Economy

As with most people I guess, the financial crisis is still foremost in my mind. I have already written about the responsibility public companies have for this, but I’m also working on another post about the other side of the equation (stock traders). In the mean time though, there’s a related issue that’s been on my mind since before the financial crisis even started, as it relates directly to what I do: the stock market’s evaluation of web 2.0 companies.

As I mentioned in my previous article, the original “dot.com bubble” took place because the stock market invested heavily in IT companies, as the internet had so much potential for growth—and all the stock market seems to care about these days is growth, not sustainable profitability. Never mind the fact that most of these companies were actually losing money! And the amazing thing is, exactly the same thing seems to be happening with web 2.0 companies now. Google is still trying to figure out how to make money out of YouTube, even though they paid $1.6 billion for it. News Corp bought MySpace for $580 million, and they haven’t figured out how to make money out of it either. And the market evaluations of Facebook have just been ridiculous. How can anyone not see that this isn’t potentially another dot.com bubble all over again? Plus of course, the stock market is in a far weaker position now than it was at the time of the first dot.com bubble, so if this bubble were to burst now, the results could be even more disastrous. Read the rest of this entry »

Well I think it’s definitely time for a little comic relief, so in recognition of the opening of Bill Maher’s Religulous, here he is with a very topical discussion of the economy, John McCain and Sarah Palin.

As regular readers will know, I’ve been meaning to write about this for some time now. One of the reasons it has taken me so long is that I’ve had a lot of difficulty forming an opinion on the merits or otherwise of the Wall Street bailout. On the one hand, I can understand the outrage of the average American taxpayer, in as much as they are in a sense footing the bill for Wall Street’s excesses. On the other hand, I understand the desire to prevent a “freezing up” of the credit market, which would have disastrous knock-on effects for the entire economy—not just in the US, but in the rest of the world too. If the bailout package does in fact achieve this, then I guess it is a necessary evil. But it remains an open question as to whether it actually will help things anyway—indeed, it is possible it may even make things worse. Considering the continued volatility in the stock market since the bill was passed, it certainly doesn’t seem to have had any beneficial effect in the short term. Indeed, the announcement of this package and its bumpy ride through the US house of representatives seems only to have made the stock market even more nervous so far. Perhaps the mere fact that such a bill was announced and considered necessary by the US government has really only served to fuel investor nervousness, whereas if it hadn’t been announced, perhaps the stock market might have recovered on its own. However, the reality of the situation is that we really don’t know—the extreme unpredictability of the stock market is such that we can never be certain what the best course of action is in these matters. And herein lies the problem: the stock market does not seem to obey any sound and consistent rules of logic in its movements, which I think is the crux of the matter here. Read the rest of this entry »