Market bubble can inflate a lot more before the end, says Niles Investment's Dan Niles

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[00:00:00]Joining us at our opening exchange is Dan Niles, the founder and portfolio manager at Niles Investment Management.

[00:00:06]Dan, come on. The earnings alone, this is not Pets.com when everything, you know, had a couple dollars of cash flow and was tripling overnight. Do you really see the similarities between the behavior of these stocks now and then?

[00:00:19]>> Absolutely. But it doesn't mean this can't continue. And that's the analogy I'd like to to make because if you go back to the internet buildout. So you had the Netscape Navigator come out at the end of 1994 and the NASDAQ over the next three years was up 109%.

[00:00:38]You get to year four though and NASDAQ was up 40%. And then in year five in 1999 it was up 86.

[00:00:47]So you look at when chat GPT came out at the end of 2022 and you're three years into this. NASDAQ is up 122%. So first three years of the internet was up 109.

[00:00:59]And I think this is going to be a great year as well. And the point is that you had two more great years back during that period of the internet buildout and I think you at least have one more great year this year. So you can be in a bubble but still have it inflate a lot more before you get to the end of that.

[00:01:18]>> What caused it? And I I will add as well. I mean I have only vague memories of it, but they were enough to know. I mean back in the era of magazines, right? You'd get these magazines and you'd have these cover stories of all these high-flying companies and everybody was day trading. It was a total phenomenon. I'm not sure we're there yet with the public right now.

[00:01:38]>> Oh, absolutely not. And that's but more important than that is what's going on fundamentally. Back then it was just internet traffic doubling every quarter or so and that kind of kept it going.

[00:01:50]this time you had a very major event happen at the beginning of this year and that's basically open claw got finalized on January 30th and so that kind of ushered in this whole agentic AI thing where before Kelly right you would ask your chat GPT or Gemini question and it would give you an answer so that's just chatbased AI >> with Aentic you may say hey go to the SEC website pull this down go to CNBC pull this down. Go to, you know, whatever website, pull down some stock information, and then put it all in a spreadsheet, and I want you to conform it this way. That takes 10 to 100 times more compute power to have that happen.

[00:02:36]And you can see it in the token generation data where the two months prior to Open Claw being finalized, token growth was about 20% over the prior two months. In the two months after Open Claw was finalized, the growth was over 120%. And so you should see at least strong growth in my opinion through the beginning of next year. And then you're going to lap those harder comparisons and then we'll see what happens. But that's one major difference at least between now and I think year four and five of the internet is you have this major step change in token generation that you need right now.

[00:03:14]Remind me what was it that kind of pulled the rug out uh from under the tech trade back? It was what March of 2000 that things peaked. Do you remember if there was a story or a data point?

[00:03:22]>> Oh yeah. No, there there's 100%. Like well you got to remember what's what kicked the bubble off. Believe it or not, 1998 the Fed was cutting rates. So easy money kind of kept going. And then in 1999, even though the Fed ostensibly started to raise rates starting in June, remember there was this thing called the Y2K scare, right? Oh yeah. you were going to get to 2000, computers were going to crash around the world. So the Fed was flooding the markets with money underneath this and so M2 money supply was up over 10%.

[00:03:54]>> And so that kept lifting that. Then you got into 2000, oil prices, by the way, spiked >> and then the Feds started withdrawing that liquidity because computer systems did not crash on January 1st of 2000.

[00:04:08]And so you take away those two things, internet traffic went from doubling every 3 months to doubling every year, which isn't bad, but that slowdown was not what was built into the valuations.

[00:04:22]And the NASDAQ went back down to where it was in the middle of 1996, declining 86%, right, over two and a half years.

[00:04:30]And then and so >> yeah, that's the other side of