So much for rational expectations

In the second year of the Great Depression of the 21st century, Google stockholders are suffering doubts about their investment. As well they should be. Why would anybody buy Google stock? The stock has lost half its value in two short years. The peak price in 2007 was an artifact of the wacko credit bubble spending spree that has since exploded. Factor in the decline of the dollar, and anybody who bought that stock and held it has suffered an enormous loss with more losses to come.

This morning, the stock has a price-to-earnings ratio of of 25.55, which means that given all the shares outstanding, you'd need to wait 25 years for the company to earn enough in profit to buy those shares back--and that statistic assumes for simplicity that the value of money holds steady for those 25 years, as if that's ever gonna happen! Other than hosting web sites and providing a perfectly ordinary search engine, Google produces nothing of any real market value. It is basically an electronic billboard for advertisers decorated with lots of pointless cyber gizmos to lure web surfers to snazzy advertising sites so that they can click on the ads and earn Google some money. Well, that worked during the inebriated credit bubble frenzy of yesteryear; but now that sober, reality-based economics is asserting itself, cyber window shopping by paupers just ain't the fun it used to be. Thus the halving of Google's stock, the recent layoffs, the declining revenues--all the stuff that nobody at the Google playpen-cum-headquarters in Mountain View ever imagined could happen.

Everybody should have known better. I used to live in the valley and bicycled every morning around Mountain View for hours before going to work. The glorious Google-plex (or whatever they call it now) was not built by Google. No, originally it was the palatial headquarters of the once-great computer manufacturer Silicon Graphics. You remember that company, don't you, one of the hottest properties of the high-tech 1990s bubble? No? Small wonder, since the once-great is now a long-forgotten has-been. That building was vacant for years before Google moved in. How long before it's vacant again, I wonder.

Google stock was the equivalent of houses in the valley--an asset with an inflated price that speculators and dorks bought hoping that the price would rise more so that they could flip the stock and sell for a quick profit. That's why Google reached a price high of some $700 before the long crash began. The price was not an affirmation of the quality of the company; it was just the consequence of a pack of rapacious speculators bidding against each other, each hoping to sell before anybody else caught on to the scam. Well, the party's over. Google's remaining stockholders have stopped free-basing fantasy; they've gone to detox and started a 12-step recovery program; and newly sober, they are comparing their portfolios to the real world and do not like what they see. Too bad for them. And I really, really mean that, I do, I do, I really do.

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