Do Big-Money Acquisitions Mean We're In a Tech Bubble?

Nerval's Lobster writes "When a major IT company pays a reported $30 million—roughly 90 percent of it in cash—for an iOS app with no monetization strategy and a million downloads since launch, is that a sign that the tech industry as a whole is riding a massive, overinflated bubble? Yahoo isn't alone, by a long shot: over the past couple years, a few apps have been snatched up for enormous sums—think Facebook's $1 billion acquisition of Instagram in 2012, or Google buying Sparrow for a reported $25 million. Nor has the money train stopped there: in a pattern that recalls the late-90s market frothiness for anyone over the age of 28, a handful of tech companies have either launched much-hyped IPOs or witnessed their share price skyrocket into the stratosphere. But does all this IPO activity and app-acquiring actually mean 'bubble'?"

Comments

yay for bubbles

[iggymanz]

get it while the gettins' good, save the money - don't blow it, then get out

rinse and repeat, pt barnum was right

Re:yay for bubbles

[SternisheFan]

get it while the gettins' good, save the money - don't blow it, then get out

rinse and repeat, pt barnum was right

Offtopic: P.T. Barnum never did say, "There's a sucker born every minute.", his competitor did. Here's a link to what really went down then...

http://www.historybuff.com/library/refbarnum.html

Re:yay for bubbles

[lightknight]

Indeed. Looking at the college loan bubble...as well as the new real estate / mortgage bubble...I am without words. We just went through this not even a decade ago, so...why are we doing this again?

As for the 'tech' bubble...these are purely fluff acquisitions...good money paid for crap...that makes the original DOTCOM bubble look rock solid in comparison. I don't have the figures in front of me, but I've read some of this stuff recently...we're looking at paying premiums for companies in excess of their earnings for the next 50 years...many of them aren't even paying a dividend, so the only money that can be made is by selling it off to someone else who thinks it will go higher...or possibly someone who needs to claim a fictitious loss through some mystic means. Like Instagram, a number of these companies don't even seem to have anything resembling new technology.

From what I've seen, the heart wood of the tech sector has given out, and it appears to be shrinking. We're seeing a compacting of the tech sector, not new energy.

An easier way to chart things is to ask the tech sector "have your wages risen greatly, on average, in the past three years, allowing for inflation?" Find out which sector is seeing a rise in wages, either regional or global, and you'll know which one is currently enjoying a boom. Last I checked, which was a while ago, the Australian mining companies were doing pretty well here.

Re:yay for bubbles

[jxander]

The 90s dotcom bubble was run by nerds, with tons of big ideas for what the Internet should be, but little business sense, and even less long-term work ethic. They were given boat-loads of cash, with little to no strategy for long-term success. The really good ideas stuck around (see Google, Amazon, eBay) while most fell by the wayside.

The current bubble seems more like an intentional inflation, trying to catch the same lightning-in-a-bottle. Except this time it's being run by more business minds, less nerds. People who were perhaps old enough in the late 80s to grasp Gordon Gecko's "Greed is good" mantra, but not old enough in the 90s to catch the dotcom wave. They want to recreate that magic and just pocket all the free money. Thus your observation that the "heartwood has given out." There are no eBays or Amazons this generation, just faux-photo filters and Pissed-off Poultry.

Re:yay for bubbles

[iggymanz]

how about "never give a sucker an even break", later used by WC Fields?

Re:yay for bubbles

[SternisheFan]

how about "never give a sucker an even break", later used by WC Fields?

Fields wrote the screenplay for his movie of the same name, so yes, that was him. He was a nasty drunk himself in real life, kind of an a**hole because of drink. Here's a link of W.C. Fields quotes, and below that one that he didn't say, but was attributed to him.

http://www.mindspring.com/~hsstern/maewest/fields.htm

Anyone who hates children and dogs can't be all bad. Although a very commonly attributed to Fields himself, this is derived from a statement which was actually first said about him by Leo Rosten during a "roast" at the Masquer's Club in Hollywood in 1939, as Rosten explains in his book, The Power of Positive Nonsense (1977) "The only thing I can say about W. C. Fields ... is this: Any man who hates dogs and babies can't be all bad."

http://en.m.wikiquote.org/wiki/W._C._Fields#section_2

Re:yay for bubbles

[Xest]

"The 90s dotcom bubble was run by nerds, with tons of big ideas for what the Internet should be, but little business sense, and even less long-term work ethic."

This isn't true at all. The 90s dotcom bubble was caused by investors who saw the success of the likes of Microsoft over the previous decade and thought that every tech company could be a Microsoft and so threw money at them left, right and centre.

All that the "nerds" were doing was playing around with the internet as they'd always played around with technology, they didn't have any long term strategy (and I'm not really sure what your jibe about work ethic is all about - they didn't see it as work), because they were doing what they loved, and clueless investors were coming across their work and offering silly money for it, something which no one is going to say no to. I suspect the vast majority knew full well that these investors seemed to be hyping just a little too much, but they're not exactly going to say no to being made a multi-millionaire from doing what they loved are they?

I don't think this particular bubble is any different, the "nerds" have been quite vocal in saying how stupid it was to pay up to $700 for Apple shares, and how utterly stupid it was to float Facebook at the price it was being floated out. Once more, the only people making these mistakes are idiot investors who literally have more money than sense.

The problem then, and the problem now are business types who know really nothing about technology or the technology market believing there's something magical about it and that even the most absurdly silly little startups are somehow going to make them billionaires overnight.

FWIW, eBay and Amazon weren't even created in the 90s bubble, they were created before it started and were doing well before it started, if anything their successes were triggers for the boom in that idiot investors saw their success and assumed every dotcom could be that kind of success. They were only "survivors" of it in the same way Microsoft and IBM were - already well established tech companies with already well established business models.

Yes

[Anonymous Coward]

I live in the San Francisco bay area and the general vibe in this area is very reminiscent of how it was during the dot-com bubble of the late 90s. Lots of easy money is being thrown around, there's a housing shortage and rents are sky high, and my phone is ringing off the hook with requests for job interviews and I'm not even on job boards anymore.

Yes, it's inflation driven

[roman_mir]

Yes, it is a bubble, but it's not simply a tech bubble, it's money bubble this time. It's all inflation, people are looking for place to park value.

For all the Keynesians that deny one of the 3 major functions of money (storage of value), that's what you do when you print and print without regard to the actual purchasing power - you force people to look into alternative ways of storing purchasing power, and obviously with the interest rates being pushed down by this same action by the Fed and other central banks around the world, there is no yield.

Savers, investors are in a search of yield and they can't find it. That's how bubbles form. While the Fed is trying hard to reflate the housing bubble it doesn't really control what the inflation goes into and when it comes rushing out, so it results in higher stock market prices, higher asset prices that go up in bidding wars, whatever people can think of, anything that is not the paper printed by the central banks.

It will burst, what will be the second worst of the bad is unclear right now but the worst of the bad will be USD denominated debt, bonds, dollars themselves.

Re:Yes, it's inflation driven

[i kan reed]

Where did you get the invention that Keynesian economics denies the storage of value? I'm not willing to argue to support a straw-man of my own position.

Re:Yes, it's inflation driven

[khallow]

I guess he's claiming that Keynesian policies are naturally inflationary. Given that no one in their right mind holds on to fiat currency as a store of value, I doubt this really has much effect.

Re:Yes, it's inflation driven

[roman_mir]

Oil and gold? Two non-bubbles. Gold isn't even at historic highs, for that it would have to be 1:1 with DOW, and it's nowhere near. Gold is very very cheap now.

As to oil, the US is using smallest amount in decades, it imports smallest amounts in at least quarter of a century, the production capacity is greater than ever and yet the prices are going up in dollars, but not in gold, not in silver. Again, oil is quite cheap if you are not buying it in dollars. It's the dollars that are cheap, and the demand for oil is growing in other parts of the world, which are the productive parts.

Imagine what happens once the Chinese stop subsidising US consumption... their currency shoots up against dollars and for them oil falls in price. So while the American's can't afford their oil, they'll be selling it to the Chinese, who will be able to buy it cheaper and cheaper in their money.

The bubbles that are being inflated are in bonds, dollars. As to asset bubbles, sure, there are asset bubbles. The tech sector is very much inflated.

How is it possible for a company with a price to earning ratio of 100 to go up in price even in dollars without inflation, while gold mining stocks, with PE ratios in single digits going down? This does not show anything at all similar to a bubble in gold and mining stocks, but it shows a very much overheated tech sector.

Re:Yes, it's inflation driven

[roman_mir]

It denies the storage of value aspect of money by not realising that money printing is inflation itself and inflation of money supply causes destruction of value of a single monetary unit.

Keynesians deny this simple fact, which is why they are so confused by something that must seem to them to be a paradox: inflation and simultaneous rise of unemployment. It's not a paradox, it's only a paradox if you don't realise that inflation destroys value of money, thus kills investment opportunities and destroys productive jobs.

Re:Yes, it's inflation driven

[jimmetry]

Score:-1, Insightful

Don't tell me what I don't want to hear. La la la la la.

Re:Yes, it's inflation driven

[KeithJM]

Gold isn't even at historic highs, for that it would have to be 1:1 with DOW, and it's nowhere near

That's not really a reasonable comparison. First, the Dow is a bit arbitrary -- it follows only a specific group of 30 companies that are supposed to represent the US economy. Here are a couple of articles at different times about what would have happened if Apple had been added:
when apple was up: http://usatoday30.usatoday.com/money/perfi/stocks/story/2012-02-15/apple-stock-dow-jones-industrial-average/53109426/1
when apple went down: http://blogs.marketwatch.com/thetell/2013/03/05/apples-not-in-the-dow-thank-goodness/

Basically, that would completely change the value of the Dow and we would all be panicking right now, as the down dropped with Apple stock. On the other hand, around the election, people would have been crowing about the stock market hitting all-time highs.

So apart from comparing an historically trackable value, like gold, to an arbitrary measurement like the Dow, they also track different things. You're comparing gold's value to something which is trying to track the overall US economy. And the US economy is MUCH bigger than it was at the turn of the last century. Gold shouldn't mirror the US economy. If it did, THAT would be a definite bubble.

Re:Yes, it's inflation driven

[roman_mir]

Comparing an output unit of productivity (gold, which has to be found, mined, refined, formed) to DOW, the productive part of the economy is arbitrary, but comparing to dollars, the paper that you can print as many zeroes as you wish is not arbitrary?

Interesting, interesting. What would you rather compare to, something that has to be productive to exist or something that exists because of .... desire of a politician to stay elected and thus satisfy the crowd's short term memory?

Re:Yes, it's inflation driven

[HornWumpus]

There are no Keynesians. Keynesian's would run surpluses during good times.

Those who call themselves 'Keynesians' are just money printers who found an economic philosophy to act as a fig leaf.

Re:Yes, it's inflation driven

[i kan reed]

No, we really don't. That's crazy. If you can't accept that temporary inflation can be considered a good thing to address the long-term harm caused by downturns. Keynsian economics just acknowledges the social costs of individual poverty can be irreversible, whereas inflation can be countered by austerity in good times.

The fact that you invented an opinion for those you disagree with shows that you don't really have much confidence in your own position.

Re:Yes, it's inflation driven

[bluefoxlucid]

He said Keynesians. People are notoriously stupid and latch onto systems they don't understand. Like all the people in any arbitrary religion that practice it wrong (occasionally forming sects, but most often joining religions of peace and being hateful assholes whereby you can take their own religious texts and point out where they have zero support for their behavior and much against...). Philosophy, politics, and the works go the same way--politics especially, where your candidate is the Anti-Christ for doing X but when my candidate gets voted in and continues X it's okay and wonderful.

Re:Yes, it's inflation driven

[roman_mir]

They call themselves Keynesians and they wouldn't even qualify for that obviously. Keyneys did say that there should be surpluses during 'good times', but he was totally wrong about the rest of it, but those are the parts that the modern Keynesians decided to follow.

Notice they are not following the 'surpluses' part, they are running huge deficits during 'times good' (which I argue are not good, they are inflationary themselves, not all inflation comes from the Fed, but all inflation comes from government. In case of the fractional reserve banking the reason there is so much of it that a significant amount of inflation is created is because of the fake FDIC insurance, which is a moral hazard. Today the US banks have about 10Trillion in deposits, which are credit to the banks. FDIC has 25Billion in 'assets', which are debt too, bonds.)

