8 ms·

I think that this is just the beginning. In my opinion, we're heading for a tech bust that's going to spread to the rest of the economy, and deflate additional

by danjayh 11y ago

I think that this is just the beginning. In my opinion, we're heading for a tech bust that's going to spread to the rest of the economy, and deflate additional bubbles (housing, for one). The government has been pushing cheap money for the better part of a decade in the name of creating the appearance of a 'recovery', but what they've really done is build a new house of cards. Make no mistake: the 'free' money that's been gushing into major institutions under the current administration is just as distortive and will be just as disastrous as the 'free' money that the last administration encouraged banks to put into the hands of sub-prime individuals. Maintaining a near-zero interest rate creates artificial demand, and encourages investment of capital in inefficient enterprises. The thought process is "hey, I lose value with money in the bank. I'd be better off if I found something -- anything -- else to do with it!" I think that once things take a turn, housing will also turn again, because in many areas the median house now costs enough that it's beyond the reach of the median person. That environment is unsustainable over a large time scale. Ultimately, we'll need a correction that sticks if we want to avoid repeating these events, and for that to happen we'd need a government willing to tolerate a politically unpalatable permanent reduction in asset prices. (edit/note: I do find it odd that under a Democratic president, the major flows of borrowed cash (debt) have been directed to the big guys, while under a Republican president, they were directed to the little guys. Both were a terrible idea, but it seems backwards for what one would expect.)

