The rise and fall of the cyber empire

Posted on Jan 03 2001

One of Saipan’s blessings is our lack of yuppies. And, by extension, you’re comparatively unlikely to be inflicted with some dreadful bore at a cocktail party bragging about how much money he just made in his dot-com stock portfolio.

Come to think of it, I’m not aware that we have many cocktail parties in the first place. Bud Lite seems to be favored over martinis.

Anyway, if–despite the odds–some braggart was trying to convince you what a stock market whiz he was, he might have since slinked into a nice warm, dry dumpster along with his boonie dog roommates. He may be homeless. A lot of the dot-com crowd got wiped out financially over the past 10 months, and the “dot-com crash” is THE financial story of the year.

If you don’t like the term “crash,” then you can try an alliterative flair and go for “dot-com depression,” which is a phrase now making the rounds.

Yeah, I’d be depressed too if I bought into the Nasdaq (the home of most dot-com stocks) when it hit its peak in March, 2000, only to watch it plunge–ready for this?–50.6 percent since.

A lot of stocks are down 90 percent from their peaks. The only one of the bunch I’m following–not buying, mind you, nor wasting any breath on, but just sort of following as a spectator sport–peaked at about $45 a share a couple of years ago. It’s now trading at about a buck and change.

In other words, if you had “invested” (speculated? Bet? Got suckered?) $10,000 in it when it hit peak, your ten grand commitment would be worth about $264 today.

Your prototypical, down in the dumps dot-com loser stock represented a share in a company that never–ever–made a profit. You couldn’t calculate the “price to earnings” ratio, since there were no earnings. There weren’t, of course, any dividends, either. All there was, it seems, was the faint hope that you could find a sucker willing to pay more money for the stock than you did. This is known as the Greater Fool theory, which is probably a legitimate element in a lot of investments, but makes a poor substitute for economic reality.

And, speaking of reality, three points come to mind:

First, there’s the issue of whether or not the dot-com depression will drag down the rest of the market, and, by extension, might mess up the economy as a whole. Sez me: I dunno.

Second, there’s the fact that if the Federal Reserve lowers interest rates, as its widely expected to do, I wouldn’t expect the dot-com sector to necessarily benefit from it substantially. One of things that lower interest rates do is increase today’s value of a company’s future earnings, which is moot if the company won’t have any earnings to begin with.

And, third, let’s count our blessings that we don’t have to live in the middle of the whine-fest that is rolling like thunder through stock-crazed middle America. Americans whine too much as it is, and the less we have to hear of it, the better.

Ed Stephens, Jr. is an economist and columnist for the Saipan Tribune.

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