The New Boom

DarkClown writes "Wired is running a piece discussing the recovery from the burst Bubble in Silicon Valley. This time, though, it's no Bubble: it's a Boom. They suggest that this latest boom, fueled by Google's ascent, is under steadier footing than last time. Technology and the market seems to be catching up to the hype." From the article: "A boom perhaps, but not (phew!) a bubble. There's a difference. Bubbles are inflated with hot air and speculation. They end with a wet pop, leaving behind messy splatters. Booms, on the other hand, tend to have strong foundations and gentle conclusions. Bubbles can be good: They spark a huge amount of investment that can make things easier for the next generation, even as they bankrupt the current one. But booms - with their more rational allocation of capital - are better. The problem is that exuberance can make it hard to tell one from the other."

Comments

Oh, no hot air, I see...

[dachshund]

So when Amazon.com was selling for hundreds of dollars a share, that was ridiculous. But when Google is selling for $434 per share, everything's just fine. Because, um, they sell advertising, or something.

Re:Oh, no hot air, I see...

[GodBlessTexas]

That's probably because unlike Amazon, Google has been profitable. The real issue about the dot com bubble was that people forgot about business fundamentals and got caught up in hype. Netscape never made a profit. Amazon took forever to actually make it to an operational profit. However, Google is currently valued way more than it should be. So thinking this isn't another bubble because there is some profit behind it may not be correct. Google is currently trading at 96.20 P/E, which is insane. It's in for a correction.

Re:Oh, no hot air, I see...

[Anonymous Coward]

Exactly- and also they have few hard assets. The google price, in my opinion, is of people being scared sh*tless of missing the next microsoft.
The issue with google, to paraphrase Matt Drudge from hi radio show, is that right now some 15 year old kid in Idaho or Ohio or Beiijing or Bangalore (insert any place name) is right now working on something that will blow google out of the water, and take the market by storm.
PS- has anyone ever clicked on a google ad? I haven't.
BTW-Did anyone notice that Chipolte's stock doubled on the day of their IPO?

Some people just don't learn

[pubjames]

One thing I learnt from the last bubble (and having read up about other ones in history) people always say "It's different this time..."

In any case..

[Knights who say 'INT]

.. you have to admit that Adsense is a firmer business model than Pets.com -- or heck, graphical nonrelated banner ads -- and RSS, open web services APIs and stuff like del.icio.us or Flickr are more valuable content than the websites of 1997.

Maybe some lessons _have_ been learned. That doesn't mean necessarily that current pricing isn't off, or that the dynamics of self-fulfilled prophecies have changed, but there's definitely more value on the internet now than around 1997-1999, with less flowers.com fluff.

Maybe a part of the 1990s tech bubble wasn't unwarranted overvaluation, and that adds to the hypothesis of a firmer expansion now.

It's naïve to just go "ah, history repeating itself". History never repeats itself, except as a farce.

What they say vs. How it sounds

[aendeuryu]

What they say: "A boom perhaps, but not (phew!) a bubble. There's a difference. Bubbles are inflated with hot air and speculation. They end with a wet pop, leaving behind messy splatters. Booms, on the other hand, tend to have strong foundations and gentle conclusions. Bubbles can be good: They spark a huge amount of investment that can make things easier for the next generation, even as they bankrupt the current one. But booms - with their more rational allocation of capital - are better. The problem is that exuberance can make it hard to tell one from the other."

How it sounds: "Listen baby, it's going to be different this time, I swear. I know I was a little rough with you before, and I'm sorry about that, I really am. I've changed, baby. You've gotta believe me, I'm a different man."

Infrastructure not old business model

[Flying pig]

Amazon is (just) a department store that runs over the Web. All its tricks are just derivatives of the way that traditional department stores operated - hosting stores within stores, customer accounts, POS advertising. It arose at a time when the infrastructure did not really exist to support it. Google is an enabling technology. It is funded through advertising, but it is something fundamentally new. I'm in the process of completing a personal engineering project. When I look at the stuff I have had to learn and the technology I have had to acquire, it's probable that without Google and the Internet it would have taken several times longer and not worked so well. As for my day job, it would be nearly impossible.