shostack 11y ago
Do you have data to support that a few unicorn valuations being corrected will spread to the rest of the economy, particularly housing and not just be largely limited to private markets and investors?
- danjayh 11y ago
  Yes and no. With regard to spreading, just prior observation that adjustments tend to spread. With regard to housing, the observation that the median home price : median income ratio is now above 5.2x, while at the last peak it was only at ~5x. The rate of growth is lower this time, but I don't think it matters because the ratio is still really bad. http://politicalcalculations.blogspot.com/2015/04/the-current-trend-for-us-median-new.html http://politicalcalculations.blogspot.com/2015/04/the-curren...
  - pfarnsworth 11y ago
    During the last bust home prices went up not down. Because investment rotated from stocks to housing. Why won't that happen again, especially with ZIRP?
sawthat 11y ago
I predict, that in the future, there will be a recession. Also, at some point, an economic boom. Feel free to quote me on that. I am unable to give exact dates, but there is a 25% chance that it will begin in the spring (what year, I cannot say)
- danjayh 11y ago
  I'll nail it down a little for you. I think it's going to be within two years, based purely on asset valuation : income ... which isn't a particularly sophisticated way to analyze it, but when people can't afford things anymore, they stop buying them, and that has predictable effects.
  - an4rchy 11y ago
    If you strongly believe this, you could do something similar to what the guy did in 'The Big Short', short the relevant markets within your timeframe and you'll be recession proof.
    - eli_gottlieb 11y ago
      That forgets the primary lesson of the film: markets can remain irrational longer than you can remain solvent, and doubly so for rigged markets.
  - enraged_camel 11y ago
    I think you should both put your money where your mouths are: longbets.org
    - nostrademons 11y ago
      Don't even need Longbets; just invest in or short the stock market.
      - clock_tower 11y ago
        Shorting is very risky, since the downside risk is unlimited if you guess wrong. (Imagine shorting Microsoft based on the low quality of their code, sometime around MS-DOS 1.0.) It's better to buy businesses that will go up when the market goes down, or ones that are recession-proof in general, while avoiding cyclically sensitive businesses and, especially, any sectors that are about to have bubbles burst in them. If the near future is the unicorn version of the dot-com bubble, its aftermath would be a good time for tech stocks you're interested in.
pfarnsworth 11y ago
The money under Bush went to the Iraq war, which benefited the "big guys", not the small guys. The small guys have yet to ever benefit from anything.
- danjayh 11y ago
  I was referring specifically to the cheap debt. Yes, the much of the spent money under Bush went to the Iraq war, and under Obama much of it went to 'stimulus', and both items hurt us all (through inefficient use of resources) while benefiting large enterprises.
  - mmanfrin 11y ago
    TARP was passed under Bush.
    - saalweachter 11y ago
      Obama did have the $831 billion ARRA, but that pretty much was done after about two years.
- maneesh 11y ago
  well---now they have plenty of food, medicine, internet, education---sometimes a rising tide can help raise a lot of (but perhaps not all) ships.
- 13thLetter 11y ago
  > The money under Bush went to the Iraq war, Not really. The Iraq and Afghanistan wars together cost something on the order of $750 billion, which was less than one year of stimulus spending at the beginning of the current administration.
  - assface 11y ago
    > Not really. The Iraq and Afghanistan wars together cost something on the order of $750 billion, which was less than one year of stimulus spending at the beginning of the current administration. Ignore this person. They don't know what they are talking about. The estimate cost of the Afghan + Iraq War is estimated to be $4-6 trillion when you account for long-term medical care and disability compensation for service members, veterans and families, military replenishment and social and economic costs. Source: http://www.hks.harvard.edu/news-events/news/articles/bilmes-iraq-afghan-war-cost-wp http://www.hks.harvard.edu/news-events/news/articles/bilmes-...
Domenic_S 11y ago
> in many areas the median house now costs enough that it's beyond the reach of the median person I don't see it. Maybe bubbly areas like SJ will correct a bit, but at the end of the day real estate is a supply/demand calculation. YoY% increases don't look like they did in the last bubble. The more people who want to live somewhere -- whether renters or buyers -- the higher the prices go, until sales start dropping off. Real estate is like anything else: it's worth whatever you can convince someone to pay.
- danjayh 11y ago
  http://www.economist.com/blogs/graphicdetail/2015/11/daily-chart-0 http://www.economist.com/blogs/graphicdetail/2015/11/daily-c... EDIT: I am specifically referring to the "Price to Income" chart in my comment below, not the one that shows up by default. Sorry for the confusion. -- Uncheck everything but the 'US' graph. Different data sources give different ratios, but they all show that it's still well above historical norms & headed up. Some data sources say that it's already approximately back to where it was in the peak (see a link further down, that chart is up-to-date), others like this one only show it ~1/2 way there (note tat this chart is two years out of date), but either way we're above what has been stable in the past.
  - Domenic_S 11y ago
    Without numbers it's hard to tell, but it looks to me like the curve is even gentler than 99-03. It's almost always going to be going up and to the right until the population starts shrinking. People are just stubborn and think that if they can't afford the type of house they want in the type of neighborhood they want in the city they want, then housing must be in a bubble and out of reach.
    - danjayh 11y ago
      Assuming continuous inflation, the absolute price of housing will always increase. However, affordability decreases as the ratio of housing price : income increases. There is a limit above which a vast swath of the population can't afford houses, and somewhere just beneath that limit lies another at which the price of housing collapses. That's assuming that the effect of speculation never becomes large enough to outweigh a collapse of real demand.
pjc50 11y ago
