Rational Exuberance

Joseph W. Bartlett, Founder of VC

Robert J. Shiller's book, Irrational Exuberance, summarizes the case made by many serious commentators recently: that the enormous valuations enjoyed by high-tech issuers are irrational. Therefore, current stock market levels, at least the NASDAQ high flyers, are a classic 'bubble' which will burst, entailing what amounts to a crash in market valuations. The more pessimistic of the analysts forecast a consequent recession as the crash destroys consumer wealth in the United States and around the world… in the worst case scenario, a depression a la 1929.

Dr. Shiller's principal point, as a behavioral economist, is that markets are always too high or too low compared to what he construes as "true value." The following materials do not, for the sake of discussion, dispute that proposition. Indeed, Dr. Shiller's follow-on conclusion is conceded as well: Assuming that the market is either too high or too low, the averages are likely to go up and/or go down. As Bernard Baruch is reported to have said about the stock market, "It will fluctuate." Dr. Shiller's rationale for the stock market's deviation from true values is that stock prices are often driven by psychology. Investors as a group are moved by emotion and the herd instinct; they believe they are investing rationally, but in fact they are overly influenced by what everybody else is doing around them. And, of course, that proposition is also true; it was true when Lord Keynes noted it decades ago. The stock market is like a beauty contest; the challenge is not to pick which contestant is the most beautiful, but which contestant everybody else in the game is likely to believe is the most beautiful. Thus, if the market is going up, most investors tend to think it will be keep going up. When it is going down, the reverse psychology sets in, which brings us to Dr. Shiller's final point… compared to the traditional indices the stock market today is way too high. And, when it goes down, the herd instinct will drive it way down, which will be bad for this country's economy.

In recent months, of course, the bubble theory has been vindicated. As this is written, the NASDAQ is way off its high. However, whether or not the NASDAQ goes further down and stays there, goes up or fluctuates, it is important to examine Dr. Shiller's central point. He argues that, at present, the market is still way too high, judged by historic standards, and there is no reason to believe those standards have changed! There is, in a word, no New Paradigm; once the system has subsided, it is, to borrow the current slang, "same old, same old." The latter clause contains the premise this article examines critically.

To repeat, Shiller's deeply pessimistic forecast may turn out to be accurate. No one has the necessary intellectual equipment to forecast without reservation. We have not had a depression for a while, but it is clearly true that some of the price earnings ratios in late 1999 and early 2000 were outlandish by any standards, even if one were to adopt the most optimistic preview of the results achievable by a Yahoo or an e-Bay. If one values securities by their potential for generating earnings and distributing cash to the shareholders, many of the high fliers got there just desserts.

However, without going so far as to assert that the securities markets have adopted a totally new paradigm, I argue there are a number of phenomena of recent vintage, which have not been adequately described or appreciated. The "historic standards" may not have been rendered obsolete but the game, I contend, has changed.

Extraordinary new influences have infiltrated the U.S. venture space and there will be, I think, inexorable modifications, if not a total replacement, of the historic imperatives.

Definition of Terms

The following discussion is limited to the universe of venture capital-backed firms and those aspiring to VC backing. The firms are highly entrepreneurial, mainly but not exclusively high tech and largely focused on new products and market or innovative new ways of penetrating existing markets. There is no handy acronym so we shall borrow an existing cliché … the New Economy.

Supply Side Economics

Despite having lived through the various bursts of high-technological achievement which have fueled venture capital investing in the past (computer hard- and software, biotech and the life sciences generally, telecommunications), I view the current phenomenon as truly unprecedented. Call it a 'bubble' if you will, but it entails a level of activity and intensity, and a quantity of energy and talent on the input side (a/k/a Supply Side Economics) several orders of magnitude beyond what I have ever witnessed. Obviously, Marx's labor theory of value has long been rejected by mainstream economists and I do not pretend to be able to judge the intellectual respectability of supply side theories. However, if there is anything at all to the notion that economic output is related to the level of energy, talent and capital occurring on the input side, we are in for quite a ride. You have to be on the ground to see what is happening. The best and brightest young people are, despite the NASDAQ meltdown, swarming into the New Economy and coming up with a host of creative (and an even greater host, to be sure, of unrealistic) ideas for doing things differently and better. Like innovators of old, their energy is almost inexhaustible. Moreover, as opposed to past cycles, this phenomenon is global. Entrepreneurs all over the world are climbing on board and throwing themselves headlong into the space. To be sure, the private equity climate is ugly as this is written but, nonetheless, the number of new entrants is dramatically higher than in past periods; there is plenty of capital in the system (although the managers are picky and nervous); and most of the talented youngsters are not giving up. They are hunkering down, attempting to ride out the storm and to adjust to the new realities. This is new, if an increase of several orders of magnitude in energy, capital, ingenuity and technical change amounts to "new."

