“The Madness of Crowds”: My Stock Market Warning in Feb. 2000

Be prepared for the next great transfer of wealth. Buy physical silver and storable food.

garynorth.com / Gary North / February 19, 2016

Remnant Review

The combined market valuation of the proposed Time Warner/AOL conglomerate is expected to be $350 billion. That is more than the market valuation of Spain’s stock market, according to Bill Bonner’s Daily Reckoning (Jan. 14). The company will sell in the range of 200 times profits.

I use AOL as a back-up e-mail service. I pay $5 a month for the service. There are 40 million users. AOL gets newcomers onto the Internet, but once onto the World Wide Web, AOL has no competitive advantage — and far less tech support — than a local Internet service provider. AOL has to keep people by means of its non-Web services and features — suspiciously like the local bulletin boards of the late 1980’s and early 1990’s. But the power of the web is so great that it overwhelms anything resembling a bulletin board. The sense of community necessary to sustain 40 million customers’ interest is difficult to achieve, precisely because the customer base is so large. Breaking AOL down into sub-communities is the obvious way to go, but AOL has no powerful advantage over Yahoo! or other “Web portals.” It has no advantage at all over specific Web sites — millions of them today — that offer very tightly focused information and chat forums.

Think of Time and Life. Life, Look, and The Saturday Evening Post did not survive the explosion of special-interest magazines of the 1960’s. The fall in the price of color printing destroyed the advantage once available only to large publications. Time is now facing competition from the web. To maintain its subscription base, it must become amorphous, compared to the Web, where WorldNetDaily and other ideologically focused news sources proliferate.

[Below], I reprint a chart from InvesTech. When you see it, you will understand my belief that a market mania now governs investors, including mutual fund professionals. It charts changes in the price/earnings ratio of the NASDAQ stock exchange. This is the preferred exchange for investors who dream of great profits from companies that today have low earnings or none. NASDAQ has been in mania mode since 1997.

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Thanks to BrotherJohnF