10 ms·

'We're in a Bubble'

• selectron 10y ago
  Markets can stay irrational for longer than you can remain solvent. Just because the bubble hasn't burst, doesn't mean we are not in one. Of course the converse is also true, just because the market has been going up doesn't mean it will go down. It will be interesting to see what happens if the Fed ever raises the interest rates.
• rosalinekarr 10y ago
  > “The valuation of $1 billion – not as insane as the [$15 billion] valuation placed by Microsoft on Facebook – was jaw dropping.” lol
• twoarrays 10y ago
  The problem with bubble statements is to what "bubble" refers to. A startup with seed money is in a complete different position from Uber/Pinterest.
• caffeinewriter 10y ago
  Just because the bubble hasn't burst yet, doesn't mean we're not actually in a bubble. That line of reasoning irks me a bit, but still, it is laughable how the imminent bursting of the bubble has been predicted for nearly a decade.
  • jrbapna 10y ago
    If a bubble lasts over 10 years, is it really a bubble?
    • maxerickson 10y ago
      Possibly, the defining aspect of an investment bubble is the popping.
      • deleted 10y ago
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      • j1vms 10y ago
        Which brings up the interesting problem that, in theory, we can never be sure it is or is not a bubble unless we look at the behavior in the limit as t -> infinity. One problem with gauging things in the universe (or in the economic sense, the fundamentals in order to value something) is that we will likely never have the tools to do it in the "real" sense.
      • jrbapna 10y ago
        But the term bubble, at least when used by the media, also seems to have a connotation of bursting in the near future. If someone told me tech was in a bubble, but the pop wouldn't be for another century, I would not define it as a bubble. Even if the future pop was enormous.
        • smt88 10y ago
          It's probably better to think of bubbles as the accumulation of unsustainable behavior. Obviously we aren't able to predict a few months into the future, let alone a hundred years, so it's hard to definitively say whether current behavior is sustainable for a hundred years or not. It's much more reasonable/believable to say that current behavior is unsustainable for 1, 5, or 10 years.
        • vectorpush 10y ago
          What if the century long bubble concluded with a pop that resulted in total economic collapse? I'm not suggesting that is likely, just that the defining characteristic of a bubble seems to be the magnitude of the fallout after the pop, not the span of time leading up to the pop.
          • jrbapna 10y ago
            Investors, especially those of public companies, are known to be short sighted. Typical investors would never call it a "bubble" if they felt the pop wasn't for another decade, let alone a century. Perhaps both the magnitude and the time leading up to it are of equal importance.
    • taneq 10y ago
      If it bursts, then yes.
    • jeffbush 10y ago
      If it pops, yeah. :)
    • partiallypro 10y ago
      The housing bubble lasted a long time, even when people in 2004 were sounding the alarm bells. It kept going. A bubble bursting doesn't mean everything is getting wiped out, and it's nothing to fear...just something to hedge against. It does hurt people, and that's unfortunate, but it has to happen. It might even put me out of a job, I hope not, but it's very possible. Yet as much as it hurts, it has to, and will happen. Doesn't mean it will be as bad as 2008, but it's part of the business cycle. I don't think there's any denying that valuations have gotten way out of hand, especially in the private equity and VC world. But trying to call a top is just as hard as calling a bottom, if it were easy policy decisions would be easy. It's a "creative destruction" within the capital markets. Gets the dumb money out...funds businesses that actually make money and builds upon the rubble on a stronger, firmer foundation.
      • eru 10y ago
        Doesn't have to happen. If central banks would start targeting nominal GDP level, we would have bubbles bursting without economy wide recessions. See eg http://www.economist.com/blogs/freeexchange/2011/10/monetary-policy-3 http://www.economist.com/blogs/freeexchange/2011/10/monetary...
        • partiallypro 10y ago
          That assumes the Fed can make the economy grow with the flip of a switch, and that it could contain contagions. I'm all for taking away the Fed's discretionary powers, I think that would smooth the business cycle, but it would not eliminate it. Recessions can occur naturally.
    • adventured 10y ago
      It hasn't lasted ten years. The last one ended with the great recession, and was of course never a bubble of the scale of the dotcom bubble. This latest semi-bubble (ie extremely elevated valuations) - caused solely by the Fed's hyper low interest rate policies pushing up all asset prices - is far more similar to 2005-2007 than 1999. The pre great recession semi-bubble in tech was also caused by asset inflation from bad Fed policy mistakes. It's also why this latest bubble / not-bubble was popped by the first Fed moves toward hiking rates. All the panic around unicorn blood in the street started exactly in line with the Fed's moves to hike rates (nice coincidence eh). And it's also why the stock market has struggled to move higher since the Fed's QE program ended (sideways for ~19 months now). If the Fed hikes rates (which they won't in any meaningful way), it'll continue to deflate all elevated asset prices.
    • hugh4 10y ago
      If there's always someone saying there's a bubble, regardless of whether there is or not, does it mean there's never a bubble? If my watch always says it's 3:22, regardless of whether it is or not, does that mean it's never 3:22?
