Scott Paterson, president of Yorkton Securities, "acknowledges that investor
frenzy [about internet stocks] could lead to a stock market bubble. Half the
buyers don't know the fundamentals of the companies they are buying, and
about 80 per cent of the trades each day could be from day traders buying
and selling and selling the same shares over and over again." quoted in
David Crane's column, Toronto Star, March 14, 2000, D2.
----- Original Message -----
From: "Steve Kurtz" <[EMAIL PROTECTED]>
To: "FUTUREWORK" <[EMAIL PROTECTED]>
Sent: March 13, 2000 2:47 PM
Subject: Krugman on Ponzi/Nasdaq
[snip]
> Imagine, just hypothetically, that a new set of technologies
> --
> technologies that are really, truly, deeply fabulous -- has
> just emerged.
> And suppose also that a number of companies have been created
> to
> exploit these new technologies, in the entirely honest -- but
> very hard to
> assess -- belief that they will eventually be able to earn
> huge profits. For
> the time being they earn little if any money; even if they
> make an
> accounting profit, they must continually raise more cash to
> pay for
> equipment, acquisitions and so on. Still, as the evidence for
> a true
> technological revolution mounts, the prices of their stocks
> keep rising,
> producing huge capital gains for early investors. And this
> attracts ever
> more investors, pushing the prices still higher.
>
> If the process goes on long enough -- and there is no reason
> it cannot go
> on for years -- the doubters will start to look like fools,
> and the bears will
> go into hibernation. Everyone (well, almost everyone) may be
> completely
> sincere; nonetheless, in effect you get a Ponzi scheme without
> a Ponzi, a
> scam with no scammer.
>
> Given the title of Mr. Shiller's book, you can guess the punch
> line. He
> makes a powerful case that the soaring stock market of recent
> years is a
> huge, accidental Ponzi scheme in progress, one that will come
> to a very
> bad end. The book actually focuses on the market broadly
> defined (most
> numbers are for the S.&P. 500), but it reads even better as a
> tale of the
> tech stocks. It's a book that I hope many people will read;
> but I doubt
> that many will be persuaded.
>
[snip]
