Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Bitcoin Bull Market Bubble MANIA Rug Pulls 2024! - 19th May 24
Important Economic And Geopolitical Questions And Their Answers! - 19th May 24
Pakistan UN Ambassador Grows Some Balls Accuses Israel of Being Like Nazi Germany - 19th May 24
Could We See $27,000 Gold? - 19th May 24
Gold Mining Stocks Fundamentals - 19th May 24
The Gold and Silver Ship Will Set Sail! - 19th May 24
Micro Strategy Bubble Mania - 10th May 24
Biden's Bureau of Labor Statistics is Cooking Jobs Reports - 10th May 24
Bitcoin Price Swings Analysis - 9th May 24
Could Chinese Gold Be the Straw That Breaks the Dollar's Back? - 9th May 24
The Federal Reserve Is Broke! - 9th May 24
The Elliott Wave Crash Course - 9th May 24
Psychologically Prepared for Bitcoin Bull Market Bubble MANIA Rug Pull Corrections 2024 - 8th May 24
Why You Should Pay Attention to This Time-Tested Stock Market Indicator Now - 8th May 24
Copper: The India Factor - 8th May 24
Gold 2008 and 2022 All Over Again? Stocks, USDX - 8th May 24
Holocaust Survivor States Israel is Like Nazi Germany, The Fourth Reich - 8th May 24
Fourth Reich Invades Rafah Concentration Camp To Kill Palestinian Children - 8th May 24
Banxe Reviews: Revolutionising Financial Transactions with Innovative Solutions - 3rd May 24
MRNA - The beginning of the end of cancer? - 3rd May 24
The Future of Gaming: What's Coming Next? - 3rd May 24
What is A Split Capital Investment Trust? - 3rd May 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Facebook, Twitter, From Tech Bubble to Tech Bubble, Dust to Dust

Companies / Tech Stocks Jun 27, 2011 - 06:01 AM GMT

By: Bill_Bonner


Best Financial Markets Analysis ArticleSo far, this century has been a delight. From tech bubble to tech bubble in scarcely 10 years.

On our recent trip to China, all of a sudden we felt 10 years younger. For in the coffee bars of China’s futuristic cities were entrepreneurs, dreamers and lunatics who still thought it was 1999. A group of young techies filled us in: “We don’t worry about profitability. We can worry about that later. We want traffic. Because we know we can monetize the traffic on the stock market.” Here were people who still believed they could take eyeballs to the bank.

And they were right; once again, investors react to the Internet as though it were a toxic mushroom. Just look at Youku. It’s a Chinese version of YouTube. It had revenues of only $60 million last year. Yet, investors drove the stock up so high the company was valued at $7 billion. Renren, billed as “China’s Facebook,” produced similar hallucinatory effects. With revenues – not profits – of just $76 million, its value rose to $9 billion.

In the Occident too, the “social media wave” is making financial history, if not profits. Last week, Pandora, a loss-making on-line music site, rose more than 60%, before falling back.

The trouble with edgy technology is that something edgier comes along soon after. So capitalizing a tech company at more than a few times earnings is usually a mistake. But the conceits of the worldwide web go far beyond p/e ratios. Ten years ago, people had such high hopes they could barely talk about it without running out of oxygen. George Gilder, in his book Telecosm announced a new economy “based on a new sphere of cornucopian radiance – reality unmassed and unmasked, leaving only the promethian light.”

Gilder thought he could see the promethian light shining through the undersea cables laid by a company called Global Crossing. He urged investors to buy. The stock had traded over $60 during the tech bubble of the late ’90s. By the middle of 2002, you could buy it for 6 cents.

Another Internet visionary, Michael Saylor, chairman of MicroStrategy, said he was on a mission to purge “ignorance from the planet.” He said his company was leading a “crusade for intelligence.” In a contest between intelligence and ignorance, we know how to bet. On March 20, 2000, Saylor admitted that he had cooked his company’s books. Investors lost $11 billion. Saylor, personally, lost $6.1 billion – more than anyone had ever lost in a single day’s trading.

Behind the huge losses were cosmic delusions. Digitized knowledge was supposed to make us all smarter and richer. Computing power doubled every 18 months; true believers thought the rate of innovation and GDP growth should speed up too. But did it?

Just the opposite. For starters, the promethean light was harmful to jobs. Larry Summers explained, in The Financial Times, what the Internet did to the book trade. First, Amazon undermined bookstores. And then, e-books undermined the kind made of trees. Between writing a word and reading it there were fewer middlemen. Thousands of jobs disappeared. In other industries too productivity rose, but fewer employees were needed. In 2000, America had 113,899,000 full time jobs. Ten years later it had 112,618, 000.

Real GDP growth declined too. The US government accumulated $8 trillion in deficits, but GDP only rose $4 trillion. Adjust for inflation properly and America’s real GDP per capita went backwards for the entire decade – the first time ever recorded. In real terms, house prices and stock prices too, both declined.

What went wrong? Why didn’t computer-equipped Wall Street allocate capital to businesses that could grow wealth and create jobs? Why didn’t entrepreneurs and scientists use the worldwide web to invent new technology and new sources of prosperity? Why didn’t investors use the knowledge at their fingertips to avoid dead-end investment in mortgage backed derivatives and housing?

Digital progress is not the same as real progress. And digital knowledge is a far cry from actually knowing anything useful. Besides, it’s not knowledge that makes the world go around, anyway. It’s ignorance. How many people would have bought Global Crossing if they had known what would happen? How many innovations would be aborted if people knew how they would work out? How many marriages would be cancelled; how many movie tickets would go unsold? If you could look into the future and know your whole life in every intimate detail…how many people would blow their brains out rather than sit through a re-run? People hustle and take chances only because they don’t know how it will turn out.

As for making people smarter, a report in last week’s press tells us that the typical teenager spends 13 hours a day on some form of electronic device. Another report tells us that his IQ will go down if he watches dumb programming. Today, there are 600 million people on Facebook and 175 million on Twitter. Knowledge is there aplenty. You can go there, if you like, and find out what a congressman’s crotch looks like.

Facebook and Twitter have not yet gone public. But secondary market trading suggests that Facebook would fetch a price of more than $75 billion and Twitter as much as $8 billion. As for their real value to the human race, they’re probably not worth a damn.

Bill Bonner
The Daily Reckoning

Bill Bonner [send him mail] is the author, with Addison Wiggin, of Financial Reckoning Day: Surviving the Soft Depression of The 21st Century and Empire of Debt: The Rise Of An Epic Financial Crisis and the co-author with Lila Rajiva of Mobs, Messiahs and Markets (Wiley, 2007).

    © 2011 Copyright The Daily Reckoning, Bill Bonner - All Rights Reserved
    Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2022 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in