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Old 06-17-2022, 09:30 AM
 
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What are the differences and similarities to the stock market of today vs the tech bubble that burst in flames from March 2000 to October 2002?

Some say there were a lot more fake companies with no real value during the runup of the Nasdaq back in 1999 to 2000 as opposed to now. That's true of tech companies but what about SPACs today??

And the broader market PE ratios were very high and also contributed to the crash then.

They are high today and bear market seems to have just begun though could we be at bottom or maybe not? No one knows.

Some say well today the FED has the market's back. Well they did, but not only not anymore quite the opposite as they try and drive down inflation. Back then there was no such inflation running rampant.

But hear is the thing. They say you cannot time the market. And it is very hard to do. But saying Nasdaq was a good buying opportunity in Fall 2000 was a disaster waiting to happen. It took 15 years for Nasdaq to recover to its all time peak form March 2000 to April 2015 or something.

How are PE ratios now compared to then of SP500 and DOW?? Back then market bottomed and had dead cat bounces and worse bear declines all the way through late 2002.

What is similar and different about this market and fundamentals??
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Old 06-17-2022, 10:46 AM
 
Location: Victory Mansions, Airstrip One
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IMO...

The similarities are a few. There's been considerable speculative money going into NFTs, SPACs, meme stocks, cryptos. There's no intrinsic value, in the form of assets or cash flow, in most of these. In addition, there are "new era" stocks that had gotten bid up way, way above any sensible level. Most of these have now dropped 70%, 80%, 90%.

One other similarity is that small-cap stocks are significantly cheaper than big-cap stocks.

The differences. The enormous companies that dominate the market, by and large did not get such excessive valuations as they did in 2000. I remember looking through the DJIA back then, and honestly there was very little to buy. Companies such as Coke and GE had PEs in the 40s and 50s. Cisco Systems' PE was around 100 as I recall. Also, interest rates were much higher in 2000, about double where we sit today, which makes the excessive valuations even more dangerous.

Last edited by hikernut; 06-17-2022 at 11:50 AM..
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Old 06-19-2022, 08:44 AM
 
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There was real estate bubbles back then,so many new subdivisions with foreclosure signs,empty houses everywhere,but now there is a shortage of houses available for sale.
BACK Then there is no crypto mania,now we have many who have lost money in cryptos,the losses are much deeper and broader than the dot com bubble.
Back then food and gas were affordable,now ??
But now unions are flexing their muscles and workers are getting raises,WMT just raise wages for the pharmacist assistants to $20/hour
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Old 06-19-2022, 08:48 AM
 
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The differences. The enormous companies that dominate the market, by and large did not get such excessive valuations as they did in 2000. I remember looking through the DJIA back then, and honestly there was very little to buy. Companies such as Coke and GE had PEs in the 40s and 50s. Cisco Systems' PE was around 100 as I recall. Also, interest rates were much higher in 2000, about double where we sit today, which makes the excessive valuations even more dangerous.
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But these companies justify a higher PE by earning more,unlike some companies which always carry a high PE .
Take a look at Beyond Meat,Uber,Lyft,Door Dash,Zoom,Docusign,Etsy.
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Old 06-19-2022, 10:09 AM
 
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When the tech bubble burst, I was living near Silicon Valley (Bay Area, CA). Jobs dried up, layoffs were rampant. Finding a new job was dismal back then. Then, 9/11 happened, and that made the job situation even worse. The interest rate on my house was 7.xx%, more than double what I pay now.

It's really nothing like today, where companies are begging for talent and jobs are plentiful. This situation today came from the last several years of self-created economic policy pain in 2018 and the outcome of a worldwide pandemic in 2020:

- trade war initiated in early 2018
- tariffs hit products in many key segments and trickled right down to consumers, with some products prices increased >25%.
- supply chain issues started with the trade wars
- U.S. companies scrambled to move their manufacturing to other countries (and did not bring manufacturing back to the U.S.)
- Culmination of Q4 drop of nearly 20% by Dec 2018, the worst December ever in the history of the stock market.

Then the worldwide pandemic hit in 2020.

- Demand fell
- Production dropped
- supply chains slowed to a crawl
- Millions died worldwide
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Old 06-19-2022, 11:27 AM
 
Location: Silicon Valley
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From my humble standpoint, the .com crash was basically overdue and fueled by a massive influx of retailers and con artist companies looking to change things. If you went back a decade before, tech valuations were often some of the lowest. Cooperation was much less than now and companies vertically integrated much further than now. It wasn't enough to design a computer, you needed to design the printers and code the software and have resources to integrate a system into use. That model was dying, and the PC was emerging as the ultimate winner. With the deregulation of the Ma Bell system, and the first introduction of competition in telecommunications, this sped up this development. The Herculean task of being able to bring home shopping and news to an individual came not from start-ups, but in joint ventures with telecommunications with Sears and CBS who were looking to augment their traditional models. Yet, as companies slowly began to cooperate on a settled PC/Windows/Intel framework it opened the possibility of selling to anyone with significantly less labor. Nobody knew how to value these things, or even what a complete company looked like. A big lesson from the .com crash became getting to a place first as an investor....and computer geeks (just prior a negative word) suddenly became very in demand as everyone was seeing a shift in their workplace.



