Monday, 14 December 2009

Future expectations

WE all remember the dotcom boom.

Who doesn’t have any memory of those heady times, when share prices of heretofore unknown companies rose to stratospheric levels? When any company with a dotcom after their name could simply do an IPO and their shares would just sell like the proverbial hotcakes?

All to do with future expectations, as we know. Everyone who bought any of those overvalued (as we now know them to be today) shares were of the same mind that at some point, what they were buying would be worth far more than what they paid for.

After all, no one invests in anything to make a loss. The rationale for any investor in buying any asset is always that at some point in the future, that asset is going to make a return for the investor.

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Question is, how far off into the future will those expectations hold? How far off is the investor’s horizon in deciding whether what seems not to be too valuable today, would suddenly turn and become very valuable in the future?

The answer is – it depends.

On what, might we ask, does the answer depend?

Well, mainly on how long those expectations remain positive.

A bit of an evasive answer, right?

Well, not really.

Witness the current financial crisis. For a number of years, asset-backed securities, securitized by American mortgages, seemed to be bullet-proof. As the popular belief went, who does not need a house to live in? And if this were to be true, then surely mortgages would be an eternal fountain from where untold wealth for all would spring.

And spring it did, until late 2008. For when the whole world collectively realized that although everyone needed a home, they still had to be able to afford to buy one and pay for it (and it seemed that many Americans had become unable to do the latter), then, the whole myth of high expectations collapsed.

Which brings me to the issue of President Barrack Obama’s Nobel Peace Prize.

Even in his very own acceptance speech, Obama was humble enough to admit that by any stretch of the imagination, he was not deserving of the award – or at least not yet. He had not done enough to spread the word of peace across the world, and therefore had no business being in that podium, at that point in time.

Obama, more than most American presidents who came before him, has benefited greatly from future expectations. And understandably so. As his country’s first non-white president, many of his countrymen – white and non-white alike – look to him to be able to do almost superhuman things, and right many of the wrongs that all of his collective predecessors could not.

But the weight of future expectations is a heavy burden to carry. Many of the dotcom companies who enjoyed the heady days of yore know this only too well.

A large number of financial institutions that made a killing packaging and selling mortgage-backed securities are also only too aware of its perils.

Which is why Obama must do all he can to be able to deliver on his future promises. Or risk falling on his own sword, and be impaled by the weight of unfulfilled expectations.

(Belated greetings to my son, Jacob Anthony, and sister, Aleli, who celebrated their birthdays on the 26th of November and the 6th of December, respectively).
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Published in the Sun.Star Cebu newspaper on December 14, 2009.

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