I apologize if this rant is peppered with too many personal anecdotes from this weekend. I am returning a weekend in NYC, and being there at the financial district helped me see the mania in a much more personal way. Sitting at a subway stop in midtown Manhattan and reading the ads for Etrade thanking traders for making the Island network number 1 in QQQ volume, a few thing dawned on me. Please allow me to elaborate:

This one scares me. Think of the crisis that would be visited upon us as a society should the equity markets fail to grow at the projected average 6% ,7,8,9,10, or (your projection figure here) until each of plans to retire. This would be devastating. The psyche of Joe 6 Pack / 401k investor was well-primed for a substantial decline. it seems that throughout the mania, we were warned (if only superficially) by all the pros (who failed to really warn us of the decline to date) that one needed to be prepared to ride out any dips, and be focused on "the long term". Really great advice. But a lot of investors are scratching their heads wondering why they should sit there holding their JDS uniphase that they bought at the peak in 1999 for $200-ish, and how long it might take to make it back from its current $4-ish price. People still do indeed buy the dips. This taken as a sign of resilience by the financial media, while I conjecture that many of the Pros, the real "smart money", just sit there laughing at the complacent herd that is putting on a tough face after watching their core holdings plummet 30-95%. And it isn’t just the riskier tech names (you know, the ones they told you to buy back when they were 10 times the current price) -- look up charts of such widely held names as GE, IBM, Intel, and ,yes I ‘m going to mention it: Enron.

Why leave Enron out? It was the seventh largest company, held by many many mutual funds and hyped all the while by the pros. It seems unfair to leave out such a stellar example while claiming that we’re on the road to recovery and perpetual 15%+ annual equity returns. It wouldn’t be fair to bias the results with only surviving companies. (one wonders, if all of the failed companies were included in a non-market-cap-weighted analysis, would equities show ANY positive returns over any long time period?? it’s a fair question, and one to which I have not seen a thoughtful analysis)

This is subtle one. Subtle, because when equities where rocketing and sizzling upwards of 15+% per year way back in the late 1990’s, people saw their retirement plans skyrocket. The shift away from defined benefit plans, which provided bond-type returns but were more dependable in the short or long term than stocks, toward defined-contribution plans is at the heart of the potential crisis I foresee.

These retirement plans really soared perhaps beyond their own projections. And the excuses for this behavior were laid out in fron of them by

In fact, the advent of the internet-based ticker surely must seem, in retrospect, to be somewhat analogous to the widesoread appearance of the tickertape right before the big crash in the depresssion of the 1930’s. One might wonder if they should have at least changed the name from "ticker" to something less connected to the everpresent tickertape machine that became so extinct after the Big Crash. I haven’t seen the internet-based ticker likened to the old-fahioned tickertape and would be interested in hearing if anyone found its widespread use to be more than just a coincidence.

walking through times square last night, right past the nasdaq marketsite and also a CNBC screen, it fully dawned on me just how much of a symbol this thing really is. The store there had $20 nasdaq t-shirts (when you could go out on the sidewalk and buy 4 for $10 NYC t-shirts). This mania can’t even be close to being over. When it’s really over, those T-shirts will be in the bargain bin or on homeless people. The greed and willingness to gamble for the easy money, the "lottery mentality" if you will, is still rampant. People really think Pets.com is going to come back and win, and that JDSU is going to rise from the ashes and again be at the top of the burgeoning optical networking industry. I think the odds would be better to go down to the casino and put it all on red, but unfortunately that investment vehicle can’t be placed in a tax-deferred IRA.

I’m repeating this for emphasis. I could go on with many other points, but my plane is boarding soon, and I think this point really needs some amplification. We really do (as a society) need this stock market to keep going up. People have banked a lot of their future well-being on stocks. I’d love for everyone to keep making money too, and I certainly am not anti-American. In fact, having just visited ground zero in lower manhattan, I am solidified in my belief that our economy is the best engine for improving ourselves and the world around us. There are certainly some environmental concerns that need to be addressed, but overall we have the best-equipped mechanism for fairness and opportunity of any nation.

But the economy and patriotism should not be confused with the stock market. Money cannot be created out of nothingness. Stock prices cannot go up with some firm grounding in reality and cash flow. Perhaps a disconnect can continue for surprisingly long, as we have seen the past decade. But eventually an arbritrage opportunity opens up, when it could become efficient to exploit market overvaluation. I think we have reached that point. There will be a time when I feel the stock prices in general have reached a "good value", when it is a truly compelling opportunity to buy. I don’t feel compelled to buy anything these days. The media, perhaps understandably, is trying to coax people to buy, at a time when the economy may have a protracted difficult period (which is starting to become acknowledged en masse) and yet stock prices are reflecting go-go days valuations. How many more times is J6P4KI willing to get shafted by following "professional advice" (advice that failed to steer clear of 30-50+% losses)?? This is an interesting question, to which I think we’ll have an answer before too much longer.

The biggest questions I have:

1. what will we do as a society if stocks decline another 50% or more, and fail to bounce back??
2. What if foreign investors pull out of dollar-based assets?
3. What if the dollar falls against other currencies??
4. What if we see an across the board 10-20% decline in home values?? (which would be a small decline relative to what we’ve seen with equities)

Questions worth asking. Prepare for the worst or else suffer when it happens. I am afraid these questions aren’t being asked at the highest levels, or if they are, we are not privy to our leaders’ reactions to these situations.

(Hackshark)