Greenspan Bullish on Internet! (I think?)
Well, as bullish as Greenspan gets, anyway.
Speaking before the House this morning, he was basically
asked a loaded question about all the "hype" in the
internet stocks and how dangerous this was for the
economy.
Paraphrasing, his response was:
There is no hype on this scale that does not reflect basic
fundamental potential. In the case of the Internet, there is
SO MUCH potential that it is difficult to assess the true value of
the companies involved. He said that there no doubt will be companies that would prove to be worth what is being paid for them and more. But, he added, the majority won't. ;-((
Then he made an interesting analogy between the Internet and the Lottery. In a lottery, when the potential pay-off is huge, people are willing to pay a big premium above the underlying, risk-adjusted value of the lottery ticket. That's why lotteries make money. It is reasonable, he says, to expect that this same type of premium would be paid for Internet stocks.
The most positive comment, though, was that he thought that the internet craze reflects what is good about our financial system, which allocates capital to businesses with great potential, even before those businesses start to make money.
I took his comments as positive. Did anyone else who heard him interpret it differently?
HH |
