The DotCom Crash Revisited 528
woginuk writes "At 9:00pm GMT today , it will be exactly 5 years since the Nasdaq reached its highest level, 5048.62. From there on it has been downhill all the way. Most of us have been affected by it, one way or the other. The Guardian has a story looking back on the moment and succeeding events."
Real Estate Bubble - Stock Bubble (Score:4, Insightful)
Re:Real Estate Bubble - Stock Bubble (Score:3, Insightful)
Re:Real Estate Bubble - Stock Bubble (Score:5, Insightful)
If you buy stock in... say... Google, there's a certain intrinsic value because, if they were to liquidate, they'd have their racks of hardware, their office space, etc. There's money to be hand to buy up the patents and trademarks and everything else...
Much the same way as there's a certain intrinsic value in real estate. You need to remember that part of real estate is all about location, which is not intrinsic.
In both cases, the price you pay is the intrinsic value of the item, plus all of the abstract hard-to-quantify stuff. If all of the tech firms moved out of Silicon Valley, there would be a lot less demand for land in the area, for example. The value of the property goes down, even though "they aren't making more land".
Re:Real Estate Bubble - Stock Bubble (Score:5, Insightful)
Uh, last I checked, you buy a property in Manhattan, whatever happens to the real estate market, your property is still in Manhattan.
Location is intrinsic. The value of that location is not intrinsic, but that value itself is linked to intrinsic, er, properties (for lack of a better word). For example, New York was built where it is because it is on top of one of the greatest natural harbors in the world. That is never going to change, so the value of a particular property in New York will likely not fluctuate all that wildly - it does have a certain intrinsic value based on physical properties of the location that will never be altered.
Beyond that, I just don't think there is any comparison between real estate and stocks. When you buy a stock you are buying a piece of paper - you're no longer even buying the promise of dividends (which is why people used to buy stock), because most technology companies have chosen to forego dividends and instead reinvest that money into company growth. The unspoken expectation between company and investor is that eventually there will be a dividend payout and all that investing will have counted for something, but this expectation was sort of turned on its ear during the dot-com bubble and people started investing instead with nothing but the expectation that the stock would go up. They had no idea why they were actually doing it; it was not based on anything.
Then we had the crash, which knocked some sense back into these people. Those who argued that you buy stock based on company fundamentals and not speculation were vindicated. Something similar could happen in real estate, but never on that scale because after all, when you buy real estate you are buying a tangible asset, not a piece of paper that is already priced based on the expected position of the company five, ten, even twenty years in the future.
In both cases, the price you pay is the intrinsic value of the item, plus all of the abstract hard-to-quantify stuff.
This is not at all true. When you buy stock you are not paying for the intrinsic value of anything. You are paying for the expected future intrinsic value of a company, based on its P/E ratio.
To make stocks and real estate equivalent, a seller of a home or a piece of land would have to say to you "this home may only be worth $300,000, but I am going to charge you $2.4 million because that is what I believe it will be worth 20 years from now." Obviously, nobody buys real estate like this, but it is exactly the way people buy stocks. Stocks have a certain level of inherent speculation (even if you're buying "value" stocks, the P/E ratios are rarely less than 8 or so... with tech stocks they're usually more like 60 or 70), whereas real estate is always sold for what it's valued at today.
So the prices of real estate can go up and down, but because there is little speculation involved (unless you're buying undeveloped land in the hope that it will eventually be developed), there is little risk of a sharp downturn. That's as true now as it ever was. I mean, people have been saying for 100 years that real estate is overpriced, but how much do you think an average home built in 1900 costs today compared to what it cost at that time? Real estate prices will only continue to rise over time because there are only so many places to live in this country and a lot more people both being born and moving in every day.
Stock prices are really anybody's guess. They've trended upwards over time just as real estate has, but they've always been subject to severe corrections, bubbles and overall fluctuations than real estate has.
