{"id":844,"date":"2020-01-14T12:50:54","date_gmt":"2020-01-14T20:50:54","guid":{"rendered":"http:\/\/ralockhart.com\/WP\/?p=844"},"modified":"2020-01-14T12:51:01","modified_gmt":"2020-01-14T20:51:01","slug":"cycles-culture","status":"publish","type":"post","link":"https:\/\/www.ralockhart.com\/WP\/cycles-culture\/","title":{"rendered":"Cycles & Culture"},"content":{"rendered":"\n


American Beauty and the End of the Bull Market
Russell Arthur Lockhart, Ph.D.<\/em><\/p>\n\n\n\n

THE MARKET IS NOT AN ISOLATED PROCESS, but is deeply embedded<\/pwa> in the historical fabric of human events. Our focus on the minute detail of tick-by-tick price movement sometimes keeps us blind to the larger factors at work in the stories of our time, the stories that will become history. From time to time, it is useful and enlightening to step back and make an effort<\/pwa> to see the larger picture. And quite\u00a0<\/pwa>often, doing so, helps to keep us from being blindsided by the lack of awareness of the great circularity and cyclicality to which we are all subject. In late1969, a physical network linking four sites (UCLA, Stanford Research Institute, UC Santa Barbara, and The University of Utah) became the first literal \u201cinternet,\u201d an idea initially conceived by the MIT computer scientist, J. C. R. Licklider in 1962. This literal birth of the Internet coincided with the end of the longest economic boom in US history (106 months between 1961 and 1969).\u00a0\u00a0\u00a0Thirty years later, in February 2000, this record for the \u201clongest\u201d period of economic expansion was broken<\/pwa>. The month before, President Clinton declared the \u201cState of the Union and the state of the economy were never better.\u201d Two weeks earlier, the Dow had set an all-time record high at 11,722.98, rising more than<\/pwa> 400% from the beginning of the expansion in March 1991 following the conclusion of the Gulf War and its<\/pwa> accompanying recession.\u00a0\u00a0\u00a0The boom was attributed<\/pwa> largely to the advent of\u00a0<\/pwa>large-scale productivity gains made possible\u00a0<\/pwa>by computer technology and, of course,<\/pwa> the expansion of the Internet beyond those initial four nodes to literally encompass<\/pwa> the globe-a nearly full realization of the \u201cgalactic network,\u201d Licklider had envisioned in his \u201cdream\u201d of the interconnected world. By January 2000, little AOL, an early \u201con line\u201d company, had grown to gargantuan proportions, so large as to buy Time-Warner and become the third largest company in the world. By late 1999, Microsoft, the software backbone of the \u201cinformation economy,\u201d had become the world\u2019s highest valued company, and its founder, the world\u2019s richest individual. February also saw the largest corporate merger in history, when two telecommunication giants, Vodaphone and Mannesmann<\/pwa> AG joined forces. The \u201cnew economy\u201d had arrived.\u00a0\u00a0\u00a0More wealth had been created<\/pwa> during this short period than at any time\u00a0<\/pwa>in history. The rate of newly forming fortunes was increasing exponentially. The belief in the new technology of the information age and all that would follow from it was profound. Things could only get better and the \u201cnew economy\u201d would insulate the world\u2019s financial systems from the old plagues. The world was different now and the old economic laws and old ways of thinking and old ways of measuring economy were dead. Dead! Such was the belief sweeping the wired world as the new millennium dawned.\u00a0\u00a0\u00a0The film of the year in 1999 was American Beauty, released on September 15 to great acclaim. Later, in March, it would win the Oscar for best picture. In Alan Ball\u2019s original script, the opening scene pictures an extreme close-up of a drop of water, gathering at the tip of a faucet, a flash of light refracting through it just before it falls. Then, the camera pulls back a bit, another drop gathers, and falls, then another. This \u201cfalling\u201d is the theme of the film announced in this opening image-which unfortunately did not make it into the final audience version. In the original script, the last thing Lester sees before he is shot<\/pwa>, is water slowly falling from the faucet and after, we hear, \u201cand it\u2019s too much, my heart fills up like a balloon that\u2019s about to burst.\u201d\u00a0\u00a0\u00a0In the heart of Internet heaven, Seattleites were flocking to see American Beauty. On November 5, 1999, the mighty rose suffered a bruise. The invulnerable Microsoft, found itself convicted of \u201cbeing a monopoly,\u201d a phrase missing from the new vocabulary. As if to defy gravity, MSFT shrugged off this affront to the new economy and before years\u2019 end climbed its way to 119.94 an all time<\/pwa> high as it entered the first year of the new century. The disparity between the \u201cnew way\u201d and the \u201cold way\u201d was starkly drawn<\/pwa>. One year later, MSFT found itself at 40.25, having lost more than<\/pwa> two-thirds of its value.\u00a0\u00a0\u00a0What happened?\u00a0\u00a0\u00a0Shortly following the Microsoft ruling, the World Trade Organization met in Seattle. The meeting was a failure and not only because of the rioting and tear gas in the streets of Seattle, the likes of which had not been seen<\/pwa> since the end of the last boom in 1969, in the People\u2019s Park riots in Berkeley. Rioting over trade? More precisely, over the disparity in the \u201cwealth effect\u201d the new economy had driven to extraordinary extremes. In this atmosphere, the US government reported the largest trade deficit in history. The price of oil was reaching extremes not seen since the Gulf War and the beginning of this longest of economic booms. The wealth effect had created enormous budget surpluses and the alarming degree of public debt was reduced<\/pwa> substantially. In spite of<\/pwa> the turbulence, the President declared that things were never better.\u00a0\u00a0\u00a0In February 2000, a young boy, managed to \u201chack\u201d the \u201csecure\u201d servers of several major Internet sites (Amazon, Yahoo, Ebay<\/pwa>). Early in March, George Bush and Al Gore locked up their presidential nominations. On March 10th, the Nasdaq and the Internet Index reached their all-time peaks. Two weeks later, after a bit of correction, the Nasdaq and Internet indexes failed to make new highs as American Beauty won the Academy Award for Best Picture. Lester says, as the film opens, \u201cMy name is Lester Burnham. I\u2019m forty-two years old. In less than a year, I\u2019ll be dead.\u201d\u00a0\u00a0\u00a0Of course, this<\/pwa> means that Lester was born in 1957\u2026<\/pwa>the year Russia launched Sputnik. The United States government\u2019s response was to the form the Advanced Research Projects Agency (ARPA), the agency that gave birth to the Internet. A week after the Academy celebration, Microsoft was found<\/pwa> guilty of violating antitrust law, and fell 14%, buffeting the world\u2019s markets. However, the bounce back was sharp and wondrous, and like that plastic bag in American Beauty, it soared again, as if still convinced the old economic rules did not apply.\u00a0\u00a0\u00a0At this time as<\/pwa> well, the country\u2019s imagination was caught<\/pwa> up in the drama of a young Cuban boy, whose mother had died. Debate raged over whether the child would be able to<\/pwa> stay in the \u201cwealthy free world\u201d or be forced<\/pwa> to return to the \u201cpoverty of the slave state.\u201d\u00a0\u00a0\u00a0Synchronously, the leaders of the developing countries, those largely\u00a0<\/pwa>left behind in the wake of the \u201cnew wealth\u201d generated by the new economy, were meeting in Havana, Cuba. On Tuesday, April 11, 2000, Kofi Annan, Secretary-General of the United Nations, harshly criticized the World Bank, the International Monetary Fund, as well as<\/pwa> the countries enjoying extreme concentrations of wealth. He warned, in the strongest possible\u00a0<\/pwa>terms, of the danger to the world of having extreme wealth and extreme poverty side by side. In the closing speech on April 14th, 2000, Fidel Castro called this disparity the \u201cnew apartheid.\u201d That day, of all days, the Dow fell 617.78 points, the largest single day loss in its history; the Nasdaq 355.49, likewise its largest single day loss.\u00a0\u00a0\u00a0By year\u2019s end, the enormous wealth created in the prior two years was gone<\/pwa>, a loss in value of more than<\/pwa> five trillion dollars, the largest and fastest loss of wealth in history. The dangerous disparity had been substantially reduced<\/pwa> and, perhaps for a time, forestalled the \u201cdangers\u201d Kofi Annan was pointing to.<\/pwa>On Saturday, February 24th, Claude Shannon died. It was Claude Shannon\u2019s work in 1948, A Mathematical Theory of Communication, which laid the theoretical foundations for computers, communications and the Internet. The week following his death would see the financial value of Internet companies reduced to less than 18% of their value at the peak of the great Internet mania.\u00a0\u00a0\u00a0Lester had said: \u201cYou have no idea<\/pwa> what I\u2019m talking about, I\u2019m sure\u2026<\/pwa>but don\u2019t worry\u2026 you will someday.\u201d That someday arrived sooner than anyone could imagine.\u00a0\u00a0\u00a0New economies, old economies, that\u2019s never the issue. As long as humans are \u201cin charge\u201d they will not escape their own foibles, their own nature. The next round may be \u201cdifferent.\u201d On March 8, 2001, IBM announced its Research Division is \u201cfollowing a new path aimed at building more intelligence into computing by creating more autonomous computers.\u201d<\/td><\/tr><\/tbody><\/table><\/figure>\n","protected":false},"excerpt":{"rendered":"

