The funny thing about the recent controversy regarding Dallas Mavericks owner Mark Cuban’s statement about the NASDAQ tech bubble is that it puts too much focus on a tech bubble crashing the general market. The reality is that there are many different bubbles in operation right now. You can take your pick. Any of these bubbles can pop, and depending on how many people are affected, can effectively cause the other bubbles to burst as well. Alternatively, some bubbles may not be ripe for popping yet, or might actually lead to a soft landing, and the rally can continue for quite some time.
Still, the recent controversy does highlight the fact that there are current bubbles in the market. Nobody’s disputing that. You only need to look at the current price per earnings ratio of the typical American stock to know what I am talking about. We are at historically high valuation rates while economic performance on the ground isn’t really justifying those valuations. While market analysts can justify this by simply saying that investors are willing to compress large timelines of multiple quarters’ worth of earnings to today’s price, that doesn’t really hold any water. For that to make sense, the investors would want the elevated price to remain static until the company behind the stock can actually perform to justify that price. That obviously isn’t happening. The price keeps going up. In fact, the whole question regarding stock bubbles should focus on which bubble would burst first. Take your pick. There’s the bond market bubble, there’s the Federal Reserve-infused stock bubble, and there’s the technology bubble.
The interesting thing about all this is that the bubble that Mark Cuban was talking about is actually specialized. It’s the bubble created by mobile apps and other cutting-edge technology companies that are being offered for investment in very tightly-focused and specialized investment platforms that are not open to mom-and-pop investors. Only sophisticated investors can put their money on these companies. Mark Cuban is just raising alarms regarding how easy it is for these mobile app companies to raise a ridiculous amount of money when, looking at the business models of these companies, assuming they exist, makes one wonder whether they would even make money at all. Well, he does raise a good point regarding the wisdom of investing in such highly risky companies. Within the broader context, if there is a crash in that market, and there may very well be one in the near future, it remains to be seen whether how much of that impact would be on the broader market. Compare this with the internet boom of the year 2000 where these companies were actually publicly sold, and when they crashed, they burned a large number of investors. If the private placement can stop specialized investment platforms crash now, the total number of victims will likely remain quite small.