Re:Real Estate Bubble - Stock Bubble (Score:2)
I agree with you on that. But it's been a long time coming. I'm ready to buy, but I've been waiting for the bottom to drop out so I can swoop in. No luck yet. :(
Re:Real Estate Bubble - Stock Bubble (Score:2)
Re:Real Estate Bubble - Stock Bubble (Score:2)
Re:Real Estate Bubble - Stock Bubble (Score:4, Informative)
Let's use these numbers:
Rent information
1,100.00 Monthly Rent
15.00 Monthly Insurance
4.00 Annual rent increase
Home Purchase
222,000.00 Home Value
2,220.00 Annual Taxes
1,110.00 Annual Hazard Insurance
1,332.00 Annual Maintanance
5.00 Appreciation
Financial Info
185,000.00 Loan Amount
6.000 Interest Rate
30.00 Length of Loan
1.000 Loan Points
2,000.00 Closing cost
30.00 Years before sell
6.000 Selling cost
3.000 Annual savings rate
28.000 Your tax rate
Joint Filing Status
At the end of 30 years, here's how the numbers work out:
Rent Analysis
Years to Rent: 30.00
Average rent: 2,084.49
Total Rent and Insurance: 750,416.47
Home Ownership Analysis
Mortgage Payments: 399,300.65
Taxes and Insurance: 99,900.00
Maintenance: 39,960.00
Tax Savings: 126,462.18
Ownership Investment: 383,902.83
Rent vs Buy Analysis
Monthly Mortgage Payment (PI): 1,109.17
House Appreciation Value: 959,471.21
Proceeds Minus Costs: 901,902.93
Loan Balance: -0.00
Equity Appreciation: 864,902.93
So the renter will pay approximately 366513.64 more to have a place to live, and miss out on 478,000 in acutal profit. Enjoy renting.
Your calculations are incorrect (Score:4, Insightful)
Furthermore, you are totally ignoring the opportunity cost of investing in a house. It looks like you are assuming a $37K down payment. If you rent for those 30 years, you could apply that $37K to some other investment. Let's say you invest in an index fund in order to avoid taxes until you sell. At an average annual return of 11% [finfacts.com], you will have $847K at the end of 30 years, and that's just from saving the down payment! If you are paying more on your mortgage and expenses than you would be on rent for an equivalent place, then you also need to consider the opportunity cost of that money as if you had invested it in something with an optimal return. It will easily beat out the equity appreciation of $864K that you listed, and that is even before you factor in the multiple transaction costs that you left out.
All of this is using your questionable assumption that your equity appreciation will out pace inflation. Even so, renting is a pretty good deal. However, if your home appreciates at less than inflation, the numbers get much, much worse for owning. Historically low interest rates have allowed people to pay more for homes that they could in the past, but now that the Fed is returning interest rates to a neutral level at a measured pace, people are already unable to secure the same magnitude of loans they could not too long ago. Every single indicator points to prices being overinflated (which a fall in prices would resolve): historically low interest rates, historically high P/E ratios (purchase/rent), historically low savings, percent increase in median income falling (way) short of percent increase in median house prices, first time buyers priced out of the market, etc.
Re:Real Estate Bubble - Stock Bubble (Score:3, Insightful)
The average home may be owned for 7 years, but how many people that own go back to renting?
Nice try.
Re:Real Estate Bubble - Stock Bubble (Score:3, Informative)
Re:Real Estate Bubble - Stock Bubble (Score:2)
Further, since the prices will be lower than they are now, there will be those who will buy these properties at, relatively speaking, bargain prices, fix them up and then resell them for profit.
Capitalism at its best. Buy low, sell high.
To see some of the stories you've been missing, see my Journal.
Re:Real Estate Bubble - Stock Bubble (Score:5, Insightful)
Don't hold your breath waiting for housing prices to drop more than a couple percent, anyway. And even then, mortgage rates would be high, so it would be difficult to take advantage.
The key to success in real estate is simple: Buy Young.
Buy a house as soon as you can manage it, put down as little as you can, get as big a mortgage as your paycheck can handle, and buy in the nicest part of town that you can afford. It can be a financial load at first, but as the years go by, it gets easier and easier; your mortgage payments are fixed as your income increases (even if you just make inflationary raises, after 20 years those mortgage payments become relatively small). And the mortgage interest deduction is one of the great ripoffs of all time, you might as well take advantage of it.
