If you remember back to the beginning of this year, the stock market didn’t get off to a good start. Within the first three weeks, the major markets had lost almost ten-percent of their value and technology stocks in particular came under even greater pressure dropping, in some cases, almost thirty-percent. In mid-May, stocks had clawed their way back despite some valleys coming within a hair of breaking even for the year. Now, almost four weeks later and halfway through the year, the stock market has started to resemble that which opened the year – drops and more drops, with there being multiple 300 point losses and at least two 400 point losses, the most recent occurring one week ago today. Those massive sell-offs almost make yesterday’s 200 point routing seem normal, as does the almost five-hundred point loss racked up the past four trading days alone. As you can see, we’ve weathered this pattern before, not just once, twice, but at least three times, and at this rate, we will have collective motion sickness before the year’s end.
January 2, 2008 to January 22, 2008 – 13,200 to 11,970.
February 27, 2008 to March 10, 2008 – 12,690 to 11,740.
May 19, 2008 to June 12, 2008 – 13020 to 12080.
What has gone consistently up this year? You guessed it. Oil. As we recently learned, crude oil is the world’s most actively traded commodity. That dollar per barrel figure you hear quoted on the news, the one that broke $100 for the first time in March of this year, the one that has now closed in on $140, an all-time, inflation adjust high, refers to the NYMEX Division light, sweet crude oil futures contract. It is "the world’s most liquid forum for crude oil trading, as well as the world’s largest-volume futures contract trading on a physical commodity," and, "Because of its excellent liquidity and price transparency, the contract is used as a principal international pricing benchmark."
What does that mean in real terms?
In the last two months, the price at the pump has reflected closely the percentage increase in the price per barrel of crude oil, which in some ways is perhaps what has started to connect the market activity with our wallets. Gas prices often go up when oil prices go up, but the rapidity of increase has accelerated, both at the pump and other travel related expense, namely air travel. We’re lucky that the same percentage increases haven’t hit everything, and that we haven’t seen our cost of food go up for everything. Prices for goods at grocery stores tend to go up and down, especially produce, so it’s often harder to gauge the health of the economy as easily across a larger set of items. It lacks the simplicity of gas, which serves as a nice proxy due to its underpinnings in the economy. We’re at the cusp though, as we’ve experienced some restaurants we frequent raising their prices. To date, we’ve seen some elasticity, with gas rising but other prices staying relatively the same, but that is changing.
From what we can tell, what makes this period different from some of the ones we’ve experienced before is that almost everyone outside of the very rich are starting to feel the impacts. It’s not just a certain type of homeowner. And, there isn’t one simple cause to hang our heads on; instead it’s multiple, interlinking factors whose seeds were sown during the good times. As there isn’t one cause, there isn’t a single answer that will magically reverse the collective concern about rising prices and the feeling of less money. The good news, though, it doesn’t mean less opportunity; it only implies some potential adaptation. You can succeed in almost any environment if you know the environment.
No matter what happens this month or this year, we are experiencing history in the making. We are living through one of the most unique periods – from housing boom to bust, credit issues making borrowing tough, amazing advances in technology, to a looming energy crunch. It will be what it will be. Stress if you must, but regardless, soak it in and learn from it. Some of the people who did well during the rising times and took advantage of the declining ones didn’t just get lucky. They recognized the pattern, and no matter how things feel now, parts of this will repeat in the future. In our ADD world, we’re so accustomed to getting what we want now, that we often forget some patience. Right now, we need some patience and perseverance. Until now it’s felt like a sprint. This next year or two will feel more like the marathon, and that’s just fine.
The best thing about these turbulent and unpredictable times are that we’re in the right industry. Despite less than amazing growth, our industry has growth, and the broader media trends continue to favor a healthy long-term outlook. We are so lucky that the start up costs are still relatively low, that you can make money without having a lot of money, and that you don’t have to reinvent the wheel to get ahead. Things could be a lot worse. This isn’t manufacturing or some industry that is fighting an uphill, losing battle. Be thankful and feel energized. But also be prudent.
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