    • bridanp 10y ago
      My wife showed me a video earlier of some kids laying under a trampoline, and on top of the trampoline was balloon slowing filling with water. The kids are giggling because they know what's going to happen, they just don't know when: the balloon will pop and they'll get soaked. But the balloon continues to fill with water until it's almost the size of the trampoline top itself. It seems likes it's taking forever to fill, and the balloon is much larger than anyone in the video expected. Maybe it won't pop...and then it finally does. The inevitable happens and the kids are soaked. I don't think the argument is whether we are or are not in a bubble. It seems pretty clear that a bubble is filling around us (whether that is a slow or quick fill is a personal point if view). The argument really should be how long do we continue to risk getting soaked versus staying dry (keeping our investments). I think some are finding a solution by removing themselves from the equation and taking their investment dollars elsewhere. And that singular act, if/when it starts to exponentially grow, will ultimately decide the timing of the burst.
      • jrbapna 10y ago
        I'm uncertain if this is true. The market is the market is the market. The value of a company is what investors believe it to be. In tech, unlike an industry like lets say, Automobiles, this "worth" is very difficult to quantify. Tech companies can be scaled to near infinity (Apple) or go to zero with one wrong move. Investors are placing their bets. Whatever industry replaces "tech" as the next great revolution (perhaps AI?) will have "bubbles" orders of magnitudes greater than what we're seeing now. If you think we're in a bubble now, which we very well could be (I'm unsure), just wait for the future.
    • syngrog66 10y ago
      one could argue there was a kind of bubble of the American middle/working-class from say 1945 through the 80's/90's. and that this bubble has been deflating since, through a combination of Mexican labor immigration (both legal and non), off-shoring of jobs to China/India/etc, and the increasing automation of software and hardware whose benefits disproportionately flow towards the capitalists and the highly technical specialists like programmers. That would be a kind of bubble which lasted a half century. Period where that segment of American was "over-valued" relative to otherwise comparable people who happened to be born in other countries around the world.
      • mercer 10y ago
        But by that logic if global warming throws us back into a pre-industrial age, we could call the entire period from the industrial revolution until now a bubble. Or we could go even bigger and say if all of humanity happens to die out due to some self-created catastrophe, humanity was the bubble.
    • mikekchar 10y ago
      Have a look at this graph: https://research.stlouisfed.org/fred2/series/ATNHPIUS22420Q https://research.stlouisfed.org/fred2/series/ATNHPIUS22420Q It's housing prices in Flint, Michigan. It hit a peak of $172K in 2005. By 2011 it was $106K, or about the same price as in late 1995. Currently it is at $140K, which is essentially the price in 2000. Assuming it goes at its current rate, I guess it will be about the year 2020 before it recovers to its 2005 high. Now, it's not really fair to call this a "bubble" since externalities are at fault. However, if you look at the increase (1.6x in 10 years) against an inflation rate of 3% (1.3x), you can see that housing was over valued during that period. I'm pulling the inflation rate from http://www.usinflationcalculator.com/inflation/historical-inflation-rates/ http://www.usinflationcalculator.com/inflation/historical-in..., and if anything overestimating it. If you look at today's price it has a multiplier of 1.3 from the 1995 price, so it is still slightly undervalued, but should catch up to inflation in the next few years. My point is that despite the credit crunch being the underlying cause of the crash, the market had been growing at nearly twice inflation for 10 years. 11 years after the crash the market is still recovering and it will be a couple of years before you get to reasonable prices. So you can go a very long time before unsustainable growth will collapse. This leads to a very, very long time for recovery. I live in Japan. It is 2016. The market still has not recovered from 1992. If the world ever gets into an energy crunch, I think we might well look at the last 50 years or so as being a "bubble". Edit: fixed inflation rate link
      • acchow 10y ago
        What does Flint, Michigan have to do with a tech bubble? Or any other bubble for that matter.
        • mikekchar 10y ago
          How does a house gain value? You can renovate it (real growth), or you can hold on to it and hope that someone will pay more for it. People don't think about it, but houses are relatively liquid assets. Let's pretend they are tulips, just for fun. Imagine that you bought some tulips and just by hanging on to them for a while, you can realise a profit. This would be cool because everyone could put all their spare money into tulips and then turn around and sell them for a profit. Because the price of tulips keep going up (and people want to spend some of their gains on other things), eventually people will be able to buy less and less of them. However we might be able to raise salaries so that people can afford these tulips endlessly. In this way the inflation rate will exactly match the increase in price in tulips. If we can't raise salaries to match the increase in the price of tulips, eventually people will be priced out of the tulip market and demand will dip. This will cause the price to fall. If people start to think, "Hey wait a minute. I'm not guaranteed to make a profit with these tulips after all", the price can fall a lot. If people start realising that they need to take a loss on their tulips so that they can afford to eat today, the price can tumble. How far can it fall? Mostly it depends on how clever people were for keeping the tulip bubble going. The more clever they were, the worse the potential fall. Essentially, it is likely to fall to the point at which the price of tulips escaped from inflation -- because it is a liquid asset and the need for tulips hasn't increased substantially over that time period. Demand can influence the price of houses (and obviously did in Flint), but the degree to which the market dropped was a result of how overcooked the housing market was. Beware. Flint was never as overcooked as some markets are and people were never as clever about keeping the values high as some markets are. Can a bubble last 10 years or more and then wipe out all of those gains? Absolutely. I only picked Flint because young people are likely to have heard of the problems there. You could also look at the housing market in London in 1991/1992. Can the tech bubble burst and wipe out 10 years of gains? Sure. No problem. That's the only way I could interpret the person's question, "Can a bubble that has lasted 10 years still be called a bubble?" Definitely.
    • damptowel 10y ago
      YES.
  • ktRolster 10y ago
    Can it really be a bubble if everyone thinks it's a bubble? Who would invest their money in something if they thought it was a bad deal?