I didn't buy young, to my eternal regret. I remember 20 years ago thinking, "$50,000? I could never pay that off." But if I had bought, I'd be living in a $400K house paying about $250/month for a mortgage.
Re:Real Estate Bubble - Stock Bubble (Score:4, Interesting)
This is not good financial advice. You are right, that an investor should start early to see the most gain (due to compounding). However, what you are advising is that someone go into more debt than they need to, "get as big a mortgage as your paycheck can afford," in order to invest.
For many years, this young investor will be paying someone else -- the bank -- rather than paying themselves. At the same time, the investor will has taken on a great financial burden, "[as much] as your paycheck can afford." Having put themselves into a bad position (they don't have much cash), they are now much more likely to fall into bankruptcy. Why? Because now they are more likely to have a cash crunch.
Further, all of this investor's eggs are in one basket. If their local real estate market turns sour, in particular at a time when they have to move, then they're in trouble.
I would advise the following. 1) start young. 2) take on as little debt as possible, as debt has a negative 5%-8% rate of return, and 3) diversify your investments to maximize your return over the long-term while minimizing short-term downturns.
--Pat / zippy@cs.brandeis.edu
Wrong. (Score:5, Insightful)
- It is remarkably low interest (below prime rate right now with many banks)
- The interest itself is tax-deductable, at least in the US.
On top of this, the alternative - paying rent - is markedly worse. You are basically flushing money down the toilet, with a 0% return.
The parent was indeed giving good advice. Your advice, however, is not prudent. Every year you delay getting a mortgage, is a full year of rent you could have been using to pay down one. Even if the interest rate on the mortgage was 15% or 20% (which it isn't), and even if there was no tax deduction (which there is), it would still be in your interest to get a mortgage.
Re:Wrong. (Score:4, Interesting)
Re:Real Estate Bubble - Stock Bubble (Score:4, Insightful)
My rule of thumb is that you want to look for a place where the highest portion of the value comes from the land rather than the structure. The land is what goes up in price, the structure actually devalues over time. A $100K house on a $200K lot is a safer investment than a $200K house on a $100K lot. And both are safer investments than a $300K condo.
This is really just a variation on the old principle of, "Location, Location, Location."
Condos do sort of scare me, I heard recently that 60% of new Florida condos are being bought by investors. That's a sign of a speculative bubble. But single family homes aren't quite as susceptible to that stuff.
Mortgages are simply a great deal, effectively you can pay 3-4% interest, and homes will always beat that over the long term.
Re:Real Estate Bubble - Stock Bubble (Score:3, Insightful)
How stupid is it to pay $10,000 in rent so you can deduct NONE of that amount from your taxes?
If you pay rent, you're making someone else's mortgage payment for them. They get all the equity you're paying for, and when you move you get nothing. Unless you're living in your mother's basement rent free, owning is the way to go.
I've owned my house for 3 years. When I was renting I was paying about $1,20
Re:Real Estate Bubble - Stock Bubble-Suicidal Econ (Score:5, Funny)
Ah yes, Decapitalism.
Re:Real Estate Bubble - Stock Bubble (Score:4, Insightful)
Re:Real Estate Bubble - Stock Bubble (Score:3, Interesting)
Governments can penalize you for not paying your taxes. What's your point?
Re:Real Estate Bubble - Stock Bubble (Score:5, Informative)
Re:Real Estate Bubble - Stock Bubble (Score:2)
wow.
Re:Real Estate Bubble - Stock Bubble (Score:5, Insightful)
That's precisely the kind of thinking that makes crashes possible. When everyone believes something is a safe bet, they discount risk more and more. Market phenomena often work themselves out over decades, which is beyond most people's attention span.
Take stocks for example. From 1980 to 2001, stocks were the right place to be. When a trend lasts that long, it changes people's attitudes. In 1980, most people were very nervous about stocks, because they had spent the previous couple decades sucking.
If you bought the Dow Jones in 1929, you had to wait until 1956 just to break even. And this isn't such a rare outlier. If you bought in 1966, you didn't break even until 1983. Once you include taxes and fees, it was more like the early 90s.
It takes a while for attitudes to shift. Despite the bubble popping, lots of people still believe that their 401k is going to grow at 7-10% per year. That's not necessarily true anymore.
