Many of you will still remember the 2000 .com bubble. He who does not remember it, surely will at least have heard of it on countless occasions, since it represents the most recent and forceful example of not only knowing what the future will be, but also for requiring the how (and the when), to filter and get rid of those empty investment options.
No one has a crystal ball. We can only read about probability of success and scenarios that are more or less plausible. Indeed, I always advise people to be totally distrustful of those who make bold predictions with overflowing security, since the future can not be guessed at by anyone.
However, I do consider it my duty at least to alert them to the fact that today there are already several indicators that are pointing to a situation similar to that of .com bubble that we will analyze for you:
The Bubble 2.0
I honestly can not deny that talk 0f a famous bubble 2.0 has been on for a few years now. I am also aware of the possibility that the bubble can continue to inflate uncontrollably, since it is the very definition of a bubble. And finally, I am also fully aware that there are bubbles that take years to finish growing.
In fact, there has been talk of the 2.0 bubble more or less since that memorable Facebook IPO more than five years ago. Although the IPO itself was not exactly dazzling, what made people begin to weigh the possibility of the existence of a bubble 2.0 was the valuation that this IPO granted to the company when, at the tim, its income was more potential than anything else.
Indeed, exponential technological progress has transformed our world and our economic-business cycles. when we dig into theÂ data and indicators, which is always a more objective and more tangible terrain, we can tell you that today there are a handful of indicators that point menacingly to the fact that this 2.0 bubble is more present than ever. This possibility is shown especially looking back and making a necessary comparison with that sadly famous 2000 .com bubble.
Before arriving at our own conclusions, I will summarize in a few lines the nature and the current situation of the four indicators mentioned earlier.
Consumer confidence and business confidence
The first of these indicators is nothing less than the ever revealing consumer confidence index, the “contrarian” indicator par excellence: in simple words, an indicator of Wall Street’s effective “counter current” philosophy. I should clarify to you that one should be an ardent supporter (and observer) of the key importance of mass psychology in the market: it is essential to get ahead of the bulk of the common investor. And there are even certain situations in which I do not have the slightest inconvenience in recognizing that I can become a convinced contrarian.
Today, the consumer confidence index is at levels similar to those of the years immediately prior to the .com bubble.
The second indicator is the no less revealing business confidence indicator. Often this indicator is considered less “contrarian,” and more “professional,” because it shows how the market sees those managers who have to supply it. It is not exactly an advanced indicator, and indeed it also has a certain “contrarian” about it, but the truth is that the economic agents that can best evaluate the demand of an economy are the managers.
As you can see in the corresponding graph of Business Insider, when comparing with 1999 and its previous years, although it is true that the parallelism of evolution is not as accurate as in the case of consumer confidence, yes in business confidence There is also a lateral tendency in a clearly comparable band. What is especially striking is a final rebound which, in the case of the current year 2017, is much more pronounced and therefore potentially dangerous.
The FED Stimulus and the creation of employment
The third indicator is neither more nor less the (always controversial) stimulus that inflated the economy. Without entering into the eternal debate of stimuli-yes or stimulus-no (for me it is rather a question of quantity and of the concrete moment), what is certain is that stimuli at the wrong time and to a disproportionate extent can lead to an overheating of markets and sectors. On the other hand, it is also crucial that the indicator used to measure the proportion of stimulus inflated to the economy, ie the spread between ten-year bond rates and the three-month bond, is an important advance indicator.
The fourth and final indicator is the almighty creation of employment. The graph of the evolution of the creation of employment shows a significant correlation between the graph corresponding to the years preceding 1999. In addition, this correlation is much more striking because it has practically coincided with the creation of jobs in recent quarters and those immediately preceding the puncture of the .com bubble.
In this type of situation, rationality and nerves of steel must prevail. Each bubble is indeed different and unpredictable to some extent, and each manifests in a different way as times and markets change.
Much the future is unpredictable. Learning from economic history, even a recent one, is a healthy and necessary exercise, and remember that what never changes is human nature.