Google shares are possibly over-hyped, but they reflect a very interesting perception: that the Internet is now good for something, but that we don't know where it is going. We had the mass transit revolution (railways), the personal transit revolution (bicycles, then cars), the communications revolution (telephony.) Now we have the information revolution, and anyone who looks like they are reading meaningful signposts is likely to be highly valued.

Definition of a Bubble

[LukePieStalker]

You know it's a bubble when people are calling it a "boom".

The future is tangiable

[Anonymous Coward]

"Google shares are possibly over-hyped,"

Google shares are very overhyped.

Google has done nothing that is new. They have nothing backing them. If you liquidated Google you would make back a tiny fraction of their stock worth. It is fucking asinine is what it is.

When a company that makes the world go round (IBM) stock is not even close to half the worth of a company that has no product, you know the world is fucked up.

All idols fall, and goggle will fall as well. It is the way of things. Soon another young man will figure out how to do what google does, only better. When they do the only happy people will be the few who cashed out early. The rest will be left with nothing.

The future is in deliverables, not data.

IANALBIAAWST
(I am not a lawyer but I am a Wall Street Trader)

No, its another bubble.

[giblfiz]

All of the points made in the article describe healthy growth, but a bubble looks a whole lot like healthy growth until it gets stretched out really thin. The wired article even points out:

Six years ago, people were likewise making the case that the dotcom frenzy was more boom than bubble, built as it was on the legitimate ground of the Internet revolution. And until late 1999 or so, maybe that was true.

What makes this a bubble, just like the last one was is more the outlook. When people are starting companies plans for how they are going to have a cash liquidity event you have a bubble. But its just the beginning of it, and I think we can eak another 3-4 good years out of it easily. That puts the pop around 2009, which just about lines up with what Harry Dent thinks

Hosing Bubble connections

[xenophrak]

One of the things that you need to be very afraid of, is when someone is claiming that there is not a bubble, when there is overvalued speculation and rampant turnover. Case in point is the current housing bubble, which I do believe is a bubble.

One thing that you'll get an idea of after a while, is that (especially now), investors are trying to keep the economy afloat by generating another bubble to replace the currently failing one (thank you Greenspan). It's really just musical chairs, and I would seriously look at someone who is saying it's different this time as someone who wants to take my money from me.

Don't be fooled, Wired is part of the media and will further its own agenda and those of its Editors and Shareholders before your interests.

Bubble, not boom

[Dram]

I think this is clearly another bubble. The difference is that VCs are more cautious, it's Google and Yahoo! that are fueling this boom. Look at the ridiculous sums of money that have been paid for Flickr, del.icio.us and other "Web 2.0" sites. These sites don't have the revenue potential to be worth millions of dollars.

they used fuckedgoogle.com's slogan in the article

[Anonymous Coward]

http://fuckedgoogle.com./

"please god, just one more bubble." has been the slogan on their banner for 2 years, at least. I wonder if wired was trying to say something. LOL.

In any case, people who say Google can't be in a bubble because it actually makes profits are just morons. Cisco, and Sun, and SGI and Oracle, and Microsoft ALL had huge profits in the dot.com mania boom- more than Google has now. But that didn't stop their stocks from being ridiculously overvalued, and eventually collapsing 90% or more in value from the peak.

The simple answer is the Google is the only "trendy" dot.com left that is raking in cash, so we've focused all our dot.com dreams on ONE SINGLE COMPANY.

And Google's entire business model is based on one thing- tiny little text advertisements that most people click on because they can't even distinguish that they are advertisements rather than part of the website's content. (yes, i know, slashdot people have learned to tune out most adsense ads, but does your GRANDMOTHER know that any link within 4 inches of the phrase "sponsored links" is a paid advertisement?)

There's More . . .

[Dausha]

"There's a difference. Bubbles are inflated with hot air and speculation."

Bubbles are also inflated by insiders who exploit the speculation to fleece speculators. In order for this to work really well, however, you need oversight with its hands (intentionally or not) off the tiller. That's what we had in the Dotcom Bubble, methinks. It looked to be good for the economy, so the hand was off the tiller.

