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Why Apple Might As Well Be A Bank: We’re All On The Same Boat Together

Posted by Bob Warfield on September 29, 2008

Tough day in the markets today.  One of my favorites, Apple, is way off, along with almost everything else.  Why?  Because everything is so interconnected that when a potential disaster (evolving rapidly to being a real disaster) is big enough, it gets everyone’s attention.  Everyone starts figuring out what it might mean so they can get ahead of everyone else.  Before you know it, Apple’s earnings are revised downward without much comment from the company just because there is so much smoke that it looks like Rome is Burning.

The sick irony is Rome may very well be burning.  Everyone plays the same game.  Whether they feel the pain personally, they watch how others are reacting and decide they’d better take steps right now.  That rapidly spirals into everyone pulling in their horns while they wait to see if the pain reaches them.  Unfortunately, it virtually guarantees the pain will reach them.  First, by not buying, they insure sellers feel the pain.  Second, whatever assets we all have that make us feel flush enough to buy more than perhaps we should are being rapidly devalued.  In some cases we may regard the earlier value as inflated, perhaps in housing.  In others, perfectly good stocks still making as much money as they had the day before are dinged for fear of what might happen.

The group of bloggers I participate in, the Enterprise Irregulars, has been discussing whether they feel the impact of this “nuclear winter” economy yet.  The vast majority said no, many said best year yet, but everyone was universally worried about it and expected it would have an impact and 2009 would be a tough year.  Jason Calcanis is apparently predicting the nuclear winter will kill 50-80% of all startups, though he later asked the posts on this be taken down (thanks to Loic LeMeur for that inside and screen capture).

Welcome to the world of crowd hysteria and feedback loops.  Ain’t it wonderful?  Over the weekend I read a note by JJ Cramer (you have to pay for a subscription to see it, so I won’t link) where he was making the point that the time to punish those responsible has either passed or has yet to come.  Rather than punish them, the issue to focus on at the moment is survival. 

Unfortunately when a wounded animal is crashing through the forest, it is sometimes hard to think in those terms, but it sure seems like we are dealing with matters of survival.  I hope we can get it together to stem this negative spiral before it destroys so much wealth that it becomes impossible to avoid a massive depression. 

I wish I had more confidence we weren’t just playing political football and that our leaders had a clue.  It’s depressing to read Phil Windley speculate that Nancy Pelosi knew the vote wouldn’t pass, wanted it not to pass, and wanted it to be seen not to pass for political gain.  If true, and if others are playing this game, I’m all for clearing that slate at the earliest opportunity and getting some people in who care a little more about who suffers on the sidelines.  More realistically, we may be our own worst enemies if we’re telling Congress not to pass this bill without giving them anything better to work with.  It gets back to Cramer’s survival issue again.

The news is not all bad.  Mathew Ingram writes that while it was the biggest point drop in the Dow’s history, percentage-wise there have been much worse.  We lost 7% versus 23% in 1987, and we had gone up by 7% when the bailout was first announced.  I read that as there is still time to fix it.

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