Over the past decade, the US economy has seen rather drastic market swings in the stock market and real estate. This process was started by the runup in the tech sector with the Dotcom "bubble" in the late 90s. Prices got overinflated, and the arm of the pendulum was pulled far to one side as everyone jumped on the bandwagon looking to make a fortune on the Internet craze. In early 2000, the bloom started to fall off the rose.

Compounding the woes of the Dotcom shakeout were a number of high profile corporate scandals (Enron, etc) that shook investors' confidence in the stock market. And, of course, 9/11 shook our confidence to its core. This perfect storm wiped out fortunes, emptied retirement accounts, and caused a mass exodus of capital from the stock markets.

Where did this money go? Real estate. People had to put their money somewhere, and with the market on the outs, real estate seemed like a safe, solid bet. But, as we saw in the late 90's, when too much capital flows into a market too quickly, prices tend to get overinflated. And that's exactly what we saw, 40-50% annual appreciation in some markets and ridiculous gains as the pendulum swung all the way to the other side in real estate.

Pendulums being what they are, however, it wasn't to stay there long, and soon it swung back in the other direction, leaving huge builder and resale inventories on the market. This is where we are today. Because of the lack of liquidity in real estate, it is taking longer for this latest shift to occur, but gradually, we see the stock market rising, with the Dow Jones approaching 14,000.

Will the pendulum swing too far once again and overinflate the stock market? It certainly bears watching. Until this pendulum between the stock market and real estate comes into balance, fortunes will be made and lost. Knowing which way it is swinging should help you determine how best to position yourself in turbulent times.

When the capital flows into the stock market, as it is now, raising funds to start a business becomes a much easier proposition. So watch the pendulum and time your startup or expansion to match, for this will make capitalization a much less difficult proposition.

Todd Smith, Managing Director

Blue Horizon Venture Consulting

www.bluehorizonvc.com

904-372-9222