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I'm calling this Bubble 2.0, and it's ready to burst

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Re: I'm calling this Bubble 2.0, and it's ready to burst

#91

Post by rpeden »

wtvanhest wrote: post #80
rpeden wrote: post #66

As an outsider who watched a couple of bubbles from the outside (dotcom and housing), it seems that the likelihood of being in one ends up being inversely proportional to the vociferousness with which those on the inside claim it's not a bubble. i.e. Tell a Pets.com shareholder in 1999 that owning company stock and they'd look at you incredulously and tell you how we're in a new economy. Or tell a homeowner in early…

This is really interesting. It seems like everyone on HN, arguably the people who are most inside this industry are agreeing it is a bubble. Usually that only happens after it is in mid/late pop. Is it possible that people are just scared of bubbles as we are reminded every day of the housing bubble? Alternatively is it possible that there is a specific asset class (ad based platforms) which may be in a bubble? Possi…

I see a lot of people who are inside the industry as employees agreeing that it is a bubble. But I see a lot of people inside the industry as investors saying it isn't. I'm not sure if that means anything, though.

Re: I'm calling this Bubble 2.0, and it's ready to burst

#92

Post by patrickk »

steve8918 wrote: post #79

As the old saying goes, history never repeats itself, but it often rhymes. Asset bubbles occur when people are more interested in acquiring assets rather than effort to acquire the money used to buy the assets. Basically, people start throwing money around just to get that asset. It usually occurs when money is easily acquired through loans, etc, and as the asset prices increase, the general idea is "I can borrow the…

Some interesting points.

The most important point you make, that for me proves it's a bubble is this:

"And this is the situation where companies like Facebook or Google, or VCs are more interested in acquiring assets (ie investments in startups), rather than caring about the actual money itself."

Hello? You're "acquiring assets" and not caring about money? What? Some make the argument that Google bought youtube for a big sum, and use that to justify Facebook buying Instagram for $1 billion, but clearly this is not sustainable.

For the "acquiring Instagram for a billion" stage to continue (proving there isn't a bubble), acquiring company needs:

- To be doing 3 figure millions/billions in revenue (there are only so many of these)

- Have a really clear idea of what they're buying and why (Yahoo sucks at this)

- Have patient shareholders that allow you can take huge bets like Instagram (if Zuck went off and negotiated the purchase of Instagram without board approval and Facebook was a public company, I'd imagine the shareholders would scream blue murder and possibly sue).

All this is fine and well, but as you note it distorts people's thinking - people use the dollar figure per user from the Instagram deal, which only is applicable IF the above conditions are met (i.e. you are bought by someone who's buying you for something other than financial reasons. Which is a clear sign of the bullsh*t phase of the cycle, in my opinion.)

Re: I'm calling this Bubble 2.0, and it's ready to burst

#93

Post by Daniel_Newby »

steve8918 wrote: post #79

As the old saying goes, history never repeats itself, but it often rhymes. Asset bubbles occur when people are more interested in acquiring assets rather than effort to acquire the money used to buy the assets. Basically, people start throwing money around just to get that asset. It usually occurs when money is easily acquired through loans, etc, and as the asset prices increase, the general idea is "I can borrow the…

> ... then it's most likely a catastrophic, extinction-level event for most of the startups in the Valley.

Most SV startups are valueless Facebook partners? Really?

Re: I'm calling this Bubble 2.0, and it's ready to burst

#94

Post by rehack »

d4nt wrote: post #43

I have a theory about bubbles: It's relatively easy to spot that you're in one, but it's very hard to pinpoint what sort of bubble it is. I'll explain... During the lead up the 2008 debt crisis I saw a lot of people talking about how house prices had been going up year on year and questioning whether we were in a property bubble. There was a debate though. Demand for housing was strong (partly due to population growt…

Using your template: I think it will be 'Facebook bubble 1.0' or 'social bubble 1.0'.

In an Internet 1.0 world "Facebook", would have happened via a 'social' protocol on the Internet just like SMTP, and Zuckerberg would have been a hacker icon just like a Tim Berners Lee.

In this Internet 2.0 world its heading for a 100 billion dollar IPO. I think, its a bad movement of capital. As Facebook was more lucky - timing wise it happened just when broadband Internet was getting prevalent in developing countries of Asia, and many other things.

And unfortunately, it has got no real competition. The only people who are trying to compete (atleast visible to most, discounting efforts like status.net) are Google. Who are just building another Facebook like walled Garden in Google+.

How I would have loved to see a concerted effort from hackers to liberate 'social' to what it should always have been - a protocol!

PS: If mails had happened in Internet 2.0 world. We would have gmail users only mailing to other gmail users and hotmail users only mailing to other hotmail users ... but actually gmail would not have happened as Sabeer Bhatia or Microsoft would have been still ruling the mail world ;-) ... But thankfully it did not turn out that way, as there was already a protocol called SMTP!