The trouble is that widespread leverage means that asset price falls detonate the entire system unless capital is backfilled somehow. That was why state credit was so widely extended to banks in trouble: the risk that collapsing bank A is in debt to bank B, which then collapses in turn taking out banks C, D, E, the payments settlement system, and the ability of people to get money out of ATMs. It's not so much that any one entity is "too big to fail", but all the big entities are too interlinked so they cannot fail separately.
nerfhammer 11y ago
> because in many areas the median house now costs enough that it's beyond the reach of the median person. That environment is unsustainable over a large time scale. "Too expensive" does not equal bubble. It has to be expensive because speculators are driving the price up, thinking they're all fooling each other. As soon as they get get scared that the other speculators might be thinking of selling the price suddenly collapses as they race to not be the last to divest. If something is expensive because it's scarce, is actually being practically used, and there are no substitutes, then there is no way to make the price suddenly collapse other than flooding the market with new supply, and it would take many years to increase the supply of housing by a significant percent. If the price of housing drops a bit all of the homeowners aren't going to rush to sell their homes in a panic like you might see with a purely speculative asset.
- Spooky23 11y ago
  There is no shortage of real estate, and real estate historically is very cyclical. Even in an insane place like SFO, a few high profile failures can shutdown the cash pipeline for all sorts of companies. No cash, no coders, no rent. 2008 proved that when people are underwater, they walk away from mortgages because they see no consequence.
  - nerfhammer 11y ago
    In the 2008 crisis home prices dropped by like 10-15%. The housing market didn't collapse. It's not as if the "bubble burst" and housing was worthless after that.
    - vadym909 11y ago
      Not sure about that. My house and that of most friends dropped around 25-35% from the peak in 06-07 by 08-09 and only got back to the peak in 2015.
    - jonknee 11y ago
      That very much depends on where you live. It wasn't that bad in the Bay Area because there wasn't a building boom, but in places that there was a boom the prices climbed very quickly and indeed collapsed even more quickly. Las Vegas, Phoenix, Miami and other markets were all hit very hard (60% or so).
deleted 11y ago
[deleted]
eli_gottlieb 11y ago
>(edit/note: I do find it odd that under a Democratic president, the major flows of borrowed cash (debt) have been directed to the big guys, while under a Republican president, they were directed to the little guys. Both were a terrible idea, but it seems backwards for what one would expect.) Both of them were chiefly monetary initiatives rather than fiscal. The Fed acts pretty much independently of who's President, which explains the "oddness".
superuser2 11y ago
I predict the bust will happen because the HN/Silicon Valley hivemind so obviously wants it to and so we'll all bet on each other's failure until it is realized. It really seems like if we all agreed to keep the music playing, the music would continue playing. But once we decide it's going to stop, it has to.
- beatpanda 11y ago
  No. The people at the top providing the money for this circus are the ones with the power to stop the music, and they're stopping it because the companies they funded aren't performing. You actually can't just keep dumping money into companies that are doing nothing but burning it. But, yes, for the record, I do want the bubble to burst, because the world has real problems and I just got a cold recruiting email from someone building a GIF keyboard. "Silicon Valley" is a spectacular, world historical squandering of brain power and it needs to stop.
  - superuser2 11y ago
    >"Silicon Valley" is a spectacular, world historical squandering of brain power and it needs to stop. Are you implying that there are less-frivolous actors offering competitive salaries and getting ignored, or that SV is inflating the price of programming labor? Because if the latter, and you're hoping for a correction of programming salaries down to lower-middle-class clerical work that humanitarians can afford, won't those with brain power just "squander" it in some other better-paying field?
    - beatpanda 11y ago
      That's a great question. There's always going to be more money in causing suffering than fixing it, so maybe all of this is just inevitable.
      - eli_gottlieb 11y ago
        >There's always going to be more money in causing suffering than fixing it How?
sry_only_anon 11y ago
In places like SV and Vancouver housing prices are not strongly connected to the economic reach of the median person. China has a middle class as big as the entire US, and a huge number of millionaires in USD, and an unstable, opaque state-run economy, so huge numbers of rich Chinese are buying real estate abroad to protect their wealth and to give their kids a life in the US. I would be happy to see a movement to keep Chinese money out of the U.S. housing market, at least in places like SV.
- eru 11y ago
  Why? If foreigners want to buy stuff, we call that exports. Just produce more of the stuff they want to buy. Ie build more apartments (= higher houses) in SV.
  - nickgrosvenor 11y ago
    It doesn't work like that with housing, it's not a widget, it's fixed (to some degree)
    - eru 11y ago
      Why? Especially SV has lots of tiny bungalows were you could build skyscrapers.
      - KannO 11y ago
        Mostly local red tape, zoning laws, and NIMBYism
        eru 11y ago
        Yes. And that's the problem. Not the foreigners.
- TheLogothete 11y ago
  China has 300 million people middle class? Do you stop for a moment to listen to yourself? Middle class where? In China, earning $500/month?
frozenport 11y ago
Who are you to tell me that I can't have free money?
nickgrosvenor 11y ago
"Ultimately, we'll need a correction that sticks if we want to avoid repeating these events, and for that to happen we'd need a government willing to tolerate a politically unpalatable permanent reduction in asset prices." That's the quote right there!
adventured 11y ago
It's far more likely we're about to witness a significant new housing bubble courtesy of the Fed moving to negative interest rates. The tech bust is a joke compared to the size of the housing market, there's no "spreading" that can possibly go on from the tiny unicorn bubble to housing that is going to matter. Housing is $30 trillion, the unicorn bubble is the size of one Facebook (1% the size). See: the results of Sweden's negative interest rate policy (ie a huge housing bubble).

