Bubble cycle playing out … again!

Dot-bombs.

Housing.

Commercial real estate.

$150 oil and commodities.

The bubble cycle in asset class after asset class has played out repeatedly in the past several years. I have laid the blame — accurately, in my view — at the feet of the Federal Reserve.

By slashing rates and flooding the asset markets with easy money over and over and over, they have provided the raw fuel for multiple asset bubbles. The failed policy started in the Greenspan era, and it’s continuing with “Helicopter Ben” at the helm.

Now, it’s becoming abundantly clear to me that we’re experiencing yet ANOTHER round of this ridiculousness. The ironic thing is, it’s actually in the tech and dot-com arena again. You’d think people would have learned their lesson the first time around. But you’d be wrong!

Tech Stock Love Affair
Smacks of 1990s-Style Hysteria!

Take a tech stock like Apple (AAPL). I know, I know. It’s Apple, the company that many on Wall Street and Main Street say can do no wrong. But the absolute adoration for this one stock has gotten so out of control, it reminds me of the late 1990s love affair with names likeMicrosoft (MSFT)Intel (INTC)Cisco Systems (CSCO), and Qualcomm (QCOM).

Case in point: One analyst just came out and slapped a $1,000 target on Apple. Another upped the ante with a $1,001 target. Some on Wall Street are now forecasting that Apple will be the first $1 TRILLION company in the history of the U.S. That would be an eight-fold increase in market capitalization just since 2008.

That would also top the highest valuation ever reached by a U.S. company — Microsoft at $619 billion in December 1999 — by more than 61 percent. Oh, and if Apple did hit $1,000, that would be a move of ANOTHER $350 per share from here … on top of a gain of more than $250 just since December!

Now I have nothing against Apple’s products. I use them myself. But this is just like what happened in 1999-2000, when some boneheaded analyst slapped his own $1,000 price target on Qualcomm … right before the Nasdaq lost more than three-fourths of its value!

Bottom line: Apple and a handful of other hot tech stocks like Priceline.com (PCLN) are now as overowned, overloved, and overbought as several other asset classes and stocks throughout history — from housing in 2005 … to silver in 2011 … to dot-bombs in 2000. Even the slightest disappointment in terms of sales, strategy, or execution could cause massive dislocations like we’ve seen in the past!

No Revenue? No Business Model?
NO PROBLEM!!

What else is bringing back bad memories of the late 1990s? Well, back in the first dot-bomb bubble, you didn’t need much revenue. You didn’t need a viable business model. You didn’t need much of anything besides a “.com” in your company’s name.

That was good for millions, or even hundreds of millions, of dollars in funding by venture capitalists, Wall Street firms, and momentum-hungry mutual fund managers.

But shortly thereafter, the bubble popped. Companies like Pets.com and eToys imploded. Trillions in stock market wealth vanished, and the economy tumbled into recession. Now, it seems we’re destined to repeat that sad, sorry experience!

Take the renewed rise of bubble-heyday stocks like Broadvision (BVSN). Back in the dot-bomb bubble of the 1990s, this tech turkey exploded from a split-adjusted $166 to $23,300. More than TWENTY-THREE THOUSAND DOLLARS!

But when the bubble popped, it crashed all the way to $8. And over a span of several years, it went nowhere. Once the European Central Bank cranked up the printing presses in late 2011, though, it climbed out of its grave like some horror movie zombie you can’t kill no matter what you throw at it! Within a few weeks, it has surged seven-fold to more than $56 from $8-and-change.

Or how about all these red-hot Initial Public Offerings? Angie’s List (ANGI)Millennial Media (MM)LinkedIn (LNKD). They’ve surged as much as 44 percent, 114 percent, and 173 percent in their first days of trading, riding the latest “social media” Internet craze.

Then earlier this week, the soon-to-be-public Facebook revealed plans to buy Instagram for the princely sum of $1 billion. Who’s Instagram? A two-year old company that has a popular smartphone application allowing you to take and share stylized photographs. It has only 13 employees and — get this — NO revenue! ZIPPO!

Moreover, Instagram had just completed a round of private financing that valued the company at $500 million. That means it went from being worth $0 two years ago … to half a billion bucks a couple weeks ago … to a billion dollars a week later.

We Know How this Movie Ends!
Don’t Get Stuck When the Lights Come On!

Folks, we’ve seen this movie before. We know exactly how the sad, sorry story plays out. And we know that if you’re stuck in your seat … holding the bag … when the lights come on and investors come to their senses, you’re going to lose a fortune.

In fact, there’s evidence the end may already be at hand …

Some of the sorrier IPOs to come out of the chute, like Groupon (GRPN), are getting shellacked. The bubble stock Broadvision that I mentioned earlier has shed more than half its value just since early March. And the broad stock market is wavering again, suggesting the “one way” trade higher since December is coming to a close.

If you haven’t already taken some profits off the table, as I have been recommending, get cracking! If you own momentum darlings like Apple and Priceline.com, sell now! Because my fear level is rising given the proliferation of late-stage bubble shenanigans I’m seeing!

Until next time,

Mike

P.S. You might also consider joining my Safe Money Report where I give members specific guidance on what, when, and how to buy and sell. Plus my Flash Alerts give you the edge you need to keep your money safe and maximize your profits. Click here to learn how to join for just 12 cents a day.

 

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— Money and Markets

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