Slashdot Mirror
Silicon Valley Could Be Heading For a New Stock Collapse.
First time accepted submitter billcarson writes "Even though for most of us the recession is far from over, analysts are worried the technology sector might be near the end of a bubble. Technology stocks are at records highs at the moment. Companies that have no sound business plan have no difficulty in raising capital to fund their crazy dreams. Even Yahoo is again buying companies without real profit (Tumblr). Andreessen Horowitz, a major venture capitalist in Silicon Valley is already pulling up the ladder. Might this be an indicator for more woe to come?"
Um, I think you've reached your metaphor quota for today. Thanks for coming out. Anything of substance to share?
You kind of have this backwards. It because everybody is looking for return when there is none.
Normally when the central bank prints money this pushes up inflation. During inflation real assets, such as stocks, tend to hold their value which pushes up their prices.
Quantitative easing is not (currently) causing inflation mainly because the economic is so anemic. Take a look at 10 year TIPs and one comes to the conclusion that inflation will be tame. But an anemic economy does not generate great stock returns. Historically the government bond market has real returns of 2% and the stock market a real return of 7% (plus another 3% for inflation.) Now it is closer to 1% to 4%. Pensioners can’t live on these returns.
So anything that can deliver yield from junk bonds to junk stock is being snapped up. Or we are kind of talking about the same thing – a chicken and egg problem – just we place different emphasis on different parts.