I shudder to even type the words, but I wonder if another stock market tech bubble is forming. The last time we were here, at the end of the last decade, everyone’s cash flowed into tech and telecom because it seemed like a sure thing. Exuberance all around. Today, the exuberance is missing– but the interest and attention remain. So what would trigger a tech bubble to form? Exuberance, yesterday. Fear, today.
I fear that an unattractive general securities market, driven by the sub-prime mortgage mess influencing everything from credit markets to (potentially) consumer discretionary income, will leave techs as the most attractive securities remaining. Most tech today is very attractive due to strong balance sheets (how different from last time, huh?) and lots of cash/free cash-flow, strong growth prospects, and potential cost-savings promises for business which would be very attractive in a depressed economic climate. If this is indeed the general perception of tech, as the general market drops, money could continue to flow into tech creating a bubble. Pure conjecture. Thought I’d share the random thought.
5/13/13 – Right in the abstract, totally wrong in the details. A year after I wrote this, we got the collapse I was worried about. Instead of tech stocks though, the money went to cash and t-bills. I should have bought tech stocks at this record low for all the positive reasons I wrote in that last paragraph.
There was a great paper that Eugene Fama wrote shortly after the tech bubble in response to his efficient markets theory that states bubbles aren't bubbles at all: There is an unknown risk factor (an easy escape argument, in my opinion). Anyways, the idea was that even if a bubble has actually happened, the chance that people will over-indulge in a sector or industry will already be priced into those securities.