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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.'"
Boy, people sure were stupid in the 90's, huh?
What I'm listening to now on Pandora...
I gotta fire my broker. Should I still be holding on to my Pets.com stock?
If you wanna get rich, you know that payback is a bitch
I've been following the stock market, and in my opinion we're not seeing a bubble. We're not even seeing a rise. In my opinion the value of the stock market has been reflecting inflation in the US dollar and in other currencies around the world. We aren't seeing all of it in the stores - yet - but it's coming. The prices of precious metals are a good indicator of what's going on.
Alan Greenspan is no longer the Federal Reserve Chairman...Ben Bernanke has held the office since Feb. 1 of this year.
____
~ |rip/\/\aster /\/\onkey
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.
Since my own existence only dates back some 40 years, I can't claim firsthand experience of the Great Depression, but comparisons between the Dot-Com Bust and the Great Depression are so overblown that it ain't even funny. From the usual suspects:
Almost all countries were affected; the worst hit were the most industrialized, including the United States, Germany, Britain, France, Canada, Australia, and Japan. Cities around the world were hit hard, especially those based on heavy industry. Construction virtually halted in many countries. Farmers and rural areas suffered as prices for crops fell by 40-60%. Mining and lumbering areas were perhaps the hardest hit because demand fell sharply and there was little alternative economic activity.
I guess it's to be expected, though. We're supposedly in this War on Terror, but so far, I haven't been asked to participate in a single Meatless Tuesday. Where do I go to get my ration cards, anyway?
Stressed? Me? Of course not. Stress is what a rubber band feels before it breaks, silly.
I read that as, "Examining the New Bible". Almost thought I had missed the second coming of Jesus in my drunken stupor last night...
I didn't RTFA yet, but I had to react to:
'The bubble generation is much more attuned to the fact that things can get really out of hand,'
If this is true, it'll last another 5-10 years before we forget all lessons learned (correct or not) and return to business as usual. Our species is really good at self-deception, group-think, extrapolation forecasting, and greed, with varying results. We deluded ourselves regarding tulips, electronics, radio, the internet, and who knows how many other bubbles; we will do so again.
For a couple very good talks on the self-deception issue (somewhat OT), listen to Robert Trivers and Nassim Taleb
Simple Unexpected Concrete Credible Emotional Stories
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.
I don't necessarily agree with that statement either, but not for the same reasons many others probably don't. It might be a bad time to try to start a long term company online, but if you have a one-two year get rich quick idea that will most likely work what do you have to lose?
Arguing with an engineer is like wrestling a pig in mud. Soon, you realize the pig is dirty, and he likes it.
to a degree. I was involved in 14 IPOs during the last bubble and had a policy to sell out 90 days after buying no matter where the stock price was. I made out pretty good.
Regarding the stock market, historically, whenever a new technology/infatuation arrives on the scene, tons of money get thrown in, the market gets irrationally exuberant, stock prics go way up and then implosion. Stock prices get corrected and after the dust settles the new golden age begins from whoever is left standing. In this case that's eBay, Amazon, Yahoo.
No one "loses" money either. If you invested 10K in the market and your investment rises to 100K and then drops back down to 8K, you only lost 2K and only then if you decide to cash in and take the loss. For all those people who "lost" money, hedge funds made a ton so it's more of a redistrbution from the hands of the many to those of the few as opposed to a "loss"
What screws people is no exit strategy. The stock buying public is always right during the trend but never are they right at the top or bottom. Can't be satisfied with a 300% percent gain...
Like uncontrolled immigration and corporate controlled indentured labor via H1-B visas?
It sure does feel like 1998. That's why, this morning, I just moved almost all of my 401k out of US-based stocks.
Ha! I'm way ahead of you. I sold off half my 401(k) last month and invested the whole thing in a guaranteed 17% investment. I paid off one of those damned credit cards. One down, three to go. ph34r my 1337 1nv357m3n7 sk177z!
Stressed? Me? Of course not. Stress is what a rubber band feels before it breaks, silly.
The IT industry will repeatedly bubble untill it's replaced. In the 80s people started to get really greedy and as we got into the 90s most industries became so refined that they can't really go any where. They'll just keep making the same stuff over and over again with slight improvements here and there.
Where as the IT industry just started to come of age. It started to mature in leaps and bounds, this won't stop untill we hit the peak where any more power is just pointless (photorealism all round). It's more or less like the old steam engines. A lot of people saw "improvements" all the time and went "Wow this has got to keep going! It'll never stop and I'll become super rich!" The same is happening now, and will continue to do so forever.
