So this is what the end of the world looks like. I gotta be honest - I was expecting something a little different. In the movies the end of the world is always dark and smoky, with littered streets and broken down, graffiti covered buildings and wet pavement and hot steam rising out of the sewers. When I was a kid the end of the world was supposed to be red and fiery, with great big mushroom clouds rising in the distance. I never expected it to be mild and sunny with fog at the coast and sunshine further inland.Who knew?
Actually, just between you and me, I don't think this is really the end of the world. I don't know - call it a hunch, but I think the human race will muddle through the great financial meltdown somehow. Just look at the stock of Apple Computer (AAPL) if you don't believe me. Did you see what their stock did today?
Ok, first maybe I should explain something about stock markets and recessions. Typically, when stock investors are expecting a recession they like to move their money into so-called "defensive" stocks. These are the stocks of companies that make things that people need no matter what the economy does. Good times or bad, people have to eat so the food stocks are a good defensive play. Similarly, even if the economy is bad people still have to go to the doctor if they get sick so health company stocks are considered defensive, and so on and so on.
The collective term for such stocks is "consumer staples", and these stocks sit opposite the so-called "consumer discretionary" stocks. Consumer discretionary refers to those companies that make goods that people will buy in good times, but otherwise can do without. Things like fancy luxury goods, exotic vacations, new boats, home theaters, etc... When a recession is looming on the horizon, investors shun consumer discretionary stocks because they expect those companies will have a hard time turning a profit in hard times.
Which brings me back to Apple Computer. I know there are some Apple geeks out there who clearly consider Apple Computer a consumer staple company, but I think most normal people would consider it a consumer discretionary company. If you can't make the mortgage payment and the kids don't have anything to eat, do you really need to go out and buy that new Ipod? Hmmm, I know that's a tough call for anyone under the age of thirty, but I think not.
Anyway, the most active stock on the NASDAQ today was Apple Computer, whose shares rose about 8%. So what does that tell you? If you agree with me that a new Ipod is a discretionary purchase rather than a necessary one, then clearly the stock market is saying that they aren't too worried about a recession at the moment. If they were, they'd be selling Apple Computer, not buying it. Furthermore, if the stock market is truly a leading indicator and happens to be right about all this, then the least we can say is that all this talk about a financial meltdown might be a bit premature.
Which brings me to the point of this whole post. While I firmly believe that anyone who would take investing advice from a blogger ought to have his head examined, just remember the old adage that it is always best to buy stocks when things look their bleakest, and things couldn't look any bleaker than they do right now. I mean, you have the President, the Congress, the Secretary of the Treasury and the Chairman of the Federal Reserve all getting up on national tv and telling the country it's the end of the world. Things can't get much bleaker than that, can they? And yet, that's not what the stock market is saying. Could this, then, be the time to buy?
Before you answer that, however, a few caveats. First, it just might be the end of the world. Second, stock markets have been wrong before. Third, and most important of all, we're about to see a massive government intervention into the country's financial markets - some are comparing it to the situation that Japan faced when it's real estate bubble popped. As you may recall, the Japanese government also made a massive intervention into their markets in order to keep their banking system from failing, and the result was a decade of stagnation for their stock market.
So, while the stock market thinks it might be a good time to buy, that doesn't necessarily mean that we'll see a rapid climb in stock prices anytime soon. Not that I have a crystal ball or anything, but managed economies aren't typically robust growth machines. One thing's for sure, the government seems comitted to keeping stock prices and housing prices high, so that has to be good for stocks going forward. If Apple Computer were falling instead of rising, then that would be a clear signal. Instead, we're getting mixed messages, so my investing advice is flip a coin (and beware of dead cat bounces).
And that's all I have to say on that.
One last thing before I go, though. I saw this story on the BBC news, and for the life of me I don't understand why networks spend so much time on all this financial crap instead of covering the really important news of the day. Apparently, the Zurich Opera gave a performance of "La Traviata" in a Zurich railway station in what was billed as a "flashmob" opera. I'm not really hip to this whole "flashmob" phenomena, but I think what happens is that a bunch of people spontaneously text each other on their phones and agree to show up at a certain place at a certain time, thereby creating an instant "flashmob." I probably got that all wrong, but it's something like that.
Anyway, the opera was filmed for television, and what the article doesn't mention is that besides the thousands that turned up at the railway station, the tv broadcast was watched by fully 30% of the Swiss viewing audience. Dude, that is so kewl. That's like as many viewers as you would get for a typical football game over there, and it just goes to show that there is still a huge audience for opera. All that's needed is some creative marketing and some 21st century technology to make the connection.
Now, if SF opera ever decides to do a flashmob at the Embarcadero BART station, I'm there. Someone needs to text me though. Someone? Anyone?
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