Last week the stock market finally reached the apex of its clickety-clack roller coaster ascent. Now it's begun the free-fall into financial oblivion. So what does that mean for you, gadget enthusiast?
The Short Term
THE SKY IS FALLING. Well, maybe. And if your retirement is tied up in LinkedIn then you have my deepest sympathies. But a two-day stock market drop, however severe, does not a recession make. And surprisingly enough, tech stocks actually did relatively better yesterday than the market as a whole.
There some stock collapses that seem to come out of nowhere, some that are indicative of systemic collapse and some that can be traced back to a single catalyst. Given my druthers I'll take the latter, and that's what we're dealing with: stocks are down because one ratings agency downgraded US debt from very very very very very safe to very very very very safe. It's largely a semantic downgrade, one by the same joyously nattering dolts who thought subprime mortgages were a rock-solid, low-risk investment back in 2008. But when they talk, rightly or wrongly, markets listen.
Companies, though, are what you care about. Companies are what make products! And products — that new phone, that mirror-thin TV, that ridiculous "infotainment" centre that makes your car a death trap — are the things that actually affect your life in a tangible way. And two days of stock market disturbance does absolutely nothing bad your present and near-future products. In fact, it might actually work to your benefit.
Any gadget that's coming out this year has already been built. Period. It and/or its components are being manufactured now in factories in China. That money's already been spent. And any gadget coming out next year has already been designed, and resources have been allocated for its production. Could that budget be slashed? Sure. But it's going to take an actual full-on recession for companies to start reworking their books to that extent. A two-day stock dive, or two weeks for that matter, doesn't turn that dial.
What it does, though, is create uncertainty in consumers' minds, which makes them less likely to buy things. And since those things, those TVs and phones and infotainments, have already been made, they're going to end up being discounted heavily when they end up in stores. Companies made their sales projections when things weren't quite so gloomy, and they and their retail partners are going to have to slash prices to get that glut of products off their backs. So if you weren't that poor LinkedIn investor, what you're looking at, for the moment, is opportunity.
The Long Term
Of course, there are serious problems with the US economy. And if those problems persist, well, things get a whole lot gloomier in our little tech-addled corner of the world.
Go back to CES a few years ago, when CEA President Gary Shapiro took the stage to deliver his memorable keynote — and I may be paraphrasing here — "We're totally screwed." We'd been mired in a recession for months, with no end in sight, and companies had gone through layoffs, restructuring. But most of all, they'd stopped investing in R&D. They'd stopped innovating. And the products were, by and large, shite.
And it's not just the big boys — they'll tighten their belts a little, but the Apples and Microsofts and Googles have enough cash on hand to weather a major contraction. If anything, it's an opportunity to put a little space between them and the less-funded competition.
The problem is, it's that less-funded competition, the venture-capital-backed start-ups, the disruptive dorm-room widget makers, it's those guys that fuel so many break-throughs. And if we are headed into another recession, they're either going down in smoke or being bought up on the cheap by a behemoth that might just be absorbing them for their patents.
One last note: tech stocks may well have held up last week because we're in a tech bubble like the one that burst in 2000. And the fact that LinkedIn had such a mega-IPO seems a strong argument in favour of that. If that bubble blows up spectacularly, yes, that'll be terrible. People will lose their jobs, and that's something I wouldn't wish on anyone.
But in terms of what matters to you, Johnny Gadgeteer, remember that Amazon survived that collapse, along with hundreds of other companies that lived up to their valuations. I guess what I mean is: I don't miss Pets.com. I won't miss FarmVille. And if a reckoning is about to happen, know that however much chaff we lose, the digital wheat remains.