Wednesday, December 19, 2007

Are we really in Another Bubble? From the Popular Internet Video to

This hilarious internet video has been going around the internet lately. The singers, singing a song to the tune of Billy Joel's "We Didn't Start a Fire", sing a song asking if there is another Bubble.

Video Here

This video has been so popular, that even reputable Financial Services company has written about the video.

Marketwatch Article About the Bubble Internet Video

But are we really in a Bubble?

In 2000, Jeremy Siegel, in an article in the Wall Street Journal, wrote that of the 33 largest firms based on market capitalization, 18 of those were technology stocks, and their market weighted PE equaled 125.9. Mr. Siegel also mentions that half of the large cap technology stocks had PE ratios over 100.

Compare this with 2007, where even fast growth stock Google (GOOG), has a current forward PE of 32.74, a 5 year estimated growth rate of 34.41%, for a very low Price Earnings to Growth Rate (PEG) of 0.93, a very low ratio under 1.

So while some stocks now could be overvalued, this time it is different. This time there's real earnings, and prices, even for top growth stocks like Google (GOOG), seem fairly reasonable.

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