Slashdot Mirror
The DotCom Crash Revisited
woginuk writes "At 9:00pm GMT today , it will be exactly 5 years since the Nasdaq reached its highest level, 5048.62. From there on it has been downhill all the way. Most of us have been affected by it, one way or the other. The Guardian has a story looking back on the moment and succeeding events."
It seems a bit oversimplistic to call that the result of the "DotCom Crash." And also, its a far throw from a crash.
The rampant speculation has moved right into real estate. Prepare for the next great crash, with greater consequences.
Life in Orange County
Well, that's a little bit strong, don't you think? The .com collapse was really tragic, but it was far from unpredictable, hysterical, or preventable. Just basic macro economics -- when there are economic profits (not just accounting profits) in a market then entrance is encouraged, and when these profits dry up then the market participants take a while to come back down to equilibrium, just likePavlov's dogs took a good while to stop salivating when the dinner bell was rung.
I more agreed with Julie:
Boy, how true did that turn out to be?
adam b.
There is a quote in that article by Rob Hersov that describes the way a lot of people felt at that time:
"Those were incredibly heady days," he says. "Fun - absolutely. We thought we were making a difference. We thought we were getting out there, shaking things up, doing something no one had done before. We really were pioneers - buccaneers."
That statement demonstrates the two truths of the dot com explosion: on one had, we really did make a difference - we built a huge IT infrastructure in, essentially, the blink of an eye. On the other hand, that statement is packed with the hubris and exaggerated sense of importance that also permeated the time.
The analogy was often made in 2000/2001 of the Detroit auto industry and the development of the US national highway system. The same thing happened with scores (or maybe it was hundreds?) of companies popping up with the word "motors" in their name during the period. And now there are 3; the big 3 left in Detroit.
Not only that, but barring e-Bay and a few other notables, the companies that made it out of the bubble are ones with unique brand names: Google, Amazon, Travelocity, Yahoo!, and GoDaddy.
I also disagree with the apparent conclusion that there are no lone wolves anymore. The climate is better for a savvy lone wolf than it was even in 1997, I believe.
Who came up with the e-Idea of e-Appending e-E to e-Everything anyway?
I Want To Believe
only the End of the Beginning. Startups continue to get funded although they now have to have some reasonable idea of how they will actually make money. There was a report on the San Francisco public radio station yesterday that said that if you look at growth in Silicon Vally over the last 20 years and "flatten" (whatever that means) the growth around the bubble, Silicon Valley continues to grow at relatively the same pace as before.
"I'd rather be a lightning rod than a seismometer." -Ken Kesey
this time 5 years ago today i must have been still asleep. not rushing around to get ready for work and dreading the day. i'd have been slowly waking up in about half an hour, ready for a day of coding interesting projects, playing a little basketball, having a beer. it's not the money i miss, it's the freedom.
All the "Wrong people" now have 5+ years of expeience. They're not going anywhere. The post-bubble career changing is, IMHO, for the most part over.
"I'd rather be a lightning rod than a seismometer." -Ken Kesey
I cant believe we traded our Amazon.com stock for George W Bush :(
But when competing against the "wrong people" with 5+ years of experience, how will recent grads such as myself manage to get their foot in the door of the labor market?
Paul Graham has an interesting essay on "What the Bubble Got Right". It's worth remembering that some of the companies that lost 90% of their value are still worth billions today - e.g. Yahoo.
Looks like the server's smoking already - you can at least get the text from Google's cache.
Meep meep
I remember there was a pretty interesting comparison to the railroad boom and bust posted here a couple of years back, unfortunately I couldn't find a link to it. I think the railroad boom came in two waves, the second boom started about 5 years after the first and was much larger, and the bust was more devastating too. So we could be in for another bubble soon.
Also, here is an interesting read. I don't see the date on the article, but the wayback machine has it on Mar 2001, so it was probably written right at the peak.
Yes, I agree, The age of the BrainDumper is over!
Come on, just for old times' same, won't someone please give me $50MM to start my online Post-It sales portal, www.yellowsquare.com?
We give away the Post-its, so we can GET BIG FAST.
Since that's from a blog... is it about the business of blogging? Are blogs the new dotcoms?
Which is 16:00 in the timezone that the NASDAQ uses.
So, half an hour before the closing bell. Maybe CNBC will go black for a minute, in memoriam.
My God, it's Full of Source!
OUTSIDE_IP=$(dig +short my.ip @outsideip.net)
"And we're still waiting for all the "Wrong people" to leave our profession. Leaving more room for those deserving it."
How exactly is anyone deserving?
There doesn't seem to be a huge correlation between the stock market indices and the employment rate. Unless you are deriving a major portion of your income from investments, it would seem that the latter statistic is more relevant.
Read about the California Gold Rush, and mentally timeshift the dates and where appropriate substitute gold oriented things with computers.
The biggest difference between the two is that California was not settled at the time and it was most difficult to get basic necessities. Otherwise, same shit different day. People think they can get something for nothing.
Instead of investing in dotcom stock, I bought beer! Now I can cash in on the cans!
http://www.rayn.net . Funny. Stuff.
I see a common thread among the dot com's that thrived during both the bubble and crash. They are all innovative B to C companies that provide great value direct to consumers. Examples include Ebay, Netflix, and Amazon.
Look at Apple's stock price over 5 years, for instance - it's higher now than it was at its peak in 2000.
Sig for sale or rent. One previous user. Inquire within.
This reminds me of the upcomming real estate bubble. Everybody get ready!!!!
"Capitalism at its best. Buy low, sell high."
It's hard to "sell high" in a depressed economy. More like buy low, and sell lower.
Last time I was in New York, they were on Eastern Standard Time. -5 hours. That would put the time just before closing at 4:30pm.
Otherwise, who cares?
