Never-failing, Ever-soaring, High-flying, Hi-techs - 7 April 2000

The following words are not mine, they were written by an English politician visiting New York City for the first time in 30 years.

"The housemaid who makes your bed is a stockholder on margin. Workmen of every class - brain or hand - the chauffeur, the tram conductor, the railwayman, the waiter - all have their own open accounts and so, very often, have their wives.

"The worker who deposits his 35% margin easily persuades himself that he possesses 100 units of capital. It all seems so good and sound and behind it lies the broad United States.

"And then suddenly the earth trembled, the chimney stacks fell crashing into the streets, and then came other shocks - thousands of millions of capital value were annihilated in 10 days.

"I happened to be walking down Wall Street at the worst moment of the panic and a perfect stranger, who recognised me, invited me to enter the gallery of the Stock Exchange.

"I expected to see pandemonium but these gentlemen are precluded, by the strictest rule, from running or raising their voices. They were walking to and fro like a slow motion picture of a disturbed ant heap, offering enormous blocks of securities at a third of their old price.

"It was refreshing to exchange this sombre and helpless scene for a window high in my hotel building but I looked out and under my very window a gentleman cast himself down - 15 storeys - and was dashed to pieces, causing a wild commotion and the arrival of the fire brigade."

That entry in Mr Churchill's diary refers to October 1929. Everything except the last two sentences could have been written at one o'clock last Tuesday afternoon.

In mid morning on Tuesday the president of a trading firm loaded with Nasdaq - the high technology stocks - walked into his office and shut the door and shouted at a colleague: "The game's over."

But it wasn't. The dazzling high technology stocks which for months and months had taken off as monotonously as a newsobig jet and soared as never before into blue skies - nothing but blue skies - at one o'clock the hi-tech stocks had plunged over 500 points.

Thus having spanned, in one day, the trading range of those stocks in the whole year of 1998. And by late morning the margin calls went out to the millions of people, usually new or newer investors, who've been excited by the market game - people who are now called on to return the money they've borrowed to buy stocks in the first place. Many, as you've guessed, could not.

One forlorn woman cried: "But all the money against the money I borrowed has gone too." Incidentally when your broker calls and asks for the borrowed money back, if you don't respond he may sell any or all of the stocks you have left.

The margin calls, overall, on Tuesday were anywhere from five to 10 times normal.

But - there was no but after the worst days of 1929 - but on Tuesday the most astonishing, unlikely, Hollywood-scripted thing happened.

The hi-tech jet that I pictured seemed only seconds away from the earth when the engines - for no reason anyone can plausibly explain - went into violent reverse and hi-tech was once more soaring up and up and recovered 500 of its lost 574 points.

And the industrial index, which has been dropping in inverse proportion to hi-tech's climb, plunged in sympathy - down by 500 points also - but it climbed back to within 50-odd of the start of the day.

Now this, even at the admission of Saint Alan Greenspan, the wizard Chairman of the Federal Reserve, is a wholly new puzzle and warns us that we are entered into an entirely new economy we don't yet know how to cope with.

The first expert assurance that this was so came only a month ago.

Many knowledgeable economists and financial experts - what we used to call "a school of thought" - explained the continued drop in industrial stocks as the hi-tech stocks went on soaring and soaring, they told us it reflected the arrival of what we are already calling "the new economy" - an economy based no longer on those old necessities, coal, oil, copper so on but, as one revered expert put it, "our energy comes more and more from electrons that flow through computer chips made of sand".

I've quoted that, I think, brilliant little phrase to old friends of mine - not of my generation, nobody alive is of my generation - but the next youngest and the one before that.

People in their 70s and 60s who are baffled by the news that the internet is transforming the life of ordinary people and will transform it as much as the Industrial Revolution.

Whereas that took a century or more for people to realise, the internet has taken hardly 10 years to affect life and labour and getting and spending and manufacturing and ordering and many, many activities we never dreamed could take place in anything but a shop or a department store - what they now call a "bricks and mortar" building.

This bewilderment, resentment even, of people who think of the internet as just a more convenient reference library is surely nothing new.

When the railroad came into England there was an educated protest against it. No less an intellect and a modern man than John Ruskin fumed in rage and he wrote in a famous speech: "You have filled every green valley of England with belching fire and smoke."

So old folks who are similarly reacting to the whole world of the computer look on and marvel at the young folks who, whether they know anything at all about stocks or the new economy, have been investing in it for the past five years or so, in, that is, those never-failing, ever-soaring, high-flying, hi-techs.

Until last Tuesday. "Wild riders" they're called.

It was only a month ago too that I quoted an editorial in our most prestigious newspaper:

"Technology, which depends much less on coal, oil, than manufacturing does, now drives economic growth. Accordingly Opec, the once fearsome cartel of oil producing countries, has become impotent and oil, the old king of commodities, seems to have no more power to sway the American economy in the internet age than cotton or copper."

Imagine that was only a month ago.

It reminds me of the published assurances of the best brains, the most important political leaders in the United States, only days after the final crash on Wall Street in '29. The President of the United States himself assured us that this huge decline was only "a correction", a pause, a bump in the road along the way towards "a plateau of permanent prosperity."

Well it's true that the Opec nations obliged, a little coldly, and promised more production and took the price of oil down from the $30 dollars a barrel, that made us beg for more oil and cheaper oil.

But the correction of last Tuesday was a thundering reminder that the new school of thought had jumped the gun of prophesy. That the Middle Eastern cartel is still fearsome, still potent - that, in short, oil is still our driving fuel and the age of the prevailing internet economy is yet to come.

One almost immediate reaction to Tuesday's shocker was the news - the sort of thing we haven't heard much of for years - of demands in Congress for more money for more and quick research into alternative sources of energy.

I think it must be, at least, 30 years since I last mentioned solar energy. But a big item in Thursday's paper was that the government proposes investing 50 millions now in frozen methane on the ocean floor.

We saw on the evening news an expert, unnamed, speaking 40 years ago, telling us firmly that by 2000AD 35% of the energy of this country will come from the sun - from solar rays.

So how much of it is there today - 2000AD? Three per cent.

Why? The question sends me back vividly in memory to a sunny afternoon in San Francisco in the late 1950s when I was invited by the then governor of California to go with him on an aerial trip down the coast, little more than 100 miles or so down from San Francisco, to look at a factory which was a harbinger, a promise of a golden future for California, a solution to a problem which for 100 years or more has been a problem for the far Western states, 60% of whose land is desert. The problem is water.

We flew down and landed near a coastal strip practically on the beach. There was a small white new little factory. It was California's first desalination plant, to suck in water from the ocean, take the salt out of it and distribute it endlessly to every parched supplicant.

What a prospect! The governor beamed and stretched out his arms as to a welcoming ship.

"Look at it," he said, "all the water in the world from now on."

Well I don't know if the plant is still there, if it does its humble best. All I do know is that desalination turned out, like nuclear fuel for motorcars, to be hideously expensive. The same was true of solar energy.

There's a renewed push to produce synthetic oil from shale and how about that old formula of hydrogen plus oxygen? Yes, money going into that too.

The sad and continuing fact is that to replace oil any new fuel has to be not only better but cheaper and so far we're still dependent on whatever the Arabs care to charge.

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