Gap, Motorola, Starbucks and many others. During the Booming 80s and Japan’s bubble economy, the world cried for Japan to open its markets to more foreign participation. It didn’t really happen, and it took nearly a ten year recession and a down-in-the dumps economy to bring about this current set of extraordinary circumstances. For Japan, these reforms are similar in statue to the New Deal reforms of the 1930s in America. Coupled with these reforms, the Japanese have also instituted nearly $50 billion in tax cuts and are rolling out a fiscal stimulus package valued at nearly $90 billion. The combined power of these reform measures may finally jump-start the recovery of the second largest economy in the world.
But son, another thing that has been happening since around 1995, the starting point of this current boom and bust cycle, is the large flow of Japanese money into American stock markets. For most of the 1990s, interest rates in Japan have been at zero or near zero percent. International financiers borrowed truck loads of Japanese Yen at these bargain rates, and used it to pump up stock prices in the markets and to finance the dot-com/ new economy craze. I know this works because I did some of it. Now my sources are telling me that there has been a dramatic drop in the flow of funds, that Japan’s recovery is something that many major players are starting to bank on.
Japan’s recovery is crucial, particularly in bringing back to life many of the other sunken Asian economies. So as we head into the new millennium, it appears that the Japanese global mission is very much on course. When it is clear that the recovery in Japan (and in the region) is in full swing, capital will be flowing in from all corners of the earth. Of course, the smart guys are already in there staking their claims now! But ther’s this huge question mark of Y2K that still bothers me. Where do we stand at this moment; is there enough time?”
John understood the true nature of that question; his father wanted to know if after all of the repairs, would Y2K paralyze the world economy.
“On a global level, the world will not be ready for the vast uncertainties of Y2K. When we just consider the vast number of non-compliant embedded computer chips and microprocessors that will not be changed before the deadline, then it gets real problematic. There are an estimated one to two billion of these problem computer chips buried in various types of hardware and structural systems. As for the basic programming repairs, far too many companies, organizations and governmental agencies are starting too late. Pop, there are not enough talented programmers around to fix all of these problems. And we are fairly certain that as we get closer to the deadline, the companies themselves will be bidding up the price for technical Y2K services. At ISIS 2000 we have been forced to start turning away business or we may contract with an organization to work on their system after January 1, 2000.”
“And Japan, how bad is it?”
“The Japanese are mobilizing their vast technical and human resources, but in some areas they are starting too late, as many of the countries in that region have done. The economic crisis severely paralyzed the response time of many of these nations to orchestrate a systematic plan of action. However, we have found that many large Japanese companies are in pretty good shape to deal with the crisis. Their tradition of lifelong employment paid off; many of these companies still have the computer programmers that programmed their systems in the 1970s. But still, many of these organizations are involved in huge IT projects that are addressing the massive changes taking place throughout Japan. Y2K is just another project in the mix.
The demand for outside help is greatest for mid-cap corporations and small businesses. There is a shortage of skilled software professionals for many of the computer languages. So we are in high demand in Japan because of our vast experience. I’ve hired over 300 Japanese programmers and system analysts within the last year alone. This was an important move because we found that the Japanese use two dating systems; a Western system used to deal with the outside world, and a Japanese system based on the year of the reigning emperor. The good news is that the domestic Japanese system has no Y2K problems, so we are more focused on the international system. Our work is thorough, providing five levels of testing that inspects every aspect of an organization’s network of systems. Right now our strategy is to make sure that all of our current clients are fully compliant with complete validation testing and strong firewalls. The companies that will be standing and fully functional after January 1, 2000, will be the winners that will gain market share at the expense of their non-compliant competitors.”
“Takeda tells me that you have started work on the three Japanese corporations I recommended some months ago.”
