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Apples, Oranges And The AI Bubble
I don't love charts that purport to compare apples and oranges.
I say "purport" because you can't c
Interesting. I have been alive through all of these and find this somewhat surprising. It would have been neat if the bank had put the rate on the ten year next to each set of columns.
Call me crazy, but I’m not sure it’s the PE comparison to dot com bubble that stands out. It’s the market cap of the Magnificent 7 that’s 8x the market cap of the 2000 tech titans.
If google can be trusted, cumulative inflation since 2000 is 88%. Let’s just say inflation doubled the last 25 years and now you have a Mag 7 market cap that’s roughly 4x what we saw in 2000 and we still have a PE of 27? Seems to me that it’s a lot harder to grow into a valuation when all these companies have already reached the stratosphere, but then again, I tend to be wrong more often than not.
On a related note, it sure would be nice if we’d actually tax wealthy people and corporations (I guess that’s redundant by the Supreme Court’s definition).
Between 1995 and March, 2000, the Nasdaq rose 600%. From March, 2000 through October 2002, the Nasdaq fell 78% and gave up all of those gains.
Here is what was going on with 10 year rates, deficit spending and the Fed’s balance sheet:
Between 1995 and March, 2000; the 10-year dropped from 7.78% to 6.26% (over the time frame that the NASDAQ went up 600%). So easing. As a side note: during that period when there was a long drop in the stock market, (March, 2000 to October, 2002), the 10-year dropped to 3.94%.
Compare that to last 24 months: 10 year has consistently been in the low 4’s%.
Here is what the federal government revenues and surplus/deficit looked like (fiscal year) during bubble buildup:
1995: $1.352T, $.164T deficit
1996: $1.453T, $.107T deficit
1997: $ 1.578T, $0.02T deficit
1998: $ 1.722T, $.069T surplus
1999: $ 1.827T, $.125T surplus
2000: $ 2.025T, $. 236T surplus
So (almost) balanced to slightly restrictive and nothing like what we are seeing today:
2023: $4.4T, $1.7T deficit
2024: $4.9T, $1.8T deficit
2025: $5.2T, $2.1T deficit
With no end in sight because none of our politicians can agree on anything; with the exception that they do all agree that they want to spend more money.
It is true that the Fed’s balance sheet has dropped from a peak of $8.9T in May, 2022 to $6.6T in October, 2025. For comparison purposes, the Fed balance sheet, prior to the crash in 2000, was a nonissue as it was pretty flat and well below $1T.
So, of course I am nervous about losing my tech gains. However, I absolutely don’t want to fight deficit spending/the Federal Reserve (trending towards being controlled by the same policy group).
I keep coming back to look at your art for this post. The composition, simplicity and dark background of just a few fruits on a table weirdly reminds me of my favorite, but not well known, Dutch still life painter, Adriaen Coorte.