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Roula Khalaf, editor of the FT, selects her favorite stories in this weekly newsletter.
How do you know when a bubble has appeared?
Twenty -five years ago, on Monday, a Rally of American shares of several years reached its maximum point and began a precipitous decrease that would eliminate 77 percent of the Nasdaq value when it finally collapsed two years later.
These days, Dotcom’s bubble has become abbreviation for the enthusiasm of nonsense for new technology and blind greed. So many investors were throwing money from shamelessly non -profitable Internet companies that the markets were forced to duel.
But if you look back to what people said in March 2000, it is clear that detecting the exact turning point is much more difficult than you think.
Although the regulators were already warning about BIVIED INVESTMENT COUNCIL And Endeble business plans, the financial times of that time were full of stories about the “Nasdaq phenomenal” that reach the “vertiginal heights.” Even five weeks after the index began to fall, there was an optimistic talk about “the markets that recovered their balance” and “extending recovery.”
That story seems particularly relevant this week. Although the S&P 500 reached a new record less than three weeks ago, global markets are agitation over tariffs from time to time from the president of the United States, Donald Trump again, and some key economic indicators are decidedly bleak. The trust of the American consumer is falling and manufacturing orders have fallen. For Friday noon in the US, the S&P 500 had resigned from all its post-presidential electoral profits.
Particularly worrying for those who see parallel to 2000, the magnificent seven Big Tech shares that promoted the widest market last year are in correction territory, 12 percent less than the maximums that they reached collectively in December. His fourth quarter gains were not particularly bad: Google’s matrix alphabet reported two digit increases in income and profits for one.
But investors are beginning to ask more questions about the billions of dollars that are spent on artificial intelligence and related data centers and energy sources and when exactly it will result in greater growth.
For some investors for a long time, that sounds disturbingly familiar to the loss of confidence in Dotcom companies that seized that the United States Federal Reserve began increasing interest rates in 1999. Once the funds became more expensive, the new loss companies such as Pets.com and Webvan were left without money. Its telecommunications and technology suppliers also began to fight, knocking down the broader market. The United States entered a recession in March 2001.
Without a doubt, parallels are not exact. They never are. While most Dotcom companies were ephemeral newcomers, MAG 7 includes some of the most profitable and impressive groups in the world, including Apple, Amazon and Microsoft, as well as the main supplier of the economy of AI, Nvidia.
The new companies of this generation are more difficult to handle because they have avoided floods and have remained in the books of risk capitalists and private capital firms much longer. But it cannot be a good sign that PE’s total assets are being reduced for the first time in decades.
When money is cheap, it doesn’t matter so much if the capital is inefficiently sprayed. But higher interest rates eventually force the richest companies to focus their efforts, and uncertainty around Trump tariffs will probably further discouran corporate investment. The consequences for the economy in general could be deep.
“Some things change, but human beings bless them, they don’t. All the signs of a classic bubble are over us, ”says Jim Grant, a financial and burned journalist who predicted both Dotcom’s accident and the high -risk mortgage disorder that triggered the financial crisis of 2008.
However, he warns that “patterns are familiar, but the moment is unknowable and is about torturing the adopter Bear earlier.” I should know. Their forecasts were correct, but until now in front of the real collapses that the investors who followed their advice lost significant profits.
The experience this year of Nvidia is instructive. The appearance of Deepseek, the Chinese company that affirmed that it could execute the less computer power, eliminated $ 600 billion of the market capitalization of the chips manufacturer in January while dragging public services and other technological actions. The price of Nvidia’s shares then raised most of their losses, since investors were convinced that AI cheap would lead to faster adoption and more expenses.
But that recovery has not lasted either. Nvidia shares have dropped around 25 percent since their maximum of 52 weeks. Is that the sound of escaping the air or just the wind?