I do know of a techie that had just bought an expensive house, and invested everything else on margin into NASDAQ. He lost everything, lost his job, got divorced. OTOH, I kept my COBOL job, and am doing ok, B"H.
The bubble burst just about the time that the SEC was investigating Microsoft. Correlation?
I don't know about that; more like finding its proper level again. Take a look at a comparison between the NASDAQ (^IXIC) and the Dow Jones (^DJI) and you'll see what I mean.
UNIX? They're not even circumcised! Savages!
"Who came up with the e-Idea of e-Appending e-E to e-Everything anyway?"
They're working for the "K"DE project now.
Yo, read the article. Yesterday marked the anniversary of the high, not today. Easy for me to remember, b/c 10 March is my birthday.
IBM came up with the e-Idea of e-Appending e-E to e-Everything.
(The most prominent example is of course, eBusiness.)
But I believe that was after Apple started iLabeling iEverything with an i-I (iMac, iPod, iEtcetra).
No, it was March 10th, 2000 when the NASDAQ peaked. Was this story submitted yesterday and the editors didn't bother to update the reference to the anniversary being today? The anniversary was yesterday.
Anyone have stock tips? So far I've shorted SCO, made like 30% on Apple, and I expect SONY to run up as the mainstream analysts grasp the cell processor and eventually hype it. Those extra vector units in the cell are going to make for the most realistic physics we have seen in games to date, among many other potential uses. That will mean $$ for SONY. I'm also holding CMGI right now, which is lesser known but I expect a run up. What else is out there? Come on, share..
At the time I thought it would be humorous to do my own IPO calld $2Bob.com*. There would be no business plan save that all of the money invested would be spent. The IPO sheet would also specifically state that investors should expect no return on their investment and that all of the money would be pissed away on quasi corporate frivolities. If I had been a corporate paralegal instead of a litigation paralegal I might have actually tried it;-)
*The fact that "$" is invalid for a web address made it all the more entertaining to my young self;-)
If brevity is the soul of wit, then how does one explain Twitter?
"People think they can get something for nothing."
P2P will be the next bubble.
that the current level is up 85% in 2.5 years (since the "bottom" of about 1114). Despite the precipitous fall, if you were in at the "bottom", you've recovered fairly well.
:-)
Of course, it's fun to realize that if you lose 80% of your investment, you have to manage a gain of 400% to get back to even. I'd say the corporations were paying for legislation that made it so hard for small investors to break even
(That's a joke, by the way; there's a smiley at the end.)
Is it just my observation, or are there way too many stupid people in the world?
Paul Graham's essay on the legacy of the dotcom boom/bust is a great read. It tries to tease out what worked and didn't work during the boom and how to carry through the positive elements of the tech explosion into the future: What the Bubble Got Right
I have to say, after reading this article and Paul Grahm's I have to agree that if you're going to start a tech company - which almost any net company is - then you need tech people.
.com happened - I had a good time. I was probably one of the only ones who never got around to investing in it (in fact, I told companies I worked for I'd rather have cash over stock) so I didn't really lose anything. However, it was a pretty silly time and unless you had a really good idea with some good people behind it, then you probably deserved to fail. Asking if it'll ever happen again is like asking if the gold rush of the 1800's will ever happen again.
When we (my partners and I) merged our startup with another leader in our industry, everything at first was rosy. But within a matter of months, the misunderstanding of not just our business but also our tech, ended up being responsible for everyone running for the door. I, the principal technology guy, was out the door in six months. And needless to say, our product was dropped from their system within a year. Today? The VC's pushed everyone out and the company assets and name were transferred (from San Francisco) to east coast ownership.
Not to say I and many friends didn't have a good time during the days. In fact, when I headed off to a tech consulting company after the startup, I and my co-workers probably spent more time at parties than at the office. But, would I do that again? Probably not. While I'm still fond of the fast paced energy that was was it was back then, I look at ideas like Boo (jesus, esp those guys), Pets, and others of the time and think "ugh."
But I'm still hopeful for business on the net only because it has such a global reach now. One of my partners and myself are at round two of our startup lives. We're targeting the same industry, but with completely different tools. And one noticable difference is we're seeking no funding at all - which is good and bad. Like Graham suggests, we're goin lean all the way and tech guys are running the show. However, after almost a year of development on my part, it's starting to wear and the mantra now is persistence.
Everyone has their own story and unlike some I've come across, I'm glad the
I remember boo.com. The chiefs of that startup were hyping it quite a lot even by the standards of the roaring nineties. They had zero market testing and had people building 3D virtualizations of clothing and clubwear by hand. They were burning lots of money very very fast and the chiefs were roundtripping from Scandinavia to London and NYC every odd day and doing nothing much more than partying with VIPs.
I generally was very upbeat at the time but even then thought that boo.com was doing some insane stunts and cutting it to thin for my taste. They were the first ones to incinerate on reentry afer their high-fly and they very well deseved to be the first. BTW: Their sad and sorry remains still exist.
I do still think the original concept would work. It just can't work the way they aproached it.
We suffer more in our imagination than in reality. - Seneca
your financial tree falls in the forest,
and you're too broke to hear it
did the money really exist?
Get thee glass eyes, and, like a scurvy politician, seem to see things thou dost not.--King Lear
Sorry no time to read the article, I'm busy buying Google.com and Guru.com stock....did you hear they partnered for AdSense!!!!?!?!?!?!
The perspective seems to be British. He completely ignores some of major dot.coms like CMGI that rode the crest up and crashed hard. Instead, he focuses on some smaller companies that I never even heard of, before or since. And what about MicroStrategy's role? I'm lost several hundred thousand dollars in possible gains. I remember those days very well.