Re: I'm calling this Bubble 2.0, and it's ready to burst

#95

Post by meric »

phillmv wrote: post #85
rpeden wrote: post #76

Earlier quoted context omitted.

You're right about the Canadian housing market; There are those predicting it is in a bubble, the most vocal of whom is a former government MP blogging at http://greaterfool.ca . The funny thing is that even after watching the carnage in the US housing market, people here don't believe it. I hear countless homeowners talking about housing is the best investment you can make, prices won't fall, it is different here, e…

House prices here in Toronto are totally obscene. I genuinely don't understand how people are forking over $500k on average .

Oh god. I'm in Australia and if you tell me I can get a house for $500k I'll say it's cheap. The apartment I'm living in is worth $550k. The only houses as cheap as $500k are over an hour from the CBD. Where I am living (half hour away), houses start from $800k up to $1.5m.

The average (house+apartment) price is still below $600k, though.

Re: I'm calling this Bubble 2.0, and it's ready to burst

#96

Post by hemancuso »

corford wrote: post #90
hemancuso wrote: post #56

Earlier quoted context omitted.

I think it's important to recognize that the Public can't easily invest into startups. It really is just a small group of investors who are in this market right now. This is an important difference between today and the late 90s.

True but a lot of VC money comes from public pension pots etc. So there is some scope for innocent people to be indirectly damaged by a bust.

Less than $50B USD per year. Peanuts, compared to the nearly $20T USD in retirement assets in the US.

Re: I'm calling this Bubble 2.0, and it's ready to burst

#97

Post by brudgers »

steve8918 wrote: post #79

As the old saying goes, history never repeats itself, but it often rhymes. Asset bubbles occur when people are more interested in acquiring assets rather than effort to acquire the money used to buy the assets. Basically, people start throwing money around just to get that asset. It usually occurs when money is easily acquired through loans, etc, and as the asset prices increase, the general idea is "I can borrow the…

>"Since selling to Google or Facebook is the exit strategy for most of these SV startups, if that door closes, then funding will get pulled quickly and violently, and it will be the start of the next dotcom bust 2.0"

This points to one of the differences between this boom and the last one. Valuations are being driven by companies with lots of cash are buying startups and sophisticated investors funding growth. Last time, the valuations came from dumb money parked in IRA's and 401k's via Wall Street.

In other words, currently valuations are primarily based on the potential sales of a company's products rather than on the potential sale of its stock to mutual funds.

If the current startup ecosystem went bust, most people wouldn't feel it because their retirement accounts and personal savings wouldn't see it directly. In the dot.com bust, many more ordinary people saw the value of their mutual funds decline because so many hot companies were publicly traded.

That's not to say that recent legislation to allow dumb money investment in startups won't ultimately lead to a similar bust. But we're not close to that yet.

Re: I'm calling this Bubble 2.0, and it's ready to burst

#99

Post by heelhook »

neilk wrote: post #50
d4nt wrote: post #43

I have a theory about bubbles: It's relatively easy to spot that you're in one, but it's very hard to pinpoint what sort of bubble it is. I'll explain... During the lead up the 2008 debt crisis I saw a lot of people talking about how house prices had been going up year on year and questioning whether we were in a property bubble. There was a debate though. Demand for housing was strong (partly due to population growt…

Maybe it's not a bubble per se, maybe it's just overinvestment? The world economy really sucks right now, and people are seeking havens for their cash. The tech industry is one of the few bright spots in the world economy, and there's an evergreen hope of some runaway hit. So it could be possible for there to be overinvestment even in the face of widespread skepticism. We also have a lot of supercool mobile electroni…

Too many people are throwing around the "people are just seeking a place to park their cash because the economy sucks" misguided idea.

Startups offer investors exactly the opposite of what a capital preservation strategy seeks: high risk with low possibility of considerable returns.

Even if the world economy were in recession (its not [1]) most asset managers would recommend dozens of other asset classes before recommending investing in a startup for capital preservation, specially when inflation is low as is the case in most of the world at the moment [2].

[1] http://en.wikipedia.org/wiki/Global_recession http://www.economy.com/dismal/map/default.asp

[2] http://www.indexmundi.com/world/inflation_rate_(consumer_pri...

Re: I'm calling this Bubble 2.0, and it's ready to burst

#100

Post by brazzy »

marcusf wrote: post #20
nextparadigms wrote: post #17

Earlier quoted context omitted.

Investors realizing that they can't make their money back. Right now even if they pay $10 billion for a photo app, they're still expecting other investors will buy their shares at a $20 billion valuation or more later on. All investments are made on speculation right now, rather than based on true value and potential for making money. But if that doesn't come true, and everyone realizes this, then there will be a cra…

That doesn't seem like a crash though; I'd wager the investor class and the general populace are quite disjoint sets, e.g. there's not a mass of pension funds involved in IT venture capital. What we might see is a "return to senses" and a shortfall of capital for a while, but not a crash.

AFAIK, quite a lot of the money that VCs are so desperately trying to invest DOES come from Pension funds.
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