America's economic fundamentals are troubling. We actually spend 5% more than we make. With no domestic savings to fund future growth (or even service our existing debts), we're dependent on foreign investors. And the foreign investors are getting very nervous as the dollar continues to slide.
Dow Jones (Score:3, Insightful)
Myth. (Score:3, Interesting)
The U.S. population is growing quickly.
This is a myth that is very untrue. While the population is still growing, it is not growing quickly. The growth rate peaked in the early 90's and has been slowing down ever since. If the trend continues, then growth will stop and start to reverse in about 5-7 years.
Think about it.. how many families do you know nowadays with more than two kids? Replacement birthrate for a western population is at least 2.2 children per couple. The numbers are offset a bit by immigr
Re:Increasing Population Needs Housing (Score:3, Interesting)
Here in Massachusetts, the population has actually been decreasing, yet house prices are way way up. Population is only one factor going into demand. Another is the price of capital - if interest rates go up, fewer people can afford morgages, and fewer houses will get sold.
Real short-term interest rates ar
Re:Increasing Population Needs Housing (Score:4, Insightful)
Not true.
Let's say that there is 100% inflation in the next 10 years. My house is worth a lot more on paper, but more importantly, my salary has gone up but my mortgage is fixed; it then consumes a lower percentage of my salary, giving me more money to buy toys.
The other advantage of an illusionary increase is that it gives you more equity. I put 0% down on my home, but recent price increases let me have 20% equity in it on paper. This let me refinance to a lower rate. My loan is for the same amount as it was, but my payments are $350 a month less.
Re:Real Estate Bubble - Stock Bubble (Score:3, Insightful)
You might be seeing a housing bubble if
it's significantly cheaper to rent than buy,
if people are saying that you can't possibly lose money,
if the cost of ordinary housing is beyond the reach of ordinary folks, even with two wage earners.
I think that California qualifies on those last two counts, at least. How is the rental situation? Is rent cheaper than mortgage payments for a comparable accomodation? If so, this might be a great time to sell your hou
Re:Real Estate Bubble - Stock Bubble (Score:4, Insightful)
Re:Real Estate Bubble - Stock Bubble (Score:4, Insightful)
Not in Iowa they haven't. Or most of the U.S. Only in certain very select areas of California where people have lost their common sense.
Re:Real Estate Bubble - Stock Bubble (Score:3, Informative)
There was a "market crash" in real estate in the early nineties. However, within a few years, prices had exceeded their previous peak. People did get hurt in the crash, no doubt, but those that were able to hang in there saw their investments pay off.
Re:Real Estate Bubble - Stock Bubble (Score:2)
Note that the real estate bubble is not limited to the United States. In many of the developed (and developing) countries around the world, real estate is significantly overpriced. See this article [morganstanley.com].
Tulipomania (Score:3, Insightful)
Even before the burst of the "Tech Bubble", my eldest brother, who owns a Canadian mutual fund company, was comparing it to the "Tulip Bubble", which brought down the Dutch economy in 1637 [wikipedia.org]. The obvious similarity between the two was rampant speculation brought on by greed and clouded judgement.
Or as it was nicely put by a judge who ruled that four leading investment banks were not to blame for stock market losses following the collapse of the tech bubble [analysts from Merrill Lynch, Goldman Sachs, Morgan
Re:Real Estate Bubble - Stock Bubble (Score:5, Interesting)
1. Foreign countries decide propping up the dollar is a bad bet, and so start pulling out, slowly.
2. Other countries see this and the acceleration begins, with no country wanting to be the last one holding dollars.
3. The fall of the dollar continues, picking up speed.
4. Interest rates get raised quickly to encourage foreign investment despite the weak dollar.
5. The real estate market collapses.
6. Taking the stock market with it.
7. The U.S. economoy goes into recession.
8. Bush White House continues spending on wars.
9. The recession turns into a near-depression.
10. The rich buy up houses and land and everything of value, at dirt-cheap prices.
11. The U.S. is now a sharecropper economy, with 90% of the population being renters, and the rich being the owners.
Re:Real Estate Bubble - Stock Bubble (Score:3, Funny)
12. ???