I say, Out with the Anonymous Cowards!!! :)
Home prices have yet to crash. Everyone keeps talking about how we had a 'soft landing'... it was soft because of low interest rates that have allowed people who really can't afford housing to get into the game. Wait until the housing bubble pops. Then, we'll get what we should have got when techs crashed... it's gonna be painful, real painful. All one needs to do is read a bit of history to understand how insane real estate prices in America have become. American debt is at an all-time high. We owe way too much money. Home prices have been going up by 20 and 30% annually in many areas... pay checks haven't... is it just me, or do others find this odd?
I think a braindumper has modded your post as flamebait
It's down towards the end of the article.
--
"Outlook not so good." That magic 8-ball knows everything! I'll ask about Exchange Server next.
Ah yes, Decapitalism.
The world's burning. Moped Jesus spotted on I50. Details at 11.
When I read that Intel had gotten locked into a binding agrement with Rambus I knew the end was neigh. I couldn't understand why a multi-billion dollar company would get worked by a bunch of IP pirates. Knowing and acting are unfortunatly very different things.
Shut your Nazi pie-hole, you POC
They would give out a 100% rebate on anything you bought from them, regardless of what it was. They had this great idea that only a small percentage of items would have the rebate sent in, much like normal rebates. Of course, they didn't count on the fact that when it's 100% refund, -everyone- will turn it in. They closed shop soon after and tons of people did not get rebates. Awesome!
It is often said that people who risk money by buying a stock deserve the dividends they get by the risk they taking buying the stock. This is kind of tautological within the economic system however. The economic system consists of corporations producing commodities (PCs, bread, a colocation rack) and exchanging them for other commodities - a few decades ago money backed by gold, nowadays money which is theoretically worth something because one can pay taxes with it. Corporations often produce commodities which no one wants, which is the main risk of capital investment, it's a loss. Virtually everyone recognizes this as true, from former GE CEO Jack Welch to socialists like Paul Sweezy. Thus, the economic system commits the error of misplacing resources. This error produces capital risk, and this capital risk is the common explanation of why people deserve dividends from capital investment, instead of, say, the workers at the corporation who created that wealth.
As far as the US economy, productivity was extremely poor throughout the 1930's, then from the mid 1940's to the mid 1960's were 20 years of enormous productivity. It began slowing down in the mid 1960's, and by the early 1970's everyone realized there was an enormous problem. Nixon went off the gold standard, imposed wage and price controls, and dismantled the Bretton Woods system. Productivity has been pretty poor since the mid-1960s, there have been arguments of whether it had a decent bump in the late 1990s or not. The late 1990s bump is obviously from the Internet, an R&D project the US government poured billions of dollars into from the 1960s until the mid 1990s, it was a state project (DARPAnet/NSFnet) handed over the corporations when it had been developed after 25 years of taxpayer funding. Anyhow, this long slowdown in economic productivity in the US has resulted in the average inflation-adjusted hourly wage in the US being below what it was 30 years before. Asia seems to be the only area with decent productivity growth in thw world, but that creates another problem of who is going to buy all of the commodities China is pumping out since the market is already saturated.
Who cares if you only got that degree after 2 years in Community College? You are going to change the world.
That's right, because you care.
You dont need experience, Industry knowledge, mathematics abilities, because YOU HAVE A GREAT IDEA.
So you packed up your Yugo and headed west with a song in your heart and a joint in your pocket, ready to set the world on fire, because everyone knows that Pet Food is best bought over the Internet. Duh!
You are a champion; a better kind of human being because you carry a Powerbook. You are a Computing Genius now that you have mastered that obscure, incredible difficult HTML uh, thing.
The world is your oyster from your cubicle bigger than most and your Aeron C chair for your B sized ass. Who knew when you left those cold eastern winters that your skill and imagination would earn you free-fuckin Starbucks in your office, uh-sorry; your cubicle? Way to go, killer.
Here's a toast to you, now that you have left that huge apartment and moved into that Palo Alto broom closet, but you dont care because YOU'VE GOT a CABLE MODEM!!
Teach us to be like you, we need your kind out here in the Valley, where would we get our half-price routers on Craigslist if not for your sorry ass?
Thank you!!
Reminded me of Sun's old slogan "We're the dot in . com" - They dropped that pretty quickly when the crash came.
It was a classic bubble - when it got to the stage that companies were seeing their share price go up for adding ".com" onto the end it was ridiculous. When people at work told me their families and friends were investing in the stock market by blindly following tips on a weekly tech-stocks sheet I knew the end was just around the corner.
What amazed me was that it then went on to last another 9 months _after_ that point. I guess irrational exuberance can take you a long way before you realise that buying your cat food online and having it freighted to you isn't actually terribly efficient.
My Journal
I had a boss who came over from being CIO of boo.com to IT manager at a company I worked for. He lasted 6 months and blew 2 years worth of IT budget (I wont use his name but its easily googled).
Having experienced quite how easily he managed to waste money (and the low level of technical understanding) it is very easy to see how boo failed.
Dear me, this takes me back. I remember the dot-com era as if it were yesterday. Of course, I was born a little late for it; I was still in high school until just before it all ended, and I realized that my job prospects had gone to shit.
I remember that the boundless optimism of the time, the techno-utopianism of Wired magazine, grated on me terribly, and I could never quite articulate why. Luckily for me, someone else did a fabulous job of it.
I remember reading The Guy I Almost Was and understanding that while technology holds brilliant, world-changing promise, the dot-commies wouldn't be the ones to bring it to us.
I remember Snarfblat (or was it Jason Farnon?) saying "now go make a link to HotWired, or better yet, to your mother".
I do not, however, remember the 2000 Super Bowl ads, which seems to be what everyone else remembers. Go figure.
--grendel drago
Laws do not persuade just because they threaten. --Seneca
If you want to see a hillarious mockumentary about the rise of fall of a dotcom startup, watch the movie Dot http://imdb.com/title/tt0371647/
You won't be disappointed!