Re:Yes, it's inflation driven

[roman_mir]

can be considered a good thing t

why, I can accept that it can be considered but I disagree that it is correct. It is wrong to consider 'temporary inflation' to be a good thing. Inflation is theft, that's all it is, so you are redistributing by stealing. OK, fine, steal. But you can't even talk about this with a straight face, you have used the word temporary, which is ludicrous.

There is nothing more permanent than a 'temporary' solution, you should know that if you are a technical person. There is nothing temporary about it, the more of inflation that the Fed creates the worse the economy becomes and then as a response to that worsening, you want more of that inflation. What you call "address" I call an injection of morphine to prevent the sensors from feeling the pain.

The economy is in pain, that's what all of this misallocation of resources is - pain. The economy is in pain and it needs treatment, which means it needs to restructure the resources, let the failures fail, let the debts be written off, let the books clear, let the assets be sold at the real current value, let the government shrink and all sectors of economy shrink that are propped up and are not real.

What you call "address" in reality means numb the pain but do not look at the root cause, the real problem. WHY are people spending 30Million on this app? Is it really worth the 30Million? Well, it has no revenue, no profits. It is speculative based solely on a belief that there will be a greater fool down the road, who will, because of all this inflation accept to buy this at an even higher price (one way or another, be it to purchase the app or to purchase Yahoo stock at higher prices, whatever).

You are also saying: "social costs of individual poverty" implying that you think that you can reduce poverty by creating inflation. You believe that what you are doing by creating inflation is forcing people to spend their money, you are allowing the government to steal and spend money.

But the truth as to why sometimes inflation reduces unemployment is because it lowers the price of labour.

That's all it is, you are reducing everybody's labour price, you are reducing everybody's wages. Obviously you are doing it indiscriminately, you are not allowing the failing companies to fail and the successful companies to keep working at their own pace. You are saying: fuck you, we don't care if you are a successful company. Oh, and you, we are going to prop you up, we don't care that you are a fucking failure. So we are going to ensure that all of your employees and investors suffer, regardless of the preferences of the market.

We, the government, are going to steal whatever we can to grow government, to create subsidies and to reduce your wages while we are at it, but we will prevent failures from failing, and we will prevent the cleaning that is necessary from taking place.

Obviously you are unfamiliar with history, as all Keynesians are, they live in a weird bubble of sorts. You don't know that depressions, where government cut spending and taxes went away very quickly, in under 2 years, while those recessions that the governments propped up turned into depressions, and then more propping up caused the situation to get worse.

Keynesians believe that any type of spending is good, dig ditches, fill them up, build bombs, blow them up. That's why they don't understand the difference between a GOOD business model with no unsustainable debt and a BAD business model, that wastes resources and should be liquidated. That's why they believe they can 'solve' something with just a 'little' inflation. What they are actually doing is giving the patient (economy) sedatives and pain killers and telling it that the cancer is gone.

Re:Yes, it's inflation driven

[i kan reed]

That's a lot of unsupported assertions.

Re:Yes, it's inflation driven

[roman_mir]

They are very well supported, the comment sections are not designed for this, but you can obviously read my blog, and there are plenty of people, who can explain all of this better than I could ever dream of.

Re:Yes, it's inflation driven

[KeithJM]

I never claimed that gold WAS in a bubble, and I never suggested that the value of gold should be related to the dollar. All I did was quote one line and reply to that line. Everything else you think you read (and thought was "interesting, interesting,") came from your own mind, not from my text.

Assume for a minute that the Dow is a perfect way of tracking what it's intended to track, with no flaws. So it perfectly mirrors the US economy. The reason you buy gold -- rather than invest in the stock market or anything else dependent on a money economy -- is because you assume the money economy may either completely collapse, or at least develop another great depression or something similar. In those cases, even if the Dow reduced to zero, gold should still maintain its value, because it has value that isn't derived from the value of the dollar, unlike the Dow.

So my point is that expecting the Dow to mirror the US economy (or the Dow) on the way up is ludicrous, since the whole reason to invest in gold is because it WON'T MIRROR THE DOW on the way down. The two derive value from completely different things, and in fact, that's the only reason people buy gold.

If you think through your own argument (that the dollar is an arbitrary measure of value), you'll realize you agree with me. The Dow is much more closely tied to the dollar than gold is. If gold is growing at the same rate as the Dow, it has somehow become tied to the value of the dollar and the size of the US economy. That would make it a gold bubble, which is specifically what my post said.

Re:Yes, it's inflation driven

[rrohbeck]

The last one was Clinton.

The problem is that Americans have a tendency to elect the candidate who promises the most, not who runs the best economic policies. If you elect a spendy government as soon as the previous one has fixed the economy and started to run a little surplus you'll never get sustained Keynesianism.

Re:Yes, it's inflation driven

[i kan reed]

What I went looking for was explanations of mechanisms, hard economic theory, and deeper understanding.

What I found complaining, was regurgitated aphorisms, and more unsupported assertions with a small pile of trite dismissal of poorly imagined counter-arguments. Along with paranoia complaining about moderation. Like you think you're a lone voice of sanity, calling out millions of educated skilled economists, but lacking anything nearing academic backing for your own assertions.

Your journal is really more of the same.

Re:Yes, it's inflation driven

[frank_adrian314159]

Keynesian's would run surpluses during good times.

Yes, which is what Keynesian economics advocates. Also, these surpluses should be used to pay down debt that was accumulated during the last economic downturn or accumulated to make a rainy-day fund to shore up the economy during the next economic downturn or (and conservatives will be shocked by this) taxes be reduced so that there is no longer a surplus.

However, parent also seems to confuse what is recommended by Keynesian economists (who broadly believe these recommendations) and the actions of the politicians, who often ignore actual economists (of any stripe), which seems to be some odd tactic to discredit Keynesians simply because (just like most normal people) politicians don't listen to them.

Re:Yes, it's inflation driven

[roman_mir]

The last one was Clinton.

- it's a misconception that comes from propaganda. Clinton never had any surpluses.

Every single year that Clinton was in the office, the year ended with more debt than was on the books at the beginning of the year. To run a balanced budget does not mean to put more debt on the books and pretend that your budget is balanced, it means not to spend more than you earn and if the only way for you to claim a 'balance' is by spending more than you earn but by growing your debt on your credit card, then how can you claim balance?

What Clinton did was insidious, with Rubin they refinanced US with a short term, adjustable rate mortgage and grew the debt because they didn't see it as a big deal at lower interest rates. Well, sure, it's not a big deal for Clinton, who left the office. It's a big deal for the country that stayed even when he was done, now the country owes that money (and everything that was added to the debt past Clinton). Clinton presided over the stock market bubble fuelled by Greenspan and started the housing bubble.

Re:Yes, it's inflation driven

[roman_mir]

I didn't say that gold has to mirror DOW, you are misreading my comment, I said that gold is cheap in relative terms because the most expensive that we have ever seen gold was when it was 1 to 1 with DOW.

DOW is production, it pays dividends, it has a return on the investment (used to at least before the inflation, now it's just a response to inflation).

Gold is money, it's not an investment. It can't track DOW, I never said it should or can. I said it's cheap, because the most expensive that we know it ever came to be was when it was 1 to 1 with a dividend paying DOW.

Re:Yes, it's inflation driven

[roman_mir]

For hard economic theory you should read Mises, Hayek, Rothbart not my blog. In case you are unaware of these people, Hayek is a person who for example analysed the data stock market data, spending, credit, etc., and predicted the 1929 crash before it happened, unlike Keynes, who lost money in that crash because he was consumed by 'animal spirits' and not data.

Re:Yes, it's inflation driven

[i kan reed]

Ok, I know my way around Austrian Economics, and it seriously lacks credibility due to its complete reliance on the efficient market hypothesis. It's putting a lot of complex math on a couple of premises one of which is critically flawed.

Re:Yes, it's inflation driven

[mattack2]

Inflation is theft, that's all it is, so you are redistributing by stealing.

How is inflation theft?

Doesn't inflation happen because people generally get raises as they work longer, thus they have more money, thus stores can charge more?

Otherwise, people would just get richer and richer without bound, and the prices would be the same, thus making things *seem* cheaper.

(I'm not saying I like inflation, I hate it.. I especially hate the TRICKY package shrinking-but-make-it-look-the-same-size. Of course, I price per unit/volume, but it's still annoying.)

Re:Yes, it's inflation driven

[Anonymous Coward]

It sounds like you have no clue what Austrian Economics is. They reject the efficient market hypothesis. They reject using "a lot of complex math" as a means to understanding economics.

Re:Yes, it's inflation driven

[roman_mir]

"lacks credibility" - pretty rich from a Keynesian. The people who bet on the Austrian school of economics profited greatly in the long run over the last 20 years by bidding against the monetary expansion by the Central banks. Suffices it to say that hundreds of billions were made by betting against the housing market during its bubble, against the stock market during its bubble.

Probably trillions will be made in the next crash, with people betting against the bond market and the dollar itself. The crowd wants the bond, the dollar, the contrarian Austrians want to short the bond and the dollar, but they understand that shorting a dollar denominated asset is stupid, because nominally they will lose to the ability of the Fed to print. The Fed will print Trillions and thousands of Trillions when the time comes, so instead of shorting the bond market and the dollar, the correct way to play this is by being in assets that cannot be printed.

In this situation even the tech sector is better than the dollar, the problem for the tech sector is that its PE ratio has no correlation to real life.

You know what proves somebody being right or wrong in this case? If they can survive and even gain when the majority will be crashing. Keynesians are the majority, the majority want Keynesian solutions, the government wants Keynesian solutions.

You think Austrian model 'lacks credibility', that's fine by me. You bet your money the way you want, I do the way I want.

Re:Yes, it's inflation driven

[roman_mir]

How is inflation theft?

- inflation is expansion of monetary supply and thus reduction of value of a single unit of currency. Real money, like gold, inflate at a natural level of production, mining, which is about 1.5%. However real money inflation is not theft! That's because there was actual work done to produce it, even at 1.5% mining and production capacity, silver, gold was in deflation over the 19th century, while the economy was growing (and gold and silver was money).

Doesn't inflation happen because people generally get raises as they work longer, thus they have more money, thus stores can charge more?

- no, you have it backwards.

1. Inflation is expansion of money.

2. People are forced to work longer because of inflation, so the government steals your purchasing power and thus you end up working more hours to get less real purchasing power (even if you end up with somewhat a higher nominal amount of dollars in your pocket, inflation is faster than your rate of salary growth if you have any growth).

3. Stores do not charge more because they 'can' because of inflation. Stores are actually in a constant competition to keep prices down, but they have their costs, which are rising due to inflation. The products supplied to them increase in price because of inflation. Stores are in a competition, they would rather sell at a lower price to a wider audience. Stores charge more not because 'they can', but because they have no choice.

Every time a store ends up charging more it risks losing its customers (and it does, people go without, people buy less, people find cheaper alternatives, etc., that's why for example restaurant visits are declining)

Otherwise, people would just get richer and richer without bound, and the prices would be the same, thus making things *seem* cheaper.

- people should get richer as a result of higher productivity, but your definition richer is probably not totally correct.

Richer does not mean more nominal dollars, richer means more purchasing power, that's all. Purchasing power grows as the production grows, not the dollar supply.

Understand this: you can print as many dollars as you like and you can put as many zeroes on them as you like, this does not make people richer! People become richer when productive output grows, when factories make more and more stuff and prices go down, not up. Inflation is a phenomena created by the government, which expands the money supply and as a result, there is a higher demand for the same amount of goods.

More dollars does not = more goods, it means higher prices for the same amount of goods. But it's worse than that, more dollars = fake signals to the economy about the amount of savings in the economy, as the nominal numbers are going up and the interest rates are pushed down because of the increased supply of dollars, the economy will eventually shrink and people will become poorer for it. The reason is that in the long term, there will be too much misallocation of resources and too much debt (as is now), and with a non-stop inflation engine, what happens is that real productivity moves goes away, moves somewhere else or just disappears.

