Would you rather own Google, or all of the following: General Motors and Ford (America’s two largest automobile manufacturers); Boeing Co. (the world’s leading aircraft manufacturer and aerospace company); Burlington Northern Santa Fe Railroad (one of America’s largest transporters); Sears Holdings Corp. (which owns almost 1,400 K-Mart stores in addition to 2,400 Sears locations); and Barrick Gold Corp. (the world’s biggest gold mining company producing over 8 million ounces of gold per year)?

If stock market valuations are to be believed, most investors would choose to own Google. If you sold Google today, you could buy each of the other companies mentioned above lock, stock and barrel, and still have several billion left over—almost enough to buy Goodyear Tire and Rubber Co. too.

Of course, stocks valuations are very fickle. One day Nortel Networks is worth over $800 per share, a few weeks later it is worth just $5 and change.

After such things happen, however, they are soon forgotten; investors begin to feel that “everything is different this time.” Today, reminiscent of the 2000 dot-com bubble, we are seeing small and relatively unknown Internet companies starting to fetch exorbitant prices on the stock market. Some observers are beginning to wonder if this trend will turn out to be a second dot-com bubble.

According to the International Herald Tribune, market data suggests a second dot-com bust might be well on its way. Facebook, for example, a social networking site, is currently valued at $15 billion. Though its website may be fun to use, the company isn’t as profitable as one might think. During 2006, it had earnings of $100 million, giving it a price-to-earnings ratio of 150. For comparison, the historical average price-to-earnings ratio of U.S. stocks is around 15.

Another example is Right Media. An online advertising network company, it was valued at $200 million last year by Yahoo’s investors. Six months later, Yahoo bought the company—for $850 million.

“I have to say I giggled,” said Brian O’Kelley, co-founder of Right Media. “There is no way we quadrupled the value of the company in six months” (Wall Street Journal, October 9).

A large reason for the exorbitant Internet company price tags is competitive bidding by Internet giants such as Google, Yahoo and eBay. Google recently bought YouTube for $1.65 billion, despite the fact that the number of videos watched on YouTube would have to increase by 1,642 percent before it could account for even 5 percent of Google’s revenue.

The goofy-names indicator is also flashing warning signs that technology stocks may be reaching apexes. At the height of the last Internet stock bubble, all kinds of technology companies were popping up. Consider the list of recent debuts: Zipidee Inc., Orgoo Inc., and Startup Schwag.

“It is absolutely déjà vu,” says David Chao, a venture capitalist in California. “There’s just as much junk now as there was in 1999.”

Just after the bubble burst in 2000, economist Roger Bootle wrote in his book Money for Nothing: “At the height of the dot-com mania, investing in stocks came very close to [gambling] as shares in businesses that had no profits, and in some cases no revenues, changed hands for huge sums. And some pretty strange businesses were set up. One company, AllAdvantages, paid customers to surf the web.”

These conditions are back; even the idea of paying people to surf the Internet so they will be exposed to advertisements has been seriously suggested again.

But tech stocks aren’t the only ones soaring. The Dow Jones just two weeks ago set all-time highs above the 14,000 level.

If you try hard enough, any number of reasons can be found to justify paying high prices for stocks with little earnings (and sometimes there may be a good reason). But the question is, why would so many chose to when the economy is flashing clear warning indicators of trouble ahead?

Let’s recap.

The housing market is collapsing and the bottom is still nowhere in sight. Foreclosures have doubled over the past year. Subprime borrowing, which used to be over 10 percent of the total market, has virtually dried up. Home inventories are rising while home prices are falling like rocks across most of the country. People are no longer able to use their homes like atm machines every time they refinance their mortgages. Consumer spending is almost sure to take a hit.

The home construction industry is seizing up, with thousands being laid off. The banking industry is being walloped by a credit crunch that Federal Reserve chief Ben Bernanke considers so serious that he almost immediately cut interest rates. The banking sector is hemorrhaging. Though the crunch wasn’t really felt in earnest until August, Citigroup, the biggest bank in the United States, reported a 57 percent drop in third-quarter earnings. Bank of America, the second-largest U.S. bank, reported a 32 percent drop in earnings. The leading U.S. savings and loan, Washington Mutual, says it expects a 75 percent drop in profits, while Merrill Lynch had to write down $5.5 billion in bad subprime and leveraged-loan losses for June to September. Thousands of people in the real-estate, mortgage lending and banking sectors are being laid off.

In August, investments totaling a record-breaking $163 billion fled the U.S., according to the latest Treasury Department figures. For the first time since 1998, foreigners on balance sold U.S. government treasuries.

The dollar is at its lowest level ever. The Canadian loonie is now worth more than the U.S. dollar. The euro continues to rise against the dollar.

Prices of commodities including wheat, corn, milk, oil, gold and silver are all soaring—also not good news for consumer spending or the economy.

And, amazingly—in the face of all this bad news—investors continue to buy U.S. stocks that could well be significantly overvalued.

There is a disconnect somewhere!

“Have stock brokers lost touch with reality?” asks Speigel Online. “Are they once more in the grip of that optimistic and carefree mood that precedes every crash? Or are there in fact good reasons to be optimistic?” (October 15).

“It’s all a big test,” says Thomas Mayer, Deutsche Bank’s chief economist for Europe. “The financial markets are gambling …” (ibid.).

Be aware: As the stock market continues to break records and people cheer, investors may unknowingly be “merrily celebrating the disaster at their doorstep” (ibid.).

For more information about how to prepare for economic conditions ahead, read “Storm-Proof Your Financial House.”