Social media, biotech bubbles on the verge of collapsing: financial community

For the first time that we can recall, Marc Faber, the publisher of The Gloom, Boom and Doom Report, and Janet Yellen, Federal Reserve Chair, have something in common: social media and biotech stocks are in a bubble, and they are on the verge of bursting, popping and collapsing. In fact, the S&P 500, says Faber, will likely experience a 30 percent correction.

Case in point, Yo, a social media app that simply permits users to send “yo” notifications to friends, has secured $1.5 million in funding after initially garnering another $1 million. Since it launched in April, it has generated more than two million downloads, and apparently there is room for growth.

Cynk is another example of a social network that has gained funding for nothing. The social media outlet that purchases friends online hasn’t even been established yet but somehow it received a $6 billion valuation.

It has been believed for several months now that social media and biotech stocks are severely over priced and have entered into the bubble phase. Overall, the technology industry itself is overvalued, says Faber.

Here is what Faber told the USA Today over the weekend:

“We could be entering a similar environment like in ’87, where we have a blow-off and a more serious bounce in the second half of the year. Since 1929, we’ve had 15 bear markets. We have a bear market approximately every six years. Do you know how much each bear market has given back in terms of price gains? On average, it’s given back 21 quarters of price gains, or five years. Let’s consider that all the bulls are right and the market goes up for the rest of the year, and then you give back five years! Then we are in 2015 at essentially the 2010 level.”

Yellen warned last week that investors should refrain from allocating their money to an entity that labels itself as a social network. She wrote that the “valuation metrics” for “smaller firms in the social media” sector “appear substantially stretched.” In other words, social media is in a bubble.

Despite the Fed talking about bubbles, the irony should be pointed out that an environment of artificially low interest rates, excessive money printing and quantitative easing created by the Fed leads to all kinds of bubbles that are expansive in size and scope.