by danjayh 11y ago

shostack 11y ago

Do you have data to support that a few unicorn valuations being corrected will spread to the rest of the economy, particularly housing and not just be largely limited to private markets and investors?

danjayh 11y ago
Yes and no. With regard to spreading, just prior observation that adjustments tend to spread. With regard to housing, the observation that the median home price : median income ratio is now above 5.2x, while at the last peak it was only at ~5x. The rate of growth is lower this time, but I don't think it matters because the ratio is still really bad. http://politicalcalculations.blogspot.com/2015/04/the-current-trend-for-us-median-new.html http://politicalcalculations.blogspot.com/2015/04/the-curren...
- pfarnsworth 11y ago
  During the last bust home prices went up not down. Because investment rotated from stocks to housing. Why won't that happen again, especially with ZIRP?

sawthat 11y ago

I predict, that in the future, there will be a recession. Also, at some point, an economic boom. Feel free to quote me on that. I am unable to give exact dates, but there is a 25% chance that it will begin in the spring (what year, I cannot say)

danjayh 11y ago
I'll nail it down a little for you. I think it's going to be within two years, based purely on asset valuation : income ... which isn't a particularly sophisticated way to analyze it, but when people can't afford things anymore, they stop buying them, and that has predictable effects.
- an4rchy 11y ago
  If you strongly believe this, you could do something similar to what the guy did in 'The Big Short', short the relevant markets within your timeframe and you'll be recession proof.
  - eli_gottlieb 11y ago
    That forgets the primary lesson of the film: markets can remain irrational longer than you can remain solvent, and doubly so for rigged markets.
- enraged_camel 11y ago
  I think you should both put your money where your mouths are: longbets.org
  - nostrademons 11y ago
    Don't even need Longbets; just invest in or short the stock market.
    - clock_tower 11y ago
      Shorting is very risky, since the downside risk is unlimited if you guess wrong. (Imagine shorting Microsoft based on the low quality of their code, sometime around MS-DOS 1.0.) It's better to buy businesses that will go up when the market goes down, or ones that are recession-proof in general, while avoiding cyclically sensitive businesses and, especially, any sectors that are about to have bubbles burst in them. If the near future is the unicorn version of the dot-com bubble, its aftermath would be a good time for tech stocks you're interested in.

pfarnsworth 11y ago

The money under Bush went to the Iraq war, which benefited the "big guys", not the small guys. The small guys have yet to ever benefit from anything.

danjayh 11y ago
I was referring specifically to the cheap debt. Yes, the much of the spent money under Bush went to the Iraq war, and under Obama much of it went to 'stimulus', and both items hurt us all (through inefficient use of resources) while benefiting large enterprises.
- mmanfrin 11y ago
  TARP was passed under Bush.
  - saalweachter 11y ago
    Obama did have the $831 billion ARRA, but that pretty much was done after about two years.
maneesh 11y ago
well---now they have plenty of food, medicine, internet, education---sometimes a rising tide can help raise a lot of (but perhaps not all) ships.
13thLetter 11y ago
> The money under Bush went to the Iraq war, Not really. The Iraq and Afghanistan wars together cost something on the order of $750 billion, which was less than one year of stimulus spending at the beginning of the current administration.
- assface 11y ago
  > Not really. The Iraq and Afghanistan wars together cost something on the order of $750 billion, which was less than one year of stimulus spending at the beginning of the current administration. Ignore this person. They don't know what they are talking about. The estimate cost of the Afghan + Iraq War is estimated to be $4-6 trillion when you account for long-term medical care and disability compensation for service members, veterans and families, military replenishment and social and economic costs. Source: http://www.hks.harvard.edu/news-events/news/articles/bilmes-iraq-afghan-war-cost-wp http://www.hks.harvard.edu/news-events/news/articles/bilmes-...