Obuchi International, Shagen Pharmaceutical and Yokogen Inc. are well-managed mid-cap companies with very promising technologies. When Father Destiny requested that these companies be brought on-line for Y2K repairs, John moved quickly to make that happen. Once John had an opportunity to visit each of these companies, he knew that there was something very special about their operations. All of the CEOs had worked for some of the most powerful companies in Japan. And after many years of listening to his father on investment issues, John’s keen perception recognized that all of these companies were working on potentially breakthrough technologies.
“We’re right on schedule with those companies, Pop. They will be fully compliant by the deadline. There seems to be something unique about each of these companies Pop, do you have a special relationship with them?”
Father Destiny smiled at this inquiry; he had taught his son well.
“We are going to invest in these companies John, some very heavy investments at the ground floor level. I consider them new millennium corporations, with enormous potential for being the leading players of entirely new 21st century industries. Clear up your calendar for the first two weeks of February, I want you to fly to Japan with me and Reah for an in-depth look at the full potential of each of these organizations. Also, Takeda is going to bring us up-to-date on this other development I was talking about earlier.”
“The money flow problem issue, Pop?”
Father Destiny acknowledged John’s reply with a slow and deliberate nod.
“As I said earlier, the nearly decade long downturn in Japan witnessed interest rates falling to near zero and bond yields near one percent. Just as they did during the Booming ’80s, the Japanese moved billions of dollars into U.S. Treasury bills, notes and bonds; $200 to $250 billion worth. And since their markets were in a bust cycle, they became key players in our stock and corporate bond markets. Non-Japanese international financiers also got into this game. Smart money always moves to the hottest markets. Now, a strong case can be made for Japanese banks, insurance companies, speculators and individual investors to move money back into Japan in order for them to fully participate in the grand economic recovery of the century. Of course, this has the potential of having a negative impact on U.S. stock and bond markets. We are past the point of wondering if this will happen; the question is when will it begin in earnest? The Japanese are intent on entering the new millennium with a fully restructured economy. And once confidence has been restored in the individual Japanese investor, who has been sitting on the sidelines for some time now, they are going to have a boom period like nothing we have ever seen before. It’s possible that the U.S. may fall into a deep recession for some undetermined period of time, while Japan takes off to the high ground, pulling the rest of Asia with it. And remember, smart money is going to go where the action is.”
John breaks his deep concentration to ask the 64,000 dollar question.
“When do you think they will pull the financial plug?”
“We think it will start to happen during the fourth quarter of 1999, but I need more concrete information.”
Switching to the topic of ISIS 2000, John inquired about the expectations for his company’s stock.
“What about our holdings in ISIS 2000?”
“I’m only planning to sell a small percentage of our holdings, about 750,000 shares each during the first quarter of 1999. We’ll use some of the proceeds to finance our venture in Japan, some to purchase additional holdings in bonds and precious metals, and some to be held as strictly liquid funds to pick up bargains after the crash or downturn that may begin in late 1999 or early 2000. I’ve been cutting this one close; my limit for boom and bust cycles is generally five years. And I’m firm on the conviction that this one began in 1995, so the year 2000 is it! And believe me John, this is a R-E-A-L bubble, nothing like I’ve ever seen before. When this thing starts to unravel you definitely want to be on safe grounds and out of harm’s way. The blood is going to flow all over Wall Street. We got to start unloading some things in 1999.”
The thought of another crash was unsettling to John, but he knew that it would be very difficult for the markets to sustain its current momentum during the treacherous months ahead. And given this new information about Japan, the odds for such a crash had increased 85 to 90%.
“It certainly does appear that a crash is inevitable, doesn’t Pop?”
“Yes, and when you factor in the Japanese scenario, the ongoing global deflationary crisis, the Y2K demon and the internet and dot-com bubble mania in U.S. stock markets; Chairman Greenspan and Rubin will need a powerful genie to prevent this thing from happening. And with Hollywood releasing disaster films in 1999 based on that Y2K problem, there is bound to be some real panic. But after the smoke clears and we get past the millennium gatekeeper, there is a strong case for a rebound in the markets if Y2K is not a lingering problem and if the Japanese scenario doesn’t play itself out in full. But again the key in my decision cap is the boom and bust cycle; it’s got to be exhausted by the year 2000. And there are some more “ifs” that I can pull out of a hat, which means that a rebound may not become a reality in America. Nevertheless, the baby boomers that are not wiped out by the crash may attempt to move back into the markets to pick up some of those incredible bargains that will be lying all over the Wall Street landscape.
