Slashdot Mirror
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."
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 (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 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?
adam b.
this time 5 years ago today i must have been still asleep. not rushing around to get ready for work and dreading the day. i'd have been slowly waking up in about half an hour, ready for a day of coding interesting projects, playing a little basketball, having a beer. it's not the money i miss, it's the freedom.
Paul Graham has an interesting essay on "What the Bubble Got Right". It's worth remembering that some of the companies that lost 90% of their value are still worth billions today - e.g. Yahoo.
Looks like the server's smoking already - you can at least get the text from Google's cache.
Meep meep
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. 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.
Look at Apple's stock price over 5 years, for instance - it's higher now than it was at its peak in 2000.
Sig for sale or rent. One previous user. Inquire within.
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.
Paul Graham's essay on the legacy of the dotcom boom/bust is a great read. It tries to tease out what worked and didn't work during the boom and how to carry through the positive elements of the tech explosion into the future: What the Bubble Got Right
I have to say, after reading this article and Paul Grahm's I have to agree that if you're going to start a tech company - which almost any net company is - then you need tech people.
.com happened - I had a good time. I was probably one of the only ones who never got around to investing in it (in fact, I told companies I worked for I'd rather have cash over stock) so I didn't really lose anything. However, it was a pretty silly time and unless you had a really good idea with some good people behind it, then you probably deserved to fail. Asking if it'll ever happen again is like asking if the gold rush of the 1800's will ever happen again.
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. The chiefs of that startup were hyping it quite a lot even by the standards of the roaring nineties. They had zero market testing and had people building 3D virtualizations of clothing and clubwear by hand. They were burning lots of money very very fast and the chiefs were roundtripping from Scandinavia to London and NYC every odd day and doing nothing much more than partying with VIPs.
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.
I do still think the original concept would work. It just can't work the way they aproached it.
We suffer more in our imagination than in reality. - Seneca
Imagine a sloping line with a big n shaped curve in the middle. If you exclude the n curve in the middle of the line you returned to the same growth cuvrve you were on originally. That is what they meant by flatten the growth around the bubble. A similar example is here notice that the slope (its a curve on a non-log chart) is pretty constant from 1980-2005, if you drew a line from 1995-2003.
Degaussing scares the bad magnetism out of the monitor and fills it with good karma.
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.
Reminded me of Sun's old slogan "We're the dot in . com" - They dropped that pretty quickly when the crash came.
In the SF bay area, the only areas in which housing prices dropped noticeably rather than just going flat during the dot com bubble were in the very richest/overpriced areas. So, at least in that case, buying in those areas was the riskiest, which makes sense. It's one thing to pay a bit more so you aren't in the ghetto, but on the extreme end stuff was/is way overpriced for what you're getting, and much like the stock market at the time, was more about perception of value than real value.
There are more and more people buying homes today. This is in part to really good interest rates and people having more money. Real estate is a limited good, you can't get more property short of building up or urban redevelopment.
As more and more baby boomers retire, either we stack them up in condos, and they sell their property, or there is going to be a shortage for a long while.
In the 80s, Anchorage, Alaska went through a massive real estate boom due to the pipeline construction in the late 70s. People had money, and bought homes. Market was sky high.
People tried to get in on the boom, without realizing the bust was bound to happen. There just wasn't enough jobs and money flowing in to keep people employeed. As the jobs and money slowed, people couldn't afford their houses. By the mid 80s the market started falling, and we busted big.
The first signs of a real estate bust are going to be the amount of money and job stability. As long as the economy isn't contacting back on itself, the real estate market will be there. When people start losing jobs, and you see businesses pulling out of your area, you know its going to happen.
Sustained growth means a sustained market.
Are property values out of alignment with reality? Factor in limited supply and massive demand, and that's why its screwed up as it is.
In San Jose for VON conference and wow... hundreds of buildings with 'For lease/Sale' or 'Office space available' signs out front.
.com burst is still a very present thing.
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
Telcos have alot of dark fibre in the States. Most people assume that's optical fibre...but it's actually moral fibre.
Thank you, lying analysts, corrupt accountants, inane journalists, credulous Baby Boomers, BS'ing Alan Greenspan, and all the other "this one can go on forever, without profits" people who made the Bubble inevitably Pop. Well, thanks for the bubble, anyway - in which I made a fortune in cash selling shovels (SW development) at the Gold Rush. No thanks for the abject dereliction of your professional responsibilities in mismanaging that huge creation of value into an unsustainable ticking timebomb. But thanks for being so obviously full of it that I didn't waste a single penny of my money in the markets, or anything connected to it. It's been a long 5 years living with your gifts to the world, after a short 5 years wallowing in the opportunity, and we're just getting started. Prosperity is just around the corner, right?
