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market close Jan. 21--Generation Gap?
I updated the default values for the Jan. 21 market close. Proxicom continues to soar. According to Wall Street, this company simply controls the Web development consulting business.One of the articles Bill Sterling (below) mentions is at Market gone mad. It's quotes Milton Friedman and Eugene Fama, among others.
Is there a major generation gap at work? I believe I read somewhere that surveys show people under 40 have tremendous faith in the stock market. I can't think of anyone my age who thinks that Net stocks are anything but a crash rating to happen.
I remember back in the 60's the really cool thing to do was to go pick sugar cane in Cuba. (I didn't do it, but at the time I admired the people who did). So we had our intense love affair with radical politics, and today's kids have theirs with Net stocks.
Finally, Kindleberger's book is a good model. I remember he talks about "displacement" helping to fuel a bubble (the Internet being an example of displacement). The issue of fraud is an interesting one. My guess is that we'll see a fair amount of it before this is over. I have no specific allegations, but based on my instinct I'm not sure that the MicroStrategy executives are guaranteed to stay out of jail.
posted by Arnold Kling 1/21/00 1:38:30 PM
The latest issue of Fortune magazine (1/24/2000) issue has two good articles for bubble theorists. (1) Has the Market Gone Mad? (p. 81) and (2) Buying Net Stocks? Read This First" The articles have numerous mind-boggling comparisons a la "AOL is worth more than GM, Ford, and the entire American steel industry combined; eBay is worth the same as the New York Times, Dow Jones, and the Washington Post combined. These remind me of my time in Japan in the late 1980s when NTT was worth more than all German stocks combined. The problem for skeptics then (as now) was that high valuations lasted longer than most believed possible. Charles Kindleberger's Manias, Panics, and Crashes probably has the best generic description of the terminal phase of a bubble, which frequently involves the revelation of major fraud and a sharp liquidity squeeze by the central bank. The other problem for skeptics is that there are certain features of the Internet revolution, including the more rapid rate of market penetration (steeper S-curves) and larger market sizes (global not domestic). These factors logically should create "crazy" valuations (do the math!) when judged by historical yardsticks formed during periods of slower growth and smaller markets. In my opinion, this is where more serious work needs to be done.
posted by William Steling 1/20/00 2:22:37 PM
Robert Samuelson's column in yesterday's Washington Post said we need more historical perspective, but did not specifically mention Charles MacKay's 1841 book Extraordinary Popular Delusions & the Madness of Crowds. His last paragraph bears quoting: >>The great Internet fortunes arise mainly from stock speculation or building the infrastructure--supplying computers, software and fiber optics. In 1999 this spending was $366 billion, says Nortel Networks, a major supplier. Sooner or later, the investment must pay a return, or it will stop. Even if the Internet flourishes, it may remain smaller than earlier Big Things. Our historical amnesia could benefit from the words of a Tennessee farmer at a church meeting in the 1940s. "Brothers and sisters, I want to tell you this," he said. "The greatest thing on earth is to have the love of God in your heart, and the next greatest is to have electricity in your home." Can the Internet really top that? << http://washingtonpost.com/wp-dyn/opinion/columns/samuelsonrobert/A63931-2000Jan19.html
posted by David Jodrey 1/20/00 2:03:25 PM
Market Close January 20--MicroStrategy Hits $11 billion
As Prashant warned me, wily investors are piling on MicroStrategy in advance of their Super Bowl commercials, which figure to capture the attention of foolish speculators, if not corporate CEO customers, at a cost of only about 25 % of last year's $10 million in profits. Today the stock ran up nearly 10 percent, to reach a market cap of over $11 billion. MicroStrategy also announced that they will hold a Super Bowl party at FedEx field, which holds over 75,000 people. Presumably, they plan to pitch their shares to all of the guests. For a lot of these suckers, this could be the most expensive party they ever attend.
posted by Arnold Kling 1/20/00 1:52:41 PM
I went to B-school in the early 90s and one of the thing that stands out in this euphoria about the "New Economy" and how it's all different (P/Es don't matter; profits don't matter etc., etc.,) is how eerily familiar it is. In the early 90s, Japan was all the rage -- several of my classmates were learning Japanese, Japanese companies were poised to take over the world, and every "management guru" and "strategy quack" was spouting theory upon theory about why the Japanese were so successful; several of the richest people in the world were suddenly Japanese who seemed to have come from nowhere. Here's a Forbes article that covers the same ground. Comments anyone? http://forbes.com/forbes/00/0124/6502056a.htm
posted by Prashant Kothari 1/20/00 12:57:47 PM
Michael Jordan Lured by Proxicom
I'm on my way to pick up a pizza last night, I turn on the local sports talk station, and they have Michael Jordan in the studio to talk about his new gig with the Washington Wizards. On the show, his agent, David Falk, says--I'm not making this up--that a big reason that Michael did the deal was that it enables him to become involved in the Internet, by teaming up with Ted Leonsis and Proxicom CEO Raul Fernandez ("he's a genius," said Falk). Sure enough, this morning's Washington Post front page pix has Raul sitting next to No. 23.Now we can say that the bubble has some real "Air" in it!
posted by Arnold Kling 1/20/00 7:08:30 AM
Stock prices updated as of the close on January 19. A great day for all five stocks! MicroStrategy now is worth over $10 billion! And they are going to advertise on the Super Bowl! That is how their data mining software told them to target Fortune 500 CEO's.
posted by Arnold Kling 1/19/00 2:33:57 PM
In case you did not see it, I recently wrote an essay called Briefing the President which expresses my concern about the economic consequences of a crash.
posted by Arnold Kling 1/19/00 11:49:25 AM
Calculator stock prices updated near the close January 18, 2000
posted by Arnold Kling 1/19/00 11:39:04 AM
Related Resources
- itulip.com a web site satire, with some harsh commentary
- Warren Buffet talks about overvaluation, in Fortune magazine
- The Internet Bubble (book)
posted by Arnold Kling 1/19/00 11:31:05 AM