| I think a lot of conventional analysis of investments is looking more foolish than usual because the market isn't keying off what people think it is. Three major things have dominated market movements since the 2008 crisis: 1) Rock-bottom interest rates (and a depreciating dollar)
2) Quantitative easing
3) Enormous deficit spending All of these things, through mechanisms both simple and complex, have driven money into equities and speculative investments such as start-ups. While interest rates will remain low for quite a long time and deficits will no doubt continue, QE2 expires at the end of the month. Additionally, the proportion of the deficit is moving away from stimulus into structural spending such as Medicare. The natural response by the major market players is profit taking. Hence, the IPOs at bubble-like valuations (LinkedIn, Pandora, etc) are running into the teeth of a "smart money" evacuation of the stock market. If the Fed and government overcome political pressure against further loose policy (always possible if the economy continues to weaken), then I imagine the LNKDs and Ps of the world will pop back up to the eye-watering valuations they attained at the time of their IPOs. If national fiscal/monetary policy continues to tighten, then the bubble will have been ended before it really began. In which case, LNKD and P will continue to decline, and I would not be surprised to see some of the other hot properties like Zynga delay their market entries. The market for VC funding will also become substantially tighter. |