Misallocation of resources means that the consuming sectors of the economy grow and the producing sectors of the economy shrink. Shrinking production = less wealthy, not more wealthy. The more fake money is in the system, the less purchasing power you get, the less purchasing power you get with your money, the less ability you have to invest. The less real investments are taking place, the lower is the productive output. The lower is the productive output, the less wealthy you are, as prices will keep going up for the ever shrinking pool of real goods and ever expanding pool of printed money.

Inflation is theft, it steals return on real savings and investment and so it steals everybody's purchasing power by destroying production.

Re:Yes, it's inflation driven

[mattack2]

Richer does not mean more nominal dollars, richer means more purchasing power, that's all. Purchasing power grows as the production grows, not the dollar supply.

Yes, and if I make more money due to a raise and prices don't go up, I HAVE MORE PURCHASING POWER.

I only skimmed the orig message for now, I might have other responses later.

Re:Yes, it's inflation driven

[Xaedalus]

And both of you miss the big picture: Any system is perfect until human beings enter the equation. Then it's all down the hole sooner or later.

Re:Yes, it's inflation driven

[IamTheRealMike]

The money is going into the stock market, just like it did in the late 90's. I thought this was uncontroversial? It's explicitly stated Fed policy. They are buying up all the Treasuries (and effectively financing the US deficit with inflation as a result), with the end goal being to force everyone else into riskier assets. This, Bernanke believes, will invigorate the economy. Because there's nothing like forcing people to gamble on the stock market to build a strong foundation!

Re:Yes, it's inflation driven

[roman_mir]

You don't make more money due to a raise if prices are not going up.

If prices are not going up, your salary isn't going up either, you have a stable price situation, your wage is just a price to your employer. Actually 19th century USA showed this, the prices were falling, people weren't making significantly more money, somewhat more, but not with raises all the time. They were making more money by being able to buy more goods with the same money next year as they could a year before.

Again, you don't drive inflation by raising prices, inflation is not a function of rising prices. Inflation is a function of expansion of the money supply. Rising prices are a consequence of inflation, not the cause of it.

A growing economy causes prices to fall, not to rise until the government steps in with fake money.

Re:Yes, it's inflation driven

[AK Marc]

To run a balanced budget does not mean to put more debt on the books and pretend that your budget is balanced, it means not to spend more than you earn and if the only way for you to claim a 'balance' is by spending more than you earn but by growing your debt on your credit card, then how can you claim balance?

He didn't put it on a credit card. The federal government spent less than it took in. That SS is a separate budget item doesn't change this. The government borrowed from itself. It's not like he borrowed from the bank, but it's like a household that took in $200,000, and spent $180,000, but the dad borrowed $40,000 from the college fund he owns to buy a car that year. They spent less than they took in, and the "borrow" increase was from one account owned by the "family" to another owned by the same family. No outside debt was used to "balance" the budget.

Re:Yes, it's inflation driven

[AK Marc]

Inflation is orthogonal to Keynesian economics. But none of it matters, as nobody has ever actually tried to implement Keynesian economics (running deficits in a recession is wrongly blamed on Keynesian economics).

Re:Yes, it's inflation driven

[HornWumpus]

More or less right.

You should note that at this point the 'college fund' contains _nothing_ but IOUs from Mom and Dad. Mom and Dad consider the college fund to be in good shape. They rate their own IOUs at 4A++.

Re:Yes, it's inflation driven

[AK Marc]

How is inflation theft?

If I have $100 under my mattress, I can buy 100 loaves of bread with it. In 10 years, I can buy 85 loaves of bread with it. Someone "stole" 15 loaves of bread from me.

Doesn't inflation happen because people generally get raises as they work longer, thus they have more money, thus stores can charge more?

Inflation happens because more money is in circulation. More money means less demand for any particular amount of money. Wages need to go up repeatedly just to keep buying power the same.

Re:Yes, it's inflation driven

[HornWumpus]

'economic philosophy'=='tissue of fallacies'. For all values of 'economic philosophy'!=this.EconomicPhilosophy(CurrentContext).

Re:Yes, it's inflation driven

[AK Marc]

Comparing an output unit of productivity (gold, which has to be found, mined, refined, formed) to DOW, the productive part of the economy is arbitrary,

Yes. Because the Dow (if you really like caps that much, call it the DIA), is 100% arbitrary. You could (theoretically) subtract or add any company on any day. It's supposed to be a good representation of the blue-chip performance, not the market as a whole. It's an arbitrarily managed arbitrary subset of an arbitrary marketplace. That there isn't a better comparison doesn't make it a non-arbitrary one.

Re:Yes, it's inflation driven

[AK Marc]

You should note that at this point the 'college fund' contains _nothing_ but IOUs from Mom and Dad. Mom and Dad consider the college fund to be in good shape.

So I take it you've met my mom and dad.

Re:Yes, it's inflation driven

[roman_mir]

Let's approach this methodically, shall we?

1. Let's look at debt figures.
debt figures 1950-1999
debt figures 2000-2012

Clinton was in office from January 20, 1993 to January 20, 2001

Debt table:

Date Dollar Amount

• 09/30/2002 6,228,235,965,597.16
• 09/30/2001 5,807,463,412,200.06
• 09/30/2000 5,674,178,209,886.86
• 09/30/1999 5,656,270,901,615.43
• 09/30/1998 5,526,193,008,897.62
• 09/30/1997 5,413,146,011,397.34
• 09/30/1996 5,224,810,939,135.73
• 09/29/1995 4,973,982,900,709.39
• 09/30/1994 4,692,749,910,013.32
• 09/30/1993 4,411,488,883,139.38
• 09/30/1992 4,064,620,655,521.66

Do you see any years where the debt was lower the next year than the year before? I don't see any years like that.

2. Let's look at your claim carefully:

a.

He didn't put it on a credit card.

b.

The federal government spent less than it took in.

c.

That SS is a separate budget item doesn't change this.

d.

The government borrowed from itself

a contradicts d, b contradicts d.
c does not interact with any other claim, so we can throw it out.

What you are saying is that the federal gov't didn't put anything on credit card but that it borrowed. You are saying the federal gov't didn't spend more than it took in, but it borrowed.

SS is part of the federal budget, by the way, who do you think makes the payments, Martians? Whatever accounting tricks (that a private person would be in jail for if he ran his business this way) they want to play by saying they are borrowing from themselves, they are just printing money if that's what they are doing.

Yes, they were printing massive amounts of money. Saying that printing massive amounts of money is the same as spending as much as you are getting in revenue is really a huge fucking lie.

Re:Yes, it's inflation driven

[roman_mir]

These 2 words: Keynesian and economics shouldn't even be in the same sentence.

Re:Yes, it's inflation driven

[AK Marc]

a contradicts d, b contradicts d.
c does not interact with any other claim, so we can throw it out.

a contradicts d

"He didn't put it on a credit card." contradicts "The government borrowed from itself"?

No, it does not. The married household has separate books but entangled finances. The Wife borrows money from the husband, and neither has a credit card. You are claiming it's impossible for the household to borrow from itself without using a credit card. I claim you are wrong.

"The federal government spent less than it took in." contradicts "The government borrowed from itself"

Again, you are saying it's impossible for for a husband to borrow from his wife without using a credit card, or other outside finance. He made $120,000 and she made $140,000 and he spent $140,000 and she spent $100,000, they had a surplus of $20,000 for the period, and he "borrowed" $20,000 from her.

I don't understand how you can't understand that. What is the problem?

Oh, and on the subject of whether the budget was balanced, I respond: http://www.factcheck.org/2008/02/the-budget-and-deficit-under-clinton/

Re:Yes, it's inflation driven

[AK Marc]

Your emotional aversion to a term doesn't make it invalid.

Re:Yes, it's inflation driven

[ChrisMaple]

The shift under Clinton to short term borrowing was one of the few things he did right. Interest rates were falling and were lower than long-term rates, and looked to stay that way for the foreseeable future. It saved the gov't money and in principle provided an incentive to behave responsibly.

Re:Yes, it's inflation driven

[roman_mir]

You are mistaken, it's not an emotional aversion to a term. Keynesianism to economics what astrology is to astronomy.

Should Horoscopes be considered while having a discussion on, say, background cosmic radiation? No.

Re:Yes, it's inflation driven

[ChrisMaple]

From wikipedia

Keynes argued that the solution to the Great Depression was to stimulate the economy ("inducement to invest") through some combination of two approaches:
A reduction in interest rates (monetary policy), and
Government investment in infrastructure (fiscal policy).

Both of those are mistaken policies. First, the government shouldn't be position to influence interest rates: when it does, it distorts the market, resulting in misallocation of resources and thence to failure of businesses. Second, government investment in infrastructure guarantees development of inefficient and misplaced projects, because decisions are made politically with no intention of them being useful for human purposes (= profitable).

Re:Yes, it's inflation driven

[roman_mir]

The married household has separate books but entangled finances. The Wife borrows money from the husband, and neither has a credit card. You are claiming it's impossible for the household to borrow from itself without using a credit card. I claim you are wrong.

- wrong. There are no separate entities, 'the wife' and 'the husband' here, more logical nonsense.

There is one federal government, it cannot borrow from itself, it has nothing to pay for its borrowing with. Whatever federal government "borrows" is money that is conjured from nothingness, there is nothing to borrow from, so what your "wife" (Congress) ends up doing is asking the "husband" (Fed) to print.

There is no borrowing when there are no assets and there is no separate entity with money. The Fed doesn't have money, it creates fake credit by inflating the money supply, your entire example is meaningless.

Re:Yes, it's inflation driven

[PhamNguyen]

The comments section is not meant to advertise your blog. And every time you say "go read my blog" I will say "go take a graduate macro course" like I've taken. Once you've taken a graduate level macro class, then I'll read your blog.

Re:Yes, it's inflation driven

[AK Marc]

The Fed doesn't have money, it creates fake credit by inflating the money supply, your entire example is meaningless.

So, if the fed ran a surplus and put that surplus in a bank account, that wouldn't be money. If they print a $100 or $1,000,000,000 bill, it isn't money. Reality bends to support your opinion. Got it.

Re:Yes, it's inflation driven

[AK Marc]

And I see it as you arguing that there is no Betelgeuse because it is part of a constellation named by astrology. I can see it. It's right there. But no, you argue that it's not there because of you aversion to astronomy.

Re:Yes, it's inflation driven

[roman_mir]

That's right, Fed has no money, what surplus? Clipping 30 year coupons at negative real interest rate? IF Fed had actual money, a surplus you would hsve a point. Now you have nothing.

Re:Yes, it's inflation driven

[AK Marc]

You are arguing that they have no money. So, someone with $10,000 in credit card debt and $100 in his pocket has "no money" because the $100 bill in his pocket is not money? Your reality doesn't agree with anyone else's. The presence or absence of a credit card debt doesn't change the status of the contents of his pockets.

Re:Yes, it's inflation driven

[HornWumpus]

All the things you say are true.

But when a second economy makes an aggressive move (pinning the exchange rate between currencies) you almost have to make a counter move (print money).

The end game is the pin goes away and we suck up 20 years worth of inflation in the price of Chinese goods over 1 or 2 years. China's consumer economy better be bigger on that day or they are more fucked then we are. Note: The same thing will happen to the Euro, if it even exists then. Deutschmark/Franc/Lira/Pound otherwise.

Re:Yes, it's inflation driven

[rhodium_mir]

Idiot, you're measuring the debt in inflationary fiat theft money. You may as well be measuring it in unicorn farts since they have roughly the same value. To get a more precise idea of the national debt you need to measure it in units of something with INTRINSIC VALUE , as only rhodium does. Once you do this you will see that Clinton reduced the debt to a tiny fraction of its 1997 high.

