From the editor...
“Everything has changed; and yet nothing has changed.” Along with resolutions to invest in some hair dye, significant anniversaries always prompt comparisons with the circumstances surrounding previous milestones. Since MoneyWeek’s first edition
1,200 issues ago, in November 2000, the financial world has been through unprecedented upheaval. But it’s also a case of deja vu all over again: the technology bubble is back.
Bulls are keen to highlight the differences between the dotcom era and today’s AI-induced buzz. This isn’t a case of hype about “monetising eyeballs”, ascribing absurd valuations to companies that never developed business models beyond attaching .com to their name.
Tech stocks with profits
These days, the firms spearheading the market advance actually have earnings. Quite a lot of earnings, in fact: Argonaut Capital’s Barry Norris points out that the Magnificent Seven (Microsoft, Apple, Alphabet, Amazon, Nvidia, Meta and Tesla) are set to notch up collective net income of $400bn this year, compared with $85bn ten years ago.
In those ten years they have produced average earnings-per-share growth of 1,769% (an 18-fold jump). On the other hand, says John Mauldin in his Thoughts from the Frontline newsletter, the overall
US market’s overvaluation looks more pervasive this time than during the Nasdaq bubble. The market beyond the Magnificent Seven is hardly cheap. In 1999, 43% of the S&P 500 index traded at 15 times earnings or cheaper. Today that applies to just 25%.
It is also striking that in November 2000 most commentators, lulled into a false sense of security by a long structural bull market, had no idea that the upswing had ended in March; almost everyone was bullish. This time, people are more circumspect. The Halkin Letter’s Ron William notes that magazines often signal the top or bottom of a trend by jumping on the bandwagon too late.
BusinessWeek famously heralded the “Death of Equities” in 1979, before the biggest bull market on record, and The Economist said the world was drowning in oil just as the long commodities bear market was about to end. Similarly, Money magazine’s issue of March 2000 – the very peak – explained “how to invest in the hottest market ever”. Note, says William, that The Economist and Barron’s have both just produced bullish magazine covers.
Another key facet of the financial world in 2000 was that nobody would have believed you if you had told them that we would enter an era of negative interest rates. This attempt by central banks to stimulate growth should be remembered as an extraordinary distortion of capitalism; if money has no yield, the key idea that investors can hope to get their cash back with the prospect of a decent return is undermined. It also discouraged saving and undermined pension funds’ returns.
This week the last central bank to indulge in the experiment finally ended it (see page 4). Having been through the looking glass, the world economy has taken a step back to sanity. There is still the bubble to contend with, however. Our first cover highlighted “Safe havens in stormy markets”. That was a good call – and a topic we will be no doubt be revisiting frequently in future.
“Magazines often signal the top or bottom of a trend by jumping on a bandwagon too late”