There are unintended consequences from loose monetary policy and
easy money. When people look at the housing boom and bust, they
tend to see the consequences of that easy money from 2003 to 2007
creating a boom in finance and housing, and then the bust that led
to empty houses, bad loans, and overleveraged bets on Wall Street,
bringing down Bear Stearns and Lehman Brothers.
However, the easy money split into other sectors; we saw a huge
move in commodities and emerging markets. The move in commodities
then split over into additional sectors. Because commodities went
higher, alternative energy companies could compete with traditional
energy firms, and there was cheap money around to finance them. We
saw a huge bubble in solar and wind energy. Stocks like
) soared to dizzying heights -- and then crashed 80% to 90% or
While no one really talked about the solar and alternative energy
bubble, it was a consequence of the loose money policies of the
post-2001 period when the Fed kept interest rates down too low for
I think that the true bubble this time around is in government
bonds; people will look back in amazement at the fact that anyone
ever thought that the 10-year US government bond was worth 1.38%.
However, one of the consequences of all this printed money is that
some of it is going to flow into "hot sectors." In
a recent article
, I discussed
), an electric motor company that has been one of these hot stocks.
Fast money will always flow into new technologies that ignite the
imagination. In 1999, it was the Internet; in 2007 and 2008, it was
solar and wind power. Now it is electric cars and social media.
It seems like everyone these days has a
) or Twitter account. NFL players tweet about their concussions; it
is a social phenomenon.
However, the valuations are ridiculous. Facebook trades at 122
times earnings and has a market cap of $122 billion.
) has a P/E of nearly 1000 and a market cap of $28 billion.
(P) has a market cap of $4.52 billion.
We are now hearing the same type of comments that I heard during
the dot-com bubble. It's all about the number of page views and
people using these services in the future who could be "potential
customers." This will end badly. However, we never know where it
will end. If there is another surge higher in the market, social
media stocks could double from current levels. There are many
stories of people who shorted tech in early 1999 just to be
slaughtered in the short term, even though they were correct in the
However, when the current money-printing and bond bubble bursts,
these inflated social media stocks will surely collapse 80% to 90%
-- or perhaps even more. Buyer beware.