--
make install -not war
Um, I hate to bring bad news, but the markets are not done crashing yet. Why? Above all else, historically low interest rates which have fuelled debt driven America. The "growth" we've seen is artificial and definitely NOT sustainable. Consumers borrow all their money; mortgages, credit cards, car loans. The underlying rates are guaranteed to rise over the next few years -- your payments on your car loan will rise, mortgage payments will rise. And the government is changing laws (fresh news!) to make sure you can't escape debt through bankruptcy
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.
Philip J. Kaplan has a site that was made to follow the dotcom bubble burst by keeping track of all companies that went bye-bye. He wrote a book that I am sure many of you have read. It's basically the 'worst of the worst' businesses that couldn't take MILLIONS of dollars and turn a profit. It's a darn good read.
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
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 immigration, but there is nowhere near enough immigrants to offset the rapidly decreasing native births. Over the next 10 years, as the elderly generation die off, you are going to see a remarkably fast population decrease.
See for yourself: check page 7, percentage change. You can see simmilar treands in most of the western world.
Unlike many other markets the real estate market is directly on the number of people living in an area. The U.S. population is growing quickly. For that reason alone, real estate is a safe investment.
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 are still somewhere near zero. The Fed has pumped a massive amount of credit into the system to try to get the economy booming again. The money supply has expanded by about 20% since 2001.
The long term result is always the same: price inflation. It doesn't hit every industry at the same time or by the same amount, but all that credit goes somewhere. Right now it's going into real estate. We're also seeing major price inflation in energy, healthcare, and education.
The price of your house might double, but when the price of everything else you buy doubles too, you're back where you started.
I'm not so brave/foolhardy as to make specific market predictions. But I do know that millions of people have been screwed by "safe investments" throughout history. And fiat currency is usually involved, but that's another story...
"The danger is not that a particular class is unfit to govern. Every class is unfit to govern." - Lord Acton
What you are advising is paying massive amounts of interest and taxes on the hope that it will be made up for by appreciation. This is a much bigger gamble than investing in the stock market and renting. A lot of it depends on the area you live in and the rent/ vs. purchase price of homes but buying an expensive house is not a good investment ever. Also, I can think of something even better than that awesome tax deduction you get for mortgage interest ... not paying that interest in the first place.
Damn, that's a tumble.
--grendel drago
Laws do not persuade just because they threaten. --Seneca
The Nasdaq went from 1500 to 5000 in a matter of a year and a half, immediately prior to the "crash" That's a 333% rise, trillions of dollars litterally appearing out of thin air. Here's a friendly reminder for those about to invest in Chicken Little (R) hard hats: http://finance.yahoo.com/q/ta?s=%5EIXIC&t=my&l=on& z=l&q=l&p=&a=&c=URL
The sequence between step 3 and 4 don't have corrolation between each other. Just because the dollar is weak does not that interest rates will be raised to encourage foreign investment. If the ecomony continues as it has, foreigners would still see the US stock market and private industry as some of the better bets available. A 5-10% increase is the same no matter what currency you are talking about. Besides, if you make money in a particular currency, there is no need to translate it into your native currency, if you can buy more stuff in that country. See the eighties for what the Japanese were supposedly going to do to the US (make US dollars, buy US companies, buy US real estate, make more US dollars, all without any yen).
Plus, why would the Fed raise interest rates to appease foreign investment if it would lead like night into day to a real estate collapse? Don't think they don't know about things like this, which is while the Fed only raises a 1/4 point when it does it at all.
Some people in the eighties were predicting economic disaster by the late 1990, by assuming that all negative economic factors would run like a snowball going downhill and cause trillion-dollar deficits and economic collapse. And then it didn't happen. When the dot-com boom happened, the reverse occured ("Dow Jones 50,000"). Some people make a living making extreme predictions.
Chances are a low dollar means more foreigners will visit the US and buy US goods. That isn't bad. Besides, people have been complaining about the "trade deficit". Now others will have a stronger reason to buy American, since our good will be cheaper than before.
Well, I came up with the perfect name for the practice: eFixing.
John
Governments can penalize you for not paying your taxes. What's your point?
Why is it that the proponents of "one nation under God" are so eager to get rid of "liberty and justice for all"?