Saturday, June 24, 2006

Lag Effect

Last night while I was trying to sleep after a very long workday --see the last post-- I was thankful that I did overwhelm my body with coffee. Unfortunately, at times I have loaded up while studying and heard my own heart pound and stayed up much longer than required. It is difficult to calculate how long the stimulant will last over how long it is required for and how much is needed to stay awake for that required time. The lag effect of the economy, however, is much more difficult to predict.

This thought originated yesterday when I was cycling to work and saw all the new construction in Victoria. "Will there be enough demand?" was my question. The lag in construction is considerable, given the time between planning and finishing. I think most of the mid-to-late eighties when many lost there shirts being spread to thin or investing too late. When does the wave crest and when does it break? There is time, if you can surf well enough, to get out even at this latter stage; if, however, you ride it too long you will be washed up on shore and have to take the long and hard journey out to the swells. The fear of missing activity compels one to push on and assume that demand will not be quenched : what if more people move here? If you drop in late you are toast, so I would ignore the "what if" and wait for the next great swell. I was, however, proven wrong about interest rates as I predicted they would have started to rise long before they did. The signs of the Reagan era are here : high defence spending and high gas prices (although they have a diminished effect on inflation to the eighties recession). I do not monger fear, but recommend not taking uncalculated risks based on unceasing demand : just look at all that fiber-optic cable that has not paid for itself ten-years later.

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