Imagine a well-hyped start-up that raises $41 million and receives plaudits from the media. The start-up is going to remake the industry and change the world (and maybe even change civilization). The company markets itself and gets more hype and one of the most famous investors buys in at the very top of the stock price ...
and then ... all of a sudden ... everyone realizes that the emperor has no clothes ...
It turns out the company spent almost all of its cash on ineffective television ads and is now unable to raise more money, out of cash, laying people off, and asking the rest of the staff to work for massively reduced pay.
Is this circa 2000? Is this pets.com?
No, it's Howard Dean for President.
But the similarities to Pets.com (formerly listed on NASDAQ as IPET) are eerie.
Joe Trippi, dot-com maven and former CEO of Howard Dean for President, literally ripped a page from Pets.com's history. The history of the Pets.com share price almost exactly matches the rise and fall of Howard Dean's futures price as traded on the Iowa Electronic Markets (see http://128.255.244.60/graphs/graph_Pres04_VS.cfm). If you shorted Dean in January 11, you'd be a rich man.
And like Pets.com, which was able to attract money from some of the most famous investors even at its peak, the Howard Dean for President campaign was able to attract and endorsement from Al Gore at the precise time of its peak. According to the Iowa Electronic Markets, Gore bought Dean (IOWA: DEAN) on December 9 at 36 – and as of Feb 3, Dean was trading at only 5 – meaning DEAN lost 86% of its value in less than two months. Can you say dot-bomb?
John Kerry, by contrast, is nothing like a dot-com. He's more like a traditionally boring, slow-moving conglomerate – like Heinz (NYSE: HNZ) for instance. He's steady and dependable – but ultimately will not resonate with the growing Hispanic market which prefers salsa over ketchup.
Feedback Loops
Howard Dean and John Kerry are both products of a massive feedback loop. Basically, they are fads. Like any stock, they have inherent value. But much of the value of a stock lies in its perceived value. Inherently, Pets.com was never worth anything under any measurement – but at certain points of the company's life it was worth a heck of a lot because investors thought other people would buy it (in the end, of course, it turned out to be a house of cards).
The number one reason people give for voting for John Kerry is "electability." Voters think he's more likely to beat President Bush in November than the other Democratic contenders. So basically, the number one reason people like Kerry is not because they like his ideas, agree with his proposals, or even because they think he's cute -- but it because they think other people will vote for Kerry. The argument, of course, is very circular.
And the same thing happened to Dean. He is just another fad (he's not John McCain, he's actually Ross Perot). People liked him because he reached a tipping point – kind of like why everyone orders a "Red Bull and vodka" and no one orders "Mountain Dew and whisky." Frankly, I'm sticking with my beer, chips, and salsa.