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We are in a Bubble

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Re: We are in a Bubble

#41

Post by firefoxman1 »

Aethaeryn wrote: post #35
OzzyB wrote: post #32

As a personal exercise please go and watch this documentary: Startup.com http://www.imdb.com/title/tt0256408/ And then ask yourself if what happened then is anyway similiar to what is happening now. For starters, I think you will realise that most startups circa 2000/1 were nothing more than litteral "thin air" -- compare that to the likes of Facebook who actually have revenues, hell, they even have a product . I kno…

The tech companies in question (e.g. social media) are not worthless, but they're almost certainly overvalued. Eventually, the market is going to realize this and then they'll be undervalued for a while as a reaction. It's probably going to go back and forth in cycles between overvalued and undervalued for a long time because no one really knows what the market value of an intangible digital asset is. Can anyone expl…

Just like anything else of value: whatever people are willing to pay for it.

Re: We are in a Bubble

#42

Post by daniel-cussen »

No...no.

Surplus of Capital

Since 2008, most traditional investment vehicles like real estate and the stock and bond market have had poor returns. Capital has been shifting from these traditional vehicles to Asia and Venture Capital in search of extraordinary returns.

So, what you have to remember is that there are actually several different kinds of economic catastrophes, and that a bubble is only one of them. You also have hyperinflation, for one, and it's much more plausible that this is what is actually happening. And while this is largely irrelevant for America as a whole, it matters a lot at a local level: if you're in California, for instance, you're alright as you're upstream from a lot of folk. If you're in the Rust Belt, though, you might find it's suddenly even harder to compete with Asia. So while there is something rotten in the state of Denmark, the tech sector is not the one in trouble.

Re: We are in a Bubble

#43

Post by [deleted] »

OzzyB wrote: post #32

As a personal exercise please go and watch this documentary: Startup.com http://www.imdb.com/title/tt0256408/ And then ask yourself if what happened then is anyway similiar to what is happening now. For starters, I think you will realise that most startups circa 2000/1 were nothing more than litteral "thin air" -- compare that to the likes of Facebook who actually have revenues, hell, they even have a product . I kno…

[deleted]

Re: We are in a Bubble

#44

Post by ericflo »

nextparadigms wrote: post #38
OzzyB wrote: post #32

As a personal exercise please go and watch this documentary: Startup.com http://www.imdb.com/title/tt0256408/ And then ask yourself if what happened then is anyway similiar to what is happening now. For starters, I think you will realise that most startups circa 2000/1 were nothing more than litteral "thin air" -- compare that to the likes of Facebook who actually have revenues, hell, they even have a product . I kno…

But did Instagram have revenue? The question wasn't if investors back then had money, but if the company they invested in were making any money. Facebook had money, Instagram wasn't making any. So to me that's very similar. Also he's right that now that Instagram was valued at $1 billion, we're already starting to see others like Square immediately looking to raise capital at huge valuations, just because Instagram w…

> But did Instagram have revenue?

This is a tired argument. Everything is a tradeoff. In this case it's a tradeoff between adoption and revenue. Hipstamatic chose the revenue-first approach (they apparently made plenty of money) and Instagram chose the adoption-first approach. Which one is more valuable (and you must include strategic value in this evaluation!) right now? Clearly Instagram.

> Also he's right that now that Instagram was valued at $1 billion, we're already starting to see others like Square immediately looking to raise capital at huge valuations, just because Instagram was valued so high.

I'm very, very skeptical that this is the case. Has anyone involved in the situation made any statement hinting at that?

> Shouldn't companies be valued based on how much potential for making money they have in the future

Yep! That's what people are doing.

Re: We are in a Bubble

#45

Post by paulsutter »

ubi wrote: post #19

So long as people are still saying its a bubble, its not a bubble. Beware of a market so hot that you are a fool not to be part of it.

The term "Internet bubble" was very commonly used during the bubble. And the term "irrational exuberance" ganied fame in 1996, prior to the greatest craziness.

It was a lot more obvious than the real estate bubble. The real estate bubble was only visible to most people as a chart in the NY times that showed the gains in prices were historically unprecedented and clearly unsustainable. Most people didn't know that the ratings agencies were earnestly relying on models that pretended that real estate could never go down, and assumed that baskets of mortgages are uncorrelated risks. Both of those are obviously silly assumptions, but the population in general didn't know about it.

On the other hand, it was obvious to most people I knew that Internet valuations were unreasonable during the first bubble, but a majority of them werent willing to call a top at any particular point.

Re: We are in a Bubble

#46

Post by hooande »

The third point explains the first two. Something has to be done with the billions of dollars fleeing real estate and the general stock market. You get billion dollar valuations when people are saying "I have a billion dollars and I really need a place to invest it"

The startup community needs to get over the idea that "valuations" are based in reality. Rich people need ways to get richer. They could choose tech startups, they could choose real estate, they could choose tulips... it doesn't matter as long as they can make up money and push it back and forth between one another.

But alas, it feels much better to say "My company was valued at a billion dollars!" than it does to say "Rich people used my company as tool to transfer money to each other!" If we would just stop taking the numbers seriously then we could stop the debate about whether or not we're in a bubble.

Re: We are in a Bubble

#47

Post by fennecfoxen »

ericd wrote: post #24
stretchwithme wrote: post #12

Earlier quoted context omitted.

Of more concern to me is the bursting of valuation bubble for the United States. Currently, people are undervaluing the risk of lending money to it. What happens when they realize its future revenues won't cover all of its commitments?

US Gross debt is currently around 16.4 trillion, its GDP in a given year is around 14.6 trillion, and its operating budget is around 2.5 trillion with a 1 trillion deficit. It seems within its capabilities to repay its debts, though it has opened up the throttle a good amount in the past couple years, and there seems to be no political will to raise taxes right now.

By "operating budget" I assume you mean revenues.

For reference, the US spent $2.73 trillion in 2007 and $2.9 trillion in 2008. It plans on spending $3.8 trillion in 2012 and about the same in 2013. When you say "opened up the throttle a good amount" that amount is in the vicinity of ~35%.

(These numbers are not adjusted for inflation. Sorry.)

Re: We are in a Bubble

#48

Post by brazzy »

meric wrote: post #36
OzzyB wrote: post #32

As a personal exercise please go and watch this documentary: Startup.com http://www.imdb.com/title/tt0256408/ And then ask yourself if what happened then is anyway similiar to what is happening now. For starters, I think you will realise that most startups circa 2000/1 were nothing more than litteral "thin air" -- compare that to the likes of Facebook who actually have revenues, hell, they even have a product . I kno…

>> And then ask yourself if what happened then is anyway similiar to what is happening now. The US property bubble had nothing in common with the Tulip bubble either. Tulips don't even pay interest but property paid rent!

"Tulips don't even pay interest"

Oh, but they do - in the form of more tulips. Yes, even that bubble started with a sane rationale. A thing to keep in mind.

Re: We are in a Bubble

#50

Post by DDR0 »

firefoxman1 wrote: post #41
Aethaeryn wrote: post #35

Earlier quoted context omitted.

The tech companies in question (e.g. social media) are not worthless, but they're almost certainly overvalued. Eventually, the market is going to realize this and then they'll be undervalued for a while as a reaction. It's probably going to go back and forth in cycles between overvalued and undervalued for a long time because no one really knows what the market value of an intangible digital asset is. Can anyone expl…

Just like anything else of value: whatever people are willing to pay for it.

Exactly… but how much are you willing to pay for it? How much is it _worth_ to you, as a corporation? This too will fluctuate.
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