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What does the downturn mean for gadget freaks?

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With news of doom and gloom coming at us from every side I would like to take a moment to look at the market as it stands and assess what a slow-down/recession will mean for us, the tech obsessed.

To recap, we are in this mess because of what amounts to a credit freeze. Companies that once could request “cash” to cover overnight expenses – we’re talking millions and billions of dollars worth of cash – are now told they can only withdraw a significant percentage less than they were previously allowed to access. This, in turn, reduces capital expenditures and slows hiring – if you can’t get a quick loan you can’t cover a new factory or a make a bigger payroll. This, in turn, slows large purchases and raises unemployment which, in turn, makes us all freak out.

The last recession to hit the U.S. and beyond came in 1987 but its effects were not felt until the early 1990s. When a recession happens, the factors mentioned above and a decrease in consumer spending create a sort of ping-pong effect, reducing the ability of companies to take risk and the ability of consumers to pick up new iPods. If I am wrong in any of these points, dear reader, please correct me. I’m writing this as an exercise to explore the ramifications of decrease consumer spending in the next 2-5 years or, given the worst case, the next decade.

The initial expectation is that sales of luxury goods will go down considerably, which, in a way, effects us techies. If no one is buying $5,000 gaming PCs – looking at you, Falcon Northwest – these companies will be force to drop prices or sell to another, larger company with the ability to protect that company’s assets in the long term. The hope here, then, is that prices will fall considerably although the consumer will probably not be able to stomach even mild extravagances in an uncertain market.

The digital revolution will definitely help us here, however. In hard times, entertainment and mortuaries are great investments. For our purposes, entertainment is of considerably interest. Because of the low cost to manufacture digital entertainment – relative to the costs of making and distributing physical media – music and movie prices could become quite affordable and the content provided will be of a higher quality. When you’re out of work you don’t have $10 to go to the movies. You do, however, have 99 cents to about $4 to rent a movie for a night. Selection should improve as well as entertainment companies give up and begin partnering with anyone who can supply eyeballs.

Also expect lower-cost devices from traditionally high-price brands, Apple included. I think Lenovo, Sony, Acer, and the other second tier brands – I’d put expensive hard-core gaming and design devices at the first tier, the aforementioned brands at a second tier while affordable Dell and HP would be at the third tier. This means a cheaper MacBook and less expensive devices like MP3 and media players.

Finally, expect a new “green” tech bubble to expand us out of this current malaise. Once the race for cheap solar and/or green jet fuel heats up even more than it already is – essentially when someone is so close to solving the energy crisis that everyone will be popping up to expand on the technology – we’ll all be feeling pretty good for a few years.

I’m obviously talking out of my ass here – I’m no econologist. But I’d love to discuss this in comments.

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