As for ISIS 2000 shares, folks are going to bail out and we’ll get hit hard. But I see a sharp recovery because ISIS 2000 is a major player in solving Y2K problems before and after January 1, 2000. You have also positioned the company for other innovative technological work, so we’ll be okay. I’m not concerned about our holdings there, and as insiders we got to hold firm. For a moment it will look like the end of the world, particularly with the media types spitting out every negative statement about the crisis that they can get there hands on. Let the pessimists have their field day and scare the hell out of the entire world, but we will be picking up the bargains at ten cents on the dollar while the blood is still flowing on Wall Street or in Tokyo.”
“Sounds gruesome Pop. But I think your plan is sound. Go ahead and make the portfolio adjustments. But what about the rest of our holdings?”
“I’m currently running analysis on each individual stock to determine which ones should be sold and those that will be left intact. Most of the Internet stocks are going to take a bath, so we will start bailing out of those issues before the summer. We’ll probably take short positions in some of the heavily volatile issues. But we need to talk more about this during the first week of January, after I’ve completed my analysis.”
John felt a bit uneasy about the uncertainties of 1999, but he had been focused on this period for a long time had written a book about it - and now it was time to face the actual events as they unfold. He was truly delighted that his most trusted advisor was his father; this made him feel stronger and more confident to deal with the really unpleasant aspects of the coming period. Father Destiny had constructed a plan that would essentially create a strong investment base in Japan, provide liquidity for bargain hunting, and strengthen their depression strategy with more bonds, precious metals and lots of liquidity. John knew that wasn’t the whole portfolio analysis picture; other investment strategies would be employed as the opportunities presented themselves. During the Crash of ’98, Father Destiny took no immediate action prior to the crash; in fact, he was off having a grand time with Reah in Trinidad. John called him to inquire about what actions had been taken to protect their vast holdings. Nearly $2 trillion of wealth had been wiped out by that untimely event. Father Destiny told John to “keep a cool head; the time for the supernova is not now. Go find yourself a pretty girl to have dinner with.” John was bewildered, but he didn’t loose faith in his father’s judgments. The rebound in the markets proved Father Destiny’s point, and while he was vacationing in Trinidad, he found the time to pick up some fabulous bargains in the stock markets. John’s portfolio experienced a 2000% increase in less than three months. Father Destiny’s confidence during the 1998 crash had a lot to do with his beliefs and timing regarding boom and bust cycles. Also, John began to wonder what his father meant last night in his prophetic statements, from what his father called the other side.
“Pop, last night you spoke to us from the other side. You said 1999 would be a time to remember and of big opportunity. That 1999 would be the last year of the super party in the markets. You also said that if the sky is falling, not to fear, for we would not be hurt. And you got biblical, saying blessed is the man who has the third eye, that he will know the truth and that the truth will emerge in cycles.”
“Reah told me what my exact words were, and this is what I’ve come to understand. The greatest wealth transference in world history will take place in 1999 or early 2000; be prepared for this opportunity. And for those who are prepared, they will not think or fear that the sky is falling or that the end is near. And my little sermon about the third eye and cycles simply refers to those individuals that have a strong vision and definite understanding about the current period and the boom and bust cycle. Blessed is the man who can think clearly, for he will see the light.”
In hearing these words John felt completely resolved in his plans for the future. There were no more doubts in what would come to pass. Father Destiny tapped him on the shoulder,
“Let’s go eat.”
And the
two men left the study to join Reah in the dining room.
