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No. of Recommendations: 9
Elias, great post, except I don't think this "is the last gasp of the New Economy Scam." I think it has several breathes left. We have witnessed the obliteration of trillions in market valuations, and we are seeing some of the accounting shenanigans with Enron (nothing to do with the new economy), Tyco, Adelphia and Worldcom. But, this is far deeper and far wider than the general public suspects. There are many, many companies practicing what these companies have been caught for.

I think there will be larger companies, bigger than Enron and Worldcom, that will result in a further decrease in the net worth of the average American. Perhaps other sectors will strengthen, and make up for some of the increased unemployment, but the shock waves are just beginning. I'm not sure how loan and investment portfolios will escape some deterioration due to these shocks. When the pendulum swings, it makes sure it swings almost as far the other way too! How can we justify the enormous asset bubble that collapsed and continues to, without it affecting the average citizen in some measurable way, which will ultimately be reflected in the economy. Has the pendulum swung far enough - I don't think so.

I have friends who are still dollar-cost averaging down on Nortel. Their average cost was $55/share! I have friends who continue to day-trade, and are picking up penny stocks left, right and center. Oh, value investing! Yes, they've heard of it, but they made so much money in 1998 and 1999 buying tech stocks! Their broker tells them that now is the time to be buying. The recovery is just around the corner. While the damage has been severe for some, it's only a second degree burn for most - some blistering, a little pain and little or no scarring. Only when the majority are hit with the third degree and some are hit with the fourth, will we have had the last gasps of this era of excess. And therein lies the rub! Only a handful of the population will be prepared for the buying opportunity of the irrational pandemonium! Wealth will be transferred to the small minority that saw the greed for what it was. Cheers!
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