It seems to me that the Y2K problem caused lots of expenditures on new software and hardware. My university blew 20 million dollars on such to avoid y2k problems.
Nasdaq was at its peak a few month into 2001. When the effects of the Y2K spending had worn off, down it went.
This seems to explain much of the rise and fall of the nasdaq.
I’m sure it’s a tiny bit more complicated than that . . .
Can I interject a hugely major hijack? I can? cool!
Welcome to thread 66666.
whoo ha ha…
Carry on my wayward son.
Irrational exuberance…irrational exuberance…
I thought this was an interesting article on why the introduction of the Y2k bug was a rational decision:
http://www.comlinks.com/mag/accr.htm
Actually, the way I see it, it’s different, but it ain’t all that complicated.
The boom happened because everyone was excited about the new information technology and its possible applications to business. It being all new and shit, few people understood it, and venture capitalists and stock market investors threw money at anything with a URL. Fueled by what was, essentially, charity giving by people with more money than sense, and by everyone and their mother deciding that he/she/it needed a computer to get online, the economy boomed.
Now, everyone who can afford a computer has one, so there goes your growth in the hardware market. Now, all the dot-coms without a means to generate actual revenue (all but a few of them) are dead or coughing blood, so there goes your growth in the e-business market. Now, venture capitalists have realized, “Oh shit, maybe every business with a web page and a 20-year-old CEO isn’t going to make me scads of money after all,” so there goes your charity giving.
The injections of money are no more, the computer-buying rush is no more, and the artificial boom is, thus, no more. The economy is correcting, waking up and rubbing the irrational exuberance out of its eyes, and will be back to normal in a year or two, I think. Just in time, actually, for Bush to campaign on a “Look at the recession Clinton left us with, and look how I got us back on track” re-election platform.
Sorry, I should have been more clear. 
What I was replying to was the implication in the OP that the stock market was something easily understood.
And certainly, it’s not the sole reason for expansionary, boom, contractionary and bust periods in the economy.
The dot-com blowout was the classic last phase of an expansion. Credit fuels the whole thing, IMO: in the beginning, coming out of a recession, lenders are cautious. As the good times continue, they begin to loosen up. By the end, they’re throwing money at anything that moves. Losses ensue, there’s a collapse of some sort, lenders get extremely cautious, and the whole cycle starts over again.
Let’s not lose sight of the fact that this is not just a dot-com phenomenon. Traditional companies were also valued well above their rational valuations. Historically there is a ratio of price to earnings which is considered rational for your average S+P company. Valuations were, and may be still, well above what a rational investor might expect.
IMHO, and as a financial planner, this is a good thing to have happen. I have had to fight clients who wanted investments far riskier than what their situation would merit. Periodic busts are necessary to quell speculation and restore rational thinking.
I think Pantom hit it right as to the dot coms being a classic last phase. I’ve seen real estate investment, savings and loans and penny stocks, + others all as that last phase. When they arrive everyone thinks that the cycle has been broken and this new devise has been discovered to make everyone rich. Then the bubble bursts and the experts starting telling you why it was never going to work. Watch for the next one and see if you recognize it. I probably won’t.