If Your Dotcom Doesn't Go Public, You Needn't Lose

It is important to deconstruct, at least in the Internet space, one of what one might call the Bear Fallacies. Thus, based on what happened in the automobile industry in the early part of this century and in other emerging technologies, it is fashionable today to predict that, in the Internet space, many have been called but few will be chosen. That is to say that, if there are 400 or so legitimate 'e-tail' sites today, only two or three will survive the next couple of years.

Well, maybe that forecast is right. Consolidation did happen in the automobile industry, as in most others. The problem is, however, that the pessimists, on the basis of that forecast, have concluded that one should not invest in any of those 400 e-tail sites. As most will disappear, so also the investment.

The conclusion does not, however, follow from the premise. To make the point, let's take a look at an analogous situation. Once the telecom industry was deregulated, any number of small companies sprang up to engage in the business of reselling telephone services. A fair guess (without any hard data) is that there were many more than 400 of the so-called 'value added resellers' at the height of that game's expansion. And, as with the automobile industry, most all of them have been absorbed into larger companies. MCI WorldCom is a successor to LDDS, which in turn is nothing more or less than a "rollup" of what, in today's jargon, would be called a 'Mom and Pop' resellers.

Indeed, you did not need any fancy equipment or personnel to become a value added reseller, no more than you do today to become an Internet e-tailer. The trick was to get customers (or, in the case of the Internet, eyeballs) to use your service; once you had done that, you had value… perhaps of an indefinite nature, but value nonetheless.

Where the Bears go wrong is in failing to understand what happened in, for example, the value added reseller business. Take a real life example: A New York based angel invested about $1 million in a value added reseller in the early `80s, operating in Florida. That reseller is no more; it was merged into an Atlanta-based public company, the owner taking stock in exchange for, in effect, the customers the small fry had been able to sign up. That company in turn was merged, again for stock, into LDDS, which became WorldCom, which absorbed MCI. What did the angel make on transaction? Somewhere around $300 million (at the high) on a $1 million investment (less so today, but still over $100 million).

The point of the story is simple. It may be true that those 400 e-tail sites will become one (or two or three or four or five or six, you pick the number) in time. But that has nothing necessarily to do with the question whether one should invest in an e-tail site. The fact that the site itself may disappear is a matter of indifference to the investor because there are two exit strategies for investors. One is an IPO, to be sure, but the other is a sale of the entire company. The question is whether the surviving companies will pay enough value for the eyeballs (customers) to make the investment worthwhile. That is a different equation entirely; it has nothing necessarily to do with the forecast that the company itself will disappear.

The Father of Modern Economics Speaks

Robert Wright, in his recent book, Non Zero, cites Adam Smith's central postulates:

"Two factors, Smith noted in the 'The Wealth of Nations,' are especially conducive to the growing division of labor that characterizes economic advance. One is cheap transportation. Spending your afternoon making yarn for a Chilkat robe make sense only if the finished product can be transported at a cost acceptable to its buyer. The second factor is cheap communication. The costs of finding out what buyers want - and the cost to buyers of finding out what's available, and at what price - have to be bearable for transaction to ensue."

As a thought experiment, migrate the theorem of the Father of Modern Economics to the New Economy. Transportation? Air travel booming, customs barriers falling, English our common language, TV linking the world visually and the Internet doing so digitally. Communication? A continuing explosion. Trade and manufacturing will never be the same again (of course, nothing will), now that every producer, every supplier and every consumer are wired in real time to the same networks. Dr. Shiller suggests the old rules still apply. Of course, in some sense of the word. Unchanged? Simply not true.