Domenic_S 11y ago

> in many areas the median house now costs enough that it's beyond the reach of the median person I don't see it. Maybe bubbly areas like SJ will correct a bit, but at the end of the day real estate is a supply/demand calculation. YoY% increases don't look like they did in the last bubble. The more people who want to live somewhere -- whether renters or buyers -- the higher the prices go, until sales start dropping off. Real estate is like anything else: it's worth whatever you can convince someone to pay.

danjayh 11y ago
http://www.economist.com/blogs/graphicdetail/2015/11/daily-chart-0 http://www.economist.com/blogs/graphicdetail/2015/11/daily-c... EDIT: I am specifically referring to the "Price to Income" chart in my comment below, not the one that shows up by default. Sorry for the confusion. -- Uncheck everything but the 'US' graph. Different data sources give different ratios, but they all show that it's still well above historical norms & headed up. Some data sources say that it's already approximately back to where it was in the peak (see a link further down, that chart is up-to-date), others like this one only show it ~1/2 way there (note tat this chart is two years out of date), but either way we're above what has been stable in the past.
- Domenic_S 11y ago
  Without numbers it's hard to tell, but it looks to me like the curve is even gentler than 99-03. It's almost always going to be going up and to the right until the population starts shrinking. People are just stubborn and think that if they can't afford the type of house they want in the type of neighborhood they want in the city they want, then housing must be in a bubble and out of reach.
  - danjayh 11y ago
    Assuming continuous inflation, the absolute price of housing will always increase. However, affordability decreases as the ratio of housing price : income increases. There is a limit above which a vast swath of the population can't afford houses, and somewhere just beneath that limit lies another at which the price of housing collapses. That's assuming that the effect of speculation never becomes large enough to outweigh a collapse of real demand.

pjc50 11y ago

The trouble is that widespread leverage means that asset price falls detonate the entire system unless capital is backfilled somehow. That was why state credit was so widely extended to banks in trouble: the risk that collapsing bank A is in debt to bank B, which then collapses in turn taking out banks C, D, E, the payments settlement system, and the ability of people to get money out of ATMs. It's not so much that any one entity is "too big to fail", but all the big entities are too interlinked so they cannot fail separately.

nerfhammer 11y ago

> because in many areas the median house now costs enough that it's beyond the reach of the median person. That environment is unsustainable over a large time scale. "Too expensive" does not equal bubble. It has to be expensive because speculators are driving the price up, thinking they're all fooling each other. As soon as they get get scared that the other speculators might be thinking of selling the price suddenly collapses as they race to not be the last to divest. If something is expensive because it's scarce, is actually being practically used, and there are no substitutes, then there is no way to make the price suddenly collapse other than flooding the market with new supply, and it would take many years to increase the supply of housing by a significant percent. If the price of housing drops a bit all of the homeowners aren't going to rush to sell their homes in a panic like you might see with a purely speculative asset.