13. Profit!
Re:Real Estate Bubble - Stock Bubble (Score:3, Insightful)
2. This I have a harder time with. Our GDP is still the largest in the world. If some countries pull out, the countries left stand to make more money in the long run IMHO.
3. If there is a panic, but I have a hard time seeing that as I stated in 2.
4. Interest rates are going up, this is true but it will happen gradually. People dumb enough to get variable
Re:Real Estate Bubble - Stock Bubble (Score:3, Interesting)
Re:Real Estate Bubble - Stock Bubble (Score:2)
dolor
n.
1. Pain.
2. Sorrow; grief.
Re:Real Estate Bubble - Stock Bubble (Score:3, Informative)
There's a nice summary [economist.com] here. Sorry you had to leave Australia.
Hysterical? (Score:5, Interesting)
Well, that's a little bit strong, don't you think? The .com collapse was really tragic, but it was far from unpredictable, hysterical, or preventable. Just basic macro economics -- when there are economic profits [cornell.edu] (not just accounting profits) in a market then entrance is encouraged, and when these profits dry up then the market participants take a while to come back down to equilibrium, just likePavlov's [wikipedia.org] dogs took a good while to stop salivating when the dinner bell was rung.
I more agreed with Julie:
Boy, how true did that turn out to be?
Re:Hysterical? (Score:2)
I don't think he's saying it was unpredictable, hysterical, or preventable." He's simply stating (at least in that sentence) that it was precipitated by hysteria.
And while, yes, it's a function of macro economics, the scale of the rise and fall was certainly grounded in hysteria as people rushed in with *huge* capital expenditures with little understanding of how those expenditures would result in real pro
Re:Hysterical? (Score:3, Informative)
Another thing is that, day to day, the stock market is governed by emotions. It just happens that the emotions are Greed and Fear. And Greed is the positive emotion. =) And of course it's greed that drives the "Greater Fool" strategy of investment.
Over the long term, the markets tend to be rational and efficient. Not over the short term, however.
Re:Hysterical? (Score:4, Insightful)
A.) That's not for you to judge. Those people that shouldn't have had jobs in the first place hired people rightly qualified for the work. I know several software engineers that were laid off.
B.) A lot of people being out of work for over a year is tragic no matter how judgement was passed.
C.) We all would have liked for the economy and job market to remain that strong.
Everyone was guilty of hubris at the time (Score:5, Insightful)
"Those were incredibly heady days," he says. "Fun - absolutely. We thought we were making a difference. We thought we were getting out there, shaking things up, doing something no one had done before. We really were pioneers - buccaneers."
That statement demonstrates the two truths of the dot com explosion: on one had, we really did make a difference - we built a huge IT infrastructure in, essentially, the blink of an eye. On the other hand, that statement is packed with the hubris and exaggerated sense of importance that also permeated the time.
The analogy was often made in 2000/2001 of the Detroit auto industry and the development of the US national highway system. The same thing happened with scores (or maybe it was hundreds?) of companies popping up with the word "motors" in their name during the period. And now there are 3; the big 3 left in Detroit.
Not only that, but barring e-Bay and a few other notables, the companies that made it out of the bubble are ones with unique brand names: Google, Amazon, Travelocity, Yahoo!, and GoDaddy.
I also disagree with the apparent conclusion that there are no lone wolves anymore. The climate is better for a savvy lone wolf than it was even in 1997, I believe.
Who came up with the e-Idea of e-Appending e-E to e-Everything anyway?
Re:Everyone was guilty of hubris at the time (Score:2, Informative)
Re:Everyone was guilty of hubris at the time (Score:5, Funny)
Most sincere e-pologies...
Re:Everyone was guilty of hubris at the time (Score:3, Interesting)
Everyone was guilty of "K"ing at the time (Score:2, Funny)
They're working for the "K"DE project now.
IBM and Apple. (Score:2, Funny)
(The most prominent example is of course, eBusiness.)
But I believe that was after Apple started iLabeling iEverything with an i-I (iMac, iPod, iEtcetra).
