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Examining the New Bubble
abb_road writes "Whether or not we're in the midst of another boom-bust cycle in technology is a matter of fierce debate. BusinessWeek discusses what constituted that last bubble and looks at current trends to see if we're on the verge of a new one. From the article: 'The Great Bubble of the late '90s shaped a generation of Internet entrepreneurs and investors much as the Great Depression shaped a generation of economizers in the mid-20th century. 'The bubble generation is much more attuned to the fact that things can get really out of hand,' says Bill Burnham, a former partner at Mobius Venture Capital. 'There's a level of caution that has been ingrained.'"
So it's just blind luck that we've been able to get a hold of and maintain control of inflation since the 70's and early 80's? I don't think so.
"'The bubble generation is much more attuned to the fact that things can get really out of hand,' says Bill Burnham, a former partner at Mobius Venture Capital. 'There's a level of caution that has been ingrained.'"
Let's see... Energy and home prices skyrocketing. Low unemployment, but virtually no improvement in salaries. The new bubble? It's healthcare, baby. Every market is targeting the baby boomers and milking them for as much money as possible, and when you combine that with a generation of people who have been saying "I deserve the best care no matter what the cost." forever while sitting on their lethargic hinds 24/7, we've got the current recipie for disaster.
Caution? Bah. It's top-heavy protectionism.
The real problem is that all these players are chasing the same pot of ad revenue. Most of them are bottom-feeders off Google AdWords or something similar. They're not selling anything themselves. There's no new product.
In the '90s, venture captialists were handing out money to thousands of middle managers who wrote a 10 page summary of a an idea for a business and the stock market was insanely over-valued because folks figured sound business foundations were totally irrelevant in the internet age.
VCs were burned badly and they examine companies far more closely than before. The money is flowing again, but it's targeted much more towards real innovation and practical business models - not vague ideas and businesses built to flip in 12 months.
So, are we in a bubble? No way - we're still at the start of the age of information that will totally transform our society. Plenty of money to be made and huge innovation potential.
With VCs focusing much more on business fundamentals, the net effect will be to weed out all those loser middle-manager entrepreneurs and their get-rich-and-get-out quick schemes! So the money will still flow, but it will go to people with much strong and original ideas and more solid business models.
Read a story yesterday that said Google employees sold more insider stock than the total sold by the next 199 largest companies in silicon valley, COMBINED.
Google selling also pushed up California's income tax receipts by 12 percent in 2005.
Things are getting a little out of hand, dont you think?
Google insiders are now selling twice as much pet year as Microsoft employees, even though Google has less than 1/10th the profit as MSFT.
I don't really know much about the stock market, but I do know a bit about technology. And something that I have noticed which is similar to the late 90's bubble is an irrational belief in hype. This time around the hype is about anything that carries the label "Web 2.0." More specifically, anything that uses "AJAX." Far too many people seem to think that traditional software vendors are going to be put out of business by any schmuck who can manage to immitate a desktop application (or more laughably, an OS) in a browser. I've noticed a general unwillingness to stop and seriously consider whether or not anyone would actually WANT to run an office suite in a web browser, for example.
Fortunately, I don't see nearly the same kind of money changing hands as in the last bubble. Most of it seems to be "grass roots" kind of stuff. So perhaps the hype will just die down with fewer bankruptsies when the dust settles.
Just my $3.
-matthew
"THERE IS NO JUSTICE, THERE IS ONLY ME." -Death
Although I understand what you say and I agree with some of it, I don't believe this is a gold bubble that will dissappear over night. The last 'bubble' in gold took place in 1980 where it touched $850 for a moment. If you adjust that $850 to 2006 dollars you'll get a top of about $3000. The Fed has abolished the M3 - I'm sure you know - which doesn't say anything good about the future of inflation or the dollar. It's obvious they're going to print, print, print. I'm guessing that we'll see $1000/oz by the end of the year - I bought at $550 so have put my money where my mouth is. We shall see.....
There's also tight links between the price of oil and gold - many people are forecasting $100 oil in a few months and I suspect gold will follow that trend.
The RE market does look very shakey in the US right now. If it unravels - I think it will when some of the newer ARMs reset this year and next - the fallout will be devastating to the whole market. The derivatives that Freddie and Fannie are playing with could go off like nukes and wreak total financial chaos. Gold and silver will protect from this, at least I hope so, and it's why I bought.
spoonerize "magic trackpad"
Sadly, I don't think the real estate bubble is only limited to the "red hot markets." You have to figure, in places like Texas salaries are MUCH lower on average, so house prices really don't have to be that high to have the same effect. I know a LOT of people making $40,000 a year living in $180,000+ houses. They can only afford them through non-standard loans.
Not to mention, even though the prices are lower than they are in hotter markets, they have still increased drastically. Houses that I could have bought just two years ago for $250,000 (which WAS a nice house down here) now go north of $300K. That is a large increase for an area with an average historic annual appreciation of only 2-4% depending on the neighborhood.
It is frustrating for me to watch because everytime I get a pay raise or sell out a small investment for capital, the price of houses jump and I still can't afford the house I want. I have seen my target price rise from $180,000 to $300,000 for the same houses over the last five years. Not the doubling of value annually you saw in other markets, but still not a standard increase. I really hope it starts to cool down. Townhomes and condos have already started to come down here (as out-of-state investors and expatriots realized that in Dallas currently, townhomes were actually more expensive than a house) and I hope the houses follow the trend after the multi-family units equalize in price.
There are two fools when it comes to the market. First fool thinks that his/her stock will never go down OR if it goes down, it will comeback. Second fool thinks that he/she can perfectly time the tops and bottoms of the cycle. Only sure thing is that both fools will lose money one way or the other. Nobody is a psychic. It is impossible to time the market (even for the experts). Anybody who tries is a fool. You may get lucky, but that was because of dumb luck, not because your were prescient.