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Peter Thiel Says Just About Everything Is Overvalued, Not Just Tech
- deleted 11y ago[deleted]
- marvinalone 11y ago"Maybe we should try to look at places outside Silicon Valley." Don't be silly, Peter. There are no places outside Silicon Valley.
- TaylorGood 11y agoWhat are vintage Porsche's...
- riprowan 11y agoIn 2009 the USA embarked on a radical strategy of creating base money at a previously unheard-of rate: http://imgur.com/MjdJNbz http://imgur.com/MjdJNbz Basic Econ 101 tells us that inflating the base money supply should eventually result in higher nominal prices for goods and services. Meanwhile the basket of goods and services used to measure inflation has remained mostly flat, meaning "low inflation", ensuring that the Fed can continue its cheap-money strategy, while also helping the government minimize its expenditures by keeping cost-of-living adjustments to a minimum. Meanwhile, as Peter points out, investment and speculative assets have increased wildly in value. Fortunately for the wealthy, these are not considered part of the "basket of goods and services" used to calculate inflation. It's almost as if the very wealthy have more money than they know what to do with, and cannot find enough rational places to invest it. It's almost as if none of this wealth is "trickling down." It's almost as if there is a disconnect between the economy that the very wealthy live in, and the economy that the rest of us live in.
- xbmcuser 11y agoI think the US is under a double whammy. Republicans call for trickle down economics but at the same time they have opened the bottom up to unregulated and slave labour. So the money doesn't trickle down. It just flies to the lowest rung of the ladder skipping the middle where the US middle and lower middle class lives and goes abroad.
- riprowan 11y agoGreat point - in the USA, wealth doesn't "trickle down" it "leaks out"
- bbcbasic 11y agoThe velocity of money also matters. You can create a quadrillion dollars and stick it in a bank account and it never moves. That is not inflationary.
- williamscales 11y agoIs there a way that wealth could trickle down? Are there investments that the very wealthy could pursue that would reflect in the broader economy? Or am I misunderstanding. When the cost of goods and services eventually rises, will that result in a rebalancing of where the wealth is flowing?
- ajuc 11y agoWealth is trickling down. It's just trickling from poor people in developed countries to poor people in developing countries. And it's a good thing. Why should poor people in developed countries be priviledged? Meanwhile rich people in develoepd and developing countries make tons of money on the differences between the poor, decreasing them in the process.
- deleted 11y ago[deleted]
- scotty79 11y agoIt's not wealth. It's just money. Trickling it down would just cause inflation. Just take a look what money trickling down through IT companies did to SF housing market.
- ftlio 11y agoIf you already own the assets, you're alright. If you're young and owe 80k to Sallie Mae, you make out better. Everyone on a defined benefit program gets the shaft though.
- stickfigure 11y agoThank you, this is exactly what I want to stand on street corners every day and scream out at the top of my lungs like a crazy person. Money != wealth, at least not on a macroeconomic scale.
- williamscales 11y agoWell, that and anti-development policies that result in a complete undersupply of housing. Opening up more housing supply would alleviate that inflationary pressure---so I'm wondering what the analogue is here, from a policy perspective.
- smitherfield 11y agoIf the economy you live in is software development (and/or, the SF Bay Area), you've seen quite a bit of trickle-down since 2009.
- ricksplat 11y agoI've been getting a good bit of trickle-down since the late 90s at least .. but that's not the point. When you talk about trickle-down, you're talking about the economy as a whole not just a specialised sector with a scarcity of skills ... if anything the value we create "trickles up" because half the time it's hard to see benefit to the man on the street. Effective economic policy is not just about me having loads of money. It's about not seeing your friends and family having to struggle; your friends having to emigrate; cuts to services for the sick & elderly, and a spiralling cycle of fucking the poor.
- sgt101 11y agoI thought that software development created wealth - how does it relate to trickle down?
- toomuchtodo 11y agoSoftware development doesn't create wealth; it simply extracts value removed from other parts of the economic system (labor->automation).
- deleted 11y ago[deleted]
- ftlio 11y agoCorporate balance sheets are good on the debt front. Corporate cash stockpiles are high. Meanwhile Average Joe is carrying a lot of debt and no cash. I know wages would lag behind the curve as they always do, but doesn't Average Joe (especially young Average Joe) stand to gain from an ensuing high inflation scenario?