    • twoarrays 10y ago
      VCs don't invest their own money; their money come from pension funds, sovereign wealth funds, etc. They make money off deals, so bubble or not, it's a bonus.
    • contravariant 10y ago
      Probably because they think the price will keep rising, and that they'll be out on time. It's basically a pyramid scheme.
    • losteric 10y ago
      It's gamble. You can make money all the way up until the bubble pops.
      • busterarm 10y ago
        And if you're really slick, you can make a lot of money after the pop.
      • choplifter455 10y ago
        I know nothing about the day trading culture, but do you see a lot of addicted/problem gamblers in that space? I imagine for the good ones it's a bit like a casino, but you've also got an edge based on whatever information you have available.
    • superuser2 10y ago
      Someone who thinks they will unload it on a Greater Fool (TM).
    • gozur88 10y ago
      That was the whole point of day trading. You hold something that's going up because it's going up, with no consideration of the underlying value. And you try to be the first one out the door when the party's over.
  • geerlingguy 10y ago
    I'm betting I could find articles arguing against being in a bubble (like @sama’s) from each of those years as well. There will likely be a deflationary period in tech in the next decade, worse than the small recession we witnessed at the transition between 2015-2016. But I don't think tech is so separate from other market sectors anymore, so it won't (IMO) be a tech-specific thing, just a normal market cycle.
  • deleted 10y ago
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  • rhizome 10y ago
    Uber needing to get into subprime loans in order to service their valuation is a bit of a flag.
• jasonjei 10y ago
  The Microsoft LinkedIn acquisition seems to have positively signaled investor confidence, in spite of calls that the sky is falling. Whatever odds there were for a "bubble burst" are probably lessened by this purchase.
  • fullshark 10y ago
    I doubt that it has any impact.
  • notadoc 10y ago
    Maybe, or it's a sign that companies are recognizing they are richly valued and want to take advantage of that while it lasts. MSFT has a P/E of 38, for example If I had to guess, I think we'll see a lot of M&A activity at some very high prices from other companies that are richly valued.
    • imjk 10y ago
      That's true. Even during the dotcom bubble, internet incumbents used their high valuations to leverage questionable acquisitions. Yahoo's purchase of Broadcast.com for over $5B being the most notable example.
• mark_l_watson 10y ago
  Well, that is the problem with people predicting the future: they may be correct on fundamentals but the world is a chaotic place and predicting just when something will happen, even if it is likely to happen in the future, is a bad bet. I personally believe that the current economic regime, requiring constant growth (and large growth) for health is not sustainable. Am I willing to bet on when the next big economic crash will occur? No.
• akjetma 10y ago
  I wonder if the frequency of "We're not in a bubble" articles tracks its counterpart over time.
• bdrool 10y ago
  If the intended insinuation of this essay is that somehow there aren't a bunch of seriously over-valued companies out there, or that there isn't a long-overdue downturn on the way, then I'm afraid I can't bring myself to agree. People young enough to have never been through a downturn in their professional career are usually in denial right up until the moment it happens. And the people who try to call the bubble early, as funny as it may be to make fun of them as is being done here, are usually the ones who have been through it before, see it coming early, and try to warn everyone, even though no one ever listens (too busy enjoying the party!)
  • bpchaps 10y ago
    That's what happened to me. I got into a very good position in my career.. and then it crashed. I'm more skilled than I've ever been, but finding work that matches my (broad) skillset is almost impossible because I'm either over qualified, or the job is far too specific. It's very strange to experience, so I've been working on freelance work for the past 6 months now. Year-ago-me wouldn't have believed it. Bubbles suck, and the current tech industry reminds me of my own experiences - Pop.
    • mercer 10y ago
      May I ask what your particular bubble was?
      • bpchaps 10y ago
        Sure - I work mostly in finance with linux/devops/app support/programming experience. I becm senior linux admin position by the time I was 27 after some very interesting work at some HFT companies. Low latency tuning, monitoring, resolved many outages, etc. At one point, the owner of an HFT company came up to me and asked me to fix the latency issues that were causing the company to fail, which I did in a couple days. Problem was, I never really got any chance to learn the core linux tools like bind, etc since they weren't really ever relevant. So, when I got a position at a traditional linux shop without knowing the core utilities, I was viewed as completely inexperienced and nobody really took me seriously. It was very strange to go from being treated as a rockstar generalist to go to the opposite. The company decided my experience wasn't really valid and moved me from the linux team to the devops team after I did a user audit for a subpoena by FINRA really, really well well. That role ended up just meaning "troubleshoot why X trader's trade didn't receive Y price." all day, which wasn't what I was hired to do. Instead of doing that, I wrote a bunch of tools to interface with the infrastructure. Emails explaining the tools were entirely ignored and even made fun of, so I left. On my last day, I demoed a tool I wrote that dynamically built json output for all application environments which was loved, despite it being ignored 10 times in the past. Lesson there was that presentation is often significantly more important than the work itself. When I tried to get a new position later on, everybody was expecting cloud and web development experience, which is experience I don't have. Insistence that it was within reason to learn cloud utilities never worked, even with experience building tools to build vmware instances in bulk. For the positions that I was qualified for, I found myself having more knowledge than the interviewers, so I gave off an unintentional arrogant vibe. For example for a job I was really interested in, I got dinged for my answer to the question, "How do you print all open sockets?" for answering "lsof -i". Apparently netstat was the only acceptable answer. That sort of thing happens all the time, and interviewers do NOT like to be corrected - the number of senior admins who don't know how file handles work is asinine. It got very, very tiring very quickly and I just kind of gave up. I'm now working in building up investigative journalist and data analysis experience to get out of the linux field. It's going pretty well, but there's little money in it so far. If that doesn't work, a few interesting positions in infrastructure security are in the pipe. </rant>
• minimaxir 10y ago
  I'm disappointed to see this from Sam. After Twilio filed for IPO, someone wrote a "here's what Hacker News said about Twilio," which only focused on the hilarious-in-hindsight but negative comments about the startup (https://news.ycombinator.com/item?id=11786464 https://news.ycombinator.com/item?id=11786464). Naturally, it got massive retweets from venture capitalists who espouse the haters-gonna-hate attitude. As dang notes in that other comment thread, this kind of argument doesn't look at the other side at all: there have been some seriously shady dealings going on with unicorn startups. IPOs are failing. And let's not get started on Theranos.