What it overturned was a mantra of wanting long lived products. A railroad would still be usable a decade later, while any tech gizmo would be long obsolete by then. The .com boom, fueled with the entrance of new retailers no longer put-off by trades that used to cost hundreds of dollars suddenly available for $15, increased volatility in the market. The prices of all equities soared, not just the tech ones. By the late 90's the country was humming along well. Impossibilities seemed within reach. The fall of communism allowed a peace dividend...and new supply chains as well as customers. Japan's lurking impending doom was fading. Free trade was opening up around the world. Loan securitization was becoming vogue. It was a rather exuberant time. Perhaps moreso than any other I've lived in.



Yet it was also the first time where I could potentially invest in securities with real money instead of play money. Yet things didn't make sense to me. PE's were highly inflated. Dividends had gone to nothing. I was a slow convert to the sensationalism of these new companies, and it served me well. Plus the Fed was raising rates, and everyone knew that meant a recession would not be far behind. Famed value investor Julian Robertson called it quits, returning $13B to investors saying he couldn't find a single value stock to buy.



At any rate, the mania popped....and when it did, money went to money heaven. The massive market runup melted back, and similar to what we're seeing with the newest batch of companies (even if they are better/further run than then) values plummeted, imploding not just the tech sector, but all their supply chain as well. The Fed looked set to cool things off and restore the dollar. We'd rotate through the business cycle, just as things normally work.


Then 9/11 happened. The nation went to war. The Fed did something weird....it began lowering interest rates, and the stock market stopped its freefall. Enron collapsed and took down Arthur Anderson with it. Risk adverse investors were only interested in prime products.....and the markets created supply to meet the demand with mortgages. Capital funneled into homes and those homes created ever larger mortgages. Military expenditures were increasingly being subsidized by the US over the alliance as, aside from her war on terror, the US remained the sole superpower....and then there was the promise of rapidly developing China to boot.



Most of us know how this ended. The basic equation here is that bad loans could be made good and thus home inflation went crazy as supply of debt never ceased. Add to it the Fed's acquistion of most of the mortgages and you have the mother of all whale trades. Until liquidity did evetually dry up, and we have the 08 crash.



This latest run-up was indeed driven by tech once again, but this time the companies were real companies. Better prepared, with actual revenues and they'd get released after more rounds of private financing and were more mature companies. Of course, venture capital became increasingly venture debt, and like all good finance stories, greed becomes insatiable, leaving these more mature companies with no path to victory as they are bogged down with tremendous debt. Even free standing companies feel the need to borrow to acquire shares, a practice once called manipulation, or risk being taken over by an Appollo group or similar, where they'll be saddled with unbelievable debt, cut to the bone and then released back out for public consumption. Again prices were propped up, maybe not for consumer goods, but in real estate, IP and at the end....wages. The cycle was already long in the tooth, and requiring Federal buying again to keep the bond market afloat when covid hit. The economy shutdown. Small businesses were crushed left and right. A massive stimulas once again brought a whole new generation of retailers to the market....and much of that money came into the stock market. Still, real damage has been done to the economy. Some jobs are not work from home, and those now all require much higher wages than they once did. Productivity is down, and we're starting to see the demographic shift of workforce participation rates. The latter is the most worrying, and why the bounceback has faltered.



So far our downshift has been orderly. The bond markets haven't frozen over. People can still get loans. Financial firms aren't closing and risking massive contagion to the system, but subtle changes are worth noting.



1. We have inflation. However, we are now importing inflation. US made anything has been inflationary for many years now, but import substitution has allowed this to not be as apparent as it will become. Between IP theft, policy, fuel and choked ports, a reversal of globalization may make inflation nearly impossible for the Fed to stomp out, as opposed to the early 80's where much of what was consumed was actually made in the US.



2. We each (almost all) have two hands....but will we use them? When inflation was last this high, there was a move into the workforce by every demographic group. A belief that getting in with a good company would allow one to move up the path and work towards a better position. Personal growth in a commercial sense was vogue. An increasingly large swath of the population has decided it would be easier for the government to simply give more entitlements and task the business community with making this happen.


3. The rerise of the robber barons. I have no chagrin for Musk starting several successful businesses. Yet I cringe at Amazon's scorched Earth expansion, or the lack of scope at places like Alphabet. As both hold $100B in cash reserves, that capital becomes unavailable to others. Just as Rockefeller used the railways as a weapon to shirk would be oil rivals, these anti-competitive practices risk harming all other industries in the long run. S. Korea's massive chaebol should serve as a warning of what could happen.


So while there are some similarities to the .com crash and this most recent bear market, I think better comparables could be had looking further back. Perhaps the 70's with her stubborn inflation....perhaps the 30's with the central bank hell bent on taking liquidity out of market after a rush of lending in the 20's.



It's bound to be unique, and I would imagine it's far from over.
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