- fauigerzigerk 11y agoOnly if Average Joe's debt is fixed rate and his skills are valuable enough to demand a raise.
- damptowel 11y agoBasic Econ 101 is wrong. See http://www.sciencedirect.com/science/article/pii/S1057521914001070 http://www.sciencedirect.com/science/article/pii/S1057521914...
- cperciva 11y agoIt's almost as if none of this wealth is "trickling down." It definitely trickled down to resource economies. Without the influx of cheap capital, "unconventional oil" like shale and oil sands would never have gotten off the ground.
- sgt101 11y agoOne example of this is mechanical watches. My wife is a photographer and buys glossy magazines as a part of getting inspired, so I picked up a Vanity Fair special on watch movements a few days ago and thumbed through it. I was struck by the fact that the shots of watches weren't accompanied by prices so I typed "tourbillon" into google. I got 5 returns in the "shopping" banner, with prices ranging from £380,000 to $22. One of the things I learned from the Vanity Fair article, which is pretty obvious, is that the patents on automatic watch movements have all expired. New designs are not, by in large, technical innovations, the patents on them protect novel arrangements with novel aesthetic characteristics. Therefore if you have a little cnc machine or a 3d printer you can make a movement for pennies and sell with the comfort of IP protection. The gold and gems on a watch are worth ~£10k, leaving ~£360k as margin. Staggering.
- tribaal 11y agoWhile you are right, I feel compelled to point out that mechanical luxury watches are expensive not because of IP (they expired long ago, as you point out), but because they are: 1. Assembled by hand (in Switzerland, for the most famous brands, where labour isn't cheap) 2. Made of precious material, as you pointed out. 3. Require a lot of R&D and design to develop (fitting movements and complications in each model's unique case is a hard problem). 4. Very limited numbers of them are produced (mostly because of 1.). It's common for watches to be unique. 5. Come with an "eternal" warranty (they will fix my dead grandpa's watch for free, forever). So while having a CNC and a 3d printer, making a wearable watch to the same specs will be quite a challenge.
- sgt101 11y agoI agree, a substantial premium attaches to all of these points. The differential between that premium (Gold, diamonds, R&D and Swiss labour) and the price used to be relatively small. There is a magnificent analysis of this process of "luxurification" here : http://www.ablogtowatch.com/rolex-prices-past-60-years-revealing-analysis/ http://www.ablogtowatch.com/rolex-prices-past-60-years-revea...
- dethswatch 11y ago
- panarky 11y agoThat's a dramatic chart with a steep rise in 2009. However, that only tells part of the story. The monetary base doesn't affect asset prices and consumer prices if it just sits there doing nothing. Bank reserves with Federal Reserve Banks match your chart during the same time, showing that this money is just sitting with banks, not in the real economy [1]. Consequently, the velocity of money declined steeply at the same time [2]. [1] https://research.stlouisfed.org/fred2/series/WRESBAL https://research.stlouisfed.org/fred2/series/WRESBAL [2] https://research.stlouisfed.org/fred2/series/M2V https://research.stlouisfed.org/fred2/series/M2V
- cylinder 11y agoIt's interest rates, simple as that. Asset price = Cash flows / required rate of return ...
- prostoalex 11y agoThe QE money was used to purchase various debt instruments, which means that every dollar originating from Federal Reserve is expected to bring that dollar back to the Federal Reserve when the underlying security matures. It will bring slightly more, as there are interest payments between the time of purchase and the maturity date. That money does not stay in the system forever. It's slowly reaching the maturity date one security at a time, with the created money being erased. Unfortunately, we have no further visibility into Fed's portfolio, duration of securities, percentage of defaults, etc.
- toomuchtodo 11y ago> The QE money was used to purchase various debt instruments That money went into inflating housing and the securities market. It did nothing to help the economy, and only helped distort prices of those assets.
- prostoalex 11y agoSure, but as those debt instruments get paid down, you'd expect the market to return to its equilibrium.
- jgalt212 11y ago> investment and speculative assets have increased wildly in value I would say that is only true for real estate and government bonds[1]. Most other asset classes are only only slightly overvalued. For example, on a PE basis, the SP500 is only slightly rich. I am not commenting on pre-IPO start-ups because I cannot make heads or tails of them and saying they are rich feels knee-jerk to me even though most of them to me seem like pie in the sky valuations. [1] non-government bonds have been under pressure since Q4 of last year and many of them are at attractive yield spreads (certainly when you consider defaults in the US are largely negligible outside of out and gas)
- Havoc 11y ago> If the bubble is in cash, illiquid startup investments may be a place to hide.” How can a bubble be "in cash"?
