If we learned anything from the late 1990′s, it should have been this: bubbles burst. What goes up explosively, must come down, in a similar manner.
The tech bubble that led to happy memories of the Clinton Administration came apart suddenly, sending the Dow Jones Industrial Average down 40 percent and the NASDAQ down 60 percent in just one year. But those good times were so good that we forgot what happened next.
I don’t know if it is true or not, but Amsterdammers like to tell a story about the tulip craze. At the height of the tulip bubble, a bulb could fetch as much in the open market as a canal house on the Prinzengracht.
America has had its fair share of tulips in the last decade – the Internet, housing, corn, food, and oil – and each has risen precipitously, made a handful of speculators rich, until the bubble burst spectacularly. The common man usually only made it into the ponzi-scheme just before the bubble burst, leading them to buy high, sell low.
Lately, the stock market has reminded me of the main character from the movie, Terminator. We have developed stock trading machines that are so intelligent that they are out of our control. Last Friday, followers of the Dow Jones Industrial Average must have suffered whiplash as the market swung back and forth in a range of more than ten percent – sometimes rising or falling hundreds of points during a commercial break on CNBC.
The machines – computers, really, programmed to get the most out of every trade – told us Friday that an 8000-point Dow was the bottom, and the machines tested that bottom twice, only to have immediate surges of 600-points or more.
With this odd scenario in mind, it seems readily apparent that the new bubble in the American economy is the DOG bubble. That would be the Dow Jones Short Exchange Traded Fund. Woof.
Which would mean that speculators were betting on a reverse bubble. They were profiting off the Dow’s fall. What’s more, they’ll continue to do so. As with most bubbles, there are corrections along the way. Were Monday’s record gains just a correction or a sign that even the DOG bubble has burst? Only time will tell.
In the world of media, the “Feiler Faster Thesis” says that as society gets faster, the media cycle – our awareness and interest in a story or event – shortens. Once, when we relied on paper, news story may have had legs of several days; today, on the web, most stories last less than twenty-four hours. By the time a weekly or biweekly publication prints any “news” most readers have seen or heard the stories already.
Which raise a question: Is the Feiler Faster Thesis is spilling over into the markets? Bubbles used to last years; long enough for everyone to adopt the conventional wisdom that the price of a good – stock, tulip bulbs, houses, oil – would never change course. The last series of bubbles seem to have lasted but months each. And, of course, we are only weeks into the DOG bubble. It could be gone by the time you read this.
If we are lucky, the markets will find something new to fall in love with, other than the mass destruction of wealth through selling our markets short. Perhaps it will be gold, or maybe the Swiss Franc, but by the time the average person becomes aware of it, I’d suggest it will also be time to go against the grain and bet that the next bubble will burst as well.