Lost In The Woods
“Information has made us all dumber,” said Michel, with whom I had lunch last week. He was taking my comments on the effects of the information age to a new level.
I commented Friday that trying to “explain everything” is a big job. There’s so much of everything to explain. And a full explanation necessarily involves all of it.
I had compared information to manure. A little is definitely a valuable resource. But when you pile too much up in one place, it begins to stink.
Michel pointed out that there was a lot less manure around at the time of Leonardo, or Bruno, or Newton. A well- educated man might know almost everything there was to know back then. Da Vinci knew practically everything the Western world had to offer.
But now, things are different. Knowing everything is out of the question. Still, I resisted Michel’s insight. Yes, surplus information has, like the Japanese supermarket chain, negative value. But does it make us dumber?
Then I saw how it might be true:
Knowledge is relative. It is a little like being in a forest, to use a familiar and environmentally correct analogy. If the forest is small, it is possible to know every tree…and, by aggregating, know the forest, too.
But if the forest is too big, you cannot possibly know every tree. Your knowledge of the whole forest becomes more abstract…You wander around; you get lost.
Leonardo knew almost all there was to know. His view of the forest of knowledge — such as it was at the debut of the Renaissance — was complete. But who has a complete view now? We are all dumber in two senses: relative to the forest of information and knowledge available, we know proportionally less of it. And it is impossible to have a view of the whole forest that isn’t based on second-hand, hearsay abstractions. “It is big,” they say. “It is green…in summer. It absorbs carbon dioxide. It is home to hundreds of species of butterflies.”
But we are unable to see it for ourselves. There is too much light coming from too many different directions. Some of it is real, authentic. But a lot of it is artificial, representational and abstract. We cannot tell the difference. Finally, we are blinded — we can make no sense of it. We are lost.
Biologists and sculptors can barely talk to one another. Physicists and psychologists speak such a different language, with worldviews informed by such different paradigms, that they are scarcely able to communicate. Computer geeks are unable to talk to anyone — not even each other.
Technological progress requires an increasing division of labor, which in turn requires an increasingly divided base of knowledge. We depend on the knowledge of others like Blanche DuBois depended on the kindness of strangers. We hope for the right directions, but cannot be sure that those are what we get.
But if labor and knowledge must diverge and fragment — can the economy and the stock market diverge indefinitely, too? More particularly, can the Nasdaq and the Dow part company forever?
I do not like to keep you in suspense. Nor do I feel entitled to waste your time or slough off my opinions on you for no good purpose. Even if this is a free service! So I’ll give you the answer — No.
But in the spirit of open-mindedness, let us examine the Bubblemeisters’ case. They say, in effect, “So what if the Dow and the Old Economy are going down? We’re making money in the New Economy!”
[An interruption — gosh London is ugly, from the perspective of the Eurostar. Looking into trashy backyards, derelict factories, metal scrap yards…not to mention the occasional open window — it is almost as bad as the view along the tracks from Baltimore to New York, where every defunct refrigerator in the Mid-Atlantic region seems to go to die.]
Where was I…?
Oh yes, can the New Economy keep going up while the Dow and the Old Economy go down?
First, it might be worth pointing out that sales growth in the high tech area seems to be declining, not increasing. All the major PC makers and dominant tech companies such as IBM, Hewlett Packard, Oracle, Intel and even Microsoft are having trouble maintaining growth rates.
Even speaking loosely, the high tech component of the economy could not be above 10%. Yet high tech and Internet stocks represent some 30% of the S&P 500. Will this part of the economy grow fast enough to justify it? Will people begin spending 30% of their incomes on high tech devices? Will they give up automobiles in order to be able to afford more high tech gadgets? Will they stop eating at restaurants in order to spend more time at home playing video games?
More likely, they’ll simply ask for more high tech gadgets in their cars. And in their homes. Better TVs with more Internet and communications capabilities will be bought. Cars with more silicon chips are certainly coming. So are fancier cameras, more sophisticated home entertainment systems and a lot of other things. A lot of routine chores — particularly shopping — should be made easier and faster. But when the truck pulls up to the front door, it won’t be a digital truck, but one made of steel, rubber and plastic. And the packages that are delivered will be boxed in paper products…and will contain tangible goods, not just 1s and 0s.
High tech cannot exist in a pure state. It is an unstable element that needs to bond with the real economy.
Even at the retail sales level, the Internet is being integrated into the traditional channels. A recent survey showed that only 3% of auto sales were made over the Internet last year. But 40% involved the Internet at some stage. Customers typically went on the Internet to find out more about the cars and compare prices.
The high tech will become a component of the real economy, in other words. It cannot live on its own forever.
Bullish analysts maintain that capital is leaving the Old Economy to take up residence in the new one. That is literally true. But it has little to do with a shift of real wealth…and a lot to do with why the Nasdaq is a bubble. Two-thirds of the net inflows to equity funds last year went to just two management companies — Vanguard and Janus. Vanguard is primarily an index tracker. Janus is a leader in high growth funds.
Either by indexing openly or secretly, fund managers feel they cannot afford to stay away from the New Economy stocks. They’re the only ones that are still going up! So they dump GM and Owens Corning and buy the techs and Nets.