- AnthonyMouse 11y agoIf people are holding cash because they don't know what to invest it in then it's like it doesn't exist. It doesn't move through the economy. If something worth buying came along then the cash would come out of the mattress and into the economy, which would pop the cash bubble (i.e. cause high inflation).
- akvadrako 11y agoTo me this suggests that cash can be considered part of the "almost everything" that is overvalued. Yet since value is always relative, the concept is probably just not an accurate reflection of reality, i.e. economics is bullshit.
- jamesblonde 11y agoPeople hold cash in periods of deflation and negative interest rates. Just what we have in Europe now.
- leg100 11y agoWhy would cash being invested "cause high inflation"? Inflation depends on a number factors, whether it be productivity, supply, unemployment, etc, or how that cash is being spent. If it's being invested, who's to say it isn't in capital goods, thereby reducing cost of goods?
- AnthonyMouse 11y ago> Why would cash being invested "cause high inflation"? Because it puts more cash back into the economy. It transfers cash from people who previously hadn't been spending it to people who might not be so reserved. > If it's being invested, who's to say it isn't in capital goods, thereby reducing cost of goods? That's just the butterfly effect. It's the equivalent to saying that the fed printing money can cause deflation because people might use all the money to pay down debts and then use what would have been interest on the debts to pay down even more principal. It's theoretically possible, and sometimes it even happens, but you still don't expect printing money to cause deflation in general.
- elcapitan 11y agoNews sites that automatically play videos once I load them are also definitely overvalued.
- Havoc 11y agoYeah sitting on cash at the moment because I suspect the market will crash the second I move it into stocks. :(
- kspaans 11y agoMarket timing is very rarely a winning strategy. If you are investing for the long term, don't worry about market fluctuations (remember that many stocks and funds will still pay you a dividend!) . If you don't like seeing a big dip in your net worth, spread your buying out over many months to dollar-cost-average it.
- Havoc 11y ago>Market timing is very rarely a winning strategy. Not really trying time time it per se, but this just feels like a particularly bad time to move a lump sum into stocks. Quite a few big names seem to think a crash is due soon: http://thesovereigninvestor.com/exclusives/80-stock-market-crash-to-strike-in-2016/ http://thesovereigninvestor.com/exclusives/80-stock-market-c... I can dollar cost average it I guess...but would prefer if the market just gets it over with and crashes.
- kspaans 11y agoIf you really think that, then you are missing out by not investing in a short strategy! :P Or, more seriously, remember to consider the opportunity costs! VTI, for example, has a yield of about 2%. Short term bond index funds could be better or worse than that.
- Havoc 11y ago>remember to consider the opportunity costs Problem is the size of the expected drop. If it does drop then I'd imagine a good 30-50% much like 2008. So quite aware that I'd be losing out on gains for a while. Its all guesswork though - the "right" move requires timing the market as you say. My gut feeling tells me its dicey though so I'm leaning towards losing out on gains for a while.
- eulji 11y agoThis is so true. Especially SW is overvalued and undervalued at the same time.
- c280726 11y agoIt's almost as if people value different things.
- ucaetano 11y agoHe's welcome to put his money where his mouth is. If he's confident everything is overvalued, a big short on the market would be easy money. Or maybe he's just trying to convince everyone that assets are overvalued, so he can buy them at a lower price. As usual, follow the money. He's looking to actively invest $1.3Bi in tech firms, which shows that he doesn't believe his own bullshit.
- scotty79 11y agoEither everybody except him overvalues assets or Peter overvalues cash. Since he's a smart guy and can't possibly believe that he's right and everybody's wrong he spends his apparently overvalued cash despite of what he feels.
- ucaetano 11y agoYou can believe that you're right, everybody is wrong but will eventually find out, and therefore you should place a risk-weighted bet on that. It would be like most hedge funds: "I believe assets are overpriced, so I've shorted them". He's doing the opposite: "I believe assets are overvalued, so I'm buying them". This isn't even bullshitting, is blatantly lying.
