Dotcom Bubble II? Clem Chambers
; published on May 24, 2012 at 3:23 pm
“Is a new generation learning to leave stocks alone through the painful education of losing hard earned money?”, asks Clem Chambers, CEO of ADVFN.com.
On 19th May 2012 a new star entered the US stock market galaxy. The Facebook IPO supernova , saw the NASDAQ exchange malfunction due to the vast pressure of insiders selling and the general public lapping up the first minutes of trading.
It doesn’t matter if you are bullish or bearish; Facebook is a marvel, socially and financially. Probably the single biggest destroyer of economic productivity ever created by man outside of warfare, has become one of the most valuable companies in the world history.
With its IPO, Facebook vaults into the top ranks of the worlds listed companies. It joins Apple as a hugely valuable company where the financial logic of its valuation makes no sense at all, nor appears to need to.
People have trouble with numerical scale, even I do, but 100 billion of anything is a lot, even if its grains of sand. $100 billion dollars for a site which has so far proven itself good at traffic but poor and monetising its business simply doesn’t make conventional sense. Like “unconventional economic stimulus” there is now “unconventional market valuation.”
The stock market is increasingly the preserve of straight gambling, in many ways it has been this since the beginning. From the guy in the street to the bank trying to make a big win at the trading tables the story is the same – it is a tale of speculation.
Speculation is about words not numbers. With enough energy injected into the story the narrative takes on a power and magic all of its own. Facebook is only $38 a share, compared to $500 for an Apple share. Such simple myths can be costly.
Since the dotcom debacle equities have been overshadowed and bonds have been in the limelight. The cash equities have become increasingly marginalised, a process accelerated by the proliferation of derivatives like CFDs (contract for difference).
In Europe and the US hard times in equities have not helped to restore a benign market. The industry promotes wealth, destroying trading over value adding investment, because it needs to lucratively render its customer down in months rather than nurture them over years. People aren’t stupid. Once burnt, they stay away.
We currently have a new generation sucked into the vortex of stock promotion. Bang goes Groupon, fizzle goes Facebook, pop goes Apple, clunk goes Zynga. Is a new generation learning to leave stocks well alone through the painful education of losing hard earned money?
During the dotcom crash a broker said to me that it wouldn’t be until a new generation came by that we would see another bull market. That sounded terribly doom-laden and unlikely then. Yet 12 years later with the market still at the highs of the millennium is seems quite likely that he will turn out to be more right than wrong.
It seems quite possible that Dotcom Bubble 2 is some kind of half-way point in the big equity cycle and it will be interesting to see how Facebook’s stock develops. If Facebook does flourish it will be good news for everyone and could herald a strong market for at least a couple of years. If it slumps then a new group of tyro traders will have learnt to stay away from equities for good.
When Facebook floated, a mountain of dreams became a huge pile of virtual wealth worth over $100 billion, enough money to bail out Greece. If the dreams come true there will be a lot of wealth to trickle down into the economy of the world. If the dream turns sour a lot of wealth will go to “money heaven.”