New Tech Era or New Tech Bubble? (Video)
On CNBC last night, Peter Schiff debated Wayne Kaufman, Chief Market Analyst at Phoenix Financial Services. Is the NASDAQ in bubble territory today? Kaufman argues that the tech landscape is completely different than it was in 1999. Peter counters that a bubble always looks different than the last one when you’re in the middle of it.
Whenever there’s a bubble, it’s always different this time. There’s always reasons to rationalize why it’s different. Remember, that’s exactly what everyone was doing in 1999 and 2000. They were rationalizing why it was a new era, it was a new economy… Bubbles always make you choose. Either you’re going to look like a fool before they pop, or you’re going to look like a fool after they pop.”
Highlights from Peter’s responses:
“This time around, the difference is it’s not really a tech bubble. The entire US economy is one gigantic bubble. That’s what makes it that much more frightening for the economy and for investors. Remember, within a year of the NASDAQ getting above 5000, it dropped 4000 points. We had an 80% decline. So people need to be cognizant of the risks when you get into the markets at these levels.
“I believe the real threat is the underlying economy in the United States has never been this weak. I believe that the Fed is going to be more desperate now than it was in the early 2000s to try to contain this bubble, to try to prevent it from popping. So we might not see the same type of carnage we saw in the stock market. The carnage might be reserved for the foreign exchange market, to the dollar. Because they’re going to have to print a lot of money to try to stop this bubble from bursting…
“It’s never exactly the same. Whenever there’s a bubble, it’s always different this time. There’s always reasons to rationalize why it’s different. Remember, that’s exactly what everyone was doing in 1999 and 2000. They were rationalizing why it was a new era, it was a new economy. You always feel like this in a bubble.
“But if you look at what the Fed has done to prop this market up, the NASDAQ wouldn’t be here were it not for QE. It wouldn’t be here without zero percent interest rates. It wouldn’t be here without unprecedented stock buybacks fueled by cheap money. You have all these artificial props that have lifted up the market. There’s no way to sustain the market without those props. The Fed is talking about normalizing interest rates, shrinking its balance sheet. It can’t do that without pricking this bubble and collapsing the market. Now maybe they won’t do that. Maybe they’re going to launch QE4. That’s what I think they’re going to do. Maybe the market won’t collapse. But when that happens, the dollar will, because the dollar is being propped up by the idea that the Fed is going to hike rates…
“Sure, in the tech world, tech is not as overvalued relative to the rest of the market as it was in 2000. But that doesn’t mean it’s not a bubble in the stock market. Of course, a lot of these companies that are considered tech – you mentioned Uber. Uber is not a technology company. It’s a ride-sharing company. It uses the internet, but I don’t think it’s a technology company. I think the valuation is absurd. There’s a lot of companies like Uber that are sporting these absurd, billion dollar market caps. Many of these companies haven’t made any money. Many of them won’t make any money. It’s very reminiscent of what was going on during the 1999, 2000 dot-com bubble… What’s going to happen to all that free cash-flow when interest rates go up? What’s going to happen to all that free cash-flow when companies have to start servicing this enormous debt that they’ve taken on during the bubble? …
“If you can keep those profits and go the other way, then I’ll be a big fan of yours. I just recall the late 1990s. I didn’t buy any of those dot-com stocks. I stayed away from all those bubble names, and people made fun of me in 1998, 1999, because my clients weren’t making money. I wasn’t making any money. But when the market got cut in half in 2000, and when the NASDAQ dropped 80%, we had a fantastic year. We went on to make tremendous returns for 8 years in a row. The stocks that I was buying in the late 1990s that nobody wanted, many of them went up 10 or 20 fold in the ensuing 8 years…
“Bubbles always make you choose. Either you’re going to look like a fool before they pop, or you’re going to look like a fool after they pop…”
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