by Dana Blankenhorn
  Volume IX, No. XXVI

This Week's Clue: Spotting Bubbles

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This Week's Clue: Spotting Bubbles
SSP (Shameless Self Promotion)
Best of the Week
The American Diaspora
ZDNet Open Source
Clued-in, Clueless

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For the Week of June 27, 2005

I saw the dot-bomb coming with the launch of this newsletter in 1997. It came in the form of the Internet stock bubble. Everyone else thought it pretty. I thought it dangerous.

Had you taken my advice then you missed most of the run-up to AOL's purchase by Time Warner in January 2000. You missed Yahoo and CMGI, Excite and Amazon at $300. You also missed the spectacular losses that followed.

So how does he do it, you ask. How does Dana spot bubbles so quickly?

It starts with being hyper-sensitive to them. I was fortunate for most of my life to avoid living through recessions. Instead of hanging around for the 1973 Arab oil embargo in New York I went to Houston, which boomed throughout the decade. Instead of hanging around the the bust after that boom, I came to Atlanta.

This was not genius. It was dumb luck. My dad chose to move to California in 1973, and I was accepted to college at Rice. I lived there through most of the resulting oil boom.

I began to notice signs of a coming oilpatch collapse as early as 1978. There was a frantic nature to the construction, even to the driving on the freeways, that troubled me. Potholes weren't being filled. No one was thinking of how all these buildings would knit together to build a city. It turned out some weren't even worrying about whether they would stay up - the shoddiness of the construction work was really startling.

One dominant feature of the local landscape then was a series of huge garden apartment complexes built directly onto farmland in the southwest section of town. These were rented out to the young go-getters flocking into the city, but they were not built to last. The walls were flimsy, the pipes were ready to burst almost as soon as they went in. I was covering business then, and I saw how they were built. The young men and women in those apartments all figured they'd be out and rich before anything bad happened. It was quite the bacchanalia. The hot humid air was heavy with musk.

I distrust musk. It's not that I'm prudish. I just don't like to make big decisions under the influence of a passing fancy. I was also fortunate in that my own relationship, even then, was solid and based on a friendship that still endures. My bride and I both believed in planning, in looking some years ahead, and I smelled a heedlessness in those apartments that troubled me.

All this came together in 1980 when I heard a University of Houston professor speak on some economic projections he'd made about local conditions. He said he made them based on rising oil prices, steady prices and falling prices. In every case, he said, Houston's economy fell. (And the answer to his pricing question was that prices, in fact, fell from $30/barrel to under $10.)

That was enough for me. I became desperate to escape. I found a job in Birmingham, at a daily newspaper called the Post-Herald, and grabbed it. I left Houston June 1, 1981. Houston's boom ended that month. By the time I returned for my bride, two months later, people were definitely hurting. By the time I asked for my old job back, two months after that, it no longer existed, and there were lay-offs imminent. Fortunately my boss said there was a place for me in Atlanta, and that's why I'm here.

My brief sojourn in Birmingham gave me my first real taste of a recession. I had a job and felt secure, but the heavy feeling in the air, the despair among the people, was palpable. The place was quiet, too quiet. On weekends I would ride my bicycle from Birmingham to Bessemer, past the U.S. Steel factory, and you could almost feel the hopes collapsing. Grand old homes were losing their paint, the yards going to seed, and there were cars up on blocks in front of them. Each home might be worth a fortune back in Houston, but here they were worthless. The shopping centers were empty, even the fast food stores boarded up, and the attitude of the business leaders I talked to was of resignation. Everyone was worried about maintaining the pitiful remains of what they had, few people were looking forward with anything but fear.

I got another taste a few years later, when we went back through Houston on the way to see my wife's parents. Those apartments had become what's now known as the Gulfton Ghetto. The young go-getters had been replaced by poor people. Hunger that had been directed outward was directed inward, and the place was a war zone. The billboards were now advertising churches, and there was a permanence to the high steel fences going up around town. They hoped to cage the rage outside. In fact people were building their own jails. Eventually Hispanic immigrants replaced the urban poor, but the area remains among Houston's poorest to this day.

You can see economic conditions, feel them, hear them, touch them, almost taste them. If you stop and observe, you can tell when things are going great in a place, when they're going well, when they're lousy. The greatest danger, I found, lay in when they're going great. Booms are a temporary condition, always followed by bust.

So I learned to be cautious around booms.

