Twenty five years, that’s how long it took the
Dow Jones Industrial average to regain the levels seen just before the 1929 crash.
And when markets crashed in 2000, parallels were drawn. For just a couple of years,
it seemed like history would indeed repeat itself, as the growth in the number of bears
selling and spreading their tales of woe, seemed only matched by the growth in what
had only recently been an obscure Internet company called Google.

But now all that pessimism seems ridiculous. The FTSE 250 hit an all time high
last year, and keeps on growing. This month, the Dow has soared past the previous all
time high set in 2000, and even the FTSE 100, which for so long looked jaded, is now
within sight of its all time high (at least it’s only 700 points away now). And then
there’s the NASDAQ#133;.Well, er, actually this index still seems to be in bear land.

Yesterday the NASDAQ hit a five and a half year high. “NASDAQ joins the
party,” said CNNMoney, and quoted analysts saying this time it’s down to solid
fundamentals. And let’s face it the tech companies are soaring, with the likes of Apple
and Google enjoying growth in profit, which seem on course for the stratosphere.
When Alan Greenspan talked about irrational exuberance, it appears he was right only
up to a point. Stocks became overvalued, they fell, then the Internet started to deliver.
The exuberance wasn’t so much irrational, more a tad hasty.

At least that would, on the face of it, appear to be the argument. But in fact,
despite the euphoria, the NASDAQ is still only half the all time high of 5132 set on
March 10th 2000. Later that year, in October to be precise, it was down to just 1108.
The decline seemed to mirror the decline seen with the Dow in 1929 and 1930, with
theories doing the rounds a couple of years ago, which showed a clear correlation
between the NASDAQ from 2000 to 2003, and the Dow from 1929 to 1931.

How can this be? First of all, the exuberance of the late ’90s really was quite
something. It didn’t just permeate markets, but all things Internet. In the UK, we have
enjoyed a startling rise in Internet advertising, but in the US it’s not been so
impressive. Back in 2000, US Internet advertising was worth $8bn, with display
advertising reaching only half that total. Five years on, and it’s grown, but not by as
much as you would have thought. It’s now worth $12 billion a year, while display
advertising has actually fallen to just $1.5 billion today. Search based advertising has
been the big change, of course, but then the lion’s share is Google’s – a company that
barely figured in the late ’90s. So it appears that, in addition to market traders, maybe
media buyers were irrational back then too.

Then there’s Sarbanes Oxley. With the collapse of Enron, regulatory
requirements became tougher. For the giants of the Dow this was hard, but for smaller
companies looking to IPO this made things all but impossible.

So, last night when the index closed at 2379, you can understand the press
celebrating the fact the index had doubled from its decade low. But frankly, as it is
still a long way short of the highs seen in 2000, there’s still plenty of reasons to be
glum. Funnily enough, back in the ’30s, the Dow achieved mini recoveries, and, in
fact, managed to double its level from the crash low in less time than it took the

So just remember that, as of today, there is no evidence to suggest the NASDAQ
has put its troubles behind itself. And actually, despite the recent euphoria, and
despite the way the Internet has, in so many ways, lived up to the dreams of its earlier
bull advocates, the NASDAQ is still a bear market. And until it starts to draw a lot
closer to the 2000 highs, it will remain that way.

Retreating ice caps might threaten the polar bear, but on Wall Street, the bear is
still alive and well.

© Investment & Business News 2013