Re:Everyone was guilty of hubris at the time (Score:3, Informative)
That analogy doesn't fit very well. By the time the US highway system was taking shape, most of the little car companies had long since died or were bought out by the big three. The age of "hund
It wasn't THE END (Score:5, Informative)
Re:It wasn't THE END (Score:3, Informative)
It means that if you look at a graph of growth, there will be a spike in it for the bubble.
If you take the start level of the spike, and the level to which it drops at the tail of the spike, and interpolate a line between those two levels, the overall growth rate remains the same.
i.e. the bubble was, in fact, a spike; it went up, it went down; everything else grew at the same rate.
This is in fact the most
Re:It wasn't THE END (Score:2, Interesting)
in that case (Score:2, Interesting)
What the Bubble Got Right (Score:5, Interesting)
Looks like the server's smoking already - you can at least get the text from Google's cache [64.233.183.104].
Re:What the Bubble Got Right (Score:2)
Looking back (Score:5, Interesting)
I remember there was a pretty interesting comparison to the railroad boom and bust posted here a couple of years back, unfortunately I couldn't find a link to it. I think the railroad boom came in two waves, the second boom started about 5 years after the first and was much larger, and the bust was more devastating too. So we could be in for another bubble soon.
Also, here is an interesting read [overclockers.com]. I don't see the date on the article, but the wayback machine has it on Mar 2001, so it was probably written right at the peak.
Woo hoo (Score:3, Funny)
We give away the Post-its, so we can GET BIG FAST.
5 years later... "Is Silicon Valley Back?" (Score:2)
Since that's from a blog... is it about the business of blogging? Are blogs the new dotcoms?
At 9:00pm GMT today (Score:3, Insightful)
So, half an hour before the closing bell. Maybe CNBC will go black for a minute, in memoriam.
Just for fun (Score:5, Insightful)
The biggest difference between the two is that California was not settled at the time and it was most difficult to get basic necessities. Otherwise, same shit different day. People think they can get something for nothing.
Re:Just for fun (Score:2, Insightful)
Re:Just for fun (Score:2)
Not all stocks crashed (Score:5, Interesting)
Downhill all the way? (Score:5, Insightful)
Wrong Date (Score:2, Informative)
A day late... (Score:5, Insightful)
Dot Com Litigation (Score:5, Funny)
At the time I thought it would be humorous to do my own IPO calld $2Bob.com*. There would be no business plan save that all of the money invested would be spent. The IPO sheet would also specifically state that investors should expect no return on their investment and that all of the money would be pissed away on quasi corporate frivolities. If I had been a corporate paralegal instead of a litigation paralegal I might have actually tried it;-)
*The fact that "$" is invalid for a web address made it all the more entertaining to my young self;-)
Worth noting (Score:2)
Of course, it's fun to realize that if you lose 80% of your investment, you have to manage a gain of 400% to get back to even. I'd say the corporations were paying for legislation that made it so hard for small investors to break even
(That's a joke, by the way; there's a smiley at the end.)
What the Bubble Got Right (Score:3, Interesting)
Tech needs tech people (Score:5, Interesting)
When we (my partners and I) merged our startup with another leader in our industry, everything at first was rosy. But within a matter of months, the misunderstanding of not just our business but also our tech, ended up being responsible for everyone running for the door. I, the principal technology guy, was out the door in six months. And needless to say, our product was dropped from their system within a year. Today? The VC's pushed everyone out and the company assets and name were transferred (from San Francisco) to east coast ownership.
Not to say I and many friends didn't have a good time during the days. In fact, when I headed off to a tech consulting company after the startup, I and my co-workers probably spent more time at parties than at the office. But, would I do that again? Probably not. While I'm still fond of the fast paced energy that was was it was back then, I look at ideas like Boo (jesus, esp those guys), Pets, and others of the time and think "ugh."
But I'm still hopeful for business on the net only because it has such a global reach now. One of my partners and myself are at round two of our startup lives. We're targeting the same industry, but with completely different tools. And one noticable difference is we're seeking no funding at all - which is good and bad. Like Graham suggests, we're goin lean all the way and tech guys are running the show. However, after almost a year of development on my part, it's starting to wear and the mantra now is persistence.
