While we’re on the subject of bubbles

Once again, Silicon Valley is humming.  Tech IPOs are hot, hot, hot.  Household names like LinkedIn, Pandora and Zynga, just to name a few, have recently gone public or have plans to do so, with many others awaiting their debut (think Groupon and Facebook).  It reminds me (and others, I’m sure) of the late 1990s/early 2000s when technology/Internet companies were going public at an alarming rate, without the revenues or profits to back up lofty valuations.  Fortune says there will be more than 50 tech IPOs before the end of 2011 and that proceeds so far from this year’s IPOs — $12 billion — have far eclipsed last year’s total.  A recent guest blogger on CNBC states that, “there is a familiar sense of déjà vu.  In some ways, it’s the year 2000 once again in the IPO world.”
 
Should we be scared that optimism has again returned to the Valley?  The Fortune article asserts that “the consensus is that there remains sufficient fear in the marketplace — be it on Sand Hill Road or Wall Street — to prevent exuberance from becoming totally irrational.”  Maha Ibrahim, a general partner at a Silicon Valley-based VC firm, says, however, “that bubbles can be very positive, and this one is needed to kick start a long-sputtering economy.”  Are we really in the midst of another tech bubble, though?  According to Business Insider, the current environment “doesn’t seem very bubblicious.”
 
Hopefully we’ve learned from past mistakes, but in my opinion, if recent activity helps drive the economy, than call it whatever you’d like.  After all, a bubble by any other name (to borrow slightly from Shakespeare)…is still a bubble.

 

Laurie Berman, lberman@pondel.com
 
 

Bubble Effects

Reflective Bubble

Photo Credit: Flickr, zzub nik

Why does it seem the economy continues to putter along? Good economic news continues to get kicked in the shins the next day by bad economic news and the cycle continues day after day, week after week and month after month.
 
Every expert has a theory on why the recovery is proceeding at a slower pace than the effects of arthritis in both knees. Here’s one simple theory: No one has any money. At least no one in the middle class has money.
 
Marketwatch’s Rex Nutting wrote recently that it’s no great mystery. The housing bubble crushed the middle class. The cost of plummeting housing prices has been calculated at a staggering $7.38 trillion of lost wealth, sucking American homeowners’ equity into a financial black hole and reversing the trend of economic progress for the middle class.
 
Nutting’s theory is that when the bubble burst, the middle class could no longer take money from their homes to buy cars, boats, TVs and other gizmos. Now they are putting their money “into their homes, not taking it out,” and it will take a long time for the middle class to get back on track and in a financial comfort zone.

 

Ron Neal, rneal@pondel.com