Of course, the proof of the pudding is in the eating and as the business I helped start up didn't survive, the mudslingers can claim that we were a failure. However, our investors were happy that we had achieved what we had set out to do with the seed capital they had put up. I'll tell you this much - there were an awful lot of investors who were a lot less happy than ours.
It was kinda like a gold rush - some people sold out for a fortune or survived the crash and are still going; others went bust or decided to cut their losses before they went bust. Sure, there was hubris and some amazingly incompetent people were given stupid amounts of money to essentially burn but there were also a lot of guys who had good ideas who saw an opportunity to make them happen and, like all entrepreneurs, some were successful and others weren't.
Five years after the event, there's a lot of self-proclaimed experts who'll spout on about irrational exuberance and all the rest but very, very few of them were actually there at the time and even fewer actually took the plunge and got stuck in. Some might say that reflects well upon their judgement but like I said, I have no regrets and the holier-than-thou spouting of someone who's never walked the walk is only so much line noise.
Jack
In San Jose for VON conference and wow... hundreds of buildings with 'For lease/Sale' or 'Office space available' signs out front.
.com burst is still a very present thing.
The swanky office buildings now have such occupants as 'Bad Boys Bail Bonds' (no I am not making this up).
For the heart of silicon valley the
Telcos have alot of dark fibre in the States. Most people assume that's optical fibre...but it's actually moral fibre.
Well, no. Looking at the five-year chart would seem to suggest it was slowly downhill until the third quarter of 2002, followed by partial recovery through 2003, and a relatively stable index in 2004....
There's an argument to be made that it's been stagnant for a year, but the Dow has been the same way.
~Idarubicin
Even before the burst of the "Tech Bubble", my eldest brother, who owns a Canadian mutual fund company, was comparing it to the "Tulip Bubble", which brought down the Dutch economy in 1637. The obvious similarity between the two was rampant speculation brought on by greed and clouded judgement.
Or as it was nicely put by a judge who ruled that four leading investment banks were not to blame for stock market losses following the collapse of the tech bubble [analysts from Merrill Lynch, Goldman Sachs, Morgan Stanley and CSFB had been accused of issuing biased research]:
' investors were "obsessed with the fantasy of Olympian riches", which possibly clouded their judgment.'
... by checking out the Frontline episode "Dot Con". Totally blew my mind on how things worked financially in the tech boom. This is viewable on the web here.
;)
Sadly, Windows Media Player or Real Player is required. My OSX/Debian boxes are pissed just as much as you are.
Oh well, I only have another 2 years to retirement anyway, once these options mature... /adjust height on Aero A$$master 5000 chair
And don't forget that it was 16:00 NASDAQ time YESTERDAY, March 10, not today. Even the article in the link has a dateline of yesterday.
I call it "The Great Theft".
The time that almost every major US bank and financial house in the US participated in defrauding US investors out of TRILLIONS of dollars using IPO pump and dump and insider IPO trading..
Funny thing is they got fined about 1% of what they took in and tried to blame it all on a few brokers.
Meanwhile, the same finance houses that were PUSHING stocks they "themselves" rated as BUY, were quietly SELLING thousands of shares while the stock kept falling at avalanch pace.
These same finance houses were the same ones that OWNED or had partnerships with MEDIA that was pushing the BUY stock, and thus F***ing the public all the way down, while the SEC said NOTHING, and Greenspan looked on like a fool after lowering interest rates so low that the whole country just moved in liquid - ONE WAY. Into the financier's pockets... sigh...
and did the government move to stop business.. no. They're not powerful enough to do that. Business ownes Washington and politics in general. Period.
This has lead me to a simple formula that seems to become more visible year after year.
Captalism > Democracy
Cheers?
PS: Does anyone remember the "after house trading scam" that was revealed after this - that had been going on for... YEARS? Didn't think so. No one got punished for that from what I recall.
Smile.
noah
...Right at the time the judgement against Microsoft in the US v. Microsoft case.
It was that very judgement that sent NASDAQ stocks spiraling down to the circa 2000 level where it is now (more or less). And the technology industry has yet to completely recover from that judicial fiasco.
Thank you, lying analysts, corrupt accountants, inane journalists, credulous Baby Boomers, BS'ing Alan Greenspan, and all the other "this one can go on forever, without profits" people who made the Bubble inevitably Pop. Well, thanks for the bubble, anyway - in which I made a fortune in cash selling shovels (SW development) at the Gold Rush. No thanks for the abject dereliction of your professional responsibilities in mismanaging that huge creation of value into an unsustainable ticking timebomb. But thanks for being so obviously full of it that I didn't waste a single penny of my money in the markets, or anything connected to it. It's been a long 5 years living with your gifts to the world, after a short 5 years wallowing in the opportunity, and we're just getting started. Prosperity is just around the corner, right?
--
make install -not war
March 2000 - first time in my career I ever received a raise in salary (without a change in company, or job title).
September 2000 - first time in my career I ever got laid off (from same company that gave me the raise in March).
Sigh...
"Creativity is allowing ones self to make mistakes. Art is knowing which ones to keep" - Scott Adams
Been there, done that, lost my job...
Um, I hate to bring bad news, but the markets are not done crashing yet. Why? Above all else, historically low interest rates which have fuelled debt driven America. The "growth" we've seen is artificial and definitely NOT sustainable. Consumers borrow all their money; mortgages, credit cards, car loans. The underlying rates are guaranteed to rise over the next few years -- your payments on your car loan will rise, mortgage payments will rise. And the government is changing laws (fresh news!) to make sure you can't escape debt through bankruptcy
And that's just the consumer side. Businesses are equally screwed. Look at the balance sheet for all the banks and financial companies. They are heavily debt financed, because money has been so cheap to borrow. The banks can not keep this up, so expect many of America's major financial institutions to falter or even crash.
