I wanted to compare and contrast the state of the information technology companies now and in the dot-com bubble of the late 1990s. Much has been made in the press recently of seemingly sky-high valuations of social networking companies like LinkedIn and Facebook. So do we have a repeat of the dot-com bubble on our hands?
It seems to me there are three fairly distinct groups of companies here. In the first group are today's high-flyers like Groupon, LinkedIn, and Facebook. These sport valuation ratios of many dozens of times P/S (price per sales) and many hundreds of times P/E (price per earnings) -- if indeed they have positive earnings at all.
In the second group are established technology giants like Apple, Microsoft, IBM, Intel, Google, Cisco, Oracle, HP, Dell, and Research In Motion. These companies are perceived as boring established names that may have grown in the past but don't have much growth room left due to either their sheer size or to intensifying competition.
Tuesday, May 3, 2011
In the past two months or so the bond yields have declined (and, correspondingly, prices rose) on most types of bonds. Let's compare where the yields are now, relative to our last such check on February 4th:
10-year treasuries: 3.26%
30-year treasuries: 4.36%
30-year zeros: 4.75%
10-year TIPS: -0.51% (negative 0.51%) real
30-year TIPS: 1.69% real
While it's always dicey to try to assign reasons for price movements, whether in stocks or bonds, we can tentatively say that the combination of slower growth and the Fed's intention to complete the so-called QE2 and then to continue re-investing maturing bonds on its balance sheet suppressed the yields and raised prices. In addition, higher inflation expectations for the future (something the Fed has aimed for in its effort to avoid deflation) gave an extra boost to the TIPS prices relative to nominal treasuries of same maturities.
Looking at municipal bonds, they have also experience fairly large decreases in yields and corresponding increases in price since I last looked at them on January 14th -- just as we expected:
2.17% for 7-year maturities. This is equivalent of 3.01% for a 28% tax bracket investor.
2.85% for 10-years. Equivalent of 3.95% at 28% tax bracket.
3.63% for 15-years. Equivalent of 5.04%.
4.15% for 20-years. Equivalent of 5.76%.
4.60% for 30-years. Equivalent of 6.39%.