Date Debt Nominal USD Rhodium Price Debt (Oz Rh)
9/30/1992 $4,064,620,655,521.66 $2360.71 (1,721,778,895.13)
9/30/1993 $4,411,488,883,139.38 $914.29 (4,825,043,348.54)
9/30/1994 $4,692,749,910,013.32 $754.76 (6,217,539,231.03)
9/29/1995 $4,973,982,900,709.39 $321.75 (15,459,154,314.56)
9/30/1996 $5,224,810,939,135.73 $275.15 (18,988,954,894.19)
9/30/1997 $5,413,146,011,397.34 $270 (20,048,688,931.10)
9/30/1998 $5,526,193,008,897.62 $601.25 (9,191,173,403.57)
9/30/1999 $5,656,270,901,615.43 $877.04 (6,449,273,581.15)
9/30/2000 $5,674,178,209,886.86 $1989.29 (2,852,363,511.55)
9/30/2001 $5,807,463,412,200.06 $1282.25 (4,529,119,448.00)
9/30/2002 $6,228,235,965,597.16 $705.24 (8,831,370,832.05)

Re:Yes, it's inflation driven

[blue_teeth]

Read research of Tullet Prebon, Issue Three "Forever blowing bubbles".

Re:Yes, it's inflation driven

[roman_mir]

So, someone with $10,000 in credit card debt and $100 in his pocket has "no money"

- The Fed does not have 100 dollars in his pocket, he has a fake credit machine, a printing press of sorts.

Saying that the Fed has money because it has a printing press, it's the same as saying any counterfeiter has money. The Fed is in debt, but all that debt is on the books of the US Treasury as of last year. Fed can't be in debt and Fed doesn't have any money. All Fed's debts are automatically debts of US Treasury.

When Treasury 'borrows' from Fed, it borrows from itself. Saying that you can borrow from yourself is completely meaningless. That means you are getting to more debt yourself. Where does the actual money come from then if the Treasury borrows from itself? The Fed prints it. No, the Fed doesn't have 100 dollars in a pocket, the Fed conjures up fake 100 dollars and the Treasury adds it to its liabilities.

Your example has a wife and a husband, where husband actually has money, so the total balance in the household is NOT negative. Borrowing from a household with total negative balance is not borrowing from savings, it's adding to the debt.

You can't understand simplest things obviously. Clinton didn't have any balanced budgets or surpluses, he always added to the debt, regardless which hand holds the debt, both were his hands.

Re:Yes, it's inflation driven

[roman_mir]

Your arguments went from sublime to ridiculous in one thread. You are arguing that borrowing from yourself means having 'balance' and now that astrology is a legitimate science because some names came from people who believed in astrology while naming some stars.

Re:Yes, it's inflation driven

[AK Marc]

I'm not claiming it's legitimate. I'm claiming that you are throwing out valid science because you think it's too closely associated with some ideal you don't like.

Re:Yes, it's inflation driven

[roman_mir]

There is no valid science behind Keynesianism. There is nothing valid about it, it was debunked long ago, just like astrology. However there are still people selling horoscopes in either of those 'sciences'.

Re:Yes, it's inflation driven

[roman_mir]

Interest rates were falling as a result of Clinton's and Greenspan's policy of printing money to prevent any losses to anybody, the term 'Greenspan put' didn't come from nothingness, it was based on Greenspan's willingness to prop up and bail out anybody, never mind inflation.

So Greenspan was ready to monetise any debt and he was buying up government debt at an ever increasing rate, he was getting into heavy long term gov't debt, doing Bernanke's Twist before Bernanke's Twist became the thing to do.

My point is the interest rates would not be falling if it wasn't for the inflation that the government was creating, sending fake signals to the market about abundance of savings and capital investment, while in reality savings were destroyed by this and capital investments were in flight away from USA.

In fact the long term interest rates were going up, that's why the government refinanced with short term adjustable rate paper, Clinton wanted to spend more than the government was getting in revenues because of the investment capital flight caused by the inflation. It's a self-perpetuating downward spiral of debt and debt monetisation.

Your last assertion is that the government could behave more responsibly because it became cheaper for the government to borrow money is laughable and completely false. The government only grew its debts since Clinton, the debts never went down and government spending only grew in every way, what 'responsibly' are you talking about FFS?

Re:Bubble

[houstonbofh]

That is not the right question. Of course it is a bubble. The question is, "Where in the bubble are we?" Just starting, or about to pop?

Re: Well, duh.

[kurkosdr]

Well, there is a kind of "social" craze going on, along with a "apps" craze (local and cloud-based), based on the belief that every "social" service or every app that is somewhat popular and runs ads (or has micro transactions) is destined to make profit. Much like in the Web 1.0 craze, there was the belief that every site that sells stuff will make money. Once again, meaningless numbers are thrown around (like "X million members!" never mind how many of them are active and how many of them are real) and ridiculous profit and value estimates are made. And the bubble feeds itself... I just hope that after the bubble bursts, we are not going to see people holding "will code apps/social websites for food" akin to "will code HTML for food" we saw when Web1.0 craze burst.

No

[nedlohs]

All that money printing has to end up somewhere, some of it has made it to tech companies but it's hardly restricted to tech companies.

What's a bubble?

[jamesl]

Almost by definition, it is impossible to see a bubble except in hindsight.

Re:What's a bubble?

[dkleinsc]

I saw the housing bubble. In 2006, specifically, when working as a programmer for a mortgage titling company. I just saw the numbers going into the database and realized that there's no possible way this could work in the long term - there were tons of refinanced loans for lower monthly payments that did nothing to pay back the principal, which more-or-less guaranteed that eventually the borrower couldn't pay.

I could see it, and I wasn't trained to see it or supposed to be looking for it. But it was there plain as day.

Re:What's a bubble?

[bluefoxlucid]

That's like saying it's impossible to do calculus. A few people can do it.

Re:What's a bubble?

[mattack2]

So you shorted the mortgage companies, RIGHT?

Re:What's a bubble?

[HornWumpus]

It's not that hard to see bubbles.

What's hard is timing them and making money off of them.

The market can stay irrational longer then you can stay solvent.

Re:What's a bubble?

[dkleinsc]

No, I didn't, because I didn't know how high or long the bubble would go before it popped, and I was completely broke at the time. I did, however, keep the financials completely out of my portfolio.

Also, buying put options is typically less risky than shorting.

Re:What's a bubble?

[thomst]

dkleinsc claimed:

I saw the housing bubble. In 2006, specifically, when working as a programmer for a mortgage titling company. I just saw the numbers going into the database and realized that there's no possible way this could work in the long term - there were tons of refinanced loans for lower monthly payments that did nothing to pay back the principal, which more-or-less guaranteed that eventually the borrower couldn't pay.

I could see it, and I wasn't trained to see it or supposed to be looking for it. But it was there plain as day.

I saw the bubble in 2004.

My wife and I had just moved to Las Vegas - one of the housing bubble's domestic epicenters - and went looking for a house to buy. Nearly every property we saw had already been sold by the time the "for sale" sign went up on its lawn. Houses were selling for 20-40% over asking price within 45 minutes of appearing on the realty industry's MLS. Often, the same houses - having never been occupied by anyone other than a painting crew - would be back on the market three months later, for 50% more money. And would sell, again, in 45 minutes, for substantially more than their asking price.

We decided to bid on an FHA foreclosure property. The FHA brochure estimated its market value at $121K, so we put in a bid of $135K, just to be safe. It sold to a Mexican family that bid $179K.

That's when I told my wife, "This shows all the signs of a classic bubble market."

I was pretty sure it was a Vegas-only phenomenon, until I happened to talk to a friend of mine whose wife was trying to break into the travel-writing market. They'd recently returned from traveling the Mediterranean, and, when I told him about the crazy housing market in Las Vegas, he said, "It's not just Vegas. We were just in Bulgaria, and the Aegean coast there is completely lined with high-rise condo developments, in all stages of construction. And - we asked out of curiosity - they're all asking half a million dollars for a 1,200-square-foot condo on the 'Bulgarian Riviera'."

That's when I realized that the housing bubble was a global phenomenon - and that its collapse would be a world-wide catastrophe.

What I could not imagine at the time was that the epic level of irresponsibility I saw on the part of everyone from speculators (who, contrary to the blame-the-poor crowd, were the ones who were driving the demand), to mortgage bankers, to Wall Street derivatives brokers, to (especially!) regulators would continue unabated for FOUR MORE YEARS.

Needless to say, we did not buy a house in Vegas.

Re:What's a bubble?

[Comrade Ogilvy]

Exactly. Betting against The Herd is hazardous, unless you are very sophisticated. That is not a game for the Little Guy to play. Take your money far, far away from the stampede.

The Giant Red Flag was apparent circa 2005 (IIRC), when The Economist magazine noted that housing prices were so far out of skew when compared to rental prices in almost every major metropolitan city in the world that buying a home looked completely irrational as a financial decision.

Re:What's a bubble?

[HornWumpus]

You want 'out of the money' put options for maximum leverage.

Re:What's a bubble?

[HornWumpus]

If spectators where driving the market nobody would have cared when the bubble popped.

The volume of social spending back of this bubble pop more or less proves you false. It was on 'the poor'* driving demand.

*Even with liar loans 'the poor' could not qualify if they told the truth.

Re:What's a bubble?

[thomst]

HornWumpus blathered:

If spectators where driving the market nobody would have cared when the bubble popped.

The volume of social spending back of this bubble pop more or less proves you false. It was on 'the poor'* driving demand.

*Even with liar loans 'the poor' could not qualify if they told the truth.

You are absolutely wrong.

Everybody cared when the bubble popped for several reasons:

• The sudden disappearance of the market for real estate, and the revelation of the VAST oversupply in housing led to a host of foreclosures around the world. They, in turn, immediately reduced the value of all the homes in their neighborhoods, as did the general dilapidation of those neighborhoods, as banks were overwhelmed with foreclosed properties, and neglected maintenance on the homes they'd repossessed.
• The VAST majority of subprime mortgages wound up packaged as derivatives, which Wall Street (and its foreign equivalents) sold as gilt-edged securities. The revelation that they were, in fact, toxic "assets", nearly toppled the economy (and did, in fact, destroy Lehman Brothers). Apparently you weren't paying attention when the US Congress approved a $700 billion bailout for mortgage bankers UNDER GEORGE BUSH, with no disclosure requirement, and no conditions attached.
• The abrupt economic collapse led to banks simply sitting on another $700 billion in Congressionally-approved bailout funds UNDER BARACK OBAMA, rather than loaning that money to individuals and small business holders (i.e. - "Main Street"), which considerably worsened the economic crisis, as businesses, in particular, found themselves in a sudden cash crisis FOR WHICH THERE WAS NO BASIS - except the bankers' greed and stupidity.

And it was, indeed, speculators who were responsible for the VAST majority of subprime loans. If the mortgage industry is so determined to give you free money that they offer you 0% interest for the first six months of the loan, AND they're willing to roll all their fees into the mortgage, AND you're planning on unloading the house you buy in THREE months, AND the market demand is so high that, essentially, your investment sells the day you list it, why wouldn't you take their money? That is EXACTLY what happened, over and over again. To make matters worse, many speculators were able to leverage their ownership of houses (and, worse yet, condos) they had no intention of ever occupying by pledging their titles as collateral for additional loans - which permitted them to build little empires of subprime-mortgaged properties.

Granted, many of the houses these speculators bought were in poor neighborhoods. That doesn't mean it was poor people who bought them.

There are now DOZENS of high-rise condominium developments in various stages of completion in and around Las Vegas. Their occupancy rate runs around 10%, on average. There are still lots of new houses in the area that never saw an occupant. And there are LOTS of houses in poorer areas that turned over multiple times - and were never occupied.

You have NO idea what you are talking about.

And listening to Fox News is not improving your education, either.

Re:What's a bubble?

[dkleinsc]

My story wasn't making a point of "I'm so smart, I saw it!". The point of the story is that anyone who claims that "nobody could have seen it before the crash" is lying, possibly to themselves.

Anyone who wanted to buy a house could have seen it. Anyone who had handled any piece of mortgage transactions could see it. Heck, anyone who had seen TV ads for the mortgage companies that were begging people to buy houses they couldn't really afford could have seen it. A number of economists from a wide variety of political backgrounds and theoretical schools warned about it. And that tells me that those who were trained to see it and had the job of looking for it and preventing it were either hopelessly incompetent or willfully blind.

Re:What's a bubble?

[thomst]

dkleinsc protested:

My story wasn't making a point of "I'm so smart, I saw it!". The point of the story is that anyone who claims that "nobody could have seen it before the crash" is lying, possibly to themselves.

