Tuesday, July 24, 2012

This Time, The Entire US GDP will be Wiped off!

Question is, will The World see Tech-Bubble 2.0? The Incredible Valuations of New age Internet Startups do Indicate so. And what are we Risking? Amir Moin after an In-Depth analysis, Reveals The Answer – a Mighty lot!

C apitalists hate bubbles. Actually, they first love it. Dimes turn into hundreds of dollars, and before the investors wake up to reality, the stock markets crash. Valuations are reduced to ashes, and what is left of any industry hit by this dust storm is a sight of riches-to-rags investors, with the world looking on in helpless horror. The bursting of the dot com bubble of 2000, is an example. It is not every day that the world can withstand a blow of $6 trillion (the value that stock markets around the world lost between March 10, 2000 and December 31, 2002). And the current times – when US, Eurozone and many countries around the world are still digging themselves out of the slowdown disaster – is certainly not one.

But, the threat is growing by the day. The bubble, we mean. And once again, we find ourselves fearing the unholy apparition symbolising all that the world has suffered in the past, due to the cold savagery unleashed by a handful of financial engineers. And like it happened at the turn of the century, the accused this time again, will be the new age Internet startups. Only this time, the aftermath will be more unpleasant. This is how. Of the 308 companies that went public in 1999 (when the dot-com cycle was at its peak) the 24 largest of them, were valued by the bourses at $70.96 billion (the largest being Agilent Technologies, which was valued at $13.6 billion). As per Morgan Stanley, currently, the combined valuation of just the top five most sought-after unlisted Internet start-ups (which are forecasted to hit bourses anytime by mid-2012), totals a higher $71.3 billion (the largest of them being Facebook, at $50 billion)!

We are staring at a dangerous outcome. Events synonymous to those that led to the previous bubble are being seen in the present days. During the first half of 1999, New York was ablaze with venture capitalists funding any and every dot com start-up. IPO activity surrounding these companies was at an all-time high. According to Thomson Reuters, Wall Street made an estimated $1.3 billion in underwriting fees during that period. Investors in tech-stocks were the happiest of the lot. On March 10, 2000, the NASDAQ index peaked to an all time high of 5132.52, before closing at 5,048.62. That day, the total m-cap of companies listed on NASDAQ was $1.98 trillion. By December 31, 2002, the stock exchange had shed 73.55% of value – amounting to a loss of $1.46 trillion. If a similar mishap is repeated today, the NASDAQ alone will lose $3.01 trillion by December 2013 (as per March 31, 2011, valuation of domestic stock exchanges by World Federation of Exchanges ). Simulate the tumbling reaction on stock markets around the world, and you arrive at value lost of $14.77 trillion over the next 33 months – enough to wipe out the total GDP of US (which stood at $14.80 trillion for 2010, as per US Bureau of Economic Analysis) – sending a ‘stock’ shock wave 146.17% higher than the 2000-2002 Internet-apocalypse!