Today the Google Bubble may have finally popped. We predicted that two months ago, giving you plenty of time to get out of the way. At its present price, Google still sells at 25 times next year's expected earnings. A reasonable level might be 20-25 times expected earnings, a nice premium over the 15x current earnings stocks are worth historically. Apple and other "momentum stocks" joined in the downturn, and that's good -- speculation needs to be driven out before we can go up again.
But instead of praying to the tape, or attacking those who got us here, how about a brief focus on some potential solutions to this mess? Everyone with a functioning brain cell (even Lou Dobbs) knows the present "rebate" proposal is nonsense. This means both parties, and all major politicians, are Clueless at this point.
So how about some ideas:
Get the Chinese a raise. Helping boost China's domestic
demand will keep the world economy humming, increase pressure for
democratization and (perhaps, if the money is well-spent) help with the
green economy. Calling for such a raise makes any American popular over
- Talk up hydrogen success. Pull together a very public event, demonstrations and short talking points from American companies involved in alternative energy and hydrogen. This helps build hope for the future.
- Find the bottom of the shitpile. We have to unwind all the bad loans, and price everything to market ASAP. Only when you see the bottom do you have a hope of getting in front of events.
- Central Bank Coordination. We need to pull together the leaders of the world's central banks and create a coordinated response to the present monetary problem. This includes the central banks of Russia, China, India and Brazil. The G-8 needs to become the G-11. (Maybe we can call it the Big Ten?) You might want to add the Arab banks to that mix as well.
- RE-Regulate. We need global financial regulation which
will enable buyers and sellers to have confidence that they're not
being taken, by Americans or anyone else, on the markets. That starts
- Concentrate on the Global Situation -- If the world economy doesn't fall into recession, our own recession will be shorter and milder, because there will still be demand for our exports. We need to do what we can to assure that first, rather than worrying so much about ourselves.
- Production, production, production -- The next recovery will be led by exports. Not technology, not banking, not real estate. The weaker dollar helps U.S. manufacturers. We've got lots of flag-wavers anxious to help. Let them. Give them a spotlight.
- Look South -- The dollar is still worth something in Latin America. Our present economic shock will be familiar to all Latin leaders. The media, and our people, need to start taking Latin Americans seriously. How about some soccer diplomacy -- Boca Juniors vs. DC United.
What we're facing is a systemic stagflation caused by an oil shock, much as we had in the 1970s. This is exacerbated by an asset bubble and a lack of regulation which must be fixed for the sake of business' credibility.
These are the real problems but in a situation like the present the psychological problems must also be addressed. The biggest success FDR had in combating the Great Depression lay in changing psychology, which prevented the fascist and communist takeovers which were indeed a threat at that time.
The summary. Deflate the asset bubble, launch the War Against Oil, don't forget the psychology, and remember that honesty is an essential to new growth.