Quote for the Week
Despite its irrational aspects, the internet boom was more than a matter of inflated valuations. The optimism of the financial markets not only changed the “fundamentals” of individual businesses, it had real and profound effects throughout the whole economy. The boom did not only follow from the development of the internet; it accelerated that development and contributed to the speed and extension of technological innovation. The same was true in telecommunications, where the boom also accelerated the spread of new technology.
The internet bust, when it finally came, was caused not by an unsound business model, but by over-extension of credit. The present slowdown is affecting the fundamentals of individual companies almost as much as their stock prices; it also affects the financial system and macroeconomic performance.
Instead of a one-way connection in which financial markets discount the future more or less accurately, there exists a two-way connection in which financial markets shape the future they are supposed to discount. Instead of a single outcome, there is a range of possibilities. Which of those possibilities materializes depends not only on the future evolution of the so-called fundamentals but on financial market behavior as well.
In these circumstances, it is irrational for market participants to base their decisions solely on their expectations about fundamentals because the fundamentals do not determine market prices; on the contrary, they are shaped by market conditions. So what matters to market participants is the future course of market prices, not the fundamentals they are said to reflect. If market prices deviate from a theoretical equilibrium there can be no assurance that they will ever return to it. — George Soros (source)
From the Archives
Last Call
- 50 Facts from 2H 2025 – Idea Farm
- 52 things I learned in 2025 – T. Whitwell
- Investors Beware: Bull Markets Don’t Last Forever – L. Swedroe
- When Capex Booms Turn into Busts: Lessons from History – BCA
- Trillion Dollar Market Caps: Fairy Tale Pricing or Business Marvels? – Musings on Markets
- Hold the Dip – AQR
- Bill Miller: What’s Luck Got to Do with It? – J. Zweig
- A Risk of Cognitive Convenience – Range Widely
- Wishful Thinking: Why We Believe What We Want to Believe – The Critical Thinker
- NY’s Grand Central Terminal Provided the Blueprint for American Cities. It Happened by Accident – Smithsonian