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Silicon Valley Could Be Heading For a New Stock Collapse.
First time accepted submitter billcarson writes "Even though for most of us the recession is far from over, analysts are worried the technology sector might be near the end of a bubble. Technology stocks are at records highs at the moment. Companies that have no sound business plan have no difficulty in raising capital to fund their crazy dreams. Even Yahoo is again buying companies without real profit (Tumblr). Andreessen Horowitz, a major venture capitalist in Silicon Valley is already pulling up the ladder. Might this be an indicator for more woe to come?"
Remember that bears have predicted 60 of the last 3 stock market crashes.
The problem is a *debt* bubble. Either the debt is extinguished in a bubble collapse - housing, stock market, student loans, tech stock, etc., or it becomes inflationary. As long as debt is above a sustainable level there *has* to be one bubble or another.
The point isn't that all of Silicon Valley is as incompetent as Yahoo; but that the cash is flowing freely enough that even a company whose business model appears to be "Try to be Google, as imagined by an AOL user" can throw a billion dollars at some goofy blogging platform.
Now, I would not be at all sad to see fewer smart people wasting their lives trying to find new ways to get me to click on ads or analyze my behavior to sell me shit, (and there's a disturbing amount of brainpower going down the toilet on just that problem at the moment); but the trouble with a big wave of easy, dumb, money is that, while the crest is a blast, it can easily take down even solid people and ideas when the VCs eventually get spooked.
Just remember how much fun the economy of more or less the entire developed world managed to have, just because some banks were gambling on US real estate. Barely any connection to whether the economy of people who actually do and make things was stupid or brilliant, doing well, or doing ill; but down it came...
Um, I think you've reached your metaphor quota for today. Thanks for coming out. Anything of substance to share?
You know Yahoo has positive earnings, right? It's net was more than a billion (EBITDA) last quarter.
In July it overtook Google as the most visited US web property and remains #1 to date (comScore)?
Desperate moves?
You kind of have this backwards. It because everybody is looking for return when there is none.
Normally when the central bank prints money this pushes up inflation. During inflation real assets, such as stocks, tend to hold their value which pushes up their prices.
Quantitative easing is not (currently) causing inflation mainly because the economic is so anemic. Take a look at 10 year TIPs and one comes to the conclusion that inflation will be tame. But an anemic economy does not generate great stock returns. Historically the government bond market has real returns of 2% and the stock market a real return of 7% (plus another 3% for inflation.) Now it is closer to 1% to 4%. Pensioners can’t live on these returns.
So anything that can deliver yield from junk bonds to junk stock is being snapped up. Or we are kind of talking about the same thing – a chicken and egg problem – just we place different emphasis on different parts.