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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."
The rampant speculation has moved right into real estate. Prepare for the next great crash, with greater consequences.
Life in Orange County
There is a quote in that article by Rob Hersov that describes the way a lot of people felt at that time:
"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?
I Want To Believe
Read about the California Gold Rush, and mentally timeshift the dates and where appropriate substitute gold oriented things with computers.
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.
I don't know about that; more like finding its proper level again. Take a look at a comparison between the NASDAQ (^IXIC) and the Dow Jones (^DJI) and you'll see what I mean.
UNIX? They're not even circumcised! Savages!
No, it was March 10th, 2000 when the NASDAQ peaked. Was this story submitted yesterday and the editors didn't bother to update the reference to the anniversary being today? The anniversary was yesterday.
Home prices have yet to crash. Everyone keeps talking about how we had a 'soft landing'... it was soft because of low interest rates that have allowed people who really can't afford housing to get into the game. Wait until the housing bubble pops. Then, we'll get what we should have got when techs crashed... it's gonna be painful, real painful. All one needs to do is read a bit of history to understand how insane real estate prices in America have become. American debt is at an all-time high. We owe way too much money. Home prices have been going up by 20 and 30% annually in many areas... pay checks haven't... is it just me, or do others find this odd?
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. 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 Stanley and CSFB had been accused of issuing biased research]:
' investors were "obsessed with the fantasy of Olympian riches", which possibly clouded their judgment.'
"how was it tragic? a bunch of people that shouldnt have had jobs in the first place got canned."
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.
"Derp de derp."
Sorry, but you sound vaguely like a Bush proponent. Let me
.
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) Cobbled together the slimest threads of intel
over al-Queda links to Saddam Hussein, and African
uranium ore (yellow cake) for Saddam's mythical
WMD as justification for an optional preemptive
war in Iraq.
(4) Thwarted the intent of Congress in illegally
redirecting monies alloted to the conflict in
Afghanistan ($750 Million USD) in the run-up to
the war in Iraq.
(5) Pissed away at least $250 Billion USD in a
totally optional war in Iraq, with 1,500 dead
US servicemen, 10,000+ wounded US servicemen,
and at least 100,000 dead Iraqi civilians (more
than the total Kurds Saddam gassed).
(6) Broke international treaties regarding the
treatment of POWs, and of torturing prisoners,
with absolutely zero accountability by the Bush
administration.
(7) Abridged the US Bill of Rights in the pursuit
of internal "terrorist" threats, all while leaving
US borders and seaports and air cargo largely
insecure. And then boasting about it with the
upcoming "amnesty" program, and statements in the
press about "...not IF, but WHEN another terror
attack would occur..."
(8) Drunken-sailor level spending, including the
war and tax cuts for those that least need it, in
order to justify a neo-con priority -- cutting
the legs out from Social Security and Medicare,
while promoting constitutionally illegal "faith-
based intiatives" as their replacements.
I could go on, in much finer detail, but it's
unnecessary if you have been viewing any news
besides Fox Network, or not listening only to
Rush Limbaugh.
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%, 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.
A mortgage is basically the best 'debt' you will ever have in your life. It is not like other debt because of two simple facts:
- 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.
It was really an adjustment.
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.
"The price of your house might double, but when the price of everything else you buy doubles too, you're back where you started."
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.
I spent a lot of time in San Jose in late 1999. I was going to different training classes (Oracle) for my boring, but steady government job. (I'm still here...)
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.
No reason to lie.