Indexing forces the funds to become momentum investors — whether they intend to do so or not. As a sector grows in size, indexed portfolios have to be rejigged to reflect the higher capitalizations in the favored sector. This has the effect of amplifying whatever trend is under way. It has nothing to do with any fundamental economic shift. It is merely a signal of over-hyped market.
But the forest of investment information is so thick — who could be blamed for not noticing?
On The Eurostar February 29, 2000
*** The buy-the-dips rally we expected was weak and irresolute. The Dow gained 176 points. But breadth was poor. Advancing stocks were slightly outnumbered by declining ones. Worse, there were only 34 new highs against 217 new lows.
*** As badly as the Dow has done this year, it would have done a lot worse had it not replaced Old Economy stocks such as Chevron and Union Carbide with Microsoft and Intel.
*** The S&P was up slightly, too, but the Nasdaq was down a little. So it was hardly an impressive turnaround. Just a bear market rally…and not a very good one at that.
*** The Internets, generally, were down. MSFT was up to $91.
*** Gold was down a little, too. I don’t think gold’s hour has come yet. The European press is full of hand-wringing over the plunge of the euro. Remember, the most likely trend is rising euro, rising gold, falling dollar. But either the market is not ready — or I’m just wrong about the whole thing.
*** By the way, if you’d like a copy of Paul van Eeden’s excellent report on gold, just contact him at email@example.com. Paul argues that the price of gold corresponds, inversely, with the foreign exchange value of the dollar. The dollar should go down with the stock market. So gold should rise. Patience.
*** Richard Russell reports that when he was on Wall Street in 1947 the volume on the NYSE might be about 2 million shares a day. Now it’s about 800 million on a typical day. Since ’47, the U.S. population roughly doubled. But share trading volume has gone up 400 times.
*** The high on the Transports was recorded on May 12, 1999 at 3,783.50. The index is down nearly 40% since then. This is pretty serious. Plane, trains and automobiles are hurting.
*** The Internet boom is worldwide. The “Economist” reports that the United Kingdom’s Net hero is a 27-year-old woman whose company, Lastminute.com, had revenues last year of only $4 million. She’s expected to be a billionaire when the company goes public in the near future.
*** In Japan, a mobile-phone retailer with Internet pretensions has risen 70-fold in four years. Another Internet conglomerate, Softbank, is now trading at 100 times forecast revenues, while the market as a whole is still down about 40% below its high of a decade ago.
*** I’ve heard of companies that are undervalued, but here’s a company that has NEGATIVE value: a large supermarket chain in Japan has a total market cap of $32 billion. But the company owns 50.7% of the 7-Eleven franchise, which has reinvented itself as an Internet play. That shareholding alone is worth about $50 billion. Could these numbers, from the “Economist,” be right? This means the whole supermarket chain is worth NEGATIVE $18 billion.
*** I’m on the train up to London. I brought my passport this time. In fact, the train is passing through a tunnel at this very moment. “Glued Ballast, Do Not Slue Track,” says the sign. That must be English for something. Okay by me; I wasn’t planning to slue the track.
*** True to reputation, it is raining on this side of the channel. Hmmm…here’s something interesting in the “Times” of London. Anglican ministers are fretting about “clergy stalking.” Female parishioners are apparently offering or demanding affection from their poor clergymen, trapping them in the spread, as it were, between bid and ask. “It can be excruciating,” said one churchman who wished to remain anonymous.
*** And here’s another item, this time about an American churchman, Pat Robertson, who complained that Scotland was a “dark land” pandering to homosexuals. The “Financial Times” also reports that Mr. Robertson attacked McCain backer Warren Rudman as a “vicious bigot.”
*** There is no more popular calumny these days than the charge of “bigotry,” and it seems that no statute of limitations applies. I note that the “Times” also levels the charge against Pope Gregory XIII, who has been dead for more than 400 years. Nevertheless, he is said to have been a “bigoted Pope, who even cheered the massacre of St. Bartholomew’s Eve.”
*** But Gregory did what he had to do. In particular, it is to him that we owe today. This, the 29th day of February, which comes to us as a quadrennial bonus every Leap Year, was added to the calendar in 1582. The English did not pick it up until nearly two centuries later, and then only after riots. The Russians, always backwards, didn’t adopt the Gregorian calendar until the Russian Revolution in 1917.
*** “I’ve had it with the English,” said one of our French neighbors out in the country. “They come over here, buy up the property and make no attempt to speak the language or fit in. They seem to become more British, not more French.” British farmers are invading the Poitou area, lured by farmland that is about one-fifth the price land in Britain. French culture and British culture seem completely incompatible. How will they ever get this European union to work?
*** Perhaps nowhere are British farmers more British than in Zimbabwe. As reported in this space, the people of Zimbabwe spoke in recent elections. They said “no” to Mugabe and his new constitution. But so what? Mugabe says he’ll seize white farmer’s land, without compensation, anyway. He promised to give it to his guerilla war veterans. The veterans aren’t waiting; they’re threatening to seize the land themselves.