undefined | Better HN

0 pointsekidd11y ago0 comments

As Keynes famously observed, "Markets can remain irrational longer than you can remain solvent" (while betting against them). Markets can look bubbly for many years before the bubble bursts.

Having lived through both the first dot-com bubble and the recent real-estate bubble, I've noticed a pattern:

1. Natural cynics think things are looking a bit bubbly.

2. Years pass.

3. Society as whole becomes heavily invested in the bubble. I can't go to a cocktail party or family reunion without people buttonholing me to talk about tech stocks or real estate.

4. An ideology is invested explaining why assets of category X will undergo very long-term exponential growth. During the dotcom boom, it was "Dow 36,000". During the real estate boom, it was "If you don't buy a house now, you'll never be able to afford one." (If you're cynical, you might assume this kind of delusional hype is an effort to find one last fool to buy in before the party's over.)

5. The whole thing explodes messily.

So for me, those are the warning signs: Society-wide buy-in, and new ideologies that explain why "X will always go up." Oddly, this means I'm not too worried by a near-term tech bubble, despite the hype and money in San Francisco: I'm not seeing the widespread public buy-in and rampant wishful thinking I've seen before. Of course, this may be because few companies are undergoing IPOs, and the bubble is limited strictly to private capital.

0 comments

5 comments · 2 top-level

wahsd11y ago· 3 in thread

That last sentence is rather valid. The US alone has been pumping trillions after trillions into the US and global economy, which has not resulted in general official inflation. But that money went somewhere, and it went into corporate coffers, financial houses, and the private pockets of the wealthy who are all "investing" it like it's not their money, which it isn't really.

I am not sure, but it does not strike me that there is another example of the current type of scenario in all of humanity's history. It's not like the lead up to the 1929 market crash because there are no margin calls since the government just gave away free money and even paid the wealthy and their shell organizations, aka, corporations to steal even more money. It's just unimaginable amounts of money sloshing around in the global market without anything productive to apply itself to. It doesn't want to construct residential in the US because that would depress prices and rents, it keeps being pumped into land and real assets and maintaining artificial housing and rent prices, ....

Although I think there is a great storage of inflation just barely being held back by a policy dam, if that dam doesn't break, I think the outcome, the effect will be a social one. Desperate regimes of the wealthy paranoid about losing the wealth they looted will resort to ever increasing repression to assure their Precious remains with them and their heirs for generation after generation.

Progress is made when there are constraints and problems need solving and things need improving. But what happens when we are all essentially trust fund babies that have no parameters, no limitations, losses are meaningless because it's not money we earned, and "success" is easily seen as such because it is measured by state rather than delta. By all current measures, if you have a successful business / economy no one really cares that you essentially bought the facade of success with your undeserved trust fund / made up money. We can see the effects on the poor, where the impact of our policies are being felt in silent suffering. I suspect the result of at least the last 10 years of policy will be an era of impoverishment not seen in 100 years in the USA in the short term, and another era in human history of stagnation and eventual oppression as humanity turns in on itself if the unearned, and unwarranted wealth is not recalled. Ultimately, what wealth, i.e., money is, is a relative measure of power and especially the US government gave the crooks that defrauded us and almost destroyed America the keys to the vault.

AJ00711y ago

I'm hardly the expert to comment on this, but I'll make the response just for future historical reference (may be I am completely wrong.) Certainly there is a bubble in asset prices now, presuming interest rates do not remain zero or negative forever.

The great irony is that at some point extra money can deflate prices rather than increase depending on where that money is applied. E.g. build enough solar panel factories in China and eventually everyone gets to flood the market with cheap solar panels. So it is not clear that more cheap money will increase prices for a very long time. The second irony is if the Fed and other central banks hit their goal of increase prices, the wealthy won't feel anything but it will hit the poor and middle classes very, very hard. As in choosing when to eat meals hard.

The thing most analysts miss is there is all of this 'new' money but we still have huge future liability holes. This is both with debt which requires future cashflows to pay off along with future promises which may not be able to be met. This is very apparent in underfunded pension funds. Despite many different metrics pointing to all time highs in US stock market valuations (many ways to cut this pie) we still have big pensions funds that are 50% funded or less (Illinois & Chicago for one.) That is with expected 7%+ returns year after year in to the future. If their future gains are a lot lower its even worse. Pension fund problems are visible, insurance, annuities, etc are opaque. There could be huge problems there still. Banks aren't even that well capitalized still.

We could imagine quantitative easing, money printing, and cheap money as something that could be shoveled in to huge holes of "negative" money. As long as those huge holes exist, the stimulus is not going to perform as expected. If the stimulus is through more debt its plausible these holes are staying the same or getting larger. Certainly it is possible that all of this money has done a great deal already including preventing wide spread bank failures.

My general thesis is we are in a period of time where technology and monetary policy are in direct and absolute conflict with each other. Monetary policy is totally reliant on inflation to pay off future debt and claims. On the other hand, technology is about delivering more at a much cheaper price. We want a market for $1000 iPhones, not $1 billion iPhones. We want software that delivers 1000x more value to a customer, not that costs 1000x more. Fuck, hn wouldn't be here and we would all be living in a bizarre universe if things were the other way around. May be there would be the global market for 10 supercomputers or whatever was once predicted.

Gustomaximus11y ago

> presuming interest rates do not remain zero or negative forever

Slightly off topic but I don't believe US interest rates can go up without creating a massive issue for the US economy. From the link below: "a 5% increase in interest payments for the federal government would cause the level of federal debt to rise to $85 trillion over the next 20 year". So should the Fed reserve return interest rates to a historically normal level before the government significantly reduces debt (which seems unlikely) they would likely crash the US economy.

http://danielamerman.com/va/Conflict.html

1 more reply

happyscrappy11y ago

You must be totally horrified that the EU is doing their own QE.

aliston11y ago

I'm not seeing the widespread public buy-in and rampant wishful thinking I've seen before.

I am... there is way too much funny money floating around into companies that have virtually no chance of ever becoming profitable. There's also a ton of institutional money being funneled into late-state companies (in much the same way that it funneled into real estate in 2007), trying to replicate the Yuri Millner/Facebook model -- but how many of those companies will become Facebook? If you need a laugh, check out the latest interview with the Slack CEO:

It’s pretty straightforward. I’ve been in this industry for 20 years. This is the best time to raise money ever. It might be the best time for any kind of business in any industry to raise money for all of history, like since the time of the ancient Egyptians. It’s certainly the best time for late-stage start-ups to raise money from venture capitalists since this dynamic has been around.

And as a board member and a C.E.O., I have a responsibility to our employees, to our customers. And as a fiduciary, I think it would be almost imprudent for me not to accept $160 million bucks for 5-ish percent of the company when it’s offered on favorable terms.

We don’t have an immediate use for that money. But it increases the value of our stock and can allow potential employees to take our offers, and it reinforces the perception for our larger customers that we’ll be around for the long haul. All of that stuff.

j / k navigate · click thread line to collapse