  • rubiquity 10y ago
    Not to mention all of the unicorns supposedly worth billions that aren't IPOing. Because IPOing would finally let the public decide what they are worth (it would be a harsh wakeup call for a lot of them). Instead we're stuck with their VC cronies stuffing self-serving valuations down everyone's throats. By the way, I too am worth 2.5 billion dollars. What?! You want me to prove it?! Get off my lawn!
    • coldtea 10y ago
      >By the way, I too am worth 2.5 billion dollars. What?! You want me to prove it?! Get off my lawn! While I agree with the first part of what you wrote, when it comes to this I can say: You don't need to prove it (and those unicorns didn't prove it either). You just need to be able to get some millions of dollars on your 2.5 billion self-valuation, and you'll be as good as them. Because they did that.
      • andyjdavis 10y ago
        >You just need to be able to get some millions of dollars on your 2.5 billion self-valuation Mathematically speaking you just need to get someone to give you a single dollar in exchange for 1/2500000000 of 100% ownership, meaning that 100% is theoretically worth $2.5 billion.
        • 10y ago
• alekratz 10y ago
  If you say "we're in a XYZ bubble" for long enough, you'll eventually be right.
  • dpc59 10y ago
    The thing is that the nature of speculation is to generate bubbles. Every financial market is a bubble, financial products are always overvalued (relatively to their current earnings) because people believe they will be worth even more in the future. The real question that needs to be answered is: when will the bubble pop? AFAIK there's no scientific way to answer that question.
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    • mrep 10y ago
      Yes and no. Speculation creates bubbles when people overestimate but not when they underestimate. Financial products are definitely not always overvalued either. Accounting was created so that we can properly evaluate what a company's overall value discounted for future earnings and they are pretty accurate (accounting was never my favorite subject so that can probably be better defined)
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  • Qwertious 10y ago
    Just to be contrarian, if you were to say "we're in a HIV-cure-research bubble!", and it never happened until a reliable cure was found, thereby simultaneously making huge amounts of money and forcing every business to pivot, you'd be wrong.
• spitfire 10y ago
  Over the last 16 years we've seen several boom/bust cycles in speculative markets driven by interest rates. First the bursting of the first tech bubble. Then Greenspan's housing bubble in 2001-2007. Then interest rates were held abornmally low, for 80 months straight, which is something that the world has _never_ seen. Would we have seen this tech boom if interest rates had been say 5% and capital had somewhere else to flow? I'm pretty wary of "The music hasn't stopped playing, so it can't possibly be a bubble" arguments. Lets watch what happens as rates go up and venture backed tech has to compete with other returns.
• YZF 10y ago
  "Markets can remain irrational longer than you can remain solvent" Or perhaps the more apt way of putting this in our times is: "Multiples will be crazy high as long as central banks keep interest rates crazy low" Rather than thinking about this in terms of bubbles I think it's fair to say that the probability of getting very high ten year returns on the US stock market at these valuations is low. The problem is there's no other asset that will give you the chance of a better return. That's no coincidence. Apple's P/E is 10.85 according to Yahoo Finance. That's low given current interest rates. EDIT: The average Nasdaq P/E is 22.55 ... This is historically high but is ~4.4% vs. the 10 year treasury being 1.61% (and I say that painfully as I attempted to go short at one point). That is basically the story right there.
  • lamontcg 10y ago
    the flip side is that bull markets always "climb a wall of worry". and in the larger market this has been a fairly anemic bull market, there still isn't a whole lot of froth outside of silicon valley.
  • samfisher83 10y ago
    Markets are future looking so you use future p/e if you have negative outlook on apple margins then its not a 11 p/e.
  • JumpCrisscross 10y ago
    > Multiples will be crazy high as long as central banks keep interest rates crazy low I have no idea how earnings multiples wound up with their pay-offs in the denominator. (Since it makes stupid things look bigger, and by default, anecdotally, most people agree bigger is better, I'm going to blame investment bankers.) Thinking of a 22.55 P/E as a 4.4% E/P, i.e. 2 percentage points above the 30-year's 2.4% [1] is hugely clarifying. (I personally prefer the Shiller CAPE [2] for long-term broad-market assessments. It sits at 25.93, i.e. a 3.9% yield or 1.4 percentage points over the 30-year.) [1] https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield https://www.treasury.gov/resource-center/data-chart-center/i... [2] https://en.wikipedia.org/wiki/Cyclically_adjusted_price-to-earnings_ratio https://en.wikipedia.org/wiki/Cyclically_adjusted_price-to-e... [3] http://www.multpl.com/shiller-pe/ http://www.multpl.com/shiller-pe/
• andyfleming 10y ago
  I don't think the bubble is just going to "burst". I think the rapid growth in technology is real. The market may correct itself some, like it is right now (particularly with investors), but I don't think there is going to be a great tech apocalypse.
