Behind the new tech bubble

"I thought We've all gone mad'," a venture capitalist told the Evening Standard. In a recent strategy meeting "there was a discussion about giving a dog-walking app £1m I wasn't even sure it was a £100,000 business".

Some analysts have been warning for some time that the technology sector is back in a bubble. This is interesting anecdotal evidence suggesting that too much money appears to be chasing too few good ideas just as we saw in the late 1990s, when anything remotely related to the internet, no matter how fatuous, was showered with cash, only to end up in MoneyWeek's "dotcom disaster of the week" section in 2001.

Beyond the start-up scene, too, it's all about tech. The Nasdaq Composite index has reached a new record above 7,762. The MSCI Global technology index is at a new peak. The FANG + index, including Facebook, Apple, Google's parent Alphabet, and Amazon, along with Chinese giants Alibaba and Baidu, have gained over a quarter this year. And Apple is on the verge of becoming the world's first trillion-dollar company.

High and hyped

Signs of irrational exuberance are spreading. "Acronym mania is usually a sign of bubbly thinking," says Ruchir Sharma in The New York Times. And the recent pace of FANG+ gains has resembled a frenzy. By mid-March it was rising at an annualised pace of 67%, says Bloomberg's Lu Wang. That's a tad faster than the 66% posted by the Nasdaq Composite index in the last two years of the dotcom bubble.

Another eye-catching statistic is also worth pondering. Rob Arnott and Shane Shepherd of investment managers Research Affiliates note that at the start of 2018 the seven biggest stocks in the world were all tech firms. "Never before has any sector so dominated the global roster" of big firms. At the apex of the last tech boom, four of the top seven companies by market cap were in tech. And "when you see Netflix and Facebook... doubling in one year, you know it's a bubble", Alessandra Sollberger of Evermore Health told the Evening Standard. Amazon, meanwhile, is so popular it's on a price-earnings (p/e) ratio of 265.

Still, it's not quite 2000 all over again. The Nasdaq Composite reached a forward p/e of more than 70 at that stage. Now it's around 25. The hallmark of the 1990s boom was investors getting carried away by the potential of firms with no earnings.

This time, it's the sheer dominance of the major tech firms, who not only have earnings but have incurred the wrath of tax collectors and regulators because they are so powerful the key reason, perhaps, to expect today's bout of increasingly irrational exuberance to dissipate.

France: Macron's Scargill moment

France's nationalised railway, the SNCF, "is not merely a transportation system", says Jonathan Miller in The Spectator. It is "a monument to the... power of trade unions". And until last week, it was deemed "irreformable". But now President Emmanuel Macron has beaten the rail unions a victory "as symbolic as Thatcher's defeat of the miners". A three-month stand-off between rail unions and the government looks over.

The National Assembly, the lower house of the French parliament, in which Macron's centrist party has an absolute majority, last week approved the reform plans that had triggered three months of intermittent strikes. They have also passed through the Senate. The reforms apply only to new workers, and include ending retirement at 52 and other extremely generous perks.

The unions have overplayed their hand: commuters have grown tired of the disruptions, notes Luke Baker on Reuters. Now the CFDT, the most moderate of the larger unions, has said it will accept the verdict of parliament once the bill becomes law. The more militant CGT is still officially raging against it, but many of its members have given up on the strikes. The government, confident that it has won, is ploughing ahead with its next project: reducing the red tape associated with setting up a company. Macron's success where previous administrations failed bodes well for his attempts to reform France.