Anyone who wanted to buy a house could have seen it. Anyone who had handled any piece of mortgage transactions could see it. Heck, anyone who had seen TV ads for the mortgage companies that were begging people to buy houses they couldn't really afford could have seen it. A number of economists from a wide variety of political backgrounds and theoretical schools warned about it. And that tells me that those who were trained to see it and had the job of looking for it and preventing it were either hopelessly incompetent or willfully blind.

I could not agree more.

And I didn't mean to imply any criticism of you or your post. It was more of a "me, too" kinda thing, only from the perspective of a mortgage industry outsider.

Re:30 million dollar purchase?

[hsmith]

Jesus, do you people even think before you write this insane stupidity?

The seller pays long term capital gains on the purchase price (IP qualifies instantly for LTCG).

The purchasers get to use it as an expense.

Tax avoidance? Do you even understand how taxes work?

The obvious answer is...

[Anonymous Coward]

No.

Insane financial valuation theories mean we're in a bubble. Big money acquisitions can happen for a number of reasons. A lot of them are side effects of the insane theories. This one isn't.

They didn't pay $30 million for the App with no monetization potential, the second sentence of the first link is "Yahoo said it plans to close down the actual app and use the algorithmic summation technology". They paid $30 million for his algorithm and to hire the talented mind that conceived it. I don't know what's unique about his algorithm or it's results, but that's what the acquisition was about, not the app. Apparently it can do something Yahoo's wanted to do but was unable to accomplish. It may have been a bargain.

The first sentence of the summary contains a claim invalidated by the second sentence of the link. Seriously? Not even the submitter or the editor could RTFA?

Re:The obvious answer is...

[NeutronCowboy]

I doubt that the kid found a summation algorithm that somehow beats what everyone's been trying to achieve for the last 40 years in AI: give a computer the ability to understand text and transform/respond to it in an intelligent way. I'm pretty sure if anyone would have bothered to ask their engineers "hey, can you develop an algorithm that gives me a summary of an article that is approximately as good as this app?", they would have come up with something within a week or two. Three if they were merely average. If they can't, that leaves me with two thoughts: either Yahoo has epically craptacular developers, or it just got the biggest bargain of the last 40 years or so.

Re:The obvious answer is...

[PhamNguyen]

Beautiful false dichotomy there.

Either the acquisition is something that could easily be replicated in 3 weeks by their engineers, or it is a breakthrough that will revolutionize the way AI has been done for the last 40 years. Nothing in between.

Re:The obvious answer is...

[pierrer]

Er, the problem is that this company did not write that algorithmic summation technology at all. They just licensed tech written by another company and made it into an app. Yahoo is not getting the tech.

No

[Hentes]

Bubbles are funded by outside investors. In this case, the money for the big aquisitions comes from other tech companies, which means that they have a way of making that money somehow.

Still time to raise

[gmuslera]

Just wait for government regulations requiring to be secure enough for their promoted cyberwar. There costs of everything will go up.

Compu-global-hyper-meganet

[Anonymous Coward]

This just in, Yahoo to acquire Compu-Global-hyper-mega-net...

We don't know what Compu-Global-hyper-mega-net does, so rather than risk competing with you, we'll buy you out...

Re:what?

[i kan reed]

I don't care too much, but I think the theoretical problem is this: Makerbot used the open-source community to help popularize their product because it was open source. Now they're switching to closed source, it feels like a betrayal of the people who helped them to get popular.

Like I said, I don't care, but it's a perspective I can understand.

hiring bonus

[stenvar]

They didn't really buy the app, they hired the guy. The $30m is effectively a hiring bonus. That's how a lot of the big tech firms attract talent. It's not a sign of a bubble, it's an indication of how difficult it is to find good people. People don't know what it is, but somehow there's a big difference between someone who can program iOS and someone who can make a successful app, and that difference is worth it to these companies.

Re:hiring bonus

[Xest]

What talent were they hiring exactly? The guy outsourced the AI to a 3rd party company and also the Android development too. At best this guy can do iOS front ends and recognise that people like news aggregators that summaries news for them. They could've found far more talent than this in their existing staff whom they'd pushed out of the company by withdrawing the option to work from home for them.

There's literally nothing this kid did, knows, or can do that is worth $36million+

Re:hiring bonus

[stenvar]

They are hiring the kind of talent who recognizes an opportunity, get resources to fund development, and can coordinate and manage a bunch of different developers in order to deliver a successful product. Given Yahoo's lackluster prior attempts at mobile apps, I'd say that's the talent they need. You are right that there is lots of coding talent at Yahoo, but that's not what they need.

Re:hiring bonus

[Xest]

But none of those are $36million dollar talents still, especially as the funding development part was all done by his Dad who worked at Morgan Stanley and already had all the connections required.

This is really the problem, they seem to have paid $36million for a kid who let his Dad handle the business and investment side of things, let 3rd parties do both the hard, and most the easy development, and the only thing that seems even slightly attributable to him was the idea of an "iPhone news aggregator" and a bit of iOS front end development.

I also have to ask if you've even seen Summly? the UI isn't exactly groundbreaking and the output is often pretty useless such that you're better off just using something like Google Currents on Android. Even if you assume that Yahoo wanted this kid for what he's created then that doesn't say that Yahoo is taking him on to massively improve their existing mobile offering, but in fact to offer more of the same - lacklustre apps that may make a million or so downloads (that's all that Summly achieved) but aren't exactly killer.

Honestly, the perceived success of this kid and his app seems to be entirely marketing based, cooked up by his Dad who managed to get Li Ka Shing to stump up a million or so. This is without question a PR coup for his Dad who has turned his son into a multi-millionaire, but it's also more evidence that Yahoo is throwing money down the drain without any real evidence of being able to have anything to show for doing so.

Re:hiring bonus

[Xest]

As an aside, I didn't actually realise until reading a bit more about it just now, but his Dad doesn't just work at Morgan Stanley, he's a VP there. Also, his mother is a lawyer, who works for, guess who?

Yahoo.

So basically the story is this, his Dad knows a lot of people who have a lot of money and got them to invest (Rupert Murdoch, Ashton Kutcher, Steven Fry, Li Ka Shing). These investors used their contact to bring people on board to his company, the people they brought on board are all .com veterans with over a decade of experience.

After a couple of years of hype, and still only 1 million downloads on iTunes, his mother finally stitches up a deal with Yahoo for him.

I honestly wonder now if more than anything what Yahoo was paying for was simply to get in the good graces of people like Rupert Murdoch, Steven Fry and so forth, this seems to have nothing to do with D'Aloisio's talent (or lack of) and be entirely about everyone involved but him - a Morgan Stanley VP, and a whole bunch of rich well known names combined with a media mogul being paid for their services via a conduit called "Summly" through which they get their relative share of the buy out in relation to their original investment.

It makes a bit more sense now, Yahoo pays $36mill, gets some positive PR, the support of a few prominent media figureheads, and a hip young face for it's company. This also explains why they're scrapping the Summly app itself too - even they know it's of little value or relevance and no better than they could do internally anyway.

Re:hiring bonus

[stenvar]

I also have to ask if you've even seen Summly? the UI isn't exactly groundbreaking and the output is often pretty useless

Yeah, so it's like most successful iPhone apps. Successful mobile apps are not about delivering utility, they are about getting people to push the "Purchase" button.

But none of those are $36million dollar talents still

You can say the same thing about Zuckerberg, the Google founders, Gates, and others: none of them had great new technology, most of them had connections. Internet startups in Silicon Valley are much more about image, coordination, and connections than about technical skill and innovation. Furthermore, they didn't just get him for the money, they got his company as well, including the developers.

but it's also more evidence that Yahoo is throwing money down the drain without any real evidence of being able to have anything to show for doing so

Perhaps. But revenue and the market will give them feedback on whether they made the right decision or not. That's the beauty of a free market. (I happen to think Yahoo is doomed no matter what.)

Re:hiring bonus

[stenvar]

And this is different from most other Internet deals and startups... how?

Re:hiring bonus

[Xest]

In Zuckerberg's case he at least did attract funding and so forth off his own back through his own networking and business efforts, this kid couldn't even do that - his Daddy, Murdoch and co. had to do it all for him. Don't get me wrong, I think Zuckerberg is sold as being some kind of technical genius, which he's absolutely not, but what he is is a genuine entrepreneur - he had an idea, he implemented it himself, and he built up a business around it by himself. The same goes for Gates, Larry Page and Sergei Brin. It's not that people like Gates and Zuckerberg didn't have rich parents with decent connections and so forth, but they were at least the ones who did the work - it was they who were the entrepreneurs that built their respective companies, not their parents. Their companies all had something genuine to offer too, a real actual product.

Contrast that to this kid and at absolute best he had an idea (one wonders if he even had that himself), then his Daddy did all the business work, got all the real talent in who managed the company (they hired in an external CEO even apparently so he didn't even do management), and who contracted out the real actual development to third parties.

It creates a false picture - you'll have kids believing they can be just like him and end up soul destroyingly disappointed when it doesn't work out. The media has sold this guy as being just some nobody kid who wrote an app all by himself and off his own back got Yahoo to pay $36million for it. In reality all that's happened is a VP at Morgan Stanley has got a bunch of investors together to build up a company in which he's used his son as a PR figurehead, to flog to Yahoo that doesn't actually have anything of value to offer in itself. Most kids Dad's aren't VPs at Morgan Stanley.

Or to cut a long story short, what I take issue with are the lies - the lies that this was a rags to riches story, the lies that this company had some great new thing, the lies that the kid did it all by himself, the lies that Yahoo has bought in some kind of worthwhile talent and technology with this acquisition.

Re:No. Maturation of a market a desperate CEO

[bobthesungeek76036]

This tells me that the app market has matured and that Marissa Meyer ....

FYI - Her name is Marissa Mayer

Trying to stay relevant ...

[gstoddart]

I think what we're seeing is a bunch of tech companies who got rich in the .com era struggling to stay relevant.

I assume Yahoo still has a search engine, but I've not been inclined to use it or look for it in a *long* time -- like since Google came into existence.

Now with Facebook and all of these other companies which are relatively recent, the old guard is trying to make sure they keep market share and features people want.

And, really, the tech industry has been going through fairly steady acquisitions for quite a while ... it's become normal operating procedure. Buy a company with a product you like so you can get their features and customers, and hopefully integrate the features into your platform.

We may or may not be in a tech bubble, but tech companies have been buying smaller companies for years ... that's just how companies grow these days.

Re:Trying to stay relevant ...

[gstoddart]

it's telling that a company is still running on the vapours of their original core business unit when that business unit no longer exists in their organization

Because once we had web pages, everybody wanted a search engine. And then everybody wanted .com anything. Long about then AOL bought Time Warner, and Compaq bought DEC. Then there was punch the monkey. Somewhere in there portals became awesome to augment your webmail. Then it went all Intranets, web 2.0, and then social media, and now the cloud. Soon it will be something else.

Yahoo as a search company is so 1998, and is passe. Yahoo has been several incantations of the new hotness since. I think mostly webmail and being a news portal, but I'm not sure. But they've had billions, so it doesn't really matter. ;-)

And the problem with companies who were on the forefront of software in the 90's is now they're largely media companies who are trying to still look young and hip -- like an old guy at a punk concert desperately looking around to understand what the young hepcats are doing and if anybody remembers the Lindy Hop. ;-)

Re:30 million dollar purchase?

[Sarten-X]

What would happen if you were to try to write off even a few thousand for mysterious "software" that's market value was comparable to existing "free" equivalents?

Assuming all applicable taxes were paid appropriately, nothing happens.

This is somewhat common. A company, based in Ireland or whatever country is cheapest, sells its services to its American parent company. The American company deducts the expense as the cost of doing business, so it avoids large US taxes. The Irish company pays Irish taxes on its income, but since the rate is lower than it would be in the US, less taxes are paid as a whole. The money then sits in the accounts of the Irish company until it's needed elsewhere.

Yes, it's avoiding paying taxes. No, it's not tax evasion, and it's not illegal. The United States allows companies to deduct certain expenses, and Ireland charges a lower tax rate.

