Editor’s note: In yesterday’s Dispatch, we spoke to Casey Research founder Doug Casey about his outlook on green energy, and how endless bureaucracy and government “funny money” are destroying the sector.
Today, we continue our Conversations With Casey, as Doug explains the threat of the scientific technological elite amid a growing tech bubble.
Read on to hear why this problem isn’t going away, and why he “wouldn’t touch tech stocks with a 10-foot pole”…
Daily Dispatch: Now that we’ve come full circle back to technology, we’d like your take on something that President Dwight D. Eisenhower said in his farewell address in 1960. Most people remember his warning about the “military-industrial complex.”
But he gave another warning, too, about how the “public policy could itself become the captive of a scientific technological elite.” What did he mean by that?
Doug Casey: Yes, that was a wonderful speech. He made two points that people have forgotten. Everyone knows and quotes his sage comments on the military-industrial complex. Those were spot on.
But nobody mentions the point he made about the threat of the “scientific technological elite.” Eisenhower points out, quite correctly, that it was no longer a question of a genius working solo in his laboratory to make discoveries.
Even in his day, which is to say over 60 years ago, there was a huge amount of government money flowing into science and technology. Now it’s almost all government money, directly or indirectly.
Eisenhower was quite concerned about the effects of government money, especially through the universities. It’s turned a whole class of what were once individual entrepreneurs into de facto government employees. Government money in science and technology has corrupted incentives.
Daily Dispatch: He went even further than that, didn’t he?
Doug Casey: He pointed out in his speech that before World War II, there actually was no military/industrial/scientific/academic complex. It didn’t exist. Nor did a significant standing army. Neither were there so-called “defense” companies.
There were companies that, if the government wanted airplanes, would turn their attention to making airplanes. If the government wanted tanks, General Motors would turn its attention to making tanks. But there were no dedicated defense companies. In other words, as Randolph Bourne said, about the time of World War I, “War is the health of the state.”
This is why World War II wasn’t just a catastrophe because of the killing of scores of millions of people, and the destruction of huge amounts of capital. The war actually changed the nature of the way government works – permanently. It institutionalized waste, corruption, and stupidity.
Before World War II, there was no defense establishment. It simply didn’t exist. There was no science, technology or academic establishment funded by the government – it didn’t exist. Those are the real points that Eisenhower is making in that speech.
Daily Dispatch: And it’s not just the military side of things. It’s every aspect of technology that has an involvement by government in policy.
Doug Casey: That’s right. In a larger sense, the problem is that capital is no longer directed someplace because it makes scientific, technological sense or economic sense. It’s directed there because it makes political sense.
Because it benefits the people that run the State, their constituents, and their cronies. That’s the problem. And the problem is not going to go away.
Daily Dispatch: Right, so that brings us to the final part of our conversation: tech stocks. Money has poured and continues to pour into tech stocks. According to a recent report, Google, Apple, Microsoft, Amazon, and Facebook now make up around 18% to 20% of the capitalization of the S&P 500. Is there anything that you, or anyone, can or should read into that?
Doug Casey: The stock market has been floating on a sea of funny money emanating out of the Federal Reserve since the bottom in 2008. It’s now a completely artificial market in many ways. It’s supported by money printing, and it’s going to end badly. People speculating in the market now are like kids picking up seashells when the tide has gone out just before a tsunami.
One reason these companies have become so big is because the state has been involved with them almost from the beginning, treating them like a partner, or a subsidiary, for many years. The fact that they’re so big means that they’re unwieldy. The bigger something gets, the less efficient it gets and generally, the more corrupt.
Daily Dispatch: So you wouldn’t buy them?
Doug Casey: I wouldn’t touch any of them with a 10-foot pole. You expect them all to double or triple? If they keep expanding at the rate they are, pretty soon they’re not going to only own everything on earth, they’re going to own everything in the solar system besides.
These companies are the equivalent of General Motors and General Electric when they were at their peak. Everybody knew they existed, and knew they had great track records. But that’s not when you buy them. That’s when you sell them, and look for something younger and smaller, that’s still got room to grow.
One of the oldest rules of investing is “high tech, big wreck.” But if you must invest in tech companies, I suggest get into small companies that are run by the original scientifically oriented entrepreneurs that are big shareholders. They have a lot of upside, and a lot of the vigor that comes with being a small expanding company.
But now isn’t the time to do it. We’re in bubble territory.
Daily Dispatch: You’re not against technology, you just believe the market for tech stocks is a bubble – like 2000?
Doug Casey: Despite the fact that I believe that Ray Kurzweil is right about the “Singularity,” or something like it, occurring in the next 20 to 30 years, and despite the fact technology is likely to keep expanding at the rate of Moore’s law, now isn’t a good time to invest in tech stocks. The market for tech stocks looks like that in 2000, or 1968. Both times the market for hot tech stocks melted down 90%. The market is up primarily because tons of money is being created right now.
It’s being created even now, as we speak. A new round of so-called “quantitative easing” is going on, and a lot of capital is being misallocated because of the ultra-low interest rates. These things make people think they can afford things that they really can’t. I don’t want to take part in the tech boom by being a trend follower. I’m much more interested in buying things that are demonstrably cheap.
Daily Dispatch: Such as?
Doug Casey: Right now, cyclically, commodities are ultra cheap. Later on when there’s a bubble in commodities, tech stocks will be much cheaper. You can buy them then. Apple and Facebook and whatever will probably be a fraction of current prices.
When the upcoming bear market hits, people aren’t going to care about the stock market. It’ll just be a bad memory. In fact, most of them will forget the stock market even exists. Just the opposite of what we have today, when everybody thinks they have to be in the stock market.
Remember, this has happened before. It happened in the late 1920s, it happened in the late 1960s, it happened in the late 1990s. Everything is cyclical – especially the stock market.