As others have pointed out, there is a major problem with real estate evaluation. Across the board, everyone is overvaluing their assets these days. Consumers think their houses are worth way more than they are. Financial companies think their mortgage backed securities are worth more than they are. Banks keep fibbing about the asset value from their derivative investment strategies. It's NOT a pretty picture. Also remember that foreign investment is rapidly leaving the US, the dollar is plummeting (foreigners are smart enough to not invest in the US). etc. etc.
"How exactly is anyone deserving?"
Ask your bretheren. They're the one's who come out of the woodwork, every time an outsourcing story comes up on Slashdot. I guess we all need a scapegoat, and it's either "Don't deserve to be there, because they don't have the right reason to be there.", or "Indians are taking our jobs".*
*Note well how the attitude itself is moderated insightful, while anyone pointing out the attitude is flamebait. It's OK to have that particular attitude, as long as you're not the one bringing it to the world's attention.
Philip J. Kaplan has a site that was made to follow the dotcom bubble burst by keeping track of all companies that went bye-bye. He wrote a book that I am sure many of you have read. It's basically the 'worst of the worst' businesses that couldn't take MILLIONS of dollars and turn a profit. It's a darn good read.
"It was all downhill from there. In the next day of trading, the Nasdaq lost 2.8% of its value." ok but why did this happen just the next day?
With all this time confusion, no wonder it crashed! It was probably just a slow Y2K problem.
One line blog. I hear that they're called Twitters now.
If you're looking at the short term.....maybe. In Colorado, with the mortgage rates so low right now, you can easily get into a house for the same mortgage payment (or less) than it would cost to rent. You have to figure in the tax refund you'll get on your interest paid.
Houses here have been going up at least 4% a year, so on a 300k house, your property will appriciate 12k a year.
Suppose you are paying $1000.00 in rent. You're guaranteed to lose 12k that year for renting. You could drop 4% percent value over the 1st year after a purchase and still be even with the renting plan.
Tech News, Reviews and Tutorials
...all the dotcom crash did was get most of the people who didn't belong in the infotech field out of it.
- A.P.
"Remember when the U.S. had a drug problem, and then we declared a War On Drugs, and now you can't buy drugs anymore?"
Thank you sir, that was the most insightful thing I've heard in a while. People keep talking about the dot-com bubble as though we're in the clear now. We're still in a bubble people.
The other thing we hear too much about is how this was about 'emotion' and 'greed'. Wrong! Low interest rates just attract a lot of speculators, and for a while, the speculators are proven correct, so the mainstream gets on board as well. Greenspan "warns" everyone because he understands what is about to happen, but he doens't seem to understand that his monetary policy is the cause.
I use the Little Old Lady Contrarian Indicator. It works like this: When you're out on the town, and you hear little old ladies (LOL) excitedly talking about their real estate investments, you know the market is _probably_ overvalued. Why? First I should explain that this applies to any investment (stocks, real estate, etc). Second, LOL is a synonym for any demographic group that is not typically/normally interested in said investment. Therefore, LOLs are late to enter the market. If they are excited about their investments, that means the investments have gained in value even though new investors for the market will probably run out soon. In other words, the contrarian says the market will likely go down if most people are bullish because that means most people are already in the market.
That said, I purchased a home in the silicon valley a few years ago. I don't really see it as a capital appreciation investment though. I treat it as an inflation hedge. Basically, I have to live somewhere, and purchasing a house has locked in a long term cost of living.
I have done my research. I believe that the slow-upcreep of interest rates that Greenspan is engineering may actually head off a real-estate crash. I am not sure if this strategy was attempted in the past, such as during the real-estate crash of the early 90's. I believe that crashes are very similar to stalls in aircraft- if your angle of attack is too high, your ascent is not sustainable based on thrust, but if you can manage to lower the elevator a bit (which the Fed interest rate acts as) then based on my non-econ-degree understanding, you MAY be able to smooth the ascent, or at least level it off gradually.
I find it curious that the only people I run into that are negative on the current real-estate market are those who also find themselves priced out of it, in the area in which they live. There is zero exception to this and I talk to A LOT of people about real estate (I live in Boston, if that is any hint). I have certainly been paying attention to the risk factors as I pay down my mortgage, however.
I don't want to revisit it. Things have been rough since. The crash is a personal 911. In the short term IT was turned into a flooded field almost over-night; in the longer run the Internet made offshoring more feasible. Whether the crash caused it or is simply a simptom, it does mark a turning point.
Table-ized A.I.
I remember how every joked about Alan Greenspans aghast at the NASDAQ runnup in 1996: "irrational exuberance". People even wrote books on the cliche. Greenspan was right, but a few years off. I get the feeling about real estate- no "if", but "when".
If any of you want to remember the crazy days of the tech bubble check out the documentaries Startup.com and e-dreams.
I still remember being somewhat tech savy, going to investors conferences and "not getting" how these companies that would never make significant money were commanding these valuations. It was like being in some sci-fi movie where everyone has been replaced by pod people.
Unlike many other markets the real estate market is directly on the number of people living in an area. The U.S. population is growing quickly. For that reason alone, real estate is a safe investment. So unless you get duped at the sale or you picked a bad location, you are likely to get a good return on your investment.
Isn't the REAL problem the fact that no one buys American not even the Americans?
Walk into your local walmart most of that stuff on the shelf was produced in some sweat shop condition so it could end up on our shelves at ROCK BOTTOM prices. Meanwhile, overseas no one is purchasing American mostly cause American manufactuing is moving over seas due to lower cost.
The net effect is that as the capital leaves the economy and little to no enters enters the enconomy - Where does the money come from?