• ijafri 10y ago
  I don't think the bubble thing is true for our time, nor it will be in the near future, it's just tech has become more competitive than ever. I am too young to know exactly the circumstance surrounding the last .dot com bubble when did it happen ... but I guess, it could have happened, the VC had not seen the full potential of the internet back then... I can't buy the notion, that we will or ever see a bubble ... it's just ups and lows just about anything in life ... because at this point and in future internet is too larger to be vulnerable to it. But that said, there is a little room left, for developers living in the mom's basement., and that's truly sad.
  • louthy 10y ago
    > I don't think the bubble thing is true for our time, nor it will be in the near future, it's just tech has become more competitive than ever. No disrespect meant, but this kind of thinking is exactly how bubbles happen and everything gets out of kilter. Like people who believe house prices will go up forever, so they leverage up - it's irrational exuberance (to quote Alan Greenspan). But eventually this imaginary money that people believed to exist, actually didn't, because the human beings that needed to work N hours to produce that wealth haven't actually been alive long enough to do it. And boom, it all resets. I actually think one of the key tells for being in a bubble is so many people denying we're in a bubble. The talk of it alone is enough to spread fear and doubt. That moves markets. All that is needed is an 'event' that confirms the fears, and boom. It could well be a failed IPO. Who knows? Not I. I was one of the idiots that bought lastminute.com shares.
    • ijafri 10y ago
      Point I was trying to make, there is clear distinction between the bubble and ups & lows.
      • louthy 10y ago
        Where are you making that point? I don't see it, what I see are a number of comments denying that a) we're in a bubble, b) we'll ever be in a bubble, because Internet. > I don't think the bubble thing is true for our time > nor it will be in the near future, it's just tech has become more competitive than ever > I can't buy the notion, that we will or ever see a bubble > because at this point and in future internet is too larger to be vulnerable to it.
• newacct23 10y ago
  The 2008 bubble was caused by fraud, what is the current bubble caused by? Most people are saying we are in a bubble because all of these companies that are making 0 dollars are worth extremely large amounts of money. Everybody is aware that these companies aren't making money however and still believe the company is worth an insane amount of money. If everyone is willfully deluding themselves and see nothing wrong with it, for what reason do we believe that it will change in the future and that the bubble will pop? And the current situation is different from the 2008 crash in that people know what they are buying into, companies that don't make money, and they don't care.
  • kaonashi 10y ago
    Why do bubbles collapse at all? When valuation changes cause widespread insolvency, imo. That was possible in 2008 because household debt levels combined with the subprime scams create underwater households that could no longer keep up with payments. Who would become insolvent when tech stock valuations change?
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• jayzalowitz 10y ago
  Thats just like... your opinion man...
• baron816 10y ago
  Can anyone point to a bubble where everyone was, for years, constantly asking whether or not it's in a bubble?
  • paulmd 10y ago
    The housing bubble, obviously.
  • barely_stubbell 10y ago
    1999: The "Dot-com" bust; Alan Greenspan is famously quoted for using the term "Irrational Exuberance" in 1996 (3 years prior to the bubble burst)
    • blastrat 10y ago
      the internet boom (and I mean boom not bubble) started to flicker in 94, gathered steam in 95, and really got going by 96. Saying that was the time to bail out, before 97 98 or 99? I would not say that Greenspan "called" it. bubbles are caused by collective overinvestment; that means that a lot of the ideas can be good ideas: if everybody else also doesn't invest in them at the same time. It's a bit of tragedy of the commons, it's the collective knowledge that's lacking in individual decisions.
    • kmonsen 10y ago
      The bottom in 02 was barely below the end of 96. It was only a bubble because it kept raising very fast for three more years.
• sndean 10y ago
  As someone who's completely ignorant about this sort of thing, and about whether it's a bubble: If it is indeed a bubble, is there anything positive that will result from it bursting?
  • gozur88 10y ago
    I think there's a case to be made that bubbles result in malinvestment, that is, you end up building capability to produce goods and services for which there isn't enough demand to support that capability. It's inefficient. When a bubble bursts we collectively look around and think "What is it that we really need?"
    • sndean 10y ago
      > you end up building capability to produce goods and services for which there isn't enough demand to support that capability. It's inefficient. Ohh, makes sense. Thanks for putting that in a clear way. So, while it's painful, you could say bubbles bursting is healthy... Whenever I try to say that around friends I come off as malevolent. I'll use your words next time.
      • damptowel 10y ago
        Note that overleveraged companies tend to outcompete more conservative ones in the short term, they just have more weight to throw. And if enough of them go down at the same time, the resulting slump won't do decent investors any good either.
      • damptowel 10y ago
        Note that overleveraged companies tend to outcompete more conservative ones in the short term, they just have more weight to throw. And if enough of them go down at the same time, the resulting slump won't do decent investors any good either.
• allworknoplay 10y ago
  What the hell is Sam talking about? Quoting people from 2007-2008 saying we were in a bubble then as if nothing was wrong at the time? 2008/2009 was only partly insane because of tech, but it was an INSANE time: VCs were too scared to ask their LPs for cash because they knew the capital calls would fall short. Dealflow utterly halted for 6 months, and took another year after that to get back to something that felt productive. We were absolutely in a bubble then. Using bubble-quotes from that era as evidence that we're not in a bubble now is absolutely preposterous.