Greed will make a bubble in every industry that shows any majror improvements, right now IT is the favoured thing. Tomorrow it maybe nano technology, whatever it is the same pattern will repeat. Idiots won't listen, they'll do the same shit they always do and they'll get lucky once or twice and assume they will do it again.
I like muppets.
Once? The dot-com bust was not the first bubble by a long shot.
cite: wikipedia
There are also the current real estate bubbles around the globe.
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.
Pretty smarmy way to admit that he has a point, maybe even is right. Still that's part of the problem with interpreting the price of commodities and investments. The US Dollar has declined significantly against most currencies. So it's to be expected that investments that are somewhat resistant to inflation like real estate or stock would go up in value.
Sucks to be you ...
As long as your stock is diversified it really doesn't matter. Short of another black monday/black tuesday you will be fine. Will you lose some money in the short term? Of course. But the market rebounds, you don't lose shares. By moving that money from stocks to bonds/money market now you lose out on the potential interest in the meantime.
All a "correction" means is that you can afford more stock during the correction. Buy, buy buy!
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.
There are also the current real estate bubbles around the globe.
I have to agree, and when I saw the summary I reacted. IMHO we haven't learned a single thing. We went from one sure-fire, get-rich quick, get in now or you might not be able to afford to get in later, frenzy to another: real estate (variable interest, interest only loans! Reverse mortgages! Rent covers 1/2 of a mortgage payment on the same dwelling but it's still somehow a long-term investment!)
I often lament just how little we learned on the heels of the internet stock bubble.
Thing is, the last bubble was a lot more complex than pure stupidity. A lot of it was dishonesty, and a lot of the rest is that special kind of stupidity-from-pure-greed that makes people "invest" in pyramid schemes and the like. The knowledge that, yes, it can't possibly go on for ever, but hoping that it would last just long enough for _you_ to get your pay-off at the expense of others.
E.g., for the greed part, don't assume that all investors were unable to learn that those "internet companies" tend not to last. But that was ok. They didn't plan to hold onto that stock for ever. They planned to buy some "my_cat_photos.com" site at cents per share, hype it to insane values, then sell right before the company crashes and burns and let someone else take the loss.
(And those in the most profitable position were the stock analysts, some of which had no remorse in telling their clients "buy!" while they told their own agents "sell!" I.e., they were in a position to _create_ a bubble around a company, and profit from it.)
A lot of the hyping dot-com stock you may have read fell basically in this category, and partially in the dishonesty one. It's not that those people were too stupid to see that a company without income can't survive. They were hoping _you_ would be stupid enough to believe them and help them pump up the share price. When they proclaimed an income-less and busines-plan-less new economy, well, the money making part of that economy was actually very present in their mind: it was the stock market. Namely hoping that some other dolt would buy the pumped up shares before they crash and burn.
And a lot of the posing, posturing and seemigly illogical behaviour of the dot-coms actually fit that hype-and-dump pattern. Now _some_ of the company owners may have blown money on gazillions of employees, Ferraris and buying football teams just out of stupidity. ("Look, ma! I'm someone! I can throw money out the window just like the rich guys!") But for a lot of them and for some VCs this simply constituted a kind of behaviour they could pump before they dump. It could be hyped as a young, dynamic, fast-growing company that's poised to take over the world. At the rate they're growing, they'll soon be the next Microsoft, and you'll be sorry that you didn't buy their shares when they were cheap! The fact that the only "fast growing" part were the expenses, well, they hoped you wouldn't notice that.
E.g., for the dishonesty part, one of the things that started the bubble was... advertising money. See, in the early day of the Internet web sites had maybe one ad banner on the main page, and some of us even clicked on them. And ad rates were based on this in more than one way. I.e., not only did the advertiser only count on paying for 10,000 or 100,000 views of that ad, but they also counted on the relatively high return on that investment, since people hadn't been yet buried in obnoxious ads and desensitized to them.
But in true "tragedy of the commons" fashion, someone figured that they could rake in twice the money if they put two ads on their site. Or 10x the money if they put an ad banner on each page. Some went as far as to imagine a site which would have a tiny content frame in the middle, while the rest of the screen would be filled by wall-to-wall ads. I know I've actually worked for one.