Funny, I think you are right on point. Mabey thats why our country is looking to INCOURAGE all oil dealing to be done in dollars, cause that's what's allowed our DEPT to be so high now.
Oil.
Make sense?
Smile.
We all know it was the fault of the Jews.
The Dow Jones (Industrial Average) consists of stocks that, on average, pay more dividends than the general market. The index does not reflect accumulated interest payments. On the other hand, it doesn't include "inflation" (loss of purchasing power) either.
Contribute to civilization: ari.aynrand.org/donate
Cisco Systems just after 2000 was at an all time high, trading at something like $85/share. That put their market cap the same as General Electric. It made them the 2nd most valuable company in the WORLD.
Now, I know they make routers and switches and VPN and optical and all that stuff. But Microsoft employs more people (and a LOT more U.S. citizens, btw) and wasn't even CLOSE. It was some kind of hey the Y2k thing didn't happen irrational exhuberence. How could GE, who had contracts everywhere with the military to make F-16 engines, and light bulbs and washing machines and just about fucking everything that people woould always need be worth as much as an internet company? Come on. John Chambers may golf with Andy Grove and talk to Jack Welsh on the phone, but he's more Steve Jobs than Steve Forbes.
JDS uniphase went from $25 a share to $150 in the span of a couple years and had the highest P/E of any company ever. This was like the spring of 2000.
I didn't get into the market, despite alot of other people jumping in. It seemed insane. The spring of 2000 was like the summer of '69. instead of free love, it was free money.
SF housing entered a 4 year recession in 1990/91
The dip was not "minor", but major.
Housing prices lost 5% in a year around 1994.
With inflation then at about 4-5% that was
like losing 10% every every. This happened for
about 4 years. So, your million dollar house turned out the be a $600,000 house after factoring in
inflation.
This will happen again.
The U.S. population is growing quickly.
This is a myth that is very untrue. While the population is still growing, it is not growing quickly. The growth rate peaked in the early 90's and has been slowing down ever since. If the trend continues, then growth will stop and start to reverse in about 5-7 years.
Think about it.. how many families do you know nowadays with more than two kids? Replacement birthrate for a western population is at least 2.2 children per couple. The numbers are offset a bit by immigration, but there is nowhere near enough immigrants to offset the rapidly decreasing native births. Over the next 10 years, as the elderly generation die off, you are going to see a remarkably fast population decrease.
See for yourself: check page 7, percentage change. You can see simmilar treands in most of the western world.
This is exactly why we have war in Iraq. It's not about democracy in Iraq, it's not even about Iraqi oil directly. It is in fact a war between EU and USA . USA is in fact defending US dollar in Iraq, by gaining control over oil (not because US needs more of it), but to force OPEC from switching from being tied to US$ to Euros. If that happened to US$, it would be detrimental to US economy at large, and the above dire scenario would actually play out.
Furthermore, you are totally ignoring the opportunity cost of investing in a house. It looks like you are assuming a $37K down payment. If you rent for those 30 years, you could apply that $37K to some other investment. Let's say you invest in an index fund in order to avoid taxes until you sell. At an average annual return of 11%, you will have $847K at the end of 30 years, and that's just from saving the down payment! If you are paying more on your mortgage and expenses than you would be on rent for an equivalent place, then you also need to consider the opportunity cost of that money as if you had invested it in something with an optimal return. It will easily beat out the equity appreciation of $864K that you listed, and that is even before you factor in the multiple transaction costs that you left out.
All of this is using your questionable assumption that your equity appreciation will out pace inflation. Even so, renting is a pretty good deal. However, if your home appreciates at less than inflation, the numbers get much, much worse for owning. Historically low interest rates have allowed people to pay more for homes that they could in the past, but now that the Fed is returning interest rates to a neutral level at a measured pace, people are already unable to secure the same magnitude of loans they could not too long ago. Every single indicator points to prices being overinflated (which a fall in prices would resolve): historically low interest rates, historically high P/E ratios (purchase/rent), historically low savings, percent increase in median income falling (way) short of percent increase in median house prices, first time buyers priced out of the market, etc.
One of my favorite scenes from the 1978 Superman movie starring Gene Hackman:
Lex Luthor: When I was six years old my father said to me--
Miss Teschmacher: Get out.
Lex Luthor: Ha ha. Before that. He said, "Son, stocks may rise and fall, utilities and transportation systems may collapse. People are no damn good, but they will always need land and they will pay through the nose to get it! Remember," my father said, "land."
5048.62.
"How to Do Nothing," kids activities, back in print!
One sign that a market is in a bubble is that is has become mostly speculative. Like, for example, people buying petfood.com stock simply because they believed it had to go up in price, regardless of its fundamentals. Now take a look at housing. In my area, rental prices are rising around 5% every year. Housing prices are rising 20% every year. Why would home buying prices be rising so much faster than home renting prices? Many people in this area are getting interest only loans, or ridiculous 50 year mortgages in order to get into the market, because its a "sure thing." This increased buying pressure drives the prices up. When this happens, things tend to get way way way overvalued, which they definitely are now (median home price here is $1 million). I am pretty sure we're in a bubble here, but who knows when it will burst? My best guess is there will be a level of interest rates that will cause people with adjustable rate mortgages to really start defaulting on their loans, and this will be when the house of cards comes tumbling down.
A mortgage is basically the best 'debt' you will ever have in your life. It is not like other debt because of two simple facts:
- It is remarkably low interest (below prime rate right now with many banks)
- The interest itself is tax-deductable, at least in the US.
On top of this, the alternative - paying rent - is markedly worse. You are basically flushing money down the toilet, with a 0% return.
The parent was indeed giving good advice. Your advice, however, is not prudent. Every year you delay getting a mortgage, is a full year of rent you could have been using to pay down one. Even if the interest rate on the mortgage was 15% or 20% (which it isn't), and even if there was no tax deduction (which there is), it would still be in your interest to get a mortgage.
