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Most Tech People Are Too Young To Remember That Silicon Valley Hasn't Had A Real Crisis In 17 Years

Jared Dillian profile picture
Jared Dillian


  • My argument is that speculation is getting out of control.
  • When you have one bubble, others usually follow.
  • A handful of tech stocks have gone bananas.

Two weeks ago, I took a shot and called the top of the stock market.

My argument is that speculation is getting out of control. And not just on stocks—on Bitcoin, comic books, and all kinds of stuff.

When you have one bubble, others usually follow.

But the one that people are most focused on is the bubble (if you want to call it that) involving Facebook, Amazon, Netflix, and Google. Throw in Apple and Tesla for good measure, and maybe a few more.

A handful of tech stocks have gone bananas. So, let’s do some basic blocking and tackling.

The Breaking Point

I spend no time on charts in The 10th Man (my free weekly newsletter), but technical analysis is important. The quality of the analysis often depends on the analyst, and one of the best is Frank Cappelleri at Instinet.

He has pointed out that on a short-term basis, the NDX (which largely tracks large-cap tech stocks) has formed a head-and-shoulders top and is breaking trend.

Source: Instinet

This is the first real weakness we’ve seen in tech in a really long time…

Though Frank is quick to point out that on a longer-time horizon, the trend is still firmly intact:

Source: Instinet

I don’t think it is a coincidence that the short-term breakdown occurs during tumultuous times in Silicon Valley.

Uber is disintegrating before our eyes. Unless they go public (which they can’t), they’re going to have to do a down round. And it’s not out of the question to think the company might cease to exist one day. That likely has implications for private valuations everywhere.

Also, the news broke of some pretty big sexual harassment allegations recently in tech-land. This is significant because public opinion matters. I can foresee a time when tech executives are

This article was written by

Jared Dillian profile picture
I'm the editor and publisher of The Daily Dirtnap, strategist at Mauldin economics and author of the free 10th Man newsletter. In a previous life I was head of ETF trading at Lehman Brothers where I did a fair amount of trading proprietarily. I started my career in finance as a clerk on the floor of the Pacific Options Exchange, getting sandwiches. In a previous life I was a Coast Guard officer, where I did law enforcement stuff and counted fish. I'm really good at behavioral finance, though most people have a tough time figuring out what that is.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (7)

NervousNeville profile picture
I’m not going to invest in Netflix. But will FAAG be still be relevant in 10 years? Yes. Long and strong. There will be a sell-off of up to 20-30% eventually. Just buy more.
Vivian Embro profile picture
Good article, thank you.
RD2001 profile picture
So..are you shorting the entire market? Calling a definite top?
interesting piece, thank you! I think you are putting all silicon valley together while not appreciating just how different this boom is, and where things were during that first bubble. The last silicon 'crisis' wasn't the dotcom drop, that was a stock bubble that was overdone by everyone but not a tech crisis. Those firms didnt lose customers, they never had customers! The few who survived/thrived are now ruling the world AAPL, GOOG (i know wasnt traded but still), AMZN.
Uber is similar to the dotcom thing, but if they were publicly traded it would reflect. The current tech bubble is not public companies, it's pre-ipo. Thats exactly why you said they cant IPO. It's true their next funding round will be brutal, I think the valuation may drop in half! Now we measure better the winners & losers on public markets remarkably well
winners: fb, crm, tsla, goog, amzn
losers: twtr, snap, gpro - i can go on.

MSFT languished because of terrible mgmt, not bc of dotcom results. FANGs will continue to rule the world.
I think the broader point though is that tech valuations are pretty sky high at this point. AMZN has a market cap of roughly $500 b on a company that has made $5b in profits during it's entire history combined. A lot of the companies you are citing are effectively just glorified advertising companies at massive premiums- GOOG for instance doesn't make money on any of their non advertising businesses.
TSLA has hitherto made only losses. world may or may not transition to solar/EV. AMZN makes very little relative to it's market cap even after 20 years. NFLX ditto. FB, GOOG vie for the same advertisement dollars for consumer products while so called consumers are rapidly losing their ability to consume due to loss of jobs because of tech! Add to all that, the net neutrality fights, the anti-trust issues etc which may eat into these tech companies profits.
Absolutely correct.
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