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Attack of the Pseudoriche
Fear and greed are wrestling for the soul of the whining class. Want to know who's going to win?
by Adam Lass
It's last call, folks. Say bye bye to the 20th century. I don't want to get in a big fight about it, so just accept it: Weeks end on Saturday, years end on December 31 and centuries end on double zeds, no matter what the great unwashed or the politicians and pop-scientists who suck up to them say. So raise your glasses and we'll toast the real end of the 1900s.
But first, let's close the books on the last year of the old century. And what a year it was. 2000 came in like a (cowardly) lion and is going out like a squealing pig on the chopping block.
This time last year, folks were stocking up on Evian, cigarettes and canned beans in anticipation of the Y2K computer disaster, the greatest non-event since Comet Kahoutek neglected to plow into the planet. (I wasn't immune to the hysteria... I've still got half a case of Jack Daniels left in the basement. It's just a question of what you think is important.)
The great speckled herd
And what the herd thought was important in the first quarter of '00 was how stinking rich they were going to get on Internet IPOs, and the really big toys they were going to buy with the profits. But hey, why wait for real money when you can borrow against your theoretical future gains? (Programmers call overhyped products that only exist in the marketing department's feverish imagination "vaporware." Does that make these companies' phantom profits "vaporcash?")
Suddenly, no mere car was big enough for the hot new spending class, the "pseudoriche." You had to have an SUV the size of a Greyhound bus just to go down to the 7-11 for chips and beer. Better supersize that order. And while you're at it, supersize my house too.
Now every family of three has a brand new twenty-room house on a little postage stamp lawn. Never mind that mom and dad are working 120 hours a week between them to cover the mortgage, while junior's down at the mall getting his ya-ya pierced just to get their attention for five minutes. It's new paradigm time: the Net's going to make everything incredibly cheap and easy.
There ought to be a law... maybe the law of gravity will do
Wine will flow like water and the streets will be lined with gold. I think I've heard this one before. Oh yeah, Econ 101: What happens if everyone thinks they're rich at the same time? Suddenly you've got unlimited wheelbarrow-loads of theoretical e-cash chasing an expanding but still limited supply of real goods, and the inflation specter starts oozing out from under the table like a bad smell at a formal dinner.
It didn't take the bright boys at OPEC very long to catch on either: Hey, if all these American fools are locked into five-year loans on Lincoln Navigators and thirty-year balloon mortgages on faux-Georgian mansions, they're going to need oil by the million-drum load to fuel and heat these monstrosities. And those boys don't need the Internet to get rich when they can raise the price of oil to US$35 a barrel with a phone call.
The pseudoriche whined and bitched. Commissions were formed, inquiries were made and names were taken. The long and the short of it: Sorry boys and girls — oil is still over US$30 a barrel, and that means more inflation.
The ghost at the banquet
By late spring, the time-payment crowd was starting to feel the pinch. They were living on borrowed grace and getting nervous as hell about it. Alan Greenspan and his inflation hawks at the Fed were looming over the party like Banquo's accusing ghost. Their solution to the overextended bull run was to scare the jittery herd into stampeding for the exits sooner, because later it could only be worse.
 And stampede they did. The brutal purges of summer and fall '00 will go down in the history books — and not just for the most incredible single day moves ever. After ten-odd years of straight growth, with few interruptions lasting more than a month or so, the S&P 500 is currently suffering through what can only be called a recession — three straight down-quarters in a row.
If there is any Wall Street maxim that holds water, it is that the market is always forward gazing (however myopically). Clearly, a huge group of investors in the S&P 500, the broadest measure of the U.S. market as a whole, perceive a significant decline in the value of the economy over the next few months. But a considerable minority still argue that this retreat is simply a re-rating of overblown stock prices from the bubble, as evidenced by the retreat's pause at the 33% mark of the previous 21-month run-up. And they're putting their cash on the line. One of the most amazing aspects of the recent crash is the consistent strength of the buyers at the bottom of each trough.
Whether or not the S&P's recession converts into a full-blown national recession will be determined more by the interplay between the herd's guilty fear of getting caught red-handed holding incredibly overpriced dot-gones and its inherently larcenous desire for "steals," like Lucent below US$20 or Intel at its 52-week low. This means more than any actual connection between the falling indexes and falling productivity numbers.
Read on...
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