Spooky23 11y ago
There is no shortage of real estate, and real estate historically is very cyclical. Even in an insane place like SFO, a few high profile failures can shutdown the cash pipeline for all sorts of companies. No cash, no coders, no rent. 2008 proved that when people are underwater, they walk away from mortgages because they see no consequence.
- nerfhammer 11y ago
  In the 2008 crisis home prices dropped by like 10-15%. The housing market didn't collapse. It's not as if the "bubble burst" and housing was worthless after that.
  - vadym909 11y ago
    Not sure about that. My house and that of most friends dropped around 25-35% from the peak in 06-07 by 08-09 and only got back to the peak in 2015.
  - jonknee 11y ago
    That very much depends on where you live. It wasn't that bad in the Bay Area because there wasn't a building boom, but in places that there was a boom the prices climbed very quickly and indeed collapsed even more quickly. Las Vegas, Phoenix, Miami and other markets were all hit very hard (60% or so).

deleted 11y ago

[deleted]

eli_gottlieb 11y ago

>(edit/note: I do find it odd that under a Democratic president, the major flows of borrowed cash (debt) have been directed to the big guys, while under a Republican president, they were directed to the little guys. Both were a terrible idea, but it seems backwards for what one would expect.) Both of them were chiefly monetary initiatives rather than fiscal. The Fed acts pretty much independently of who's President, which explains the "oddness".

superuser2 11y ago

I predict the bust will happen because the HN/Silicon Valley hivemind so obviously wants it to and so we'll all bet on each other's failure until it is realized. It really seems like if we all agreed to keep the music playing, the music would continue playing. But once we decide it's going to stop, it has to.

beatpanda 11y ago
No. The people at the top providing the money for this circus are the ones with the power to stop the music, and they're stopping it because the companies they funded aren't performing. You actually can't just keep dumping money into companies that are doing nothing but burning it. But, yes, for the record, I do want the bubble to burst, because the world has real problems and I just got a cold recruiting email from someone building a GIF keyboard. "Silicon Valley" is a spectacular, world historical squandering of brain power and it needs to stop.
- superuser2 11y ago
  >"Silicon Valley" is a spectacular, world historical squandering of brain power and it needs to stop. Are you implying that there are less-frivolous actors offering competitive salaries and getting ignored, or that SV is inflating the price of programming labor? Because if the latter, and you're hoping for a correction of programming salaries down to lower-middle-class clerical work that humanitarians can afford, won't those with brain power just "squander" it in some other better-paying field?
  - beatpanda 11y ago
    That's a great question. There's always going to be more money in causing suffering than fixing it, so maybe all of this is just inevitable.
    - eli_gottlieb 11y ago
      >There's always going to be more money in causing suffering than fixing it How?

sry_only_anon 11y ago

In places like SV and Vancouver housing prices are not strongly connected to the economic reach of the median person. China has a middle class as big as the entire US, and a huge number of millionaires in USD, and an unstable, opaque state-run economy, so huge numbers of rich Chinese are buying real estate abroad to protect their wealth and to give their kids a life in the US. I would be happy to see a movement to keep Chinese money out of the U.S. housing market, at least in places like SV.

eru 11y ago
Why? If foreigners want to buy stuff, we call that exports. Just produce more of the stuff they want to buy. Ie build more apartments (= higher houses) in SV.
- nickgrosvenor 11y ago
  It doesn't work like that with housing, it's not a widget, it's fixed (to some degree)
  - eru 11y ago
    Why? Especially SV has lots of tiny bungalows were you could build skyscrapers.
    - KannO 11y ago
      Mostly local red tape, zoning laws, and NIMBYism
      - eru 11y ago
        Yes. And that's the problem. Not the foreigners.
TheLogothete 11y ago
China has 300 million people middle class? Do you stop for a moment to listen to yourself? Middle class where? In China, earning $500/month?

frozenport 11y ago

Who are you to tell me that I can't have free money?

nickgrosvenor 11y ago

"Ultimately, we'll need a correction that sticks if we want to avoid repeating these events, and for that to happen we'd need a government willing to tolerate a politically unpalatable permanent reduction in asset prices." That's the quote right there!

adventured 11y ago

It's far more likely we're about to witness a significant new housing bubble courtesy of the Fed moving to negative interest rates. The tech bust is a joke compared to the size of the housing market, there's no "spreading" that can possibly go on from the tiny unicorn bubble to housing that is going to matter. Housing is $30 trillion, the unicorn bubble is the size of one Facebook (1% the size). See: the results of Sweden's negative interest rate policy (ie a huge housing bubble).