Everyone has their own story and unlike some I've come across, I'm glad the
I remember boo.com. It was downhill from there on. (Score:3, Interesting)
I generally was very upbeat at the time but even then thought that boo.com was doing some insane stunts and cutting it to thin for my taste. They were the first ones to incinerate on reentry afer their high-fly and they very well deseved to be the first. BTW: Their sad and sorry remains still exist. [boo.com]
I do still think the original concept would work. It just can't work the way they aproached it.
If (Score:4, Funny)
and you're too broke to hear it
did the money really exist?
Pretty lame article (Score:2)
Isn't Over Yet (Score:5, Insightful)
Re:Isn't Over Yet (Score:3, Insightful)
I believe the figures run 10% to 25% of current houses are sold for speculation. It isn't just families buying houses. You have people buying vacation homes, and other people buying properties to turn into rentals, to flip, and even *foreign investors* getting in on the chance to make money.
What happens when there isn't enough tennants? Not enough buyers? What happens when the speculators quit speculating and paying high prices? Will they freak out when the p
Its funny, I knew the moment the bubble popped. (Score:2)
economics (Score:5, Interesting)
It is often said that people who risk money by buying a stock deserve the dividends they get by the risk they taking buying the stock. This is kind of tautological within the economic system however. The economic system consists of corporations producing commodities (PCs, bread, a colocation rack) and exchanging them for other commodities - a few decades ago money backed by gold, nowadays money which is theoretically worth something because one can pay taxes with it. Corporations often produce commodities which no one wants, which is the main risk of capital investment, it's a loss. Virtually everyone recognizes this as true, from former GE CEO Jack Welch to socialists like Paul Sweezy. Thus, the economic system commits the error of misplacing resources. This error produces capital risk, and this capital risk is the common explanation of why people deserve dividends from capital investment, instead of, say, the workers at the corporation who created that wealth.
As far as the US economy, productivity was extremely poor throughout the 1930's, then from the mid 1940's to the mid 1960's were 20 years of enormous productivity. It began slowing down in the mid 1960's, and by the early 1970's everyone realized there was an enormous problem. Nixon went off the gold standard, imposed wage and price controls, and dismantled the Bretton Woods system. Productivity has been pretty poor since the mid-1960s, there have been arguments of whether it had a decent bump in the late 1990s or not. The late 1990s bump is obviously from the Internet, an R&D project the US government poured billions of dollars into from the 1960s until the mid 1990s, it was a state project (DARPAnet/NSFnet) handed over the corporations when it had been developed after 25 years of taxpayer funding. Anyhow, this long slowdown in economic productivity in the US has resulted in the average inflation-adjusted hourly wage in the US being below what it was 30 years before. Asia seems to be the only area with decent productivity growth in thw world, but that creates another problem of who is going to buy all of the commodities China is pumping out since the market is already saturated.
Re:economics (Score:3, Informative)
If this were true, there would be very few voluntary transactions. Most voluntary transactions take place because each party gains from the transaction, because each party has different needs, different desires, and different abilities.
Looked pretty obvious to me (Score:3, Insightful)
What amazed me was that it then went on to last another 9 months _after_ that point. I guess irrational exuberance can take you a long way before you realise that buying your cat food online and having it freighted to you isn't actually terribly efficient.
Seeing the effects right now (Score:3, Interesting)
The swanky office buildings now have such occupants as 'Bad Boys Bail Bonds' (no I am not making this up).
For the heart of silicon valley the
Downhill all the way? (Score:3, Insightful)
Well, no. Looking at the five-year chart [yahoo.com] would seem to suggest it was slowly downhill until the third quarter of 2002, followed by partial recovery through 2003, and a relatively stable index in 2004....
There's an argument to be made that it's been stagnant for a year, but the Dow has been the same way [yahoo.com].
Gratis (Score:3, Interesting)
Not done crashing (Score:3, Interesting)
And that's just the consumer side. Businesses are equally screwed. Look at the balance sheet for all the banks and financial companies. They are heavily debt financed, because money has been so cheap to borrow. The banks can not keep this up, so expect many of America's major financial institutions to falter or even crash.