Some were even less honest than that, and also generously inflated their page view statistics. If you believed them, some sites had millions of pages (and thus ad views) served per month, even though they were barely more than someone's blog site. And not even the blog site of someone famous.
So basically what started the bubble was the idea that "hey, looky, we can make a bunch of cash by defrauding the advertisers!" Except that in the resulting 3-way con-war between websites, ad providers, and the companies paying for the ads (with the ad providers trying hard to cheat _both_ the webmasters and the paying customers), the prices per ad dropped like a rock, making that gold mine a
A polar bear is a cartesian bear after a coordinate transform.
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
Tech won't really be in a bubble unless there's a mindset of irrational exuberance in the general public. There would have to be large groups of insanely bullish people who flat out deny the mere possibility of a bubble. If you want to see a real bubble in action right now in 2006, look at the real estate market. We're just reaching the top of the sine curve there.
Um, no, the dollars are worth less - that's all that's happening.
= m&q=l&c=gld
http://finance.yahoo.com/q/bc?s=MSFT&t=1y&l=off&z
That's the price of gold compared to MSFT (just out of interest) for the last year. Gold is traditionally a very good (if not excellent) hedge against inflation and shows the devalueing dollar situation pretty well right now.
spoonerize "magic trackpad"
The article notes "Web 2.0" is an ambiguous term, but uses it nonetheless. I'm curious - what exactly is Web 2.0? Is there an RFC for it? Do the W3C have anything to do with it? Can you get a job as a Web 2.0 developer? I suspect the answer to all of these questions is "no," and that we're looking at another media mountain born of a technology molehill.
a r2006/tc20060313_860688.htm?campaign_id=topStories _ssi_5) talks about Web 2.0 as a collection of technologies and techniques, which leaves me wondering what defines these techniques as "Web 2.0" besides their current popularity. The buzz around AJAX makes some sense as it is having a genuine impact on the usability of websites. However, does a website become part of the "Web 2.0" simply because it has a sprinkling of asynchronous JavaScript and XML? Or does it need a tagging system, or WYSIWYG editing (or whatever other technique is currently in vogue)?
One press article (http://www.businessweek.com/technology/content/m
We've had this issue before. Remember "DHTML," which was simply a buzzword referring to the combination of JavaScript, CSS and HTML? It was great for the IT publishing industry who could release a whole new raft of books on these technologies, but for the rest of us it was just another confusing ambiguity.
Rebranding combinations of old techniques merely creates a bubble of hype that confuses management, developers and users. If you've ever uttered the words "Web 2.0," then shame on you!
Personally, it feels like something's got to give.
Maybe. However since bubbles are really a sort of cross between a pyramid scheme and a lottery the only people who are hurt are those who are not paying attention. Case in point: we sold our house at or near the peak and we are now renting. There is a pretty good chance that when we buy at the bottom we will have made 30% or more. Only people who are buying right now when all indicators suggest that prices haven't reached the bottom will be hurt. I.e. paying attention pays off! Look at basic forces. House values historically grow at 1-2% a year over the long term. If prices grow faster than that there had better be a very strong driving force or - its a bubble. Now, if you detect a bubble early and can afford the risk by all means take advantage of the idiots but be aware that what you are doing requires impecable timing or you can be severly burned!
The house bubble was created by FED policy (follow the links at http://www.patrick.net/housing/crash.html#links) but I think there is a deeper problem. Our taxation methodolgy is fundamentally broken. The solution (IMHO) - the Georgist "one tax". NOTE: That is NOT a flat tax.
90% of the wealth is in 2% of the pockets. Bummer to be in the majority.
I don't know about the rest of y'all, but in the last bubble, there was such a high labor demand, that if a person could switch on a computer, they could get a salary of $70k/yr. If you were more competent, you could get more. And the icing on the cake was that they were handing out stock options like candy, to everyone, even the janitors. And NASDAQ was doing so well - frankly, I bought a house I would never have had a chance at getting into otherwise (though I totally screwed up how I structured my stock sales, so I got fucked by the IRS, and wasn't able to really take advantage of what would have been about $1 million worth of options).
Many techies were seriously debating whether there was any point to higher education because of this tight labor situation.
Nowadays, it's very different. Most of us feel lucky just to have jobs. My salary has finally caught up with what it was in 1998. Only now, I'm not getting stock options.
We're most certainly not in the midst of another tech bubble. My take on this is that most likely, the reason for recent higher earnings has been due to the NSA buying lots of hard drives. When they've got enough, we'll be right back in the 2000-2003 toilet.