Re:No

[PolygamousRanchKid]

Bubbles are funded by outside investors. In this case, the money for the big aquisitions comes from other tech companies, which means that they have a way of making that money somehow.

. . . which means that they think they have a way of making that money somehow.

Re:No

[MachineShedFred]

This is Yahoo we're talking about.

They don't have a way of making that money somehow. Also, they have no fucking clue what they are doing, and are throwing money at the problem without knowing what the problem is.

google does it all the time

[alen]

i haven't kept up this year, but until a few years ago Google was buying dozens of start ups every year. most with no profits or hope of profits

most start ups end up being acquired because they have no hope to monetize their idea by themselves and need a partner. nothing new. drug industry is like this. small start up companies make the drugs and the brand names you hear about buy them up or the distribution rights. almost like TV and movies.

Re:google does it all the time

[Xest]

Yes but Google wasn't paying this far over the odds for them relative to what they could provide for the company.

For example, Google only paid $50million for Android. So between $36million and $48million for a kid who made an iOS app, most of the work for which was outsourced to other firms and that has only achieved a million downloads (small fry compared to some apps- for example, Evernote's Android version alone has 10mill), or $50million for a mobile OS that's in use on hundreds of millions, rapidly approaching over a billion phones and tablets around the world.

talent acquisition

[mbaGeek]

I'm not saying we aren't in another tech bubble -but I don't think Yahoo!'s buying Summly says anything about the industry in general.

Fast Company probably has it right - that this was more about hiring talent/changing company culture than about the actual business value of the app.

Re:talent acquisition

[Attila Dimedici]

Thank you, now I understand what Yahoo was doing here. One of the things that I realized about three or four years ago is that the tech community is unfairly down on Yahoo. Yahoo is not a glamorous company, but they have been making a profit and they have been doing it consistently enough that it is not just accounting gimmicks. The new CEO clearly has a strategy, and the bits of it I can see around the edges seems to make good sense. She appears to have realized that Yahoo is not going to be the "cool" place to work any time soon, so she has started working on making it a place where people get to do productive things.

Re:talent acquisition

[jafiwam]

The tech community is going to be down on Yahoo until they stop fucking up their email service. It's that simple. They have a decent portal going, but the email is continually hacked via JavaScript or has problems. When that is fixed, the nerds will stop cursing them every chance the get. "my email is broken again" "stop using Yahoo email like I told you last time you dumb fuck."

Re:talent acquisition

[Attila Dimedici]

That is an interesting theory, yet I have never had a problem with my yahoo mail address (one of five I maintain for various reasons).

Re:Bubble

[Rob Y.]

We've been in a bubble economy-wide since the crash of 2007. It's (more or less) intentional, fueled by artificially low interest rates and the Fed pouring money into the banking system. That money has no place to go, so it goes into whatever's trendy at the moment - whether there's real value there or not.

Everyone (again - more or less) agrees that the economy needed the stimulus, but a better approach would have been to pump the money into the economy via smartly targeted (or even non so smartly targeted) direct government spending. Funded, if possible, by new revenue streams themselves defined to have little effect on employment and other economic activity. But we don't have either a functioning market economy or a functioning democracy capable of managing the economy through the political system. So we go from bubble to bubble - or crash to crash, depending on how you view it.

Re:Bubble

[Anonymous Coward]

My guess is that you have a single digit IQ.

There are no budget cuts due to "sequestration." Only reductions in the rate of increase.

Re:Bubble

[ackthpt]

Hold on there pard, I just upgraded the old desktop machine and bought a new DSLR camera ... I didn't mean to stimulate the economy!

Re:Bubble

[ackthpt]

My guess is the latter due to Sequestration. Look out the US Government is going to start severe spending cuts which will trickle down to the bubble...

Whoops! They passed spending until September, without further cuts. Guess that shoots a big ol' Fearless Fosdick-size hole in that theory.

Revenue. Profits.

[Scot Seese]

It doesn't really matter how many downloads an app has, how many page views a website gets, how many registered users a social media site receives, how many subscribers a YouTube channel has, how many Twitter followers a celebrity has, how many potential customers a marketer has in their mailing list database, or any other inflated, meaningless number that is being thrown at you.

Conversion Rate matters. The ability to generate sales, matter. Web 1.0 imploded because websites were being purchased for fantastic sums of money based solely on the amount of traffic to the site, or the site having a slightly novel or unique approach to an old problem. Virtually NONE of the sites had a proven model for earning income. The entire thing could be chalked up to "get eyeballs, we'll figure out how to sell later."

Re:Acquisitions over Taxes

[dehole]

It is in their best interest to take advantage of any loophole, just as normal people would go to a tax accountant to get the most money for our tax return. To do otherwise is silly. Do you really pay more taxes than you should?

If there are loopholes in tax laws, then our representatives should fix those. But our representatives don't represent us, they represent the corporations which spend money lobbying. Perhaps the Onion piece about America hiring a lobbyist is what we should do to get some representation...

Yahoo has a monetization strategy

[jfengel]

Yahoo already has a way to make money off delivering content, one that yields $5B in revenue per year. Several other major companies use the same strategy.

This product may not have a separate monetization strategy of its own, but if it provides a competitive advantage to Yahoo, then it may well provide value to them in excess of the $.03B they paid for it. That's not a bubble; that's paying for an innovation (and one they hope to have a patent on, giving it an even big advantage over its competitors).

This will probably help drive the bubble, as Yahoo's stock price goes up and everybody figures that "buying out some tech guy" is all they need to get rich. But this doesn't seem like bubble behavior in and of itself.

Re:Bubble

[bluefoxlucid]

Keynesians criticizing other Keynesians for being Keynesians. If you all backed off and shut it and let the damn thing crash, we could get back to having a stable market after we pick the pieces up. Keep hoisting that piano higher while the rope continues to fray...

Re:Bubble

[Anonymous Coward]

You would do well in upper management, what with your negative IQ.

Protip. If an employee is forced to take an unpaid day off once per pay period, that is not a "reduction in the rate of increase", that's a fucking cut.

...Advertising

[tuppe666]

Virtually NONE of the sites had a proven model for earning income. The entire thing could be chalked up to "get eyeballs, we'll figure out how to sell later."

...Advertising. Googles profits last quarter hit a record $2.89bn (£1.83bn)

Re:...Advertising

[Scot Seese]

True. Google's case is unique however - their algorithms are the secret sauce, the 11 secret herbs and spices of Google's success. Few companies have managed to duplicate the value and relevancy of Google's search results, or advertising revenue. I have read comments from online entrepreneurs on various networking sites lately that claim that Bing's advertising is getting close, in terms of value per dollar spent. But Microsoft has enormously deep pockets to sink into R&D, and the patience to spend years tweaking and refining.

Google's advertising is many-headed hydra - they will find you in your GMail targeted text links, in your web surfing with display ads based on your web history, on YouTube pre-rolls and banners as you are watching videos, and many, many other areas.

Re:30 million dollar purchase?

[fatboy]

Tax avoidance? Do you even understand how taxes work?

They just write it off! :)

Re:30 million dollar purchase?

[bbelt16ag]

it may be legal, but is it wrong?

It is new world bribery and payouts

[sebo2000]

Father works for Morgan Stanly and Mother is some lawyer. People don’t you really see? It is new world bribery and payouts? Yahoo could write “similar” app for much less, but they do not really need it. Kid got 300k from some investors in the past, then raised another million from Li Ka Shing (look him up) Yahoo or whoever needs to pay, can not pay directly to Li Ka Shing any money to avoid audits and conflict of interest charges and lawsuits, so what they do? Pays the kid 30 millions for some stupid app, 29.5 goes to Li Ka Shing (main investor) the rest goes to the kid. Now those investors got paid off. Kid is in the media selling light of hope for all the losers dreaming about another face book, and all the messes and government have no clue what just happened. As they say if something looks stupid and ridicules probably it is.

Re: It is new world bribery and payouts

[NewYork]

https://en.wikipedia.org/wiki/Quid_pro_quo

Except the product is only the start.

[tuppe666]

I find it hard to believe that someone at Yahoo couldn't reproduce the same app themselves for a few thousand dollars in development cost

Except that is only part of the problem. Apple App Store and Google Play both have 700,000 Applications, if Yahoo did *another* App even if they marketed the Hell out of it...who would notice. Why would they stop using other Applications that they are familiar with to use yours irrespective of origin. There is a reason why only a few Applications of this type dominate.

Re:Except the product is only the start.

[Xest]

Yet Yahoo is actually ditching the app, and gave some fluffy response about how they'll integrate it's ideas into their new offerings.

So that argument is irrelevant, as they have that problem regardless.

Re:30 million dollar purchase?

[HornWumpus]

No, it's not wrong to run divisions in various tax rate locations and include those tax rates in your decision making process.

Is there nothing else in tech to talk about?

[neosaurus]

How many times has this been discussed already?
https://www.google.com/search?source=ig&rlz=&q=site%3Aslashdot.org+tech+bubble&oq=site%3Aslashdot.org+tech+bubble

The discussion on Slashdot has been in decline for some time now.

Re: Happy Tuesday from The Golden Girls!

[Anonymous Coward]

Nice dubs, bro! But, that should be confidant... Not cosmonaut.

Sorry, Betteridge

[organgtool]

This is one headline that I have to agree with, even if the article concludes the contrary. We are coming out of a period in which huge masses of the population were upgrading to smartphones and tablets. Many of those people have already purchased these items and the innovation in those areas seems to be slowing down. The current generation of these devices do just about everything anyone could need and there seems to be little room for improvement. There also doesn't seem to be much hype surrounding possible new tech products like there was leading up to smartphones and tablets. Given that mixed with the number of buyouts and mergers that are frequently indicative of a bubble, and I can't help but think that we are at least standing on another peak in the tech industry. Now if only there was a way to determine when everyone else will come to the same realization.

Re:No

[DogDude]

The companies are taking these absurd risks (absurd in that it's unlikely they will see positive ROI's on most of these deals) because interest rates are so low, there's nowhere to put spare cash. I'm personally in the same boat. I need somewhere to put my spare assets (that earns something), so I'm moving towards riskier and riskier investments.

Re:No

[Hentes]

Those dollars have to come from somewhere. If tech companies can afford to throw that much money on risky bets, then they are doing very well.

Re:No

[JaredOfEuropa]

Not sure if it's about money printing, but a lot of companies seem to favour growth by acquisition rather than natural growth. Don't expand, just buy something. Companies like Facebook might overspend a lot if they are desperate to grow into one of their weak areas (i.e. Mobile), but even companies lacking cash seem to go for a scattershot approach: snap up a bunch of crap in hopes of finding a winner. In case the app purchased by Yahoo, there's no way that app is worth that kind of dough unless it comes with some ultra-rare talent or important IP. Neither is the case here.

No not a tech bubble...

[ZonkerWilliam]

But a Federal Reserve bubble, money is cheap, so companies will spend it on somethings (but not as much as compared to a strong economy).

Re:30 million dollar purchase?

[tqk]

Yes, it's avoiding paying taxes. No, it's not tax evasion, and it's not illegal.

it may be legal, but is it wrong?

What's that got to do with it? Companies care about morality and ethics when they have PR value; that's all. If you don't like it, you can complain to your elected reps to close the loophole. Then expect those companies to physically move their ops to Ireland, or get their finance types to find another way around it.

No

[closer2it]

Not according to Betteridge Law.

Oh... I see... nevermind then.

Re:Bubble

[rrohbeck]

Keynesianism is proven to work and austerity is proven not to work, so what's the point here?

Re: Happy Tuesday from The Golden Girls!

[unixisc]

Looks like the GP AC needs a host file in which to store the correct version.

Re:30 million dollar purchase?

[AK Marc]

If I make $30,000,000 a year in wages, I pay 30%+ taxes on it. If I buy something for $30,000,000, I pay 0% in taxes (it's a purchase), if I sell something for a $30,000,000 profit and deduct nothing, I pay 15% taxes on it, and it's not hard to deduct $30,000,000 off a sale profit. If it's in a properly set up holding company, I pay 0% tax on it, even with no deductions. And yes, anyone moving $30,000,000 around does it through holding companies and trusts. Likely a $30,000,000 profit will generate $0 in tax.