The Market Rules… and the Stock Market is no Different

It is an article of economic faith that the "market" is more efficient in allocating values than any one single individual or group. In the long run, the market is, necessarily, right. Dr. Shiller believes the stock market is different from other markets in that emotion, indeed mood swings, compromises its functionality. Its recent volatility is a sign of irrationality, driven by a lack of professionalism and herd instincts. The problem is that Dr. Shiller's analysis can be applied, temporarily, to a number of markets, even those in which the items traded are a good deal easier to compare and independently value. Consider a market where prices have gyrated wildly in recent periods, where fundamentals do not support the movements. Is this irrational exuberance fueled by amateurs trading in the market, thereby signaling a crash? Apparently not. The market is, of course, the market for hydrocarbons, particularly natural gas. The "fundamentals" are largely static. In fact, much of the impetus behind the global economy is today provided by companies relatively indifferent to energy prices, which would (or should) indicate that short term disconnects and/or cartel actions of OPEC will sooner or later be cured by a rush of new supplies. If an efficient market discounts the future, the wild swings in energy prices should be deemed irrational. However, if one were to write about that phenomenon, the commentary gets confined to obscure trade journals. Human nature being what it is, why write about the energy spot market, when one can be a celebrity writing about the stock market? One further point about energy prices: The last time energy prices doubled, the United States panicked. We threw out a President, stock prices plummeted, the economy went into a deep recession and we committed an act of war against Iran. This time, the NASDAQ crash has had an effect, but not (not yet) of cataclysmic dimensions. In fact, from this vantage point, a good deal of the NASDAQ meltdown looks like the product of a Bear Raid. The market is being talked down, fueled by commentaries with an interest in pandemonium (or salvaging their reputations) and short sellers sensing an opportunity.

GAAP Earnings… Have The Rules Changed?

The next point has to do with the drumbeat of pessimism relating to GAAP net earnings per share of companies like Amazon, Amazon being the poster boy for inflated share prices. Again, the criticism may be well be right because Amazon, for one, has no net earnings per share. However, it is important not to indulge in overkill. Thus, one change in market analysis we have seen in recent years is de-emphasis, by the more astute analysts, on net earnings and a consequent focus on cash flow. Arthur Levitt, ex-Chairman of the SEC, has effectively convinced a number of analysts and investors (as if they needed convincing) that earnings can be legally manipulated under current accounting conventions, whereas cash flow is tough to fake. The magic phrase is EBIDTA, earnings before interest, depreciation, taxes and amortization. To be sure, Amazon also has negative cash flow but it is nowhere near the magnitude of its negative earnings. According to some estimates Amazon, since its inception, has burned about $60 million in cash out the door in excess of revenues. Its accounting losses, however, are in excess of a $1 billion, the result in large part of mandatory write offs of good will, the good will in turn having wound up on the balance sheet as a result of the acquisitions Amazon was able to make with its inflated currency (its deliriously priced stock). Sixty million is an interesting number and still significant; but, it is a long way from $1 billion.

The Tax Cut Stimulus Urged by Supply Siders Arrived Several Years Ago

Another interesting, and new, stimulus to the economy stems from the ability of U.S. companies to get creative with their numbers for tax purposes. In recent years Ronald Reagan's old saw has been validated: "Only people pay taxes." With enormous bursts of creativity, stimulated by experts in the multi-national law and accounting firms, major companies have used a variety of shelters to avoid paying much of anything in the way of income taxes to United States. The dotcoms do not pay taxes because, of course, they don't make any money. But, under the current regime, they won't pay any even after the revenues begin to exceed expenses.

In that connection, the supply side economist, Larry Kudlow makes an often-overlooked point about stock market volatility. If you cut the capital gains tax and shorten the holding period, an article of Republican faith, you turn at least some long term holders into short (or shorter) term players… i.e., sellers. QED. Ergo, more volatility.

Who's At Fault?… The Amateurs?

The Shiller theory sees a flawed stock market because, in part, of the onset of emotional, irrational amateurs. Again, we note some changes.

Thus, all hands recognize that there has been a significant broadening of the participation of U.S. citizens in the equity markets. A plausible rough estimate suggests that over 50 percent of U.S. households now own equities, either directly or indirectly. Moreover, the structure of those holdings has been changing. Employees of large companies and of federal, state and municipal governments were always indirect owners of equities through their interests in the relevant pension fund. However, that money was managed by professionals over whom the employees had no control or, indeed, about whom they generally had no knowledge. However, pension arrangements of the defined benefit variety, at least in private industry, have been giving way rapidly to 401(k) plans (defined contribution plans). And, the beneficiary of the 401(k) has a good deal more control… although generally not the ability to invest in individual equities selected by him or her. Mutual fund participation has also been going up as the costs of fees associated with mutual fund ownership (in large part thanks to Jack Bogle's crusade) have been going down. (Mutual funds are still a questionable investment vehicle in our view because, in a rising market… one inherits the tax liabilities built up in prior periods by joining the fund; moreover, an open end mutual fund cannot by definition be at any point in time fully invested).

