By DAVID MOON, Moon Capital Management,
June 3, 2007
When gasoline crossed
the $1-a-gallon mark in 1979, the pumps down at Waters Grocery store in
Meridianville, Ala., were like basketball scoreboards that only went to 99.
pumps couldn't handle prices above 99.9 cents a gallon, so stations had to price
and pump their gas by the half-gallon until new pumps could be eventually be put
The old men
down at Waters advised me that gas would one day be $3 a gallon. Like New
Testament writers expecting the Second Coming, they expected it sooner rather
perverted sort of way, it's a shame they never got to see their prediction come
despite the economic wisdom and checkers skills of those old men, they would
have never predicted that within 25 years water would cost more per gallon at
Waters Grocery than gasoline.
that eventually required pump replacement at Waters were generally thought to
date back to 1973. That's when the Arab contingent of OPEC instituted an oil
embargo against the U.S. and other countries that had supported Israel in the
Yom Kippur war.
increased from less than $3 a barrel to $12. Gasoline prices tripled in a matter
pretty commonly known history.
rest of the story.
prior to the oil embargo, Richard Nixon pulled the U.S. out of the Bretton Woods
system of fixed foreign-currency exchange, otherwise known as the gold standard.
World War II agreement to manage currency fluctuations, the U.S. dollar had been
fixed at $35 per ounce of gold, thus artificially limiting price increases among
commodities whose prices would otherwise be closely related to
standard was a de facto currency cartel among the industrialized world. From
1944 until 1971, Bretton Woods kept an artificial lid on the price of oil,
creating pressure that ultimately erupted with the embargo of
hold a beach ball underwater forever.
began to skyrocket in 1973, the initial result was that 29 years of pent-up oil
prices were unleashed.
As with all
asset price corrections, however, the market overreacted and prices continued to
anyone woke up one morning in 1973 with the epiphany that for 29 years oil
prices had been kept artificially low and needed to rise to reflect the actual
cost of production and general level of price increases over that
event that precipitated the price move was completely unrelated to the cause of
almost always are.
the collapse of technology stock prices in 2000. In hindsight, it is easy to see
that it was long overdue. In fact, I don't know of an investor who doesn't now
claim to have predicted the decline, and usually at the absolute market
But the pin
that burst the bubble wasn't some analyst who finally demonstrated that the
technology market had no clothes. That would have been rational. At the
extremes, the market isn't rational.
of the decline was Microsoft, in reaction to a Department of Justice case
against the company alleging certain abuses of monopoly power.
software giant began to decline, so did the rest of the tech market. The right
thing happened for the wrong reason.
David Moon is president of Moon Capital Management, a
Knoxville-based investment management firm. This article
originally appeared in the News Sentinel (Knoxville, TN).