People don't get how the truly rich work. They live by a completely different set of rules that even the rich wannabe can't comprehend.

You really have to ask ?

[Wisp]

If it walks like the last Duck.... ;)

Re:Bubble

[rrohbeck]

I think the central problem is that right now there's more money to be made by gambling and speculating than by investing in the real economy. As long as this imbalance isn't fixed nothing is going to change.

Re:30 million dollar purchase?

[Sarten-X]

I assume you mean "wrong" in a moral context, which is a subjective distinction. The American government has determined that it's wrong (according to American society, supposedly) to make businesses pay tax on those expenses. The Irish government has determined that it's wrong to charge a high tax rate on such income.

The only other question is whether it's morally wrong to operate in more than one jurisdiction according to what's most beneficial. So far, I don't think any international body has dared to regulate such a matter.

Re:Bubble

[Anonymous Coward]

http://en.wikipedia.org/wiki/The_Failure_of_the_New_Economics

"Mr. Hazlitt takes up the General Theory line by line and paragraph by paragraph, discovering scores of errors on almost every page. Not only does he kill Keynes; he cuts the corpse up into little pieces and stamps each little piece into the earth. The performance is awe-inspiring, masterly, irrefutable — and a little grisly. At times one almost feels sorry for the victim. But, since Keynesian doctrines have created so much misery in the world, any sympathy is misplaced. Hazlitt’s job had to be done."

Re:Bubble

[Maxo-Texas]

I have a theory that we were in a huge bubble that would have had catastrophic consequences ( the airplane crashing into the sea) and that the Fed's actions are trying to reduce the impact of the bubble before they let it blow ( the airplane taking a hard landing over land).

And in the meantime, the smart money, people with political power, and so on are all manipulating the plan. Some of them may even be trying to slow us down so we stay over water longer (so they can get more peanuts before the plane lands).

Re:Bubble

[AK Marc]

Cutting one man's pay doesn't mean the budget was cut.

Re:Bubble

[AK Marc]

Because you are incompetent?

Re:Bubble

[bluefoxlucid]

Keynesian economics is based on one-sided math, violates the law of thermodynamics, and associated quantum information dynamics. Essentially the core tenants of Keynesian economics are that bubbles burst and this causes a problem, so keep pushing the economic knobs to keep the bubble going forever. To sustain this you need more credit, more debt, more inflation, and more jobs--and more labor, meaning more people, more output, and more energy consumption. It can't work. Eventually you can't move that much energy; eventually if you can you're still dissipating enough heat into the atmosphere to warm the surface of the earth up to molten slag temperatures. Where's all this productivity going to come from anyway?

Things are somehow expected to get more expensive without a negative impact like poor people becoming poorer?

Re:Bubble

[roman_mir]

Everyone (again - more or less) agrees that the economy needed the stimulus

- please exclude me and millions more people from your 'everyone'. No, there shouldn't have been any stimulus, not a cent should have gone from savers into the pockets of failures via the redistribution system set up by the government.

Re:Bubble

[AK Marc]

The crash without Keynesians involved was called the Great Depression. The current one would be worse, if not for the interference. We are inches from the ledge to put the piano on, and it'll take 10 times as long to set it down than lift it up to the ledge, but you want us to put it down, when that will assure a crash, rather than the risk of raising it another few inches to the ledge because you think we should have never lifted the piano without checking the rope. That's just silly. Sadly, though, your piano analogy was pretty spot on.

Re:Bubble

[gallondr00nk]

Keynesians criticizing other Keynesians for being Keynesians. If you all backed off and shut it and let the damn thing crash, we could get back to having a stable market after we pick the pieces up

That is to suggest we had a stable market prior to the crash? We havn't had a stable market in decades, if by stable you mean few or no bubbles forming and no recessions or stock market crashes.

Higher household debt ratios over the last twenty years as a result of falling wages have meant what was previously just damaging is now becoming catastrophic. The 2008 crash was a lot of things, but one of the things we should have learned was that economic growth cannot be funded from debt. Governments across the western world have completely ignored that lesson, preferring to stick to frankly delusional neoliberal economics.

My point is without addressing the death of the western middle class, unemployment, underemployment, falling wages and spiralling debt ratios we will never have a stable market. We'll just have harder and bigger crashes.

Re:Bubble

[HornWumpus]

Government contractor. Incompetence is rewarded.

Re:No

[mattack2]

Dividend paying stocks.. Get a couple percent a year in dividends, and maybe even make money on the stock price rising.

Re:No

[DogDude]

A couple percent is barely enough to keep up with inflation. That's much too much risk for much too little return. I would expect FDIC insurance for a few percent, as would most people, I'd imagine.

Re:Bubble

[rrohbeck]

Who cares about the theory as long as it works? Macro economics is not based on good theory anyway.

Re:Bubble

[Livius]

Because after every other crash, we picked up the pieces and the market was stable and then there were never any more crashes.

Re:Bubble

[lightknight]

AK Marc, he has you there.

But on a serious note, which contractor is this? Knowing which sector it's a part of might give us a clue...knowing the name of the contractor can tell us whether they had a falling out with a congressman on the 'flying submarine' project or perhaps the 'cure for the common cold' project. I kid. But again, give us names, info, or we know nothing. People get fired every day, in public / private, for many reasons.

Re:Bubble

[Comrade Ogilvy]

What are ascribing to Keynes is exactly the opposite of what Keynes advocated.

The stock crash that heralded the coming of the The Great Depression was created by the policies you criticize -- policies lauded by the Republicans and Wall Street at the time, as a matter of fact.

Keynes observed that when there is significant underutilized productive capacity, there was risk of a deflationary spiral that further disrupts production. Government spending under these circumstances can have a strong positive effect for little dollar cost or risk to long term economic health. It did not take a genius to recognize that when people were starving and shoeless, shoe factories were laying people off, and farmland was left fallow about being repossessed by the bank, a little stimulus can create a lot of useful growth "out of nowhere", without violating any law of thermodynamics. All it took is a little common sense.

The question is whether we have significant underutilized productive capacity in the American economy today. I do not have a strong opinion on that point one way or another.

What I do believe is that a little inflation, by means of monetary hocus pocus or whatever, is probably a good thing when the economy is weak and we were recovery from an asset bubble in housing. That relieves pressure on the housing market, by bringing some homes out from being "underwater". While not glamorous that was probably the right policy to pursue over the last several years. Whether it is worth continuing those policies for much longer is less clear, because the fall off in construction has brought home prices and rental prices roughly in line with the long term historical norms.

Without effecting employment?

[GPS Pilot]

new revenue streams themselves defined to have little effect on employment

How, exactly, do you take money out of the private sector without having a negative effect on employment?

If you have a good answer, you'll be the first person ever to do so.

Re:Bubble

[lennier]

Who cares about the theory as long as it works? Macro economics is not based on good theory anyway.

Yeah, it's time we at least upgraded to a compiled economics, if not a threading p-code interpreter.

Re:Of course there is a bubble

[PPH]

There's something to this. Corporations are sitting on huge piles of cash. Fixed income investments aren't paying diddly. Governments have huge outstanding debts and a motivation to inflate their way out.

So buy something. Anything*. As long as there is another sucker^H^H^H^H^H^H^Hinvestor in line to buy the asset for more down the line, you'll do fine. As long as you keep a close eye on the price of tulip bulbs.

*As long as you don't give it back to the owners as a dividend.

Re:Bubble

[MerlynEmrys67]

Ok - So I raise your pay from 50K to 100K. Now I ask you not to come in one Friday per 2 weeks, paying you 90K.
Is that a pay cut or a reduction in the rate of increase?

Re:Bubble

[houstonbofh]

Because in our economy, bubbles are essentially a natural state. They constantly come and go. Sometimes they get quite big and attract attention, but they are always bubbling around.

Re:Acquisitions over Taxes

[Wookact]

You are mistaken, it is only in their short term best interests. When it really hits the fan, their short term benefits wont mean much anymore.

Re:Bubble

[AK Marc]

I wasn't being serious for the reason, but pointing out the silliness of claiming layoffs at a contractor is proof of cuts. There are hundreds of reasons why the contractor could have tightened. Insulting an AC was just bonus. As you pointed out, without details, it's useless. I've seen a number of people on Slashdot that lie for effect, knowing that as an AC, all they have to do is run away from any further questions, and nobody could be able to prove it was a lie.

Re:Bubble

[SleazyRidr]

If we actually had Keynesianism maybe we could "prove" that it works. Everyone wants to spend money in a recession, but no one wants to stop the spending when the economy starts to turn good again. Hence we get these booms, which inevitably lead to busts.

Re:Bubble

[AK Marc]

Essentially the core tenants of Keynesian economics are that bubbles burst and this causes a problem, so keep pushing the economic knobs to keep the bubble going forever.

I think the reason it gets such a bad rap is that the people who don't like it don't understand it. Spending stimulates the economy. That is all. The rest is applications of it.

If you personally save money when you have a job for times when you might be without one, then dip into the savings when you are jobless (and yes, this includes retirement), then you are Keynesian. Anyone who saves for retirement follows this economic model. If you plan to work until 2 hours after you are dead (to pay for the funeral), then you are not Keynesian.

All the rest is implementation detail.

If you have to ask,

[Nyder]

then no, it's not.

Re:Bubble

[AK Marc]

The rich still have trillions to invest. They waited through the bailout period to see where things settled. Not that things are getting to a more stable base, they are re-entering the more speculative investments. It's not a bubble, it's just a few billionaires moving a few million dollars here or there. This is news like my coworker buying $500 gold is news. He thinks that fiat gold will beat fiat cash, so he buys some sometimes. Moving around a little cash isn't news. Billionaires buy and sell companies like we buy and sell cars.

Re:Bubble

[IamTheRealMike]

Wait, you think the Fed is trying to deflate the bubble? No no no, that's not how it works at all. The Fed has a more or less explicitly stated goal of buying up the bulk of low risk assets in order to force people into higher risk assets like the stock market, and they're doing it with money printing. The stated goal of all this being employment at any cost. If the jobs that are created are all stupid or useless, no problems. That's the great thing about planned economies - you can artificially manipulate statistics but it has a way of not achieving your real goals in the end.

What's more, they're getting nervous about what happens when they try to unwind their positions, as those positions have become so huge - in other words they aren't sure they can safely deflate the bubble they've created without an almighty bang. See the recent FOMC notes or Bernanke's testimony to Congress on the matter.

Anyway, this purchase by Yahoo is a fail move. I have no idea if Summly is good or not, it might be the best thing since sliced bread for all I know, but the question is - could Yahoo really not have built something similar given $30 million and some headcount in their home town? Of course they could. It's just an app. It has less than a million downloads, so that's more than $30 per user which is absurd. It speculates in the article that the real reason for the acquisition is pretty much fashion-driven - the creator is "well spoken and adorkable". Adorkable? Urgh. I think there's an even simpler explanation - Mayer is trying to revive Yahoo by cargo-culting strategies she witnessed at Google. Unfortunately, splashing out megabucks on fluff purchases of questionable startups is pretty common at Google which can get away with it due to its huge bank balance. It can afford to write off huge purchases as worthless time and time again without anyone really noticing (see, the Groupon clone that was sold back to its founders as a recent example). This is not a key part of Google's success story, but Mayer doesn't seem to care.

What's especially got to hurt at Yahoo, which has seen a lot of layoffs, is that the "everyone works from HQ" policy doesn't apply to Summly. The creator will continue to live in England with his parents, and only two of the employees will join Yahoo. And they only handcuffed him for 18 months! What a failure. He'll be out of there the moment his 18 months is up and Yahoo will have flushed $30 million down the toilet.

Re:Bubble

[rrohbeck]

Agree, if you refer to the US. Other governments can do it.

Re:Bubble

[rrohbeck]

How does this contradict what I wrote?
Keynesianism has worked every time from the US before WWII to Germany (Sweden, Finland) right now.
Conversely, check Ireland, Greece or Spain for how well Austerity works.
The only alternative to Keynesianism is default a la Iceland or Cyprus.

Re:The obvious answer is... Dilbert!

