When Innovation Collides With Inflation

“If I were still running Apple, I would milk the Macintosh for all it’s worth and get busy on the next thing. The PC wars are over. Done. Microsoft won a long time ago.” — Steve Jobs

There’s a few yuge technological booms and busts worth mentioning in our economic history. For starters, the mass integration of technology into global markets would bring big-whig institutions like The International Monetary Fund in 1945, and The World Bank in 1944, into demand. These big players would act as chauffeur vehicles toward economic expansion lasting well into the 1960s, when we welcomed cultural darlings such as the audio cassette, ATM’s, Kevlar, Valium, the computer mouse, and dynamic RAM— that is, until the inflation bogeyman came down with an iron fist, suggesting our rather gluttonous 4.9% YOY growth was too much, too fast.

Then, the damn 1970s, where we saw some of the highest inflation rates in recent history, coupled with ubiquitous civil rights and anti-war propaganda. Simultaneously, interest rates rose almost 20%, we exited the gold window, and leaned into Keynesian economic policy. These factors would all contribute to full decade of “The Great Inflation”.

Into the 80s, when President Reagan was at the helm during a post-World War II era, a time when a range of new technology swept the nation only to be stifled by our country’s supreme focus on military defense. Notable tech breakthroughs include Sony launching the Walkman, IMB’s 5150, CD’s, and VHS. Then, Nintendo struck gold with their Game Boy, Microsoft dropped the mic with Windows, and Jobs gave us the first Macintosh.

After tripling the national debt under Reagan, we walk into the 90s just as the World Wide Web is officially introduced, along with Linux, Java Script, DVD’s, USB flash drives, MP3 players, predator drones, Photoshop, and the Hubble Space Telescope.

Countless companies launched just before the sh*t storm that would become the “.com Bubble”, when a widespread adoption of internet took its first stride. Then in 1993, “Mosaic” fixed that divide by busting onto the scene and bestowing upon us the first Web browser to “surf the web” from our living room. It wouldn’t be long before this luxury product became a necessity for the average consumer. PC ownership would inevitably skyrocket from 15% to 35% of Americans who would have internet access.

“The Information Age” has entered the chat[room].

“Don’t look for the needle in the haystack, just buy the haystack!” — Jack Bogle, Vanguard founder

Economically, it couldn’t have been better timing as interest rates were declining, thus access to capital was money for old rope. In lieu of this mass intellectual advancement, Fed Chairman Al Greenspan introduced the Taxpayer Relief Act of 1997 which brought down the top marginal capital gains and incentivized people to add more risky speculations to their portfolios. Old Al artificially juiced the stock market by putting a positive spin on valuations, therefore inflating the pig in extreme fashion— much like we did in the 60s.

Mass hysteria ensues when many eager investors start maneuvering into any IPO, for any .com company, at any valuation. They just wanted in on the action—the next gold rush—can you blame them? It probably seemed harmless as the Fed is enabling this shortsighted consumer behavior. The Nasdaq and S&P 500 levitated almost 85% and 20%, respectively, in 1999. This made possible by an atypical rotation out of value stocks and into tech stocks. The ever-growing list of people quitting their day jobs to jump into day trading full-time because of a little market hubris was unsettling to say the least.

Stocks only go up, right? Not so fast, a lot of these companies hadn’t even earned a buck pre-IPO, but had all this valuation money based on “potential”. This would lure in idealistic investors hoping to overnight millionaires, only to have the balloon pop due to the jig being up. No longer was there euphoria in the streets, too many people had been financially hosed and trust was dissolved as balance sheet fuckery surfaced, along with bankruptcy filings within a year of the IPO, endless accounting scandals including the Enron debacle in 2001. I mean, if that didn’t pin the top and release all the air out of this colossal bubble, I’m not sure what would.

“Creative accounting is an absolute curse to a civilization. One could argue that double-entry bookkeeping was one of history’s great advances. Using accounting for fraud and folly is a disgrace. In a democracy, it often takes a scandal to trigger reform. Enron was the most obvious example of a business culture gone wrong in a long, long time.” — Charlie Munger

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