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What the Stock Sell-Off Means for Silicon Valley

| August 8, 2011
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Downtown San Jose. Photo by: Helene Labriet-Gross/AFP/Getty

Downtown San Jose. Photo by: Helene Labriet-Gross/AFP/Getty

The stock market drop is the news of the day. So what does the down graph mean for the Bay Area? The immediate consequence was the stocks of many big local companies dropped.

For one take on larger picture, I called Christopher Thornberg, a principal with San Rafael-based Beacon Economics.  He had two predictions for Silicon Valley.

“There has been a lot of liquidity sloshing around the world economy and that has started to move into San Jose and started to move into social media,” he said.  “You’ve heard about the mini tech bubble that we’ve been in, well that was driven by money looking for returns. A lot of that money is now gone and as a result that little tech bubble may come to an end.”

Tech business might have a dimmer view of the economy going forward and may be more hesitant to invest capital.  But Thornberg says that’s unclear. “That’s a maybe, maybe not… [business investment] really hasn’t bounced back the way you might have thought given the big bounce in the stock market.  So it’s unclear that the stock market going back will take a lot of oomph out of there.”

As for the big picture, he’s somewhat reassuring: “The old ditty in economics is the stock market has predicted nine of the last five recessions, I think this time around we are in one of those four.  The market is freaking out but there are no massive imbalances in the economy that would collapse and cause a steep recession not that I can see at least.”

NPR’s Planet Money team more or less backs this up with a post called “Why S&P’s Downgrade of the U.S. Credit Rating Might Not Be As Bad As It Sounds.”

But for more reading that would make a pessimist happy, the Economist magazine had a piece a few months back on whether Silicon Valley is in the midst of a bubble here.  Spoiler, it ends with a crack about a bumper sticker that reads: “give me the wisdom to sell before it’s too late.”

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Category: Economy

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About the Author ()

Rachel Dornhelm got her start in radio at WHYY. After anthropology graduate school, Rachel lived in Uzbekistan working with youth near the drying Aral Sea. Rachel returned to radio full-time in 2001. Her work has appeared on WNYC, WBUR, Marketplace, NPR news magazines and KQED. Reach Rachel Dornhelm at rdornhelm@kqed.org.

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