'Echo Techo' Revisited

Every time I mention the possibility that we're entering my "Echo Techo Bubble," I get at least one question that invariably goes something like this from the comments section of my blog today:

"Always a great article, and thank you, Cody! Now. Sorry, but would you again give readers your meaning of 'echo techo'? Thanks." -- gldengoose

When the Great Tech Bubble of the late 1990s popped, we slowly but surely saw most everyone get bearish on tech. By October 2002 when the Nasdaq had dropped 75% (and when I happened to have launched my hedge fund, by the way), there was very little reason to believe that tech would ever shine again. Most pundits, traders and hedgies became permabears and promised the market wouldn't bottom until most companies traded at a fraction of their book value. Some permabears like Fred Hickey never stopped arguing that. (Good write up on that topic today by Jeff Matthews countering the silly props Barron's gave him this weekend.)

But sure enough, the stock market bottomed and tech stocks rallied hard. The Nasdaq put on double-digit gains in 2003 and 2004, and all those permabears had to figure out how to explain how they could have been so wrong.

They started pointing to history and the fact that the popping of most bubbles, from the 1920s stock market to the railroad bubble in the late 1800s, is usually followed by another big run which most people called an "echo bubble." It became vogue for traders and pundits, including many on our own pages, to explain their wrongness by saying that the rally in the Nasdaq off the October 2002 and March 2003 lows was just another bubble about to be popped and that the Nasdaq wouldn't really bottom until it went much lower. I told them often in these pages that they were wrong about us being in an "echo bubble."

So in 2005 and 2006, as the Nasdaq continued to climb, as housing started to look toppish, as the ongoing and steady economic boom started to show some cracks, I began to ponder the possibility that we might be setting ourselves up for an outright "echo bubble" in tech. With tech continuing to grow, a Vista cycle, pent up spending from the enterprise on tech, new applications and technologies all hitting and the Fed still looking to juice and/or cut rates at some point, there's a good foundation for the possibility of this market really going bubblicious. I created the term "Echo Techo Bubble" because I do think we need to be prepared for its possibility. Even if it'll make those permabears finally right about something.

At the time of publication, the firm in which Willard is a partner was net long Microsoft, although positions can change at any time and without notice.

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At the time of publication, the firm in which Willard is a partner was net long Microsoft, although positions can change at any time and without notice.

Cody Willard is the manager of CL Willard Capital Management, LLC. He is a regular guest on Fox News, CNBC and other networks, and he writes a monthly column for the Financial Times. He is also an adjunct professor at Seton Hall University and the author of TheCodyReport.net, a monthly stock market newsletter. Willard appreciates your feedback -- click here to send him an email.