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Economic Review

2/01/2010

Probably one of the biggest primers of the US equity bubble ?….that Tech heavy NASDAQ.

In case you didn’t do the calculations, we’ll clarify it a bit for you.  Since the recent bottom set in the Tech heavy NASDAQ in the Spring of 2009, the index has run up in the area of 75 % at its recent highs set just a few weeks ago.  The hype has been outrageous over the wonderful new Tech products that have been introduced into the market that have many excited as to incredible future returns to be achieved by various tech companies.

You know those wonderful products…things that allow consumers to twitter, tweet, are loaded with wonderful APPS that enable gadgets to show movies and even play the piano. Just think, consumers can play chop sticks on hand-held devices.  What wonderful new earth shattering sources of sustained profitability and expansion of new innovation markets.  Stop the Madness.

Here’s a reality check.  Products that are truly innovative, that introduce new ways of conducting commerce can actually be a source of economic growth as their assimilation into businesses can result in the demand for other new complementary products and skilled labor to use these new technologies.  Twittering, hand-held Apps, small additions to email functionality, all on handheld devices, do not fall into this category.  These characteristics fall more into the realm of short term revenue enhancing gadgets that may not produce sustained returns over the medium to long term.

The NASDAQ up 75% in less than a year….well, you’ve already seen what can happen to things filled with air.  The NASDAQ has come back down to earth over the last week or so, giving back some 10% in those lofty gains.  Don’t be surprised if those exuberant earnings expectations for some of these Tech companies quickly evaporate. 

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