That 1999 Feeling

I was awakened recently with a feeling I have only had a few times in my life, most recently in 1999.

It’s the feeling of a major market top, of the deep breath before the plunge.

I spent most of 1999 screaming about it through my newsletter, a-clue.com. When the top came, the purchase of Time Warner by AOL showing the highest possible valuation for Internet assets, I knew the top had been reached and the Internet boom was over.

This did not save me. I lost all my work, just like everyone around me. In 2002 and 2003 I made zero dollars. My investments plummeted along with everyone else’s. It took years for me to get back to even.

After the fall, it took me a long time, and a lot of reporting, to find an investment thesis that would work, and that would get me on the path of positive economic change. But clouds, and devices, have been that path.

What’s been growing this decade are those companies that can justify the capital expense of cloud through cash flow earned somewhere else. Amazon does this with commerce, Apple does it with phones, Google does it with search, Microsoft does it with software, and Facebook does it with social. In China, Alibaba does it by making markets between producers and consumers, Baidu does it with search and Tencent does it with chat.

These are the market’s winners. Everyone else is a loser. Retail is a loser, oil is a loser, resources and manufacturers are losers no matter what Trump may do, transportation is a loser, and any kind of service that can be turned into an app is a loser. Ultimately, even Tesla is a loser. All the great tech names of the past – HP, IBM, the phone companies, they’re all going away, or have gone away. They’re dust in the wind. Computers scale in ways people do not. You are either there or you’re nowhere.

But this mania will end, and here is why. No one talks about it, but most of these clouds are empty most of the time. It’s like the scene in Elizabethtown where Orlando Bloom finds himself in an empty plane flying across the country, served by Kirsten Dunst. Cloud companies keep raising the capacity of their systems, but demand for that capacity is not always going to grow apace.

It’s when the market realizes that most of this capacity can’t even be given away – and you’re already getting stuffed with storage, even processing, that costs you nothing or near-nothing – that a crash occurs. That’s why Google and Apple and Microsoft are hoarding their cash. They know the day is coming. That’s why Amazon is building its own business as fast as it can, because when the day of reckoning comes that will be what sustains it. I frankly don’t know how Facebook or the Chinese get through. Expect some very strange mergers in the next few years as they figure it out. Maybe Facebook buying Disney will be the AOL-Time Warner of our time.

For now, cloud growth and cloud boom have turned into cloud mania. Most of the U.S. stock market, and economy, have already rolled over. Technology is marching to replace not only the poor people driving Ubers, but the rich people putting together reinsurance deals.

Getting the economy out of the next ditch is going to take wrenching political changes, money forcibly removed from the pockets of Trump friends the world over and put to work terraforming Earth. It’s a job that will take enormous international cooperation, the kind of effort unimaginable to many today, in a time of ultra-nationalism. It may even take a war.

What will make the change is economic pain, on a global scale, the kind I thought we’d learned to avoid in 2008, but which will return because voters today live longer and still think it’s 1972. In the process, America is going to have to be taken down a peg, by China, by India, by Israel, by Europe, even by Africa. America’s monopoly on power is going to go away. That’s the price of our Trumpist stupidity.

But I no longer have time to watch all this happen from the sidelines, secure in the knowledge that I’ll be fine on the other side. Thanks to Obama, thanks to clouds and devices, thanks to my willingness to put money to work on the side of the future, I’m now well-off, but approaching an age where life must change as my wife and I head toward life’s checkered flag, the final curtain.

What world are we leaving our children? Not the kind of world I would like to have left. But it is a world of opportunity, and both our children are prepared to take advantage of it, pushing it (as we have tried to) slowly, a little bit, in the right direction.

All I need do now – all you need to do now if you’re in a situation like mine – is to pull the trigger and sell, sell, sell.

Yeah, I know. It hurts to let winning stocks like Apple, Amazon, and Google go. You may have doubled your money there, and more, like I have. Maybe you were late to the party on Alibaba and Facebook, but you’re sitting on fat gains there. Ouch.

Worse, you may not know where to put the money. Cash? That’s going to depreciate. Bitcoin? There are no assurances there, it’s magnetic ink. China? Their debt overhang is as bad as ours is, and when the economic music stops they’re going to be in a world of hurt. Land? That depreciates as interest rates rise. Gold? Give me a break.

It’s a tough one. But set a plan, and follow the plan. Get out while you still have time. Jump. When the ship starts to sink, everyone rushes for the exits, and it will be too late.