  • tommynicholas 10y ago
    "Deal flow halted for 6 months" - Sequoia invested in Airbnb, Dropbox, and Green Dot within 6 months of RIP Good Times. Pretty nice deal flow.
  • rms_returns 10y ago
    > 2008/2009 was only partly insane because of tech, Its easy to provide all kinds of justification in hindsight or "after the crash". If you were a "happy investor" sitting on top of January 2008 crash, I bet the last thing in your mind will be "someone is insane". Its only because the crash happened just after that and so now you have the liberty to say "INSANE TIME". Its the same economic cycle happening right now. I don't know when the DOW/NASDAQ is going to crash and how many points, but I do know that almost no one can anticipate it right on top of the price chart, and say "Hey look, this move will now cause an economic recession". It always happens after the fact!
• Xyik 10y ago
  Valuations have been questionable but that alone does not mean we are in a bubble. I'd rather we looked at the amount of funding that has been raised and the amount loss to gauge whether we're in a bubble.
• vasilipupkin 10y ago
  the fact that there are very few tech ipos is probably the best indication that there is a bubble in common stock valuations of private companies, which would not be supported by public markets. Why? because public markets have many sophisticated players who can easily sell short and private markets don't.
• anysz 10y ago
  Come on Sam, these clickbait fools aren't worthy of such attention.
• anexprogrammer 10y ago
  It feels just like 1998, but for the fact there's enough folk memory of the dot com bust to put IPOs on ice. I guess they don't want to risk duplicating lastminute.com Only question is when it pops.
• adventured 10y ago
  It seems like it was just yesterday that everyone was arguing the Facebook valuation from Microsoft's investment was impossible to ever live up to. $15 billion. They'll do half that in net income in the next four quarters. Interestingly the $125 per user figure quoted on the Gigaom article (the $15 billion valuation divided by their daily actives or total users at the time), is now more like $195 per user (1.68 billion daily actives with $328b market cap).
• halis 10y ago
  Companies get acquired now whether they've ever had a viable plan to make money or not. Sounds like a bubble to me!
• coldtea 10y ago
  One difference between a bubble and a declining market segment is that the bubble bursts -- abruptly. So it doesn't matter whether people repeat prophecies or doom for a long time or not -- unless it's actually a bubble, it won't ever burst. At worse it will start declining slowly. That's why the arguments like "it hasn't burst all those years so it's not a bubble" don't get it either. Being a bubble is not something that has to do with duration (whether it lasts for a long time or not) -- it has to do with the non-linear effects of the burst. Of course it the burst never comes, or it's instead some gradual decline, then it's not a bubble.
  • VladKovac 10y ago
    So you're telling me you can only tell if it isn't a bubble if the market steadily declines eventually? Also how much should it steadily decline by before we're sure it's not some local decline phenomenon unrelated to the bubble? Whatever "bubble" means, it should probably only be used as a description of an abrupt crash in retrospect, otherwise we're always in a non-falsifiable bubble state. Saying "We're in a bubble" really just means colloquially "I think this market segment is overvalued", probably not much more than that.
    • coldtea 10y ago
      >So you're telling me you can only tell if it isn't a bubble if the market steadily declines eventually? No, that's just its defining characteristic. You can "tell" by other signs too -- but they could be misleading. >Whatever "bubble" means, it should probably only be used as a description of an abrupt crash in retrospect, otherwise we're always in a non-falsifiable bubble state. That's the case with every phenomenon that depends in the final result for its definition. E.g. is an act X "beneficial"? We might have some heuristics, but we can only certainly know from its effects after it is completed.
• draw_down 10y ago
  The strangest thing to me is how upset this makes people, even though it doesn't affect them, at least not directly. Look at the quote about Facebook's valuation- who gets so upset about that? Why is it an affront to you if some business guys can figure out a way to call FB worth $33B? Of course now nobody would question that, because they're one of only two games in town when it comes to advertising. But even before that, why get so pissy? If the valuation is sooo crazy then bet against it. Why get so upset that LinkedIn sold for $26B? If you think MS wasted their money then let them waste it. Why be so concerned that VCs are making bad bets? Let them! Are you a limited partner? Then who cares?! I get that people don't like the knock-on effects, rent goes up, engineers are harder to hire. But I don't see why anyone should give a shit if a dumb VC wasted their firm's money on a dumb idea.
  • maxxxxx 10y ago
    The VC is not wasting his own money but some people's pension fund money. In addition they distort the market to make it difficult for regular companies to compete with companies that run on investors' money instead of profits.
• seanmcdirmid 10y ago
  There might not be a bubble in tech, but China is absolutely scaring me right now. If those Chinese bubbles pop, it might shake investor confidence in other sectors as well (e.g. tech).
• baristaGeek 10y ago
  For those of us who are young enough (30 or less) to not have witnessed the internet bubble at a conscious age, we might be tricked to think that we're in a bubble due to certain indicators. The NASDAQ index, the valuation prices, the money poured into venture capital, etc. To those of you like me I recommend you to read about what was happening in 95-99. The panorama was crazy, and today's context doesn't compare to the one of those days. At the end, if the macroeconomic environment changes, who cares? Yes, paying attention to the macro is important and that may even imply changes in strategy, but should you not start a startup because there's a bubble? Even worse, should you (person who hasn't built anything but criticizes everyone who builds something) try to convince your friends not to start startups because we're in a bubble? The main difference between today and 1999 is that digital products are actually generating value in people's lifes. Please don't compare pets.com to WhatsApp
  • api 10y ago
    I lived through it and yes, yes, yes... Today is nothing like dot.com. It was crazy... you had pre-revenue companies with no real working product raising series A, B, C, and then going public all within a year. Total unhinged market mania.
