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Biotech: From Dot-Com Bubble to Dot-Com Bust!
Harry Dent: The Nasdaq bubble from late 1994 to early 2000 was the greatest bubble in modern U.S. history. AOL got to a price/earnings ratio (P/E) of 400 at the top! The problem was that a large company like that could never have grown enough to fulfill such expectations.
But that’s the thing with bubbles… how they inflate to such extremes: They’re irrational.
A new sector comes along, demonstrates higher than average growth rates and before you know it fundamentals are out the window and the stupid money is chasing the market up.
You know how that ends: From dot-com bubble to dot-com bust.
Of course, nowadays, everyone’s thinking about that infamous bubble again because the Nasdaq is back at the highs it once enjoyed into early 2000. And analysts are banding about the most idiotic statement ever uttered in the history of humanity: “This time is different!”
If I hear another person say that, I may just hit them!
OK… technically, this time IS different. Back into 2000, it was the Internet that lead the charge to Nasdaq highs. Today those highs have stalwarts like Google and Apple and new leaders from social media — I’m talking about companies like Facebook and Twitter — to thank. But overall the tech sector is much more mature than it was 15 years ago. The great Internet Revolution now permeates every household, every store and almost every nook and cranny possible (with a few exceptions).
So I’ll give you that: it’s different on the surface, but is it really all that different?
Social media companies are now massive corporations that control their respective spaces — Facebook rules the social universe — but aren’t they just as big nowadays as the AOLs of yesteryear?
Really, how much more can they grow… and how fast?
And what do they really offer? What do the social media companies do to improve productivity? It’s a way people can express themselves and have a little fun. But if anything, I’d say they hurt productivity! No company wants their employees goofing off on Facebook half the day. Really, their offerings are a bit nebulous.
This, for me, is a whopper of a red flag!
I have incorporated a 45-year Innovation Cycle into my hierarchy of cycles because it has proved highly accurate and reliable. It shows how clusters of powerful technologies increase productivity and move mainstream for about 22.5 years, like what we saw from 1988 into 2010.
Now we’re in the doldrums of this cycle and won’t move into the next upward swing again until after 2032. In short, the productivity revolution is over for the next two decades or so. That means less earnings and wage gains, regardless of demographic trends.
So this dot-com boom 2.0 concerns me…
We have these “too big to fail” companies that have a negative impact on productivity (mostly) and no tangible offering to really sink your teeth into (think about it… what does Facebook really offer? How about Alibaba?), and boatloads of investors scrambling to get in on the action. Talk about irrational!
It seems to me like yet another reason to get ready for a massive correction later this year and into 2016.
Rather than trying to jump onto a train that really doesn’t have much further to go, look to climb on board one that’s only now pulling out of the station…
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Source: http://marketdailynews.com/2015/03/07/biotech-from-dot-com-bubble-to-dot-com-bust/
