Is Growth Possible Again?

I remember November 1994. That was the beginning of the dot com boom and bubble. Then the summer of 1995 pushed out the Netscape IPO and we were off to the races. Massive amounts of new money poured into the stock market. Whether money long on the sidelines with U.S. investors or new international money, the economics of the tech bubble produced jobs and technology that have become part of the fabric of our society. It also, through huge capital gains on stock sales, helped to temporarily balance the Federal budget. Innovation, ambition and excitement were everywhere. However, we clearly overdid it. The bubble popped on the heels of Michael Saylor’s bizarre 60 Minutes interview in early 2000 and the NASDAQ never recovered.

Fast forward almost a decade post the tech bubble pop and where are we? I see massive new infrastructure in our cities (San Diego, Vegas, Miami, etc.) in terms of commercial space and condos. Across our suburbs there are new homes everywhere. But much of this space is empty as we all know too well.

When does that space fill up?

How does that space fill up?

What or who will fill that space up?

What economic development could possibly move our economy in such a way that all of that empty space will fill up and contribute to economic growth?

And as I think of those questions I see interest rates held artificially at zero, unemployment at over 10% and technological breakthroughs constantly eliminating the need for human capital through a non-stop process of automation.

Explain to me how this not so rosy scenario changes during this generation?

14 thoughts on “Is Growth Possible Again?

  1. I had a friend, a commercial real estate pro in San Diego, tell me the other day that he has a client who bought a building for 20M with a loan of 10M now being forced to sell the building for 4M. He said that level of upside down is normal.

  2. I believe growth is possible again although I think it won’t be anytime soon. We’ll begin to see all the small business start-ups that are out there serving their little niches grow. The rewards will go to companies that best navigate this brave new world of government intervention policies. Will they be green enough? Will they be solvent enough? and so on. Watching and listening to the government over the last year and a half is like having a front row seat to a Broadway production of Ayn Rands’ Atlas Shrugged.

  3. Is it a rhetorical question? Michael, you know the answer already I’m sure! With a 300M account, taking 16M loss every decade or isn’t bad at all if you were flipping properties every year that decade and closing profit on those investments.

    On the other hand, if you have only had 10M to your name and you borrowed 10M to buy a property… Well, you know that story. You tell that story every day. Your ruin is somebody elses profit.

    As for the land space, there is lots of empty space everywhere – in every habitable place. When prices run up, and there is no real long term shortage of the commodity in question, one should always be looking for cost effective shorting strategies. Unfortunately for real estate, because of cultural beliefs, there is no effective market to open a short.

    In real estate there is just a ‘long only’ cultural belief and thus it never crossed the minds of regulators to force lenders, insurers etc to clear their transactions against a public market such as the CME Case/Shiller futures. In fact when Shiller did the rounds trying to market those indices as hedging instruments to insurance and banking he got the cold shoulder.

    Lenders, insurers, homeowners etc don’t want somebody probing around in their “belief assets” with price discovery. Basically, a lot of individual people would get called out as assholes and morons and that wouldn’t be pleasant. Better that the whole thing collapse and the “ruin profit” come out of the US Dollar and taxpayer’s pockets.

    The following is one of the few truths about the world. There is always a profit and there is always a market one way or another – even when the particular market is stifled. If individuals cannot be punished, then capital will punish the collective by devaluing the collective net worth and taking profits out that way.

  4. More questions…

    On the heels of two bubbles (tech and real estate) that made EVERYONE feel like they legitimately had the chance to make a millions bucks (tech IPOs, house flipping)…what is the next wave (if there is one) that makes the average American FEEL like they can make the homerun money?

    Health care and green jobs are not going to have the universal psychological pull of a stock market or real estate mania…and manias appear to be the ONLY reason we have had growth since 1994.

  5. I knew there was a reason I wasn’t seeing as many Carlton Sheets infomercials on TV 🙂
    Perhaps the next bubble will be in tech stocks again. Since our technology is surpassing “human capital”, Artificial Intelligence may be the next big thing. It’s hard to come across a magazine or website without some reference to it. Prediction is fun…but i’m sure glad I don’t do it for a living.

  6. I am not trying to predict, but there are big picture macro issues at play worth thinking about.

  7. i just wish this uptrend in stocks goes on for another 4 – 5 years… i just want to ‘win’ some money…

  8. I think going green has the potential to be the next big thing, because it is much more than just putting solar panels on your roof and using wind energy. As an example: Airbus now uses a 100% compostable material for the upholstery of the seats in the new A380. Most of our products today are made of plastics and/or metals. Replacing that stuff with more environmental friendly materiels could be big growth driver.

  9. I see two possibilities for growth:

    a) Growth in Asia. China and India are boosting with optimism. The people there view hard work as *the* opportunity to make their lifes better. In contrast USA and Europe, where hard work seems to be viewed as something where you need 2-3 jobs just to make ends meet. Most people don’t see the possibility of a better future here. In Asia, it seems to be different.

    b) Rebuilding of our whole energy system. This is something which *will* come in the next years, inevitably, and it will be a task of gigantic proportions. Forget the alleged ‘climate change’. The trigger will be diminishing oil. This *will* happen. I’m not talking about ‘government-sponsored so-called green jobs’. I’m talking about countless new innovative entrepreneurial opportunities. I have the nagging feeling that somewhere outside there, the “Microsoft of alternative Energy” will be founded in the next years or is already in operation. Of course, the broad public will see the next trend only when it has entered the ‘bubble’ phase.

  10. According to the article, I agree the next bubble will be related to the dollar collapse, but there is a huge social and political risk if the devaluation is done too quickly. Americans will need to be conditioned by the mass media before the issuance of a dual currency, just like the introduction of the Euro.

  11. Essentially we have a lot of slack to take up, but down-turns have always been the catalysts for new industries.

    You now have people wanting to rent out or sell premises and equipment cheaply, so it has not been cheaper to start doing something new for years.

    On top of this you have many talented people without regular jobs and as we know necessity is the mother of invention.

    No idea what these new inventions will be or how they will affect us, but if you asked anyone in the 1970s what would happen to those little start-ups like Apple and Microsoft they would not have got it right…and if they did you would have laughed at them!

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