-----Original Message----- From: Doug Henwood <dhenwood at panix.com> To: lbo-talk at lists.panix.com <lbo-talk at lists.panix.com>
>[Quoting perma-bear James Grant makes me almost as queasy as evoking 1929,
>given how (engagingly) wrong he's been over the last 15 years. But this
>stuff is truly nuts.]
I generally do think the Internet stock valuations are nuts, but the reality is that stock ownership is really not ownership of property value but is a claim on profits. The reason this is critical in Internet stocks is where profits are being derived. A chunk of value for all these firms is based on squatting on publicly funded goods - mostly the Internet itself - at strategic points and getting wealthy as foot traffic explodes. This makes much of the investment more akin to real estate speculation than to normal revenue-sales analysis. A square foot of land at what becomes St. Louis (to use a Henry George example) can expect astronomical returns pretty detached from the original price paid for the land, because the value is based on the social dynamics in which the land/Internet stock is enmeshed.
The flip side of course is that most land speculated upon ends up being worthless. Some of these Internet stocks may be worth what people are paying, but all of them almost by definition cannot be.
Aside from the real estate analogy, the other reality is that their value is partially derived from converting public knowledge into private goods protected by intellectual property laws. In that sense, the stock market may be implicitly betting on the returns to the real dollar value of investment by the public that some of these companies have managed to privatize for a song -- I mean algoritm. Netscape was a classic case of this, robbing the intellectual property of the University of Illinois and CERN, and creating a private commercial result it could own. Only the fact that it meant an even nastier IP leverager, Bill Gates, did its juggernaut get derailed. (It's worth remembering that Gates is basically an IP leverager; he got his start demanding copyright protection for his BASIC programs, software created under a NSF grant by university professors.)
So traditional valuation comparisons with industrial concerns of the turn of the century may be poor analogies.
--Nathan Newman