George Gilder on the buildout of internet infrastructure (2000)

ASAP: Why is it important we build an all-optical network? 

Gilder: Optical networks are vital to the fulfillment of the business plans of the Internet economy and the future of world peace and prosperity.  We already have an all-optical network in the critical paths of large portions of the infrastructure--chiefly the passive parts.  It will rapidly spread over the next five years to reach into campuses, enterprises, and cities. 

ASAP: So I take it you don't think the promises surrounding this all-optical network have been overstated?

Gilder: They have been drastically understated by companies that want to retrofit optics into the old system rather than create a new network that fulfills the intrinsic promise of a worldwide web of glass and light. 

~ George Gilder, "Gilder On Optics," by Eric W. Pfeiffer, Forbes ASAP, August 21, 2000

(Quote provided by Fred Hickey in a July 15, 2024 tweet.)

Jeremy Siegel dismisses possibility of another technology bubble

Q: The valuations of leading technology stocks are more reasonable today than in the dot-com years of 1999 and early 2000, even if some are stretched.  Are you concerned about the possibility of another technology bubble? 

Jeremy Siegel: We have always had momentum traders in the market, and momentum investing can be a fairly successful strategy.  People ride the wave with the belief that they can jump off before it crashes.  That, of course, doesn’t often happen.  But we are nowhere near the internet bubble.  That was a much more severe situation in 1999 and 2000.  That was the biggest momentum wave that I’ve ever seen. 

It’s difficult to beat the indexes, given the momentum for the artificial-intelligence-related tech stocks.  In some ways, that has taken all the oxygen out of the room, although they are delivering the bacon.  Earnings are coming through, and their valuations are nowhere near the stratospheric valuations that we saw 20 to 25 years ago.

~ Jeremy Siegel, "Tech is 'Nowhere Near' the Dot-Com Bubble," Barron's, July 29, 2024

Tony Deden on the tech bubble (1999)

Let there be no doubt, that what we are witnessing is, indeed, history's greatest financial bubble.  The indescribable financial excesses, the massive increase in debt, the monstrous use of leverage upon leverage, the collapse in private savings, the incredulous current account deficits, and the ballooning central bank assets all describe the very severe financial imbalances which no amount of statistical revision nor hype from CNBC can erase. 

As it happened in 1929 - a boom and bust with which this bubble is often compared to but which pales into insignificance when compared with it - as it happened in 1972, in 1989 in Japan, or in 1998 in East Asia, booms are followed by busts - they are called recessions, depressions, etc. - because booms sow the seeds of every succeeding bust. 

Their cause is not the fault of capitalism as it has been suggested, but an excessive amount of money and credit created by central banks.  Yet, this seems to escape the understanding of those who will, in one day, convene congressional hearings to determine what caused this destruction.  The culprit is, as it always has been, the same organization, which professes interest in bringing about price stability and low inflation: The Federal Reserve Bank and its policies of money market intervention, credit creation and loose money.

~ Tony Deden, "Reflections on Prosperity," Safe Haven, December 29, 1999

Burton Malkiel on how the AI revolution is different from the internet bubble of 2000

AI has the promise to make enormous advances in productivity and could be as important as the Industrial Revolution.  And if Nvidia grew its earnings at the rate expected by security analysts in 2024, it would be selling at only 33 times forward earnings.  No wonder its supporters consider it a cheap stock.  Nvidia today doesn't resemble Cisco in January 2000 [which sold at a triple-digit multiple of both trailing earnings and expected results for 2000].

~ Burton G. Malkiel, "Yes, Tech Stocks Really Can Keep Going Up," Barron's, March 9, 2024

Chris Conkey: "The central bank's credibility is very high right now" (2000)

The central bank's credibility is very high right now.  There's a strong sense the Fed is on top of things.

~ Chris Conkey, Evergreen Investment Management, "Greenspan's Dilemma: The more confident investors are in him, the harder his job becomes," Business Week, April 3, 2000

Kevin Duffy on the 2000 and 2022 tech busts

The great tech bust of 2000-02 could not take place if not for the boom that preceded it. And quite a boom it was.  As Grant’s Interest Rate Observer reports, U.S. venture capital investment doubled in 1999 and then again in 2000 to a record of roughly $125 billion (1.2% of GDP).  By comparison, the 2021 vintage doubled from 2020 to $342 billion (1.4% of GDP); worldwide figures were twice as large: $643 billion. 

The initial casualties, in both cases, were money-losing tech companies (ARKK is our present-day proxy). Both busts were sharp and unequivocal.  Both times investors early on failed to connect the dots to the suppliers of uneconomic ventures.

