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We are in a Bubble

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Re: We are in a Bubble

#61

Post by stretchwithme »

stretchwithme wrote: post #12
samstave wrote: post #3

I am not interested in any of the "we are in a bubble" posts as much as I am interested in "What the fuck will happen when this bubble bursts!" I have been in tech in SV since 1997. I was here for the build, frenzy and pop of the last bubble. In 2001 I had a BBQ at my place - 50 people came and we ate and drank by the pool. Of those 50 - all tech workers - 4 had jobs. I was out of work for 18 months (6 of which I tra…

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?

And by commitments, I don't just mean its budget and its 16 trillion in debt.

I include all the debt we took over from the banks and the bottomless pit of AIG.

I include all the private pension funds that are insured by the government.

The President of the Dallas Federal Reserve, Richard W. Fisher, painted a rather bleak picture of what our liabilities actually are when he spoke to the Commonwealth Club.

Fisher said back in 2008, before the collapse of AIG, that our liabilities exceed $99 trillion. His speech is here:

  http://www.dallasfed.org/news/speeches/fisher/2008/fs080528.cfm
Of course, we can walk away from these things or inflate our way out, but those are just different endings to the same bubble.

Confidence that the bubble will not collapse is the only thing keeping this bubble from collapsing.

Re: We are in a Bubble

#62

Post by sopooneo »

hooande wrote: post #46

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 star…

Yes, but the rich only get rich on a bubble if they know it is a bubble and get out soon enough. So we are to assume that the rich are getting the tech train moving, letting the Hoi polloi add some rule coal to the fire, then hopping off before the thing crashes off a cliff?

That is possible, but every part of my forced analogy is necessary for the idea to hold water.

Re: We are in a Bubble

#63

Post by dkrich »

There's a lot wrong with this, but I'll just say that there are many more than two ways to value a company, and if you used the first type he cites (taking the net present value of future profits) you are effectively ignoring any assets the company currently owns, including IP, cash, property, plant, and equipment, short-term investments, long-term investments, just to name a few.

Re: We are in a Bubble

#64

Post by R_Symtex_II »

sopooneo wrote: post #62
hooande wrote: post #46

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 star…

Yes, but the rich only get rich on a bubble if they know it is a bubble and get out soon enough. So we are to assume that the rich are getting the tech train moving, letting the Hoi polloi add some rule coal to the fire, then hopping off before the thing crashes off a cliff? That is possible, but every part of my forced analogy is necessary for the idea to hold water.

I think the term you're looking for is Ponzi scheme. Much like Bernie Made-off... err Madoff operated. Or perhaps more recently: Groupon. A classic pump and dump, take a look at the charts.

Your 'train analogy' is merely painting a glib picture of what is clearly insider trading by the likes of Goldman Sachs in a different, albeit obvious, guise.

Re: We are in a Bubble

#65

Post by dkrich »

ericflo wrote: post #44
nextparadigms wrote: post #38

Earlier quoted context omitted.

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…

> 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.

Not necessarily. You're assuming that had Hipstamatic chosen the adoption-first approach they would have been a more valuable business. That assumes that both products are basically identical and the successes and failures turn only on whether the app is paid. Conversely, you're assuming that the only reason Instagram got such widespread adoption is because it was a free app.

> Yep! That's what people are doing.

Um, no they aren't. Most companies in the social space are valued based on how much hype they can generate, not how much money. A lot of people assume that an app like Path must be worth at least a billion. Is that based on money-making potential? I'm not buying it.

Re: We are in a Bubble

#66

Post by jack-r-abbit »

All this "look at that. now look at this. We're in a bubble"... is this an Old Spice ad?

Edit: oops.. I forgot to add value to the conversation. Yes, we are in a bubble. Is it as big as before? probably not. Is it going to deflate (or even burst) eventually? yes. Is it going to be tragic? yes... a fool and his money are quickly separated.

Re: We are in a Bubble

#67

Post by NoPiece »

eli_gottlieb wrote: post #56
roguecoder wrote: post #31

Earlier quoted context omitted.

The rise in the inequality of wealth has led to an excess of capital and a lack of demand for it to fill. It's not just the US: around the world there is more people who want to invest than there are people with money to spend on the things they might make.

So we get "job creation start-ups", aka bubble businesses. The only winning move is to break the rules of the game by simply redistributing wealth/income to people who don't have it to spend. Well, that or to build a luxury rich people will pay for.

Isn't rich people investing in bubble businesses effectively wealth redistribution?

Re: We are in a Bubble

#68

Post by capsule_toy »

samstave wrote: post #3

I am not interested in any of the "we are in a bubble" posts as much as I am interested in "What the fuck will happen when this bubble bursts!" I have been in tech in SV since 1997. I was here for the build, frenzy and pop of the last bubble. In 2001 I had a BBQ at my place - 50 people came and we ate and drank by the pool. Of those 50 - all tech workers - 4 had jobs. I was out of work for 18 months (6 of which I tra…

I don't think it'll be as bad. There is much more adoption of technology in every business today than back then. I know plenty of profitable small businesses looking for developers and having no luck. I can't imagine all these jobs in unrelated industries not being there just because the SoLoMo bubble pops.

Re: We are in a Bubble

#70

Post by ScottBurson »

sopooneo wrote: post #62
hooande wrote: post #46

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 star…

Yes, but the rich only get rich on a bubble if they know it is a bubble and get out soon enough. So we are to assume that the rich are getting the tech train moving, letting the Hoi polloi add some rule coal to the fire, then hopping off before the thing crashes off a cliff? That is possible, but every part of my forced analogy is necessary for the idea to hold water.

I don't know that all the rich are smart enough to do it that way, but you can bet a lot of them are.

Your "forced analogy" is quite familiar to any experienced stock trader. Getting in and out at the right time is critical.

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