When a currency becomes overvalued it gets tossed like confetti. This is what happened in the late 1990s, and it's happening again. (The allusion, of course, is to the hit song 1999 by the man at left, known again by his given name, Prince Rogers Nelson.)

Yahoo's P/E is at 54, Google's is 123. Their stocks are overvalued in a market where the average P/E is still said to be near historic highs.

It doesn't matter whether acquisitions are made with cash or stock. Cash acquisitions, after all, can easily be handled by the company selling stock. Yahoo has been especially active in this area.

Companies of all sorts want this currency, and thus we have both Yahoo and Google on an acquisition binge.

Yahoo has just bought Flickr, following acquisitions of Oddpost, Kelkoo, Musicmatch, Overture, and Inktomi.

Yahoo doesn't have a great record with acquisitions. Remember Webring?

Google, meanwhile, has bought Picasa, Keyhole, and (most notably) Blogger parent Pyra Labs, but whether it's done anything constructive with Blogger is questionable. (And do we really need to mention the 2001 Deja.Com acquisition?)

What's happening is a game of chess, with Yahoo and Google acting as rival Kings taking out pawns.

That's a fine game in the short run, but Clueless for investors in the long run. If you don't know how you're going to make money with an acquisition, why are you buying it to keep someone else's hands off it?

And it's this bidding game that eventually leads to a crash. It has always been this way.

This "second crash," or consolidation crash, usually takes the whole industry down to a tradeable level, and eliminates most speculation in an industry with it.

The pattern has been seen in every industry since Wall Street started:

1. There's a rush of start-ups.
   
2. A crash as most start-ups fail to make money.
   
3. Consolidation by a few large players and a second boom.
   
4. A crash of the consolidated players.
   
5. Normal market service is restored.
   

Yahoo and Google are hopelessly overvalued. Their fall to financial Earth will happen in time.

History shows the fall out will be nasty.