A colleague asked for my take on the news made by David Einhorn in the Wall Street Journal which is that he believes tech stocks are in a second bubble in 15 years. Interestingly, Warren Buffett was on CNBC Wednesday afternoon and when asked about the Einhorn quote he said disagreed with Einhorn.
There are a couple of things to point out first and foremost of which is that whenever the next stock market calamity comes along it will be different than past stock market calamities. They look the same in terms of market reaction but the causes will always be different.
A little more specific to Einhorn, I read this story in the WSJ and there they attributed a quote to him that a consensus is building that we are in another tech bubble (or words to that effect). That really isn’t the nature of how bubbles work–consensus building. When the next bubble comes, whatever it is, there will be some who do predict it of course but there will be no correct consensus about it.
Einhorn notes pockets of overvalued stocks and while he is correct, the reality is that there are of course always plenty of overvalued stocks in the market as well as undervalued stocks.
What exists now are manias in things like social media, cloud computing and 3D printing. The scope of these manias are much smaller than from 2000. The poster child for the 3D printers is DDD, it has a $5 billion market cap and a 114 PE which is high. Back in 2000 Ariba Networks had a market cap of $33 billion and traded at 500 times revenue with no earnings and obviously there are countless other examples like this which is the difference between mania and bubble in my opinion.
It’s not the market can’t go down or that these stocks he mentioned won’t go down but a repeat of a past crash does not make sense, I am quite certain he would know that which makes me think there is more to what he meant than what is being reported or maybe it is as simple as he is just “talking his book.”
Source: Electronic Business & Commerce on books.google.com This article was written by Roger Nusbaum AdvisorShares ETF Strategist.