    • smt88 10y ago
      > you had pre-revenue companies with no real working product raising series A, B, C Color[1]? Theranos? uBeam? Clinkle? Those crazy things are absolutely happening now, but the scale is important to know. (I don't know how the scale compares to the dotcom bubble.) 1. http://mashable.com/2012/10/17/color-shuts-down/ http://mashable.com/2012/10/17/color-shuts-down/
      • a_small_island 10y ago
        You cut off the most important part of his point: "and then going public all within a year."
        • 10y ago
• rrggrr 10y ago
  Those aged 65 and up control most of the investment capital in the United States. This is not a risk-taking demographic regardless if the capital is family money or managed money. It is a demographic that wants to preserve capital in exchange for modest returns. The same can be said for pension plans who formerly invested heavily in alternative investments, and who now must ensure fund stability as pension payouts peak in the coming years. Foreign investors and sovereign funds are under increased pressure to keep foreign currency at home, particularly in China and Russia. Interest rates are poised to rise, held back by a US Federal Reserve loaded, cocked and ready to fire; thereby increasing VC carrying costs. The global political environment is not favorable for economic investment. Highly publicized bellicose rhetoric and outright conflict is pervasive. Investors loathe the uncertainty and anxiety this creates. So, this time its different I suspect there may be strong returns to be had in M&A, particularly after Microsoft's aggressive bid for LinkedIN. I note even Twitter is performing well today*. I imagine there may still be strong IPO's, like Twilio seems positioned to be. But, I believe we're entering a less liquid and lower alpha period in investing. I can't say I have special knowledge on the topic, other than being a close observer. (Disclaimer: I do own TWTR)
• deleted 10y ago
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• jrbapna 10y ago
  As the rate of innovation continues to increase exponentially, these so called "bubbles" will only grow bigger. The future will have A LOT MORE companies valued at 1000x revenue, not less. Think about all the new industries poised to exist just in the next decade: A.R. V.R. A.I., Bionics, Space, etc etc. Exciting times we're living in.
• doppp 10y ago
  Sam HAS to play down the fact that we are in a tech bubble. He is, after all, a venture capitalist, so do note the conflict of interest here. My friend referred me to this Bill Gurley article [1]. My metric for whether there is another bubble is not so sophisticated. I feel that there is a bubble when celebrities (like sports personalities) begin investing in questionable startups [2][3]. Harkens back to the '99 bubble. Edit: Before you bring up Ashton Kutcher, a single data point does not a trend make. But yes, we've been in a bubble long before he began investing actually. [1]: http://abovethecrowd.com/2014/01/24/on-bubbles/ http://abovethecrowd.com/2014/01/24/on-bubbles/ [2]: http://www.vanityfair.com/news/2016/04/kobe-bryant-silicon-valley-tech-bro http://www.vanityfair.com/news/2016/04/kobe-bryant-silicon-v... [3]: https://e27.co/boxing-champion-manny-pacquiao-throws-his-hat-into-the-startup-ring-invests-in-singapores-gtoken-20160606/ https://e27.co/boxing-champion-manny-pacquiao-throws-his-hat...
  • deleted 10y ago
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  • api 10y ago
    VCs have interests both ways. They can benefit in new investments if valuations are lower.
    • deleted 10y ago
      [deleted]
    • MagnumOpus 10y ago
      Only if they are late-stage investors. SamA specialises in being early, as do most of the other valley venturati. If you are a first-round investor, there is only downside in the bubble bursting.
  • justinsingh 10y ago
    How many celebrity investments in how many different startups does it take for your metric to reveal that there's a bubble?
  • andrewvc 10y ago
• vadym909 10y ago
  You just jinxed us man. Taunting Lady Luck like that? Now we're really screwed!
• daveguy 10y ago
  Final argument from the article: "now Trump thinks we're in a tech bubble too, so maybe it's true." To which I say: "Even a broken clock is right twice a day."
• api 10y ago
  We just lived through two mega-bubbles: dot.com and real estate. Actually three if you count oil. People now see bubbles everywhere and in everything.
• profmonocle 10y ago
  > One analyst predicts Facebook will easily be worth $200 billion by 2015. Right on! And by 2020 it could be the first company with a $1 zillion market value, so buy-buy-buy, everybody! Decided to look this one up. It hit $200B in late 2014, so that prediction was impressively spot-on: https://ycharts.com/companies/FB/market_cap https://ycharts.com/companies/FB/market_cap
  • hourislate 10y ago
    They are worth more than Boeing and Airbus and GE put together. Actually they are worth more than all the big auto manufacturers in the world combined. Incredible. What were their earnings?
    • imtringued 10y ago
      Airbus has 4 times the revenue.
      • soared 10y ago
        Facebook has insane yoy growth though. http://www.statista.com/graphic/1/268604/annual-revenue-of-facebook.jpg http://www.statista.com/graphic/1/268604/annual-revenue-of-f...