* * * * *
“We are living in an era characterized in a fundamental way by an explosion of technological innovation”
Albert
H. Teich
The advances in science (particularly in physics and mathematics) in the 20th Century, have illustrated, in a most dramatic way, the profound significance of the unseen power of the universe and the creative discovery process. Our progressive understanding of the universe has dramatically shifted the relationship between man and nature. The technological and scientific revolution that is happening during the opening years of the new millennium, marks an amazing milestone in the history of man’s existence on the planet earth. This has been an absolutely incredible century, what African American physicist, Dr. Lloyd Quarterman identifies as, “an age of discovery,” dramatically illustrating (in his perception) that, “we live in the world of the unknown”. From a physicist’s point of view, the world that we as human beings experience is largely dominated by an unseen world, a world that mankind has struggled thousands of years to understand.
We are at the threshold of something so enormous as to shatter all illusions and false mythologies; in time it will be difficult to sustain a system of false beliefs and prejudices in the face of a preponderance of facts and revelations. The evolution of the scientific mind has brought us the reality of thermonuclear physics, laser technology, genetic engineering, and computers on a chip. We are not watching a science fiction movie or projecting some theoretical proposition; our science is now unveiling very critical realities about our universe.
This is the dawn of a New Age, the beginning of a dynamic era that will continue to bring about whole new categories of jobs, industries, university training, and a major revolution in our systematic approach towards economics. This period is similar to the arrival of the Industrial Revolution that began in England in 1760, or the major scientific advances initiated and nurtured by the African Moors and Arabs in Spain and Portugal during the 12th and 13th Centuries: in each case there were major adjustments in economic and world affairs. The almost blinding pace of the evolution of technology will eliminate certain categories of jobs, and in some cases, entire industries, while new ones will emerge to take their place. Advances in robotics and artificial intelligence is shifting the production, assembly line, and basic factory job functions to the realm of intelligent machines. The proliferation of machines of many types will continue at a rapid pace, with machines making machines, as evolving technologies generate greater advances and highly intelligent systems. This is the wave of the future!
Evolutionary developments in physics and mathematics in the 18th, 19th, and 20th Centuries gave birth to a materialistic/mechanistic worldview. In laboratories around the world, scientists unveiled the secrets of nature and the universe, and implemented mechanical and electrical systems to harness their energies. With the advent of the Industrial Revolution came the steam engine, assembly line production, rapid firing guns, the discovery of electricity, wireless communication systems, a profound knowledge of electromagnetic waves and the atom, and many other revolutionary developments.
BIRTH OF THE COMPUTER AGE
The modern high-tech society that evolved during the 20th Century could not have been accomplished without the rapid advances of the computer. From manufacturing to automation, database management, special effects in films and high-tech communication systems, computers are dominant throughout the broad spectrum of advanced societies. The computer has taken on an almost omnipresent significance; the ultimate mechanical mind and the crowning success and termination point of the Industrial Revolution.
The first generation of American electronic computers was born around the time of the first atom bomb test that occurred in New Mexico in 1945. The first all-electric computer called the “Electric Numerical Integrator And Computer” (ENIAC), appeared in 1946. Consisting of approximately 18,000 vacuum tubes and enough electronic circuitry to fill an entire room, ENIAC was capable of only processing several hundred multiplications per minute and did not have operational programs electronically stored in its’ memory. ENIAC also presented some operational challenges; its nearly 18,000 vacuum tubes generated a room temperature of 120 degrees, with many of its tubes burning out prematurely. The huge room-size machine cost less than $500,000 to build and was instrumental in solving many complex mathematical problems that previously required a large number of man-hours to compute. The computer revolution was born, which brought together the elements of digital processing and vacuum tube technology: the perfect merger of the physics world of electrons and the abstract world of mathematics. Thus, mathematics, science and technology would find one of its greatest expressions in the making of the computer. Built by physicist John W. Mauchly and engineer J. Presper Eckert, ENIAC would soon be superseded by Von Neumann’s IAS Machine and further advances in the world of electronics.