Many Wall St. observers are worried that the recent wave of interest by Wall St. into social media websites is going to spell doom for the industry. Although there are some similarities to the tech bubble of the late 1990's, there are several differences. First, tech companies in the late 1990's often did not have a business model. The social media websites of today often have growing revenues and viewed as actual real, growing businesses. Second, the pool of capital that is chasing these social media websites is much larger. As a result, the fall will be quicker if in fact a "social media bubble" is forming.
The risk in the industry right now is there are so many players placing bets on such a small amount of companies. Facebook is clearly the biggest and most recognizable, but others such as Groupon and Zynga continue to have capital poured into them. As a result, private equity firms, investment banks, and hedge funds are investing in losers or simply paying too much.
Investing Like It's 1999 (click here)
Is the market undervalued? oversold?
Many Wall St. traders expected the market to have gained too much steam recently, and predicting a sell off in the 7-10% range. Instead, with all of the turmoil in Arab world and earthquake in Japan, the markets have sold off less than 5%. In addition, several key investors like Bill Miller have stated the market is undervalued whether it be against the past, or against factors like inflation. Inflation is the key as policymakers look to curb inflation, and debate the merits of programs like QE3. Excerpt:
We are no longer in an environment where confirmation of the sustainability of economic recovery reduces risk premiums and generates a revaluation of cheaply priced assets,” Barclays told clients. “Instead, asset prices are closer to fair value and stronger growth is now accompanied by signs of higher inflation and an increased probability of policy tightening.
Indeed, those final two words are likely to be key as the market looks for gains in a modestly steadying economy. The real bet, then, may not be on whether growth has reached a plateau but whether stocks can keep rolling once the Federal Reserve ends its easing program and takes off the training wheels. The market has never been the beneficiary of such monetary largesse before, so cutting the cord could be a shock greater than any of the global storms that have come along.
Stocks Are Cheap, Right? (click here)
Paulson's Legendary Parties
In the depths of the recession, John Paulson was criticized for his lavish parties. It appears the "legend" of these parties now appear on NBC's 30 Rock...
'30 Rock' and Paulson's Big (Fictional) Party (click here)
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