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Oct 10, 2008

Buy Low, Sell High - With Bad Economy, Is it Time to Buy?

Savvy investors know to buy low, sell high. Is it the right time to buy?

What  are the Big Problems

Wall Street has tanked. Global markets have followed. Obama and McCain openly debate our economic woes, busy shifting blame to the other party. Venture capitalists are telling their portfolio to cut back. Chicken little pundits squawk even louder.

Our leaders tell us that we are failing. 


As a macroeconomist who has built input-output models to analyze the economy, let's take a look at the immediate sector issues.
  • The financial crisis is mired in underwater mortgages. As an economist, I have no interest to shift blame. Rising property values solve the problem. The $700, $800 billion bailout provides the short-term cushion for financial stability. Inflation and the low value of the dollar compared to foreign dollars drive investment into real properties like gold, real estate, and capital assets. These investments come from US and global sources. Foreign goverments have joined the effort to provide liquidity. No nation has the interest to see the global problem get worse.
  • Oil prices are high, but declining. Products that depend on gasoline for transport have not dropped prices. Thus, businesses that have not suffered volume drops gain margin relieve. Savvy businesses should pass the savings to consumers to gain share. This would be a form of the buy low, sell higher volume strategy. For example, expect Apple to introduce a low price Mac laptop to gain share.
  • Both political candidates have made energy independence a high priority issue for national security, green environment, and growth stimulus. 
  • Statistical reports show lower, but steady growth in income and consumption. Aside from driving less, people have not changed their spending habits.
Lack of Leadership

So, what's the real problem? 

Leadership vacuum.

The timing of the economic problems, a lame-duck president, and an election that is four weeks away has created a vacuum of leadership. The fallout impacts both national and global markets. 

We agreed to a bailout, but voters don't trust that Washington has made a choice that is in the best interest of the country. During the debates, our leaders acknowledge the many problems. In fact, they hype the problem to shift blame - hoping to get elected. We have real issues, yet the candidates argue over the details where few understand the tradeoffs. Neither candidate can convince the majority of independents that their solution solves the problem. Thus, we have stalemate for a few more weeks.

The democratic process, at a time of economic pressure, disturbs the stability needed for people to keep their eyes on their business and maintain growth. 

What's the Solution

Fortunately, the election debate ends soon. Once we have a winner, the public laundering of economic woes will end. The leadership vacuum ends; and the promise of a new leader cheers on the working folks.

Of course, politicians will continue to argue details and shift blame - but the economy will be allowed to set its own course for recovery. 

Buy Low, Sell High

We've told that things are bad. Have we hit bottom? Is it time to buy? 

Input-output analysis tells us to choose our markets. Choosing wisely, it is time to buy.

For those in the Internet-related, technology industries, take a look at the basics.
  • Web use continues to grow. High energy costs encourage more virtual travel.
  • Smartphones continue to grow. Again, high energy costs encourage phone calls over face-to-face meetings. Devices that enable browsing, messaging, and talking like the iPhone become indispensible tools for business productivity. 
  • Consumer electronic devices continue to drop in price while gaining more function.
  • Online ads continue to grow.
What about your sector? 

Is it time to buy?

from Silicon Alley Insider by 
From ClusterstockHuge new bailout plans may guarantee all bank deposits and interbank lending, recapitalize banks, and, possibly, head off global economic catastrophe. They may also put western governments in serious financial trouble.

Sequoia Capital’s 56 Slide Presentation Of Doom

CEO_ALL_HANDS_10-7-08_FINAL - Get more Business Documents

We were able to track down the presentation that Sequoia Capital gave to its portfolio company CEO’s earlier this week (and so did VentureBeat). It’s a long, 56 slide Powerpoint message of doom and gloom in Silicon Valley that we covered yesterday along with an email that angel investor Ron Conway sent to his 130 active portfolio companies.

The final text slide reads “Get Real or Go Home.”

Benchmark Capital jumped on the band wagon today with their own email to portfolio companies. The messages are all similar - companies need to stay ahead of the curve as much as possible. Cut costs now, and raise capital if you can. If there’s someone out there willing to buy you, do it. Etc.

Of course all this negativity helps create the very downturn that venture capitalists are warning their companies to defend themselves against, perpetuating a sort of vicious cycle downward. But that’s ok, sometimes the hedge needs to be pruned. And this is what makes Silicon Valley its ugly, beautiful self.

Why This Slowdown Is An Opportunity

The news is full of doom and gloom these days and it is, quite frankly, pissing me off. The problems in the economy are real. People are feeling it. However, the problem is that people might start to feel as if it is all outside their control.

It isn’t.

Now is the time that people should be looking into new opportunities. And the Internet is perhaps the best platform out there right now for the average person to make a supplemental or even a full-time income. I’ve been making my living online for years. And I’ve seen people get started after me who are now doing much better than I am. The Internet is a truly open medium with pretty much no barriers to entry. Take it from me - ANYBODY can make money on the Internet. All it takes is a drive to do so...

1 comment:

  1. Sequoia BS . . . and the Stepford Wives of Sand Hill Road

    I've been covering the venture capital community for many years and I'm always mystified why they all act like sheep yet think they are wolves.

    Why is the VC community running around like Chicken Little saying the sky is falling when their horizons aren't in the now, they are in the future?

    If I'm a startup, what do I care about what the economy is like today? I care about what the economy is going to be two to five years out.

    If the sky is falling today it likely isn't falling one or two years out, paradoxically these are good times.


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