American Beauty and the End of the Bull MarketRussell Arthur Lockhart, Ph.D. THE MARKET IS NOT AN ISOLATED PROCESS, but is deeply embedded in the historical fabric of human events. Our focus on the minute detail of tick-by-tick price movement sometimes keeps us blind to the larger factors at work in the stories of our […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-844","post","type-post","status-publish","format-standard","hentry","category-coming-soon"],"_links":{"self":[{"href":"https:\/\/www.ralockhart.com\/WP\/wp-json\/wp\/v2\/posts\/844","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.ralockhart.com\/WP\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.ralockhart.com\/WP\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.ralockhart.com\/WP\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.ralockhart.com\/WP\/wp-json\/wp\/v2\/comments?post=844"}],"version-history":[{"count":1,"href":"https:\/\/www.ralockhart.com\/WP\/wp-json\/wp\/v2\/posts\/844\/revisions"}],"predecessor-version":[{"id":845,"href":"https:\/\/www.ralockhart.com\/WP\/wp-json\/wp\/v2\/posts\/844\/revisions\/845"}],"wp:attachment":[{"href":"https:\/\/www.ralockhart.com\/WP\/wp-json\/wp\/v2\/media?parent=844"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.ralockhart.com\/WP\/wp-json\/wp\/v2\/categories?post=844"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.ralockhart.com\/WP\/wp-json\/wp\/v2\/tags?post=844"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}