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The DotCom Crash Revisited
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."
only the End of the Beginning. Startups continue to get funded although they now have to have some reasonable idea of how they will actually make money. There was a report on the San Francisco public radio station yesterday that said that if you look at growth in Silicon Vally over the last 20 years and "flatten" (whatever that means) the growth around the bubble, Silicon Valley continues to grow at relatively the same pace as before.
"I'd rather be a lightning rod than a seismometer." -Ken Kesey
Well, I moved to Silicon Valley in 1983. Back then everybody talked about how expensive houses were (a nice house was in the high 100-low 200k) and how overpriced the real estate market was. Save for a minor dip in the 90's housing prices have never fallen in 22 years. The median price in Santa Clara County (not where Larry Ellison & Steve Jobs live... where regular folks live) is $615k.
"I'd rather be a lightning rod than a seismometer." -Ken Kesey
that would be PREpending.
I am the Alpha and the Omega-3
Yo, read the article. Yesterday marked the anniversary of the high, not today. Easy for me to remember, b/c 10 March is my birthday.
I'm not sure you can equate the two. Real estate is a limited commodity. Tacking "on the internet" to a crappy business plan is not a limited commodity.
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.
It's not offtopic, dumbass. It's orthogonal.
Well, the rise before the fall was characterized as irrational exuberance by none other than Alan Greenspan.
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.
It's not offtopic, dumbass. It's orthogonal.
Of course, the proof of the pudding is in the eating and as the business I helped start up didn't survive, the mudslingers can claim that we were a failure. However, our investors were happy that we had achieved what we had set out to do with the seed capital they had put up. I'll tell you this much - there were an awful lot of investors who were a lot less happy than ours.
It was kinda like a gold rush - some people sold out for a fortune or survived the crash and are still going; others went bust or decided to cut their losses before they went bust. Sure, there was hubris and some amazingly incompetent people were given stupid amounts of money to essentially burn but there were also a lot of guys who had good ideas who saw an opportunity to make them happen and, like all entrepreneurs, some were successful and others weren't.
Five years after the event, there's a lot of self-proclaimed experts who'll spout on about irrational exuberance and all the rest but very, very few of them were actually there at the time and even fewer actually took the plunge and got stuck in. Some might say that reflects well upon their judgement but like I said, I have no regrets and the holier-than-thou spouting of someone who's never walked the walk is only so much line noise.
Jack
And don't forget that it was 16:00 NASDAQ time YESTERDAY, March 10, not today. Even the article in the link has a dateline of yesterday.
The Nasdaq did indeed crash, in every sense of the word. Just look at the declines in ALL the big names, and most of the small names, top to bottom. Many former $100, 200$ stocks traded to oblivion or a fraction of their former highs. Look at former high fliers like CMGI for an example, or RBAK perhaps even better!
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.
Only in the short term. If your house appreciates at a rate greater than inflation, you win out by owning in the long run. If we put inflation at 4%, then within 9-10 years you'll be paying more to rent that house or apartment, then someone who's been paying down a mortgage on an equivilant property for 10 years. Add on to that the money that the homeowner will earn upon sale of their property in 30 years, and renters really lose out.
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.
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.
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 "hundreds" of different car companies was dying out by the mid 1920's, and the market crash in 1929 sealed the fate of the vast majority of the little guys.
The advent, well, the big push, of the highway sytems that took place in the 1950s had an auto industry that was much closer to what the dot com's are today. You had a very few survivors that were making money, essentially the big three mirroring dot coms like Amazon, ebay, etc. (dot coms that have a "real" revenue stream), and a whole lot of walking wounded companies that were just waiting around to die or be bought out.
Car companies like Packard, De Soto, Studebaker, or Kaiser-Frasier at that point represented what we see in the straggler dot coms (eharmony anyone?) now. They were either keeping their heads above water, or were pissing away money on their way out of business.
There are some people that if they don't know, you can't tell 'em.
Compounded 12 times annually at 5% for 30 years, your 37,000 dollars would be worth 165,306.54.
If any of you want to remember the crazy days of the tech bubble check out the documentaries Startup.com and e-dreams.
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.
Ah, you're right. In Australia, it's the rate of rise in house prices that's dramatically dropped, not prices themselves. In Q4'04, 2.4% rise on one year before, compared to 18.9% same in Q4'03; meanwhile, the boom continues unabated elsewhere. My mistake.
:)
There's a nice summary here. Sorry you had to leave Australia.
And it all started under the Clinton administration, according to all analysts. Yet Bush will continue to get blamed by sheepish Slashdotters.
I own a few condos that I rent and one that I live in...
And you're feeding your coffers by using the interest on the home loans against your taxes. Good for you, sir! You've managed to take advantage of a system that rewards the greedy (how many homes does a person really need?) and penalizes those that cannot enter into it due to the rising prices.
Did you roll the closing cost and the down payment into the loan?
Again, with the tax-benefit, I sure hope so! Add to that, to avoid the foolishness that is known as PMI, a 20% down payment is required (and PMI really only protects the banks, not the individuals). Manipulating the loans allows one to get around this problem, unless you have $100,000 in your back pocket to cover the amount. I sure as hell don't, but I do know a group of people who do- current home owners, who leverage their increase in the value of their house to put down-payments on more houses!
I know of many people who have done this. I have met one woman who has bragged about feeling pressure to have to buy another house, because her accountant told her she made too much money (and would thus avoiding having to give more to the government). I've also heard countless stories of people buying luxury boats and claiming the interest on the boat loan (so long as the boat has a bed and a lavatory, it counts as a residential unit).
The system is broken. It's a relationship we see many times before, where the burgeoning middle and lower classes are being driven down into the shallows by a rich upper class who is unwilling to change. A reform is needed, where interest on your principle residence only can be considered tax-deductible.
but a 400% increase over the preceding 18 months doesn't account for anything. It was a bubble that popped, not a crash. It's higher now than it was in 1998, and if you take away the bubble and the dip for the general economic decline between 2000-2002, it's on track for solid growth over the last 5 years.
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.
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