Then the market corrected to 7,500... from 11,000. At least the Dow did, I didn't really pay attention to the Nasdaq too much. People started selling at 7,500. The market was going to go down to 5,000, so on and so forth. Now that we're back at 10,600, some people still haven't ever let their money see the stock market again, because their retirement funds evaporated.
In the meantime I get a job and I'm throwing money at my 401(k), watching it grow 12% last year. :-) Before that I sort of watched the numbers go up and down, thinking, "That's nice."
I'd like to look at the correction and think to myself... maybe we can just call this natural selection of the financially inept.
-Rob
Marriage doesn't have to suck!
nice gaussian distribution wrt time and investment risk. Left side would be for safety in buying, right side for safety in selling. Or maybe I just need sleep.
Damn, that's a tumble.
--grendel drago
Laws do not persuade just because they threaten. --Seneca
Its amazing how some people are really clueless and stupid , Cisco Systems is responsible for building the backbonne of the internet , first of all there are millions if not trilliar more router sold then there are F-16 engines worldwide. GE sell lightbulb for 1$ , Cisco sell VPN at 1000$ , and whats the most clueless : who do you think built the Army , Navy and Air force networks ?
... with no real public medical system , your a big Banana republic ) , send them an f-16 engine that will cure the common cold just step next to the engine , we will start it real soon.
...
...
Oh yes you dont need those cisco router in your School you need an f-16 engine , you dont need a router to share medical info , your one of the only banana country with no public medical system ( your amed forces is 100 time the size of the rest of the planet put togheter and your getting beat all over it all the time
Yes Yahoo , Google and MSN need f-16 engine
And your biggest joke of all who do you think is the financial backer of Cisco
http://en.wikipedia.org/wiki/Image:NASDAQ_IXIC_-_d ot-com_bubble_small.png
Just a recommendation for a book on this subject (and others). It's quite a fascinating read and is oh-so-relevant for those conversing in "bubbles"
Extraordinary Popular Delusions and the Madness of Crowds.
I bought Apple stock right before the previous split ('99); They got hammered hard in 2000. My valuation fell to about 18% of what I had invested.
I hung onto it because I believed in the company and what they were doing. I recently sold it and ended up doing pretty well on that investement.
I remember reading many an article about how Apple would always be a boutique stock, never gain market share, etc. etc.
Bottom line, you've got to do your own homework on investments. Afterall, it is YOUR MONEY.
sigs are for losers (except to point out that sigs are for losers)
The dot-com I worked for IPO'ed right around the Justice Department made their Microsoft announcement. Our stock price never really took off. Maybe not coincentally the company is still around.
_______
2B1ASK1
Comment removed based on user account deletion
I worked at a dotcom company from 1996-1999. The company had horrible, spiteful management and an everchanging business plan. I worked long hours for what averaged out to little pay. We got no compensation for overtime. As a cynical joke I would hand out a glow in the dark alien sticker to each member of my team when they pulled their first 24+ hour shift.
I was passionate about the job and invested a lot of myself into it. Both in work and emotionally. Bad mistake.
I got fired in September of 1999 because of some arguments I had with management concerning lack of focus and a coherent business plan. Or I suppose from the management side it would be called insubordination.
While I was distraught at the time, getting fired was the best thing that happened to me. In 99 my web skills were still highly valued and got me entry into a small company (12 employees) handling both Internet and general IT.
4 months after I was hired the dotcom bubble started to burst. I got to watch and laugh as the company I was formally with imploded and exploded in graphic detail. I got to go to the equipment auction when they finally folded and see all of the little alien head stickers on the computers.
5 years later and that little 12 man operation has grown to a group of seven companies totalling over 150 employees.
Sometimes my arms bend back.
They don't. I don't appreciate your rudeness, telling my family and I to "enjoy renting," because we don't. I'm in college at the moment, and my parents are strapped enough to pay tuition. Moving from low-rent housing to ownership is not a matter of just deciding to. Try having bad credit in this country, try not having enough capital to put down a down payment on a house in ANY forseeable time in the future. You're an asshole, enjoy living in your own house and mocking those below you.
when I find myself you'll be the first to know.
In the words of Douglas Adams, "Don't Panic". Anytime you start thinking there's some sort of conspiracy going on, you're losing touch with reality.
Housing price bubbles have happened before, they will happen again. The main thing holding up the housing market now is low interest rates. When they rise, the housing market should fall.
I'm convinced that real estate is, in general, a poor investment. The main reason for buying a house should be that it's the most financially sound way of putting a roof over your head. If renting is cheaper, do it.
I've invested in the stock market for many years now. Occassionally I've felt twinges of urgency much like what you've described. In retrospect these panics are always unwarranted. That feeling of panic is one of things that create bubbles in the first place.
Relax. Have a beer. Invest in something boring but predictably profitable, something the advice shows and magazines can't be bothered to even talk about.
Some of us will never be able to afford a down payment on the insurance for the down payment on a house. (Whatever that three-letter insurance acronym is.) Some of us will be renting until we die.
You cannot apply a technological solution to a sociological problem. (Edwards' Law)
flipping burgers or are you now pushing a broom? Did you get to keep your Aeron Chair?
Tech Public Policy stuff
"You net $48,000 a year, but you are paying out $6000 a year in rent. That money is good as gone - you will never see a dime of it. So, your *real* net, if renting is only $42,000 / year."
Generic Slashdot advice as usual. The company I rent my efficiency from gives me equity (yes equity!) for every year I'm here. I can apply that to a house should I chose to do so. Plus my state gives me a renters deduction. And if I was really smart, I would run a SOHO out of this place.*
"Renting is never a good idea."
The world changes. Change with it.