This may be why I was so suspicious as the 1990s progressed. I had joined the staff of Interactive Age in late 1994, but I had been covering the Internet for 10 years before that, and there was never enough money. Networking was great on a personal level, but its financial rewards were unproven. The magazine folded in mid-1995 because we could not find enough Internet advertisers to keep it going, if you can believe that. But there was a buzz in the air of all the industry events I attended, an exultant feeling of something great starting.

My employers at CMP Media missed this entirely. Had they kept the magazine going just a few more months, The Industry Standard might never have gotten going. You can be too early to a party, just as you can be too late, and both are from a business standpoint equally fatal.

It was easy to find a profit by the time I was laid off, in March 1997. I just hung out my shingle here, started writing, and answered the phone. From the first I warned of the coming bust, but this did not stop editors from hiring me. There's still a sheet of notebook paper thumb-tacked to the corkboard of my desk, listing all the gigs I had during the boom, each name crossed out as it ended. Boardoom paid me $500/month to consult with them on e-commerce. Pete DuPont's Intellectual Capital paid me $500/month for a column on Internet politics. An outfit called OneChannel paid $1,000/month for case studies on business-to-business e-commerce. And so on. At the bottom is a total, $7,450. Those were my peak monthly earnings, not counting "door prizes," my term for extra projects, feature stories and the like, that padded my income further.

I brought my doom-and-gloom attitude to all of this work but the checks came in anyway. Often I was paid travel expenses on top of my fees. I attended several Jupiter and Forrester meetings in New York this way, and enjoyed the song-and-dance. One vendor, CMGI, hired out The Supper Club in midtown Manhattan for a party during a Jupiter conference, and brought in Big Bad Voodoo Daddy to entertain. I was wearing a fedora and a gray suit at the time. Many confused me with a member of the band.

I learned an important lesson from this. Don't take things so seriously. Stay frugal, invest in education. These lessons got me through the ensuing recession, and have brought me to this place.

Once again I'm seeing a bubble, but as in the late 1970s oil boom I'm just covering it, not participating. The streets of my neighborhood are filled with pick-ups and SUVs, most with W bumper stickers, the badges of young real estate speculators on the make. Most don't live here. They have McMansions in the suburbs. They won't make it.

There is an exception. My next-door neighbor. He owns a lot of houses, but he stays in one of the smallest, the one next to me. A saint named John Flint, who lived to 102, raised 8 honorable children, and worked in the same place for 60 years watches over it. His wife keeps him grounded. At one point she wanted to leave him. But he's attached to her now. He stays close to his little daughter, and he doesn't over-spend his income. Since coming here he's become far more conservative with his money. I think he'll make it.

He won't enjoy the boom as much as his friends, but he'll enjoy the bust a lot more.

The lesson in all this is you have to learn that you and the economy are not the same thing. Booms past. Busts pass. People, relationships, and family abide, if you keep your eye on those things that count and not on the trappings of your time. If next week's issue is late, or this week's blog output is small, it's because I'm in Texas right now, honoring my wife's family, which is now my own.

So watch the bubble. See it grow and grow. See your reflection in it. Just don't take it seriously, because you know it will pop. And when it does, make sure you have stories to tell. They will keep you warm on the cold economic days to come.


Shameless Self-Promotion

I'm now helping to produce a special blog on Open Source for ZDNet.

I work as a freelance writer in Atlanta, and am on the development team for EgoScout, a new kind of mediator for mobile phone users.

My last non-fiction book, "The Blankenhorn Effect" won the Computer/Internet category in the 2003 Independent Publisher (IPPY) awards. Write me for a PDF copy of my latest novel, "Baptists are for Dunking."

On my Mooreslore blog I've written a new novel, "The Chinese Century." It's a story told in real-time, with real characters, but entirely fictional, dealing with the consequences of the falling dollar. I'm beginning a sequal, "American Diaspora," exploring the themes of the first book but with more fictional characters. It's a true alternate history, but set in the present day.

You are encouraged to forward this newsletter widely. And if you have trouble subscribing let me know. Remember: it's journalism that keeps the Clues coming...


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The American Diaspora


Table of Contents

ZDNet Open Source

Daniel Robbins' Long Journey to Redmond

Is Open Source a Scam Against Itself?

Nokia Enters the BSD Camp

The 80-20 Problem

Never Say Never in Predicting the Open Source Future


Clued-in, Clueless

Clued-in was probably your dad, whether you knew it or not.

Clueless was you, when you didn't listen. Hope you told him that last Sunday.


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