~ Kevin Duffy, "Summer of 2000: Déjà vu all over again," The Coffee Can Portfolio, September 18, 2022

Paul Volcker on the late '90s tech bubble

The fate of the world economy is now totally dependent on the U.S. economy, which is dependent on the stock market, whose growth is dependent on about 50 stocks, half of which have never reported earnings.

~ Paul Volcker, May 14, 1999

Warren Buffett on bubbles

But a pin lies in wait for every bubble.  And when the two eventually meet, a new wave of investors learns some very old lessons: First, many in Wall Street -- a community in which quality control is not prized -- will sell investors anything they will buy.  Second, speculation is most dangerous when it looks easiest.

~ Warren Buffett, 2000 Berkshire Hathaway Chairman's Letter

Kevin Duffy on how the 2000 tech bubble led to internet 2.0

The dot-com bubble of 2000 was never the internet itself, but the notion of “first mover advantage.” There was a gold rush mentality to stake claims, and it was the internet pioneers who largely took the arrows in the back. If anything, the optimists underestimated the transformative nature of the new technology. The early 2000s shakeout cleared the way for a powerful second wave that drove the economy and made vast fortunes for the settlers. 

In March 2000, when the NASDAQ Composite peaked at just above 5,000, Amazon.com hadn’t recorded its first $1 billion in sales, Google was in diapers generating $19 million in revenue, and Mark Zuckerberg had yet to reach his 16th birthday. Today the founders of Amazon, Google and Facebook are worth a combined $440 billion and their companies valued at $4.22 trillion, not quite 10% of the total U.S. stock market capitalization.

~ Kevin Duffy, "Bubble Lessons," The Coffee Can Portfolio, April 26, 2021

Bill Bonner on George Gilder as pied piper of the 2000 dot-com bubble

Of all those who "got it," few got it as good as George Gilder.  Gilder's role in the Information Revolution was to justify the dreams of the masses.  Like Marx, Engels, or Lenin, he helped convince the lumpeninvestoriat that they could get rich without working by buying into technology they did not understand and stock in companies they did not know with money they did not have.  What was talk of gigabits of photons flying over glass fiber and multiplexing, pulsating transits other than the information revolution's answer to Marxist claptrap about dialectical materialism?  To the average investor, it was all weird and unfathomable.  But if it made him rich, why ask questions?

~ Bill Bonner, Financial Reckoning Day (2003), p. 17

Bob Simon on the "dot-com kids" in Silicon Alley (2000)

If you know anything at all about the Internet, you know you can practically live your life without ever leaving your computer.  You can order books without ever going to the bookstore, reserve airline tickets, even buy food for your house pet.  That's the 20th century; in other words, yesterday.  The new stuff is percolating out of a bunch of old buildings in downtown Manhattan, and the people who work there call themselves "the dot-com kids."  They're cool, they're hip, they're very rich and very young...  Their motto could be "Never invest in anyone over 30."

~ Bob Simon, "The Dot-Com Kids," 60 Minutes, February 15, 2000

Tom Galvin justifies New Economy vs. Old Economy valuations (2000)

Look, I think tech stocks are innocent until proven guilty.  If Veritas is growing earnings 40-50% and Gillette is growing earnings at only 1.5%, is Veritas worth 20 times the multiple Gillette has?  I don't know, maybe so.

~ Tom Galvin, chief investment strategist, Donaldson Lufkin & Jenrette, Barron's, "The Trader" section, April 24, 2000

Barton Biggs thinks Cisco Systems finances 20% of its networking equipment (2000)

In a recent research note, Morgan Stanley's Barton Biggs said he's been hearing that Cisco [Systems] will give some of its customers nine-year notes on some of its equipment with no interest or repayment during the first three years.  Biggs says some people at the company have acknowledged to him that a good portion of this equipment will be obsolete in three years...  So how much of Cisco's business is financed this way?  Biggs says he thinks it's somewhere in the neighborhood of 20%.

~ Barron's, "The Trader" section, April 24, 2000

Peter Atwater on manic behavior: The Beatles, Beanie Babies and Tesla

Many will suggest that manias and panics routinely come and go, but history strongly cautions that they cluster. The Beanie Baby Bubble coincided with the peak of the dot.com bubble, and Beatlemania marked the mid-1960s market and mood peaks...

While Tesla may be followed by an even more extreme investor flash mob ahead, the recent clustering of manic behavior cautions not only that sentiment is topping, but that the current peak is extreme. Based on crowd behavior, 2020 could easily bookend the major 2011 low.