More importantly, an increasing number of American households are investing directly in equities, either managed by professionals and/or managed by the individuals themselves. Players in the latter group include the notorious day traders; but a great majority of them are individuals and households who feel they can pick stocks as adeptly as the professionals and need not pay anyone to make those decisions. (Bogle and others have pointed out how, over the long run, investment management fees, whether to mutual fund managers or to private managers, have a significant negative impact on rates of return.) There was a time when the idea of individual investors in the market was viewed was a positive… 'Peoples Capitalism' was the thesis. The more hoi polloi became personally invested in equities, the more they would become impassioned advocates of our market economy. Moreover, to the extent the common people could participate in equity returns, the gap between rich and poor would narrow.

Nowadays, however, 'Peoples Capitalism' is becoming a symbol for excess to the pundits… the favorite whipping boy for unusual happenings in the stock market. All these "amateurs," in a word, are getting in the way of the professionals and threatening the integrity of the Great Game. If only we could go back to the good old days, when professionals reigned, we would not have these deliriously high prices… a bubble which threatens to explode and volatility which gives us all heart burn.

This paper, in the contrary, suggests the amateurs are preferable to the professionals in certain important respects:

In the first place, those dreadful day traders account for a very small percentage of the trading volume so we think it is hard to blame that segment of the market for the perceived ills… the tail is not wagging the dog, in other words. There is a lot of margin debt out there, of course. But in terms of percentages the problem is not with the amateurs. Take a look at what Long Term Capital Management, run by the ultimate professionals, borrowed. It would take millions of individual investors, margined to the hilt, to aggregate anywhere near the numbers that Long Term Capital Management was able to finagle out of the banks.

Moreover, professionals operate under significant handicaps, handicaps which do not impact the amateurs. The principal handicap is the necessity of meeting quarter-to-quarter performance criteria. The second handicap is the 'too-much-money' problem… the better an asset manager's performance, the more money flocks to him or her, which ultimately weighs the manager down since it is much harder to manage a lot of cash successfully. With a lot of money, your choices are narrower and, furthermore, you cannot get in and out of the stocks you like with the celebrity you would like. You pay a penalty for illiquidity, in short.

The Buy and Hold Theorem

One of the most quoted exchanges, attributed variously to Bernard Baruch and Baron Rothschild, has to do with the secret of intelligent investing. When asked the secret of his success in the market, the Baron is reputed to have said: "Selling too soon." The NASDAQ Nosedive, according to the pundits, yet again validates the Baron's inspired insight. The amateurs were trapped in the bubble; the pros got out in time.

I am duly respectful of the Baron's legendary expertise but I am fonder of the rule followed by the shrewdest investor I have ever known personally who liked to say that every investment mistake he ever made was selling… and he meant selling at all.

And that theorem leads into another overlooked element of today's securities markets. The professionals who dominate the current market reside in a category unlike that of Baruch and Rothschild. They are managing other people's money, not their own. And, they get money to manage (and therefore get paid) for "performance," meaning quarter to quarter performance. Many are, therefore, the classic hyperactive traders, in the sheets daily in a frantic effort to push their portfolio a touch past their competitors. The pros cannot sit still . sell this, buy that, the 'trend is my friend,' 'buy on the rumor, sell on the news.' If you sit still, after all, why are you being paid? Stanley Druckenmiller quit when Quantum Fund lost 20 percent or so in one quarter, on the NASDAQ nosedive. The fact that Druckenmiller had ridden those dotcoms up by 35 percent over the preceding 12 months? Irrelevant - he fell on his sword.

The amateurs, on the other hand, need not worry about quotidian stock prices. If they are like us, they operate on the 'buy and hold' principle. They believe in two propositions (i) that they will live a long period of time and (ii) that, over that long period of time, U.S. stock will outperform any other asset class. These "amateurs" are the very antithesis of momentum investors. They get some spare cash, they buy stocks. Their stocks go down, go up . no big deal. The most astute among them (like us) don't even check the prices, except every now and them. It is the "pros," not the amateurs, who pull the flowers up every night to see whether they have grown. The amateurs believe in the law of large numbers. If you stay invested long enough (and if history is any guide), you win. Simple as that. And, the New Big Thing is that there are a lot of believers, guys (like us) who, were they in Stanley Druckenmiller's shoes, would shout, "Hooray, I'm up 12 percent." It's an old story. You go to Vegas, run $5 into $5 million, then lose all but your last $25. If you're Druckenmiller, or Julian Roberston, you lost $4,999,980. If you're the amateur, you made twenty bucks. Who's the genuine pro? Which leads to the next point…

The Gordon Scott Disclosure

It is now an article of faith that, when Microsoft goes down a bunch of points, Bill Gates has "lost" billions, if only in Microsoft market "value." This leads to Shiller's fear… amateurs "lose" wealth because my stock prices go down, they pull back, take the kids out of private schools, panic… and the economy goes into a death spiral.