*Your generic advice also doesn't take section 8 into consideration, or those living on welfare.
Back then fuckedcompany.com was like Slashdot - thousands of posts, hundreds of thousands of readers per day. But a few years later the site dwindled down to nothing and there were hardly any posts. That's when I knew the tech meltdown was over and now it's time to buy NAZ again ;)
If you are only talking about an economic decision, then clearly putting your money in something that will (usually) appreciate while getting a tax deduction for the interest is a better decision than a non-investment. However, there are other considerations, like the quality of the housing you get from the two options. Many would argue that this quality is much more important than the long term financial consequences, especially if the difference in quality is significant. For example, I have a house that I rent out. I could sell the house for $700,000 (this is Silicon Valley.) If somebody had no down payment and did a fixed 30 year mortgage at 5.5% that would come to a monthly payment of $3974 (and that doesn't include maintenance.) I rent the house out for $2300 per month. Even when you consider tax breaks, there is a very big difference in how much it costs to get a certain level of quality. Now that's assuming you do a 30 year fixed mortgage. Of course you can do an ARM or an IO loan and get lower payments, but then you are taking on a lot of risk on a very large loan.
Here's a great site brightstation.com. These are the people that purchased Boo.com's software. Man, that software is smokin. Show this site to you coworker and time how long s/he clicks around before giving up.
Well, sometimes you eat the bear, sometimes the bear eats you.
"Compounded 12 times annually at 5% for 30 years, your 37,000 dollars would be worth 165,306.54."
You might want to factor inflation into that.
I couldn't get this from work, but---"Admit how shallow you are and make a link to HotWired; or better yet to your mother." Such tales as "Wheaties, Semen and Blood", "It's High Time I Threw a Brick at You"> and the truly brilliant "Skinhead Hamlet".
Oh, yeah. That's the stuff. *snrrt*
--grendel drago
Laws do not persuade just because they threaten. --Seneca
One of the main problems with the earlier DotComs is all they had was potential which was never actualized. For example, if a blog serves up advertising and gets a lot of revenue in PPC the advertisers might not get a good return on their investment and if that happens to much no one will want to advertise on blogs again. However, something like affiliate accounts where you get paid a commission for each sale offer much more stability to the advertiser. As for real estate, it might go down but it's pretty much guarenteed to go up as people need a place to live (and with more people coming / no new land being made...)
Does the word Guardian have to be hyperlinked to the Guardian's website?
This creates a UI issue, at least for me, because I wonder which link I should click on. Which one contains the article? If someone wants to find out what the Guardian is all about, they can easily just click on the link of the article.
Philosophistry
[An AC said and got modded interesting]
" how was it tragic?
a bunch of people that shouldnt have had jobs in the first place got canned."
[Another AC said basically the same and got modded flamebait]
"And we're still waiting for all the "Wrong people" to leave our profession. Leaving more room for those deserving it."
[Plus he hints of the slashdot hypocrisy]
"*And ten years from now, we'll still be blaming everything bad in the world on it.[the dot boom]"
Anyone else want to argue that Slashdot moderation actually works?
[My english is better than most other people's german, so please point out mistakes politely. Thank you.]
Dear Qbertino, the words English and German should be written capitalized.
Looking back, one of the first indicators of the boom in Silicon Valley was a massive increase in commuter traffic around the mid-nineties. Well, traffic's up again. Some people are saying there's a defense boom, other's say it's going to be biotech related. The valley's always been on a boom/bust cycle and this is no different except for the fact it's on a larger scale. I honestly find it rather humorous that so many people up and left after the burst of the dot-com bubble. Those who've been here long enough know it's all part of the game.
And all our yesterdays have lighted fools The way to dusty death. --Will
The reason the dotcom era crashed was because the damn xenophobes running the country didn't let visionaries like Sun's Scott McNealy hire more really bright Israelis and Indians.
Seastead this.
http://shit.slashdot.org/article.pl?sid=05/03/11/1 349245
The bubble burst right after the antitrust ruling against Microsoft came down. Gee, thanks alot, Blowjob Bill.
Beta is broken and the link to classic doesn't work. Stop wasting our time or there won't be anybody left here.
Sorry for the duplicate post. Slashdot logged me out for some reason, so I didn't see that my original post made it through since I was looking for me username.
Here in the Sarasota/Bradenton area (just south of Tampa) real estate prices are jumping like mad, as in 20% - 30% per year. New high-rise condos and expensive "golf course" housing developments are going up all over the place.
And yet... when my wife and I were looking at more modest houses last year, at every open house we went to the agent or homeowner showing the place was surprised that we weren't "investors" but actually looking for a place to live.
A lot of the new houses being built around here, almost all of which go for $250,000 or more, are being bought by speculators. Some are being resold before they are even built.
It's a booming real estate market, no question. The only problem is that almost all of the new jobs here are in the $6 - $12 per hour range, which won't buy any of the new houses being built -- or even most older ones, now that so-so two-bedroom houses in so-so neighborhoods are going for $150,000 and up.
End result = there are going to be a lot of money-losing rentals in this area before long. Sure, it's a retirement haven and all that, but the national supply of retirees with big incomes is limited, even shrinking. Baby-boomers whose pensions have evaporated along with American industry can afford to live in trailer parks, not waterfront high-rise condos, but there are no new trailer parks or other low-cost housing going in.
We're just going to sit here in our little house and ride it out. Since we don't intend to move any time soon, it doesn't really matter to us what happens to real estate prices. Under Florida and local law it's hard to raise property taxes much on your primary residence, so even more price jumps can't hurt us much.
Maybe I'll buy a couple of rental properties after the inevitable crash, but I won't buy property now. The real estate market here is due for a "correction," which is real estate-ese for "crash," and I have no intention of being stuck with property I can't rent out for enough to cover all expenses and make at least a modest profit.