For those old enough to remember the last tech bubble it was given away by the rise of swags of unprofitable firms with vast valuations based upon delusional extrapolations of earnings. Hello Tech Bubble 2.0:
Good morning. Having survived the cold snap intact, FT Alphaville woke from our winter slumber this dreary Monday to find this excellent chart in our inboxes. Now, you might be aware that there’s some particularly speculative stuff going on in the US equity markets at the moment. Whether it’s the ridiculous GameStop saga, the electric vehicle-related mania, or the wider Spac-listed phenomenon, equity exuberance is everywhere. Measuring exuberance, however, is hard. Yet we think this graphic from Ross Yarrow, who is Managing Director of US Equities at Baird, does as good a job as any chart at capturing the general market madness at the moment. Gulp:
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© Ross Yarrow, Baird Note, this chart doesn’t even include 2021’s figures. According to Yarrow, with the number of IPOs this year already at 58 per cent of last year’s figure (yes, you read that right), the run-rate of IPOs might even pass the 1996 peak. And what per cent of those will be unprofitable? Well, having taken a look at quite a few of them this year, we’d wager a chunk of them. Whether it ends that way, however, is another matter. All good things, after all, must come to end. Even bull markets.
I thought hedge fund deleveraging following the rise of bear-hunting flashmobs might do it. But bubbles have this habit of reinventing themselves. Post-virus normalisation with a little inflation is the most likely candidate to end it.