What this statement overlooks is that the stock market reflects prices, not values. As Stanford law school professor Gordon Scott liked to point out, the price of a stock at any point in time reflects only the price the most highly motivated seller is willing to accept to get out of the stock. Assume 10 million or so Microsoft shareholders, the current price indicates only the judgment of a handful . that handful which likes Microsoft the least. If 5000 Microsoft owners are willing to sell at $100 a share, that is not definitive proof of Microsoft's value, because it doesn't indicate what the holders of the other 9,995,000 shares will sell for, if indeed they are sellers at all. To be sure, $100 a share is the price the investor most anxious to buy shares of Microsoft will pay. But that is not "value" either; Microsoft itself is not in play. Moreover, 99 percent of the potential Microsoft buyers may not be paying attention to their Microsoft appetite at all on any given day. They're looking at something else, or on vacation, or betting on sports. The point is that, to date any way, big market crashes have not panicked the herd. Why not? Maybe it's a different herd, maybe we are becoming believers in Hetty Green's famous remark, "Next to my children, I love a good panic more than anything else."

The Motivated Buyers

Another New Big Thing… the rich/poor phenomenon, by which we mean high income, high net worth young families (a beginning lawyer in New York City is paid more than the Chief Justice of the United States) who nonetheless believe, with justification, they are impoverished. The reason, of course, is the onrushing collapse of public education in this country, coupled with runaway costs of private secondary and college education. Families with two kids are facing $100,000 a year in pre-tax dollars to educate their children privately; and no one in their right mind would send a kid to an urban public school. (No one in Congress does; Al Gore doesn't… you get the idea.)

The Noveau Poor, accordingly, see only one hope… saving money while the kids are tiny and putting it in the only asset class which has a chance of compounding at an adequate rate to pay the bills. The 'pros' can talk about fixed income until they're blue in the face. That strategy won't do because, even at 10 percent (5 percent after the taxes necessary to keep toxic public schools afloat), you can't get there from here.

The Principal Argument: The New Big Thing

The foregoing points are, in point of fact, supplements to the main theme, the claim that the fundamentals behind the performance of corporate equities are in the process of major change… that there is, today, a "New Big Thing" and the market will begin to rise a that Thing is effectively discounted. Thus, I submit the post WWII evidence shows that technological advances (computer hardware and software, biotech, telecom, etc.) occur in cycles or spurts, plottable on classic bell-shaped curves. And Karl Marx (and Joseph Schumpeter), among others, have pointed out how economic progress in a capitalist economy depends on technology and innovation. In fact, in discussing a market populated largely by high tech firms, it is a truism that values are tied to the pace of scientific and technological advances.

If the relationship between sunbursts of new technology and stock market spikes is valid, then the 'doom and gloom' point of view depends on at least one central assumption… the current boom is not only economically mature as compared to previous cycles but also accompanied by a certain maturation, a flattening out, in the curve of technological innovation. After all, the Internet is now on hand. There is not going to another Internet… additional uses and applications, of course, but the fundamental structure has now been created and it is largely in place. Computational power is reaching the outer limits of Moore's Law.

However, what if that assumption is wrong in a couple of key areas? What, for example, of biotech, a technology that had until recently, been out of favor because of, among other things, the enormous costs involved in developing new and useful diagnostics and therapeutics. Thus, it is highly probable that biotech is again in its infancy, poised to explode. The human genome is now mapped. To date, there has been only one widely used therapeutic derived from genomics… insulin. As one of my colleagues points out, prior to the development of insulin, if you were afflicted with diabetes at age 20, you had an average life expectancy of about a year. The first patient to receive insulin in her 20s lived to the ripe old age of 84, gave birth to three children, all of this after 43,000 injections. If you look at genomics as the equivalent of the Gold Rush, the genome project is the first phase, roughly the equivalent of providing the miners in San Francisco and the Yukon with picks and shovels. The next phase, which is underway but not complete, is mapping the territory so as to give the miners clues as to where the gold might be found. Until the second phase is complete, the industry is akin to opportunists picking up nuggets on the surface and panning for gold in streams… the low hanging fruit, as the saying goes. The third phase, which is in its infancy, entails large sums spent on mining for gold in the Mother Lodes, where the rich veins (in this case dramatically effective therapeutics and diagnostics) are to be found. In an article in a popular magazine I recently read, a medical professional pointed out that much of what we know about medicine in a chemical and biological sense has yet to be translated into effective therapies. What happens when agents of which we are currently aware, which are within our potential to make and sell, are translated into vaccines and other therapeutics? What happens when the genome '49ers start to blasting their way into old rock at Sutter's Mill? What happens when the list of current plagues can be either controlled for a lifetime or cured? No one knows, but modest suggestion is that biotech is at the prenatal stage. If advances in medical science are going to translate into economics, the game has just started.

