Submitted by Jared Dillian of The Daily Dirtnap

Bubble Yum

So a couple of months ago I went and got myself a subscription to The Economist, but I did it with airline miles, because I’m not going to pay hard dollars for that thing (I suppose some people say that about this publication, too). Well, maybe I should pay hard dollars for that thing, because I forgot how good of a contra-indicator they are. Most publications are good for only two contra-indicators a year, these guys give me a good one almost every week.

So two weeks ago they had on the cover (you have to watch for the covers, it’s hilarious) that there was some kind of tech bubble, and they were serious about it, really really serious about it, as if we don’t have enough problems with debt monetization already, now we have to throw an equity bubble on there, too? We are all just totally doomed.

Well, not so fast. I don’t share the opinion that we are in a tech bubble, not even close, I think that this is a legitimate investment boom, and I think it is going to be one of the biggest legitimate investment booms of all time. I’ve written bullishly on tech in the past, and it has taken me a while to hone my thesis, but it is getting sharper and sharper, and I think I have this thing sort of figured out.

So everyone had a grand old time punting around Linked In, and I don’t know Jeff Weiner from a hole in the ground, but that was very, very shrewd to go public in front of Facebook, because people want to get long social networking in a big, big way, big enough that they are willing to dork around with Linked In when Linked In really has nothing going for them in the long run. It is a poor man’s way to get long Facebook, especially since poor men cannot get long Facebook.

I’m going to pause for a public service announcement to all the class warriors out there--look, Facebook is going to go public at least $100 billion market cap, and that’s $98 billion that could have been made by all the punters running their hot dog stands, but instead, $98 billion was made by Richie Rich and his Richie Rich friends, and HOLY COW, $98 billion is a huge amount of money, it’s more than just about any tax code rejiggering you can do, you could have made a lot of middle class people very, very happy, and instead, the rich got richer. Sarbanes-Oxley has done more to perpetuate income inequality than any other law ever passed in the history of the United States.

Back to the story. We are trying to figure out if there is a tech bubble or not. There is not, and here’s why: people have no idea how big this social networking thing is. Linked In? LNKD is a sideshow. Even if Facebook goes public at $200 billion (which, at this rate, it might), it is still a buy.

I think it will be the first company to (legitimately) hit $1 trillion market cap.

You know what your problem is? You think too small. Go back in time to every technological advance. The phone. The TV. The internet. You could hold out for a long time, like lots of people are holding out on Facebook, but there comes a time where you just have to have it. And Facebook, at some point, is going to be more than just a social network, it is going to be some kind of online ID card that you have to have to shop or do anything on the web. It is going to put Paypal out of business, it is going to (I think) start handling money, just like they do, taking a vig.

You guys think way too small.

Remember The Social Network? Like, the movie? So Eduardo Saverin and Mark Zuckerberg are having lunch with Sean Parker, and this is a source of tension already because Eduardo wants to start charging for stuff, and Zuckerberg doesn’t, and--people don’t realize it, but that one creative difference was the most important decision that had to be made in Facebook’s early days--Eduardo was totally wrong and a threat to the company--if they charged for it, they would have killed it. Sean Parker nailed it. “We don’t even know what it is yet,” he said, “but what we do know is that it’s cool. And once you start charging for it, it’s not cool anymore.”

That’s the beauty of Facebook. They still don’t what it is. It’s just cool. And they’re going to put a twelve figure price tag on something that is nothing more than cool. But it’s not a bubble!

A company that is this important cannot be a bubble. Put on your tinfoil hat and think about why the government will never, ever let Facebook go out of business. There is an embedded put, and it has a very high strike. I hate talking about stuff like that, but a company that has intimate information (that people willingly put on there!) on every man, woman and child in the country is worth more (to somebody) than $100 billion.

You guys think way too small.

So yeah, this is part of the whole larger tech trade, you’re going to need better semis and better networking so people can plonk around on Facebook, and I have written before that we are in the middle of a legitimate tech investment boom, and you see what’s happening? You have all these people running around, telling you it’s a bubble, and what they don’t know is that you don’t get bubbles in the same thing ten years apart. People are not that stupid. You get them seventy years apart, because everyone dies and nobody reads history. So a lot of people are going to get talked out of some really fantastic trades because of Larry Summers and The Economist and everyone else who is hating tech. And I suppose that is too bad, but that is what you get for listening to Larry Summers and the Economist.

As for me, I’m pissed. I wanted to buy Facebook a long, long time ago. I would be rolling in dough right now. It would be the best trade of all time. Instead, I’m watching Richie Rich get rich (no, I am not Richie Rich), which really makes me angry. Did you know that there are 40% fewer publicly traded companies in the U.S. than when Sarbanes-Oxley was enacted? And we wonder why it is so hard to make money nowadays--everything is completely picked over.

Final point. There is no tech bubble. There is a tech boom. And it is going to be a really, really big tech boom, in certain sectors of the market. There are some value destroyers in the space (MSFT and CSCO), so it’s not helpful to just buy ETFs; you have to get smart about the individual names. But as for the individual names, the best is yet to come. This LNKD IPO is ruining things for everyone, and it is going to make thefacebook all that more expensive, but it doesn’t matter. It will be a buy at just about any price. I’m bullish.

If I had only been born ten years earlier.