- mobilefriendly 11y agoYou're missing a nuance-- he believes that less-liquid assets like early startups, or startups outside of B2C tech (and outside of Silicon Valley), are a place to still find value.
- WalterBright 11y agoOne of my favorite pronouncements is "corporations are dominated by short term thinking, sacrificing the long term for next quarter's results" by people who are unwilling to bet their own money shorting stocks.
- asddddd 11y agoShorting an overvalued asset is only smart if you believe it has peaked.
- eddd 11y agoIf everything is overvalued, nothing really is. To me, it is not a bubble but inflation.
- andy_ppp 11y agoBut there is no inflation, right? Right?
- eddd 11y agoThere is, but printing money and giving it to investors creates inflation in assets that can be bought by them. Once money flows throught credit/banks to the entire market (already happening) you have price raises in pretty much everything. Stuff you buy on credit (education, housing, cars, consumer goods etc.) are getting more expensive as well. Does it matter? For people with savings in currency - yes (middle class?). People without savings can fight for raises as unions and rich people hedge against dollar already.
- wmil 11y agoI think that there is just a huge market for risky but non-crooked investments. Overseas markets are excellent for making money. Less regulation, lower salaries, etc. But the downside to a less overbearing government is that it's fairly easy for people with government connections to run off with your investment money if you're not watching. Western nations are just safer places to passively invest money.
- andy_ppp 11y agoMaybe the value of property and investments has remained static (has intrinsic value) and the value of money has plummeted. That would be the expectation from printing loads of money right?
- collyw 11y agoIs that not the same thing viewed from a different angle?
- andy_ppp 11y agoI just think it makes more sense to me to see it this way; then you can say holding onto investments that will be popular for the rich or the price of Bitcoin should go up in this model. It also implies there is no asset bubble despite people repeatedly saying it, instead there is too much cash/cash is worth too little.
- justsaysmthng 11y agoI'd say we're in a bubble of talking about bubbles. Financial press is so boring and unreliable. One day there's a deep crisis and China is collapsing and oil will never come back and the honeymoon is over and a week later things are back to normal, growth is good and.. what the heck ? Of course everything is in a bubble, but doesn't that mean that there's no point in mentioning it, because it's part of normality ?
- Muted 11y agoWarren Buffett has also talked about this in numerous interviews. He says that it really depends on what interest rates will do in the future that will determine whether stock prices are currently high. If they stay the way they are now for a while (close to zero, and even negative in some countries), stock prices are not high. The reason for this is that interest rates act like gravity on stock prices. If interest rates go to zero, P/E ratios can go to infinity. Mathematically this can be seen by looking at DCF or NPV analysis where you divide by the discount rate, which is highly correlated with the interest rate. Take for instance a security that yields $C/year in perpetuity. The NPV of that security is NPV=C/r. As the interest rate r approaches 0, the NPV goes to infinity and hence has infinite value. This means that it is ok to pay a very large amount for the security, since you can't get a better return anywhere else. But of course the question is, will interest rates remain low? Basic economics would tell us the answer is no, because the FED and ECB have pumped billions and billions of dollars/euros in the economy on a monthly basis meaning the supply of money has greatly increased and hence the value should drop and lead to inflation and hence higher interest rates. But this clearly hasn't happened (yet) and I haven't really found anyone who has a good explanation. Warren Buffett, Charlie Munger and Bill Gates all expected this would of already happened a while ago. (TV interview on CNBC)
- simo7 11y agoRight just replied the same. It's about the interest rates prevailing in the market. But I do believe that there was and still is a lot of overvaluation in tech even after discounting at low interest rates.
- lucozade 11y agoThat's not how PV is calculated. It's C/(1+r) where r is the rate between now and the time of the cashflow. When rates are zero, it just means that the cashflow is worth today the same as it'll be when it's paid. As rates increase, the PV of that cashflow reduces. Also, although base rates are around zero, long term interest rates are higher. True they're not high by historic standards but you still get some discounting for cashflows beyond the short term.
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- simo7 11y agoThe point which everybody seems to be missing (Thiel included) is that "overvalued" or "undervalued" is never in absolute but should always be relative to interests rates. If you have low interests rates like now many crazy valuations are actually not so crazy (well in tech they are crazy anyway but outside of tech not so much). That's because the cost opportunity of employing 1€ in equity is very low since debt is giving you little. All the future cash flows therefore get just a small discounting factor.