Loading ...But don’t call them re-ratings. After all, this time is different because nothing which happened during the last two Wall Street crashes is remotely relevant to today’s awesome outlook. For example, here’s a real yucker from Morgan Stanley’s ultra-bullish chief US equity strategist, Adam Parker. Unlike during the last tech-wreck, he avers, we are dealing with real companies with substantial sales and earnings, not dotcom eyeball candy:
Today’s tech companies bear little resemblance to the makeshift operations that quickly burned through cash more than a decade ago, says Adam Parker, Morgan Stanley & Co.’s Chief US Equity Strategist. In 1999, fewer than half of tech companies were profitable. With some notable exceptions, around 90% of tech firms now have positive operating margins.
Undoubtedly, Mr. Parker was still guzzling beer in his dorm room during the last tech crash, but that doesn’t excuse his abysmal ignorance of the historical facts. In the Great Deformation I tracked the fate of the dozen big cap tech companies before and after the dotcom crash. These included Cisco, Dell, Intel, Microsoft, Lucent Technologies, Juniper Networks, Hewlett-Packard, Nortel, WorldCom and Global Crossing—–with General Electric and AIG thrown in for spice.
Needless to say, these weren’t “makeshift operations”. Among them they had posted in excess of $300 billion in sales and $50 billion in net income at the turn of the century.
But here’s what happened. During the time between Greenspan’s infamous “irrational exuberance” speech in December 1996 and the March 2000 dotcom peak, the aggregate market cap of these dozen high flyers soared from $600 billion to $3.8 trillion. Notwithstanding respectable rates of sales and earnings growth, operating performance of these big cap tech giants did not remotely justify a 6X gain in market cap during this 39 month period.
For once Greenspan had been right. It was irrational exuberance on steroids——a proposition validated in spades by subsequent events. To wit, during the next 18 months a stunning $2.7 trillion of this market cap vanished and never returned. In fact, by 2012 four of these companies had disappeared and the market cap of those which remained was just $850 billion or 22% of the peak level.