박재훈투영인
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5 months ago
Why this Time the Tech Bubble is Different(May 4, 2022)
We are in a stock market carnage. Pandemic darling stocks Zoom, Peloton, Carvana, and many other NASDAQ stocks have tumbled from their highs. FAANG + Microsoft stocks have lost close to $1.4 trillion of value due to the market meltdown in April. We are in a “tech bubble” but this time the bubble is different.Going back to 2001The 2000 and 2001 tech bubble was different than what we are seeing now. The early 2000s tech stock bubble happened mainly due to tech stock speculation mania. This was the time when the internet was created. Many visionaries rightfully saw the internet as the most important innovation since the industrial revolution (similar to how Bitcoin is now). Private (venture capital) and public market money poured into these internet companies. Investment banks paid analysts bonuses for pumping up buy ratings of worthless doc com businesses to get more business from these companies. In 2000, at the height of the tech stock boom, NASDAQ IPOs raised $54 billion. This was an all-time high. Between 1995 and 2001, 439 dot-com businesses went public. During the 4th quarter of 1999, an average of $160 million was invested in private tech companies per day. Of course, all good things must come to an end. As you can see below, the speculation mania ended as the NASDAQ reached new highs on March 10th, 2002 (reaching 5048.62 points). The NASDAQ hits its low on October 9th, 2002. This decimated valuations of so many tech companies and bankrupted so many dot com businesses. But of course, from the crash came some of the most valuable companies in the world like Amazon, Alphabet (Google), and Meta (formerly Facebook), which happen to be technology companies.Now Let’s Come Back to 2022If the early 2000s tech bubble was an investor led mania, the 2010s and early 2020s stock market boom is a monetary policy created mania. Zero % interest rates, cheap money, and money printing has been a boon for assets. Just see below growth of financial asset value relative to US GDP (courtesy: St. Louis Fed FRED).Also, shown below is Federal Reserve M2 Money Printing correlated to the US stock market growth (courtesy: Man Yin To | Seeking Alpha Contributor).Easy money and record low interest rates (while the average joe pay high credit card and student loan interest rates) has inflated asset values. Cheap money and low interest rates have made investors searching high return returns. This has led money to flow into commercial real estate, single family homes, tech startups, mortgage backed securities, commercial mortgage backed securities, and the stock market. Also, the rise of passive investing and ETFs (like Vanguard) have made money from individual investors and retirement accounts to flow into blue chip US stocks.Overall, the Fed is stuck in a rock and a hard place. Years of low interest rates and money printing has created the greatest asset bubble in history. Now the world is seeing unpresented inflation. If the Fed raise rates 8–9 times as the Fed has planned, expect a recession and financial markets to collapse. This was probably tolerable in the 70s, early 2000s, and even 2008. But now the US is heavily financialized. So many retirement accounts are going to lose value by almost half. Wall Street does not want the music to stop and the Fed knows this fact. But the Fed also does not want inflation to run amuck. This is also a crucial year for the US given that the country is having its Midterm elections. Majority of Americans disapprove or President Biden’s actions, which signals bad news for the Democratic Party, which holds majority in both the US House of Representatives and Senate. On a recent podcast, Morgan Creek’s capital Mark Yusko mentioned that the we’ll be lucky to have 3 fed rate hikes. I echo Mark’s sentiment. The fed wants to fight inflation while not rocking the boat. In this case, the Fed is going to tread very carefully.Overall, the decade of the 2010s is going to be mainly defied by money printing and the rise of Web 2.0. But we are already seeing the cracks. Tech stocks, including the FAANGs, are in free fall. One of the most respected tech investors, Chase Coleman of Tiger Global, has lost 44% YTD. Cathie Wood’s signature Ark Invest ETF is down nearly 40% YTD. But the worst is yet to come. Food inflation is at an all-time high. We are also seeing many sovereign nations lose faith in the US Dollar and de-dollarization is accelerating. With more rate hikes by the Fed to control inflation expect a harsher reaction from financial markets. I do not have a crystal ball to predict what will happen in the future. But what is known for sure is that global uncertainty and risk will only increase. We are still in for some pain.But with pain comes opportunity. Now is the time to go bargain hunting on some really good investments (as we have mentioned here, here, here, here, and here). After the tech bubble burst, some of the most valuable and important companies like Amazon, Apple, Microsoft, and Google came from the tech space. This is while useless “dot-com” companies with no sales went bust. Also similar to the last tech bubble, we are witnessing the birth of the new technology and asset class: Bitcoin and cryptocurrencies. Bitcoin and crypto are going to create the next wave of finance and decentralized applications. As investors are seeking places to allocate their capital, expect more money to go into crypto. Same can be true for commodities, climate change technology, and emerging market equities. Useless companies that went up thanks to money printing are just going to collapse and go bankrupt. Strong emerging tech companies are going to be the next billion- and trillion-dollar companies. As this “everything bubble” bursts, expect some gems to rise up from the ashes.