So also with computer software. In 1995 there appeared a fascinating series of essays entitled The Future of Software, edited by Derek Leebaert and published by the MIT press. The market has long since acknowledged the existence of something called artificial intelligence, and been disappointed in the results by and large. In Joshua Lederberg's forward to The Future of Software, however, he remarks that "the internal world of the computer is more astounding that we could have dreamed 30 years ago, but the capacity to give it an external world to mix with ours remains mostly unrealized." He is talking about the development of software which will give computers a natural language capacity akin to the workings of the human brain. When that barrier is crossed, in the opinion of the essayist, "The impact [on society] will be unimaginably greater" than the effects so far. "It certainly is possible that history will show that these new capabilities will not only usher in a new era in the computer age but also signal a major evolutionary advance… the digital computer may achieve its destiny as the successor to the human brain in both complexity and capability. A digital computer is 'an evolutionary tool' and, like any of the other tools (and machines) created by mankind the computer theoretically can recreate any other tool (or machine), including the machine that created it (the human brain)."

The possibility exists, in other words, of computers able to take directions and communicate in natural language, and to replicate themselves… indeed even improved versions of themselves. Couple this with enhanced robotics and the spectacular advances in miniaturization technology (nanotechnology), one can begin to imagine an economy resembling certain historical arcadias. The first is the antebellum South, with computerized robots performing all the unpleasant and tiresome chores the Southern plantation owners assigned to slaves, with the difference that computers need not be fed, clothed and housed. The earlier stasis is, of course, the Garden of Eden, in which work was unnecessary and, to boot, Adam and Eve were immortal. Such arcadias may occur in the distant future, if at all. The co-founder of Sun Microsystems, indeed, believes we will see a science fiction horror come true… half human/half robot 'things'… brains and limbs enhanced by microprograms and breeding new and "improved" versions of themselves. The modest point being made in these paragraphs is that there is plausible evidence that we are at the beginning, rather than at the end, of at least two highly significant technological revolutions, even assuming that the Internet applications have crested. Consider the implications of this thesis. In 1990, Microsoft, Dell and Cisco had combined sales of $2 billion. In 2000, their combined sales were $80 billion.

In short, the thesis of this piece is modest. To be sure, the NASDAQ has crashed from its high (although it is a long way from where it was a few years ago) and Shiller's prediction in fact came true. But, I have lived through those prior meltdowns, which seem, perhaps not coincidentally, to occur at the end of each decade. And, this one is different, fundamentally different.

First, the market did reach high peaks by any standards… and, accordingly, the nosedive has been "irrationally" severe. But, there is a buildup of scientific and technological breakthroughs, of energy, of risk capital, of global talent released and/or newly energized to play in the venture capital game . a host of factors that prove, to me at least, we are on the verge of a world wide sustained boom because the metrics of our economic existence, at least in the developed world, are in the process of fundamental change… a tectonic shift to overuse the cliché.

I invite you to test the thesis with a simple thought experiment. Consider, as I did recently, your children or grandchildren… in my case, the latter, ages 12 years old to 4 weeks. Then understand that their average life expectancy absent accident or catastrophe, is likely to be in the 100 to 125 year range, with full functionality (disease free, at least in the OECD) until their 90s. Then imagine a world in which, by virtue of improved distance learning (streaming video, interactive video, on-line tutorials), 10 million Chinese citizens have graduate engineering degrees from MIT. Then tell me there is no New Big Thing(s).

I don't know what those New Big Things will be or (more importantly) imply for our lives on earth; but I am certain it (or they) are in our immediate future. And, the result is that there will be a New Paradigm. The current public tech stocks may or may not be the beneficiaries but there will be winners, huge winners. "You ain't seen nothing yet."