Sixteen years later, just how ‘bubbly’ was the tech-bubble peak?
Today marks the 16th anniversary of the very top of the notorious tech-stock bubble, which in retrospect, was truly remarkable for its illustration of “irrational exuberance.”
On March 10, 2000, the Nasdaq Composite Index peaked at 5,048. If you were 30 years old that day, you are now 46. If you were 46, you are now 62. The passing years provide opportunity for instructive perspective.
How high was 5,048? Well, first, the index fell by 77 percent in 30 months. Then it recovered. But even now, 16 years later, it remains below its bubble peak, closing yesterday at 4,674.
In nominal dollars, the index temporarily exceeded the old peak during 2015, but it then fell back again. Of course, measuring in nominal dollars greatly understates the extreme of the top and overstates the extent of the recovery.
The 16 years since the popping of the tech stock bubble have given the Federal Reserve plenty of time to depreciate the currency, and it has not failed to do so. Aggregate inflation during this time was 38 percent, so that a 2016 dollar is worth only 72 cents measured in 2000 dollars. To see things clearly, we have to look at the prices in inflation-adjusted terms. Here is the path of the Nasdaq index in constant 2000 dollars:
Even in the best of times since the crash, the Nasdaq market in constant dollars has been more than 1,300 points below its bubble top. Where we stand on today’s anniversary is that, in constant dollars, the index is 1,671 points or 33 percent below the peak. To equal the old peak again, it would have to be about 7,000 in 2016 dollars.
Our perceptions are challenged by the money illusion created by the Federal Reserve’s perpetual inflation strategy, and by the price illusions created by bubble markets. The “wealth” that people calculated as the aggregate market value of tech stocks at the peak was an illusion. It was not “lost” when the inevitable bust arrived, because it was never really there in the first place. After 16 years, it’s still not there.