As others have pointed out, there is a major problem with real estate evaluation. Across the board, everyone is overvaluing their assets these days. Consumers think their houses are worth way more than they are. Financial companies think their mortgage backed securities are worth more than they are. Banks keep fibbing about the asset value from their derivative investment strategies. It's NOT a pretty picture. Also remember that foreign investment is rapidly leaving the US, the dollar is plummeting (foreigners are smart enough to not invest in the US). etc. etc.
Documentaries of the tech bubble (Score:5, Informative)
If any of you want to remember the crazy days of the tech bubble check out the documentaries Startup.com [imdb.com] and e-dreams [imdb.com].
I still remember being somewhat tech savy, going to investors conferences and "not getting" how these companies that would never make significant money were commanding these valuations. It was like being in some sci-fi movie where everyone has been replaced by pod people.
Re:Get out! (Score:2)
I say, Out with the Anonymous Cowards!!! :)
Re:Get out! (Score:2)
Re:Nothing for you to see here. Please move along. (Score:3, Funny)
Re:Nothing for you to see here. Please move along. (Score:2, Insightful)
Re:Nothing for you to see here. Please move along. (Score:3, Insightful)
For what it's worth, I hate those people.
Re:Nothing for you to see here. Please move along. (Score:5, Informative)
QCOM (post split) 100 to 11, 90% decline.
RBAK Now 6.52. When you factor in all the splits it was something like 14,000.
CMGI - was 163ish now 1.92.
JNPR now 22.34. Sounds like an ok stock, until you realize its high was almost 245$.
And the list goes on. And on.
These examples are the definition of a bubble and a crash, a (hopefully) once in a generation event.
Holy crap. (Score:3, Interesting)
--grendel drago
Re:Nothing for you to see here. Please move along. (Score:4, Insightful)
If you look at the fundamentals of all the stocks you listed, with the exception of RedBack, they are pretty much where they should be now, based on P/E and EPS. JNPR still has a slightly high P/E, so there still may be some downward pressure in that stock.
Most investors, that understand the markets, knew that an adjustment was coming, it was just a matter of when. During the "boom" all regard for the fundamentals of a company were thrown out the window, and the valuations of a company's stock were outragious. Juniper, the company, was NEVER worth close to $245/share.
So while people got burned, and they may call it a "crash", most investors call it a correction or adjustment.
Re:Nothing for you to see here. Please move along. (Score:4, Insightful)
Every place I went people were talking about their fantastic dotcom business plan. I probably heard 2 or 3 'pitches' every morning while eating at the Denny's next to my Motel 6. I had to stay at Motel 6 because every single room at every single hotel (other than Motel 6) was taken. People were coming from all over the place to get in on this revolution.
Dinner, and going out was the same. Even at night-clubs everyone (even the girls) were talking dotcom this or that.
Then my class was actually worse. I was in a room with 19 other students. I was the only non dotcom worker, and the only one not setting his sights on making millions. (I am also probably the only one who still has his/her job.)
I met two people in class who were the 'Head Programmer' in their company, who did not even know SQL- yet they were being entrusted to create the sites that their business plan depended on. Oddly enough, the class was for Oracle Administrators, but there were there to learn how to pull data from a table. That was some sad mis-management.
After about 4 weeks in San Jose, I finally finished up my Oracle training and left town. I felt like I had to shower for a few days just to get all of the dotcom off of me, it was pretty sick. The focus on money, and the thought that people would become rich from a few months work was depressing. Of course I was also bitter that these schmucks were making a lot more money than I was.
Needless to say, I wasn't too upset about the bust.
Re:Around this time 2000... (Score:2)
Re:Around this time 2000... (Score:2)
So, the beginning of the bubble pop took place during Clinton's administration's oversight (or lack there-of).
Re:Around this time 2000... (Score:3, Insightful)
beat you about the ears with the following mantra;
it's made of fine hickory, but was imported from
the Dominican Republic.
(1) US Department of State "VISA Express" program
put unvetted Saudi Arabians on the fast-track into
the USA -- a Bush initiative.
(2) Relegated National Security Council Terrorism
expert Richard Clark to dark closet, while hob-
nobbing with Taliban representatives in Houston
and Washington over gas pipeline contracts.
(3) Cobbl
Re:B to C won out (Score:2)
Re:Ok, so maybe it is back on its way up... (Score:4, Funny)