~ Peter Atwater, Financial Insyghts, "Tesla: A Flash Mob With Money," February 10, 2020

Doug MacKay: "tech will be best performing sector next 5, 10, 15 years" (2000)

In tough times, it's often more what you don't own than what you own that is important.  We don't have a lot of dot-com stocks.  Instead, we have focused on Internet infrastructure, and that has helped us outperform.

(IBD: MacKay thinks the worst might be over.  He says the correction was probably caused by the Federal Reserve Chairman Alan Greenspan raising interest rates, even though earnings have remained strong in the  tech sector.)

It looks like he's on hold for a while, and earnings will again come to the forefront.

Technology is going to be the best performing sector for the next five, 10 or 15 years.

~ Douglas MacKay, portfolio manager, Red Oak Technology Select Fund, Investors' Business Daily, July 7, 2000

(Red Oak Technology Select was up 45.69% in first half of 2000, placing it #1 on Morningstar's list of tech funds.  Over the past year it was up 183.68%.  Holdings include Brocade Communications, PMC Sierra, Juniper Networks, and Newport.)

Atlanta Fed president: U.S. economy "envy of the world" (2001)

In the long term, the moderation of growth that we'll witness in 2001 will be a mostly healthy thing.  It will help the economy avoid some serious imbalances that might otherwise have begun to accumulate, and it will help ensure that growth remains sustainable.

~ Jack Guynn, Atlanta Federal Reserve President, "U.S. slowdown dubbed 'healthy'," Investors Business Daily, January 9, 2001

(Guynn called the U.S. economy "the envy of the world.")

Time's Daniel Kadlec on the tech bubble and related anti-bubbles

A massive liquidation of nontech assets is under way as people reach for the means to buy more Cisco, 3com and Apple. It's an incredible display of pack investing that begs the question, Is NASDAQ bulletproof?

[...]

The reallocation is not just in assets but also in talent.  Bankers, lawyers and money managers are fleeing careers in depressed pockets of the market like real estate to hitch a ride to Silicon Valley.

The shift is clearest, though, in hard numbers.  In January, investors poured a record $40 billion into stock funds, and $29 billion of it went into aggressive growth and growth funds - the ones that own NASDAQ stocks.  The rest went into sector funds, which are 75% invested in tech.  Equity-income funds and growth and income funds (which favor blue chips) had outflows.  Bond funds also had outflows - a hefty $10 billion worth.

By one measure, the NASDAQ accounts for every penny made in the stock market the past 12 months.  In that span, the market value of all U.S. stocks increased $2.5 trillion, but NASDAQ stocks alone rose $3.1 trillion.  That means non-NASDAQ stocks fell $600 billion.  Foreigners are equally gaga.  Last year they were net sellers of Treasury bonds for the first time, and they bought a record $107 billion of U.S. stocks.  Care to guess which ones?

~ Daniel Kadlec, "What Blue Chips?  The NASDAQ is killing the Dow, which is why it's more critical than ever that you stay diversified," Time, March 13, 2000

Portfolio manager sees valuations as reasonable (2000)

We think there is some sustainability here given valuations and expected growth.  We have positioned our customers with that in mind.

~ Paul Cox, portfolio manager, Commerce Fund in St. Louis, MO, as quoted in The Wall Street Journal, September 29, 2000

Steve Forbes advocates aggressive easing after tech bubble unwind (2001)

With glacial speed, Alan Greenspan is coming around to the view that a faltering economy, not incipient inflation, is the most immediate threat. But instead of moving speedily, the Federal Reserve will soon begin a series of baby-step reductions in interest rates. This sluggish, woolly-mammoth-like response is a danger.

Longer term, though, there is another potential hazard. The Fed could fall into the trap in which the Bank of Japan finds itself: Interest rates are cut and cut and cut, yet the economy doesn’t recover. The U.S. experienced such a phenomenon in the 1930s, when Treasury bill rates were almost 0% and unemployment remained in double digits until the Second World War. Pushing on a shoestring, it was called.

~ Steve Forbes, "Going the Way of Japan?," Forbes, January 22, 2001

Ken Fisher: tech bubble still in the middle of bursting (2001)

People keep asking if the technology drubbing is over - or will be soon.  As long as folks keep asking, you don't have to.  It isn't over until they stop asking.  The end is silent.  Make no mistake, this is the middle of the bursting of a classic sector bubble.

~ Ken Fisher, "Tech 2001," Forbes, January 22, 2001