Google P/E

[Anonymous Coward]

As reported by Nasdaq, Google's current P/E is 95, predicted for next year is 36. That means you get 1% return this year. You are predicted to get 3% next year. ING pays 3.80% on a simple savings account today.

Solid foundation. Right.

historical blindness

[elmegil]

This time, though, it's no Bubble: it's a Boom.

Riiiight. Anyone remember the Wired with the smiley face, subtitled "The Long Boom" claiming that this time it wasn't a bubble?

Media needs to STFU!

[Anonymous Coward]

Ugh I live here and have for 15 years. It's not booming or bubbling or any other sort of noise.

Most places have removed their hiring freezes and that's about it.

Salaries for engineers are about 1997 levels and there are about half as many places to work so don't get too excited.

Re:Why economic equality is sometimes bad

[Anonymous Coward]

For better or for worse, the stock market used to be something that only those that knew how to invest really did anything with.

1929 - Anecdotes of shoe shine boys offering stock tips. So what's your definition of "used to be", because it better not be since then?

Those with no clue on how to invest usually just avoided it, or invested in safe mutual funds or big companies like GE or IBM.

1987 - Program trading gets partial blame for the unchecked selloff. Such trading was typically used by mutual funds and directly affected the common stock trade. With that contribution in that situation, a stock trader would not be safe from the influence of "those with no clue".

Then millions of average families got involved, went crazy thinking it was the lottery and lost obscene sums of money.

The sad thing I've noticed is that people like to chase 'apparent' fast wealth. "Everyone's getting rich trading plush dolls - I gotta do that.", "Wait, everyone's getting rich trading stocks - I gotta do that.", "Shit, everyone's getting rich trading real estate now - I gotta do that.", etc.

I'm a value oriented investor so my observation has been that you can profit from the expected hysteria in two ways: beat the trend and occupy a footing before the madness or, wait for the crash and pick up the pieces. The first option requires a lot of effort along with an ability to anticipate the next rage while the second option usually requires A LOT of patience with an understanding of the longterm value. Most of the time I ignore all that, but since we're talking about boom/busts I thought I'd mention it.

My point is that maybe enough of the casual investors have left that we can move forward now.
It'll be at least another decade before they return and it won't be the same bunch, but the cycle is inevitable. Those that got burned will probably swear off the market completely (seeing as how most didn't really understand it anyway), but others that missed the boom may be lured by hype in due time.

It's most definitely a bubble!

[scoobrs]

If there's one thing many economists are starting to understand, it's that the rampant abuse of credit in America and the trade deficit are preparing us for a hard landing in the next year or two. The biggest debate is what kind of hard landing... Bond holders believe banks and consumers will hit a credit limit first at which they finally start conserving and some people think foreign investors will decide they're saturated with American credit and stop buying it. I agree with the bond holders, China will never pull out as long as they're profiting. The whole economy is riding a bubble created by home equity credit-driven consumer spending. It's not tech speculation anymore, but when this housing bubble bursts, all of the other countries (hint: Taiwan matters a lot to tech companies) heavily dependent upon our imports will also suffer.

Re:No credibility

[LaCosaNostradamus]

I like your term "aftershock", but you may wish to reconsider it given that we seem to be subjected to "asset bounce" or "investment virulence". The monetized asset gains from the dotcom bubble were poured into real estate, and now it seems that people are cashing our their equally ill-gotten monetary gains and are pouring them back into the stock market.

Excessive monetization has led to a remarkably widespread lack of fiscal sense, as expressed by pervasive and intense asset speculation. We've allowed millions of people to simply buy and hold a variety of assets for no personal use whatsoever. The profits from one fiasco are used to inflate another asset market in order to create the profiting from yet another fiasco. This continues until (as I posit) the asset markets involved grow so unstable that some revolutionary change is implemented by government or the people. For instance, it may become effectively illegal or impossible to own an asset outright, since by a single revolutionary change every person will be subject to invasive billing mechanisms that constantly subject their finances to adjustment ... and once they overextend (which is a guarantee by the actions of the market participants) they lose assets easily and wholesale in order to honor debts.