[gbjbaanb]

I swear Scott Adams is spying on everyone of us

http://www.dilbert.com/fast/2013-03-16/

Re:Bubble

[rrohbeck]

That banks and large corporations have too much political power has nothing to do with Keynesianism.
If they had less power, less money would be allocated to support them. A couple more Elisabeth Warrens in Senate and Congress would do this easily. But of course you have to convince a few more people to vote for these evil commies.

Re:30 million dollar purchase?

[TheRealDevTrash]

Once we get Obama elected for a second term he's gonna fix this, guaranteed!

Re:No

[triffid_98]

A couple percent is barely enough to keep up with inflation.

No, it's not even close to actual real life inflation (vs the fake numbers the fed feeds us). When their '2% inflation' factors in things food and gasoline please let us know.

The other thing that couple of percent blue chip buys you is a hedge against the dollar. Since the stock price is denominated in dollars, as the dollar falls the stock price should (in theory anyway) rise accordingly, assuming a devalued dollar doesn't hugely impact their actual bottom line.

Re:Bubble

[AK Marc]

Bailouts aren't stimulus. Equating the two means to me that you either don't understand the issue, or are purposefully changing the subject because you know your opinion to be wrong, but will lie to yourself to conceal that.

Stimulating the economy by funding nonsense still makes no sense.

Yes, it does. The economy slows because money flow slows. Moving more money stimulates the economy. Though, the part missed in the recent plans is that it must do something useful.

Re:Bubble

[ChrisMaple]

Keynesianism is one of the possible results/tools of a government that is too big. A government without the power to help big businesses does not help big businesses.

Re:Bubble

[ChrisMaple]

CNBC is a reliable source for nothing.

Re:Bubble

[ChrisMaple]

Keynesianism provides an illusion of success for the problems that Keynesianism causes. Greece and Spain are examples of the folly of continuing to give money to the idle poor, which is how they got where they are. All the extra "stimulus" money they've been receiving for the last few years has been used to prop up that social policy; if they're sent more money, they'll continue to do it - orchestrated riots will force it.

Re:Bubble

[HiThere]

What you're missing is that every week a new field of expertise is automated. Those jobs go away and never come back, bar the kind of crash that leaves large numbers of people dead (as in 50% of the population). New jobs open up, but not in nearly the same numbers. And they need to be trained for, so it takes time to fill them. (Usually there's an acceptance of sub-par skills at the beginning, but I remember advertisements for programmers with 5 years of Java experience the week after it was first released.)

This means that an economic bubble can't translate into jobs for the people who were displaced, no matter what approach you take.

That said, I would have supported government expenditures to build infrastructure. It wouldn't have solved the job loss problem, but it would have helped. Dumping money into the banks was of really dubious value. A big project to repair the countries roads, bridges, and telecommunications system would have had actual value. (Just don't give a bunch of companies lots of money under a vague promise that they don't need to live up to...like the last time the government paid to upgrade the telecommunicaitons.)

O, and also when the government buys something, that something is owned by the government. If they pay you to put in some wires and run telecommunications on them, THEY own the wires. Similarly, if they pay a company to put in some wires and run telecommunications on them, THEY own the wires. And land acquired through eminent domain should be property of the government, not some third party. (I know the courts have approved the transfer to a third party, and I consider the courts that agreed to that to be ipso facto corrupt. No further evidence is required.)

Re:Bubble

[Zynder]

Budget cuts, reductions in the rate of increase, sequestration, whatever bullshit politically confusing words you wanna call it, the effect is the same: I'M GETTING LAID OFF. Isn't being pedantic and insulting a sign of single digit IQ?

Re:Bubble

[rrohbeck]

That is complete BS. Keynesianism is about the economy as a whole and unemployment, not helping big corporations.

Re:Bubble

[rrohbeck]

Ah so you say let them starve, they don't deserve any money?

Re:Bubble

[HornWumpus]

Name one?

Re:No

[ChrisMaple]

Yahoo has a profit of almost $4e9 a year on revenue of $5e9 a year: profit margin 79%. However, revenue is up less than 2% vs a year ago (negative accounting for inflation) and profit is down 8%.

Simply, they're losing ground and have oodles of money ($4e9 at the moment) to turn things in the right direction.

Whether a wise acquisition could help their future is unclear. If they buy good people will they destroy them? Or will the people destroy Yahoo's current executives, like the Scully-Apple-Jobs fiasco?

Yahoo has enough money to buy Advanced Micro Devices and put AMD on firm financial ground (for a while, at least.) Would that be wise?

Re:Bubble

[rrohbeck]

Germany.

Re:Bubble

[Livius]

None of the structural flaws in the economy have been fixed (or even acknowledged), so it's a given there is a bubble of some sort happening. Or perhaps several.

Re:[F your Citation Needed]

[HornWumpus]

It's good to finally see some blood among the 'civil service/govt tit' people.

When real estate prices in the D.C. burbs start to fall, only then have we started to 'starve the beast' enough. Contractors? Nothing. I want full time federal workers 'made redundant' by the million! It's the one bright thing I see coming. Of course they will start by firing mostly the wrong people. Maximum pain by design kind of moves.

You believe what they tell you? I think we've identified the first problem.

Re:Bubble

[Maxo-Texas]

Actually I do. The CDS's would have had an impact of about 58 trillion dollars if they all blew at the same time.

Now they've had 4 years to bleed that down a bit. Bulldoze a bunch of houses. Unwind trillions of dollars of credit swaps. Change the laws to allow banks to put non-performing loans on the books at whatever value they care to assert.

So maybe instead of a catastrophic explosion which destroys the entire world economy and requires a reset- we get an extended recession followed by a short depression.

I agree with you tho- they've had to print a lot more than seems reasonable. I'm surprised inflation hasn't been worse tho I'm starting to see some scary signs. Some assets seem to be going up 20%+ per year now.

Re:30 million dollar purchase?

[fearofcarpet]

I gather the way it works in Multinational Corporation Land is that the holding company with the cash is a "subsidiary" that is a PO Box in Ireland that buys a $100,000,000 asset from the USA-based parent company for $30,000,000. The USA-based company then buys the app for $30,000,000 from a third party, sells it to the subsidiary for $1 and claims a $69,999,999 loss to the IRS. The subsidiary then licenses the app back to the parent company for 110% of the revenue generated by the app in a package deal that includes transferring the $100,000,000 asset back to the USA-based company (companies can be tough negotiators with themselves). All the profits are booked in Ireland and the losses in the US and the headline is "USA-Based Company Buys $30,000,000 App." Then again, maybe I just don't understand all this complex business stuff, which is why senior executives make 400X my salary.

Re:30 million dollar purchase?

[AK Marc]

You also forgot, "Set up lobying organzation in the US as recognized non-profit, donate all US profits to the wholely owned subsidiary who will spend it all in a manner the parent company would if the subsidiary wasn't." Yes, I've seen that done more than once.

Re:Bubble

[bluefoxlucid]

Whose money is being spent? Who pays for this spending? What is the opportunity cost? How does that impact the economy?

The US just passed a bill by which the USDA is going to purchase 500,000 pounds of cane sugar for the expressed purpose of keeping the price of cane sugar high. This means poor people must pay more money for cane sugar and products containing cane sugar. This means that society partly loses out on cane sugar (loss of wealth: some people can't have cane sugar). Also, the impact is estimated at $1.4 billion per year in spent taxes (taken from the populous), which props up 50,000 jobs in the Cane Sugar industry but has a negative impact on 500,000 jobs in the rest of the related economy, causing reduced salary and reduced job availability--the total economic impact is estimated to be extremely negative, but it works out for the cane sugar producers (high prices) and the corn lobby (HFCS) both.

Spending stimulates the economy. What's your bank account # and sort code so I can spend your money?

Re:30 million dollar purchase?

[Sarten-X]

Let's go ask a society that engages in human sacrifice... Or the death penalty... Or vigilante justice... Or a "justifiable homocide" defense...

Morality is subjective, but it's not consciously determined by individuals. It's determined by the society as a group, and most societies have determined that most forms of murder are wrong. Societal changes are slow, but they do happen in a few generations.

The whole point of morality is that our brains have evolved mechanisms to warn us (via a "that's wrong" disgust reaction) about things the rest of our tribe won't like. We do this by taking commonly-encountered concepts and internalizing them so deeply that we no longer include them in the rationalizing process. While that prevents us from trying to make excuses for our biggest offenses, it also makes us rather slow to adopt changes.

Re:Bubble

[Comrade Ogilvy]

Righteous hyperbole makes for an incoherent policy, as you aptly demonstrate here.

First of all, there is no direct connection between a home being "underwater" and whether the housing asset is affordable by the family dwelling therein. Lots and lots of people who are underwater can afford their mortgages just fine, and the fact that we have a merely a few millions foreclosures annually instead of a tens of millions in the last few years proves the point.

Second of all, relieving pressure on the housing market actually encourages those who are unable to afford their homes to leave. They can choose to make an orderly normal sale of the home to an interested buyer, thereby mitigating potential financial damage to both the lender and the present owner. That is not a band-aid, that is genuine healing of the particular problem.

Re:Bubble

[AK Marc]

Spending stimulates the economy. What's your bank account # and sort code so I can spend your money?

I'd rather be rich in a depression than poor in a boom cycle. So no, you may not have my bank account number. But that doesn't disprove the idea of spending stimulating the economy. And no, bailouts and welfare for the rich aren't "spending". Spending is building thousands of big things. Hoover Dams, and piles of town halls and town squares were built under the original stimulus. The equivalent today would have been to hire tens of thousands of people to be ditch diggers and lay fiber to every address in the US, build roads and trains across Alaska, and anything else that's labor intensive, but will last for hundreds of years once done. That's stimulus.

That you are purposefully playing dumb doesn't change what it is.

Re:Bubble

[bluefoxlucid]

In principle we could destroy wealth by building temples and tearing them down again, or manufacturing a bunch of shit and burning it, or digging holes and filling them back in again, or building great big things like Hoover Dams and piles of town halls and town squares with no potential to monetize them.

You're deciding that you should take money from entity A and give it to entity B to spend because entity B knows how to increase the wealth in the economy better than entity A. You're proposing that the Government is the ultimate wealth creator, that the Government should take money away from the businesses (all business taxes), the working man (payroll tax, social security tax, personal income tax), the rich, the poor (sales tax, cigarette tax, alcohol tax), everyone they can, because that money is better spent by the Government. The hardship put on the poor is balanced out by the new things the Government creates. The reduced salaries, the reduced number of jobs open because a $60k position costs a business $75k after payroll taxes and social security (so every 4 jobs costs 5 jobs, so instead of a 5th job you pay the government that 5th position) are offset by the Government creating $20k or so of salary going out for every $60k position coming in.

This stuff destroys wealth. You purport that this stuff creates more wealth than it destroys. I purport that you destroy $100 of wealth by all the taxes for all this 'stimulus spending' and may not necessarily create $100 of wealth by stimulus--maybe you create $90 of wealth, or $70 of wealth, or $50 of wealth. Do you honestly think the Government removes $100 from the economy, throws down $100 of 'stimulus' of money it just took OUT of the economy, and generates $200 of wealth?

Go be a Soviet.

Re:Bubble

[AK Marc]

You're deciding that you should take money from entity A and give it to entity B to spend because entity B knows how to increase the wealth in the economy better than entity A.

No, I'm not deciding anything. I'm stating that skimming off the top in a boom and spending it in a bust will help stabilize the economy. If that's private people doing that or the government doing that is unrelated to the process. Please pick one. Either we are talking about the concept of saving in good times and spending from savings in bad times, or we are talking about how well a governmental body can implement a fiscal policy (any policy) in a highly politicized framework. Just pick one. Bouncing back and forth to claim to always be right when you never say anything about either doesn't make a compelling argument.

Re:Bubble

[HornWumpus]

Public debt at 80% of GDP. Better then most, but still no.

We'll see how it looks after they have to pay for their own defense. And of course the 'defense' of western (France), eastern (Poland), northern (Scandinavia) and southern (Austria) 'greater Germany'.

Re:30 million dollar purchase?

[cwsumner]

it may be legal, but is it wrong?

Is it wrong for the federal government to tax people's income? Actually it -is- wrong, the US government was designed to run on only the import taxes on goods bought from other countries. The income tax was a mistake, like lighting a fire on your living room rug to get warm!