These are my friends, See how they glisten. See this one shine, how he smiles in the light.
Ahem. Tell that to those who lost their jobs because they worked for the companies that went bust (or took it on the chin) in the dot com fiasco. Or those whose retirement savings lost half their value. Tell that to the construction/realtors/appraisers/mortgage brokers who are edging closer to being jobless. I'm not saying that there's no personal responsibility, but it's kind of cold to just say to someone who is, say, a construction worker, "You should have been smarter and seen that the housing explosion was really just a bubble artificially inflated by increased liquidity by the Fed and loose lending standards" when he's been out there swinging a hammer all day.
I could not justify my existence if I were a turkey farmer. Would I terminate myself? Undoubtably, yes.
"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."
As I look out into the parking lot at the sea of import luxury cars and eat my free bagel on Free Bagel Friday, I say to myself,
I sure hope so dude. I sure hope so.
Lane Myer: I have great fear of tools. I once made a birdhouse in woodshop and the fair housing committee condemned it.
one to two years
I just don't see a bubble in tech. Yeah, there's some crazy money being thrown around, but it's not from investors as in the 90's, it's coming through aquisitions. By the late 90's everyone and their mother was a stock speculator. People saw these crazy returns and jumped in to get themselves a piece of the pie. Naturally, this phenomenon fed on itself and everything became overvalued incredibly quickly. When the big stock holders and VCs started selling off their stakes, all that money evaporated and so we have a crash. Right now I don't see anybody blindly investing in whatever tech stock they can to exploit returns that are way higher than they should be.
Where I DO see it is in commodities and certain housing markets. Metals - Particularly gold and silver - are going crazy right now. ETF stocks have opened up so you can buy "shares" in metals, and when you do, the ETF buys physical metal to store in a vault (it's just gold and silver now, AFAIK. Cheaper metals would cost too much to store) The rise of these ETFs allow any joe to buy gold and silver on a whim, thus creating a large potential of making them overvalued. Compounding the problem is that a lot of countries are getting scared by the inflating dollar and hedging their investments with gold, further driving up the price. The rise of the price due to this activity is a lot of the reason the gold & silver ETFs were created in the first place - The price activity has the attention of the public.
Don't get me started on housing in the US. I have seen this coming for three years. In the US, places in the midwest and south are going for what they should be, maybe even below - You can pick up a nice 3 bedroom 2 bath house with 1700 sq ft of living space and a good sized lot for the low $100's. These markets are safe from the bubble. But the same place out here in the SoCal city where I live will cost you at least $550,000, and that's with practically no lot. Even in the High Desert, which is on the other side of the mountains and 80 miles from LA, it will cost you $300,000 to get in the same house. Two years ago the same house was $160,000. It's ridiculous. The rise in prices is mostly due to the same mentality that caused the stock crash of the late 90's - People saw their homeowner friends building massive equity (and cashing it out to buy nice toys) and wanted to get in the game before it was too late. So they all started jumping out of the rental market and buying houses, which reduced inventory and thus drove prices up. The banks noticed the meteoric rise in equity, and they started loosening their credit criteria - They'll still make a ton of money even if the place forecloses. Pretty soon anyone who could breathe was qualifying for a home loan. Many of them could not afford a standard 30 year fixed rate loan, and so took out an ARM (adjustable rate mortgage, for those of you with no home buying experience) loan instead. So they were given a really low initial interest rate that would stay fixed for the first 5 years and then the banks would be allowed to increase it with the market.
Then came the "creative" loans. When people could no longer afford 30 year fixed or standard ARMs, banks started pushing "interest only" loans. This is basically an ARM loan except you don't have to pay principal on the loan during the fixed period (again, usually 5 years). What's in the fine print is that after the 5 year period is up, you must start paying the principal you weren't paying during the fixed period. Coupled with increasing interest rates, a homeowner could be looking at significatly higher payments.
But it gets better. Then came the "partial interest" loans. So now, not only are you in an ARM and not paying any principal, but you are also only paying a fraction of the interest every month. This is how a lot of people making $40,000 a year are buying houses that they would ordinarily need to be making $130,000 a year to afford. These are also called "negative am
-R
There's a level of caution that has been ingrained
Of course. When you're suddenly half a million dollars in debt because you leveraged options from a company whose only product was a website, you tend to learn the lesson.
A Government Is a Body of People, Usually Notably Ungoverned
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.