world news; download music and video chips; chat with people you’ve never met; post bulletins in newsgroups; buy books, videos, or CDs for delivery the next day; find a new or used car; and even buy software for immediate downloading. For those who seek to satisfy their sexual desires, no matter what time of day, thousands of porn Web sites are available for instant access at the mere entry of a credit card number.
On the more pragmatic side of things, you can trade stocks online with instant electronic order entry, you can check your bank balance, transfer funds, or donate money to your favorite charity. And if none of this happens fast enough for you with a 56K modem, you can connect using a high-speed connection, a superfast TI line, or a variety of high-speed alternatives. And you can enjoy all of these on your new incredibly fast computer that sports an ultrafast CD-ROM drive with a fast access internal hard drive. Of course, your pleasure and speed of processing can be increased with a few gigabytes of high-speed memory chips and a voice recognition package designed to speed up in- puts. And, of course, you can relax in style as you do all of this on new office furniture you don’t have to make payments on for 12 months and at the low, low rate of 3 percent guaranteed.
Speed has pervaded virtually every aspect of life. Stocks move up and down faster than ever before. News travels across the world instantly via the Internet.
and economies breathe in and must eventually breathe out. Mar- kets rise and fall, often in relatively predictable rhythms. When markets are in an upward trend, optimism reigns supreme. Poli- ticians are elated, the public is happy, investment managers are proud, and retirees find little to complain about as long as their monies have been wisely invested.
Ultimately, as the momentum of good times grows, optimism reaches a state of euphoria that frequently culminates in a cli- mactic buying surge. More often than not, such extreme levels of buying and optimism correlate closely with an end to the pe- riod of “boom.” Whereas the future looked bright during the period of boom, and perhaps brightest at its peak, events and in- vestor psychology soon change with the changing tide of the markets and the economy.
When the cycle of bust begins, optimism is still high. Shortly after a few severe declines in the stock market, as well as a few negative indications from government, pessimism begins to spread. Markets decline, the economy contracts, and politi- cians fear for their jobs. The public is angry, shocked, and frus- trated that the markets are declining. Money managers are fearful of speculative stocks and begin to seek conservative in- vestments for their clients. Retirees are frustrated as they watch the value of their stock portfolio erode almost daily. Pessimism breeds more pessimism until the stock market and the overall economy plunge even lower in a last gasp of selling. At times, only a whimper and not a bang characterize the end of a “bust”
phase. Occasionally, a new boom cycle is born of humble be- ginnings following a period of stagnation, one during which there is relatively little movement but during which markets and economies gather energy for the coming upward phase.
Can Government Make a Difference?
Investors are encouraged to have faith in the ability of gov- ernments to control boom and bust cycles. After all, governments can control the supply of money, interest rates, the degree of market speculation, fiscal policies that affect supply and demand, credits and loans to foreign countries, as well as a host of other less-significant variables. All of these, when combined, theoreti- cally exert a major effect on the direction of stocks, other invest- ments, and the general economy. But are they really effective?
Students of American history point to the fact that economic depressions during the terms of Presidents Van Buren, Buchanan, Grant, Cleveland, Theodore Roosevelt, and Woodrow Wilson were either allowed to occur due to government disinterest or were exacerbated by the fact that none of these administrations took an active role in avoiding or alleviating them. On the other hand, the Hoover administration parted with the tradition, taking an active role in economic policies designed to overcome the se- vere effects of the Great Depression. And this marked a turning point in the role of government with regard to economic health, safety, and welfare.
Today, government is actively involved in facilitating eco- nomic growth, controlling inflationary pressures, stimulating the economy when necessary, and hopefully, minimizing the ef- fects of boom and bust cycles. The prevailing opinion among in- vestors is that the government not only has a large arsenal of weapons to use in the fight against economic extremes, but also that the weapons will work when they are needed. This, of course, remains to be seen. Ultimately, no matter what governments may do, the individual investor alone is responsible for his or her own successes and failures.
S U M M A R Y A N D F I N A L T H O U G H T S 189