  • umeshunni 10y ago
    What's funny about the quoted article (http://www.thedailybeast.com/articles/2010/12/17/facebooks-56-billion-valuation-and-more-signs-of-the-tech-apocalypse.html http://www.thedailybeast.com/articles/2010/12/17/facebooks-5...) is that of the 7 companies the blogger mentions in that list, only 2 are currently valued above those 2010 valuations - Facebook at 6x and Twitter at 3x. GroupOn is at 0.3x, Foursquare and Quora are zombies and it's unclear what's going on with Bonobos or Lunatik.
• reilly3000 10y ago
  The only real indication that we are in a bubble is the frailty of the future of digital advertising. I don't think there are many hypervalued hardware firms. Advertising hinges on corporate and consumer purchasing power which seems to be healthy if slightly waning, and to a certain extent the personal tolerance of ads and highly abundant Web content. Outside of the US the appetite for both continues to grow year over year. While display on publisher sites has many weak spots, search and social ads a solid footing on most advertiser's budgets. They won't dissappear overnight. What will?
• reilly3000 10y ago
  The only real indication that we are in a bubble is the frailty of the future of digital advertising. I don't think there are many hypervalued hardware firms. Advertising hinges on corporate and consumer purchasing power which seems to be healthy if slightly waning, and to a certain extent the personal tolerance of ads and highly abundant Web content. Outside of the US the appetite for both continues to grow year over year. While display on publisher sites has many weak spots, search and social ads a solid footing on most advertiser's budgets. They won't dissappear overnight. What will?
• tomahunt 10y ago
  A Google Trends search for "bubble" might also suggest we are not in a bubble. [I find a peak around 2009]
• Dwolb 10y ago
  This post suffers from confirmation bias which feels weird coming from a writer whose entire accelerator is founded on principles which exploit other peoples' biases (e.g. others are biased toward teams with traditional credentials whereas YC evaluates more on accomplishments and building things)
• deleted 10y ago
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• beatpanda 10y ago
  If we're not in a bubble, we have very serious structural economic and social problems created by the tech industry that we need to solve. The (supposedly sustainable) rising tide is mostly drowning people, and if no reprieve in the form of a crash is coming, we need another solution.
• aabajian 10y ago
  Anecdotal, personal, and completely my opinion, but my parent's entire life savings is $750,000. That's about how much Mike Markkula invested in early Apple ($250,000 in 1977 dollars adjusted for inflation). I like this figure because it represents a serious amount of money - you could retire off of it, if you're frugal. So why take the risk of investing such a large sum in a startup? I presume that the objective of investors (who have much more money that $750K) is to either to a) make money or b) make money and bring a new technology/innovation to market. In a bubble I see more of the former (focus on money) without the innovation piece. How many car sharing (Uber/Lyft/Sidecar), food-delivery (GrubHub/OrderAhead/DoorDash), and credit card alternatives (Venmo/Coin/Stratos) do we really need? Would the founders of such companies put their retirement savings into starting these companies? Maybe, maybe not. Innovation is key to keeping a bubble at bay. Y combinator has quite a few companies where the goal is to make money through innovation. These are ventures dedicated to biomedical research (DNA sequencing/Gene Mapping), novel algorithm development (AI/Machine Learning), improving social welfare (Water Filtration/Education), etc. I'd be happy to see a world full of these, and I wouldn't call it a bubble. It would be people pursuing ideas that could solve real problems in the world. Ideas that are worth investing your (and therefore an investor's) money. I believe that innovative companies keep a bubble at bay precisely because they are less likely to succeed. Investors must faithfully evaluate innovative companies to see if their technology is feasible and if the market is ready.
  • jacquesm 10y ago
    The difference here is that if you're near retirement age and that's all of your money investing it all in a start-up is the worst possible thing you could do with it given the stats.
• datashovel 10y ago
  One of my most memorable "bubble talk" moments was when I was living in South Florida. To clarify, that's only to say it's easy for me to recall given the unique circumstances of the conversation, not that it was particularly enjoyable for anyone involved. A bunch of my co-workers and I were out to lunch with a new member of our team (management level). The conversation turned to the real estate boom that we were in the middle of. The new guy had already, during the conversation, let us all know he had made a nice chunk of change in real estate recently, and was in the middle of looking for a new house with his wife. They apparently had their eye on a few really nice waterfront properties. That sort of got a few folks talking "bubble". He laughed it off and smugly told us all that (paraphrased) "in reality the market is just going to keep going up." Famous last words, he ended up closing a few months before the crash.
• ajsbae 10y ago
  As a college student, I wonder what implications this will have on the future job market.
• dsmithatx 10y ago
  The truth is things probably have been overvalued for while. Bubbles pop when enough people fear and start to sell. A good article on this should create a graph of how many articles over time have been jumping on the tech bubble bandwagon. Anecdotally I've noticed a massive increase in the past few months by more respected business people.
• datashovel 10y ago
  I have a hard time understanding precisely what gives these companies such high perceived values. In the end I have to believe people are measuring the value based almost exclusively on the website's "traction". Frankly, I think "traction" is an outdated metric (especially when it comes to the web). I almost feel like I have to remind folks here (who are arguing against the premise that we're in the middle of a period of extraordinarily excessive valuations) that the web provides an almost frictionless environment to change. If tomorrow someone launches a better LinkedIn, there is ZERO reason I can't switch over (or use both) that same day). In tomorrow's world I see individual engineers (or surely teams of less than 10) will have the capacity to build a product better than LinkedIn, at and beyond the scale of LinkedIn, in their garage (thanks to the cloud). With little to no investment. In the future (by my estimation the not-too-distant future) $20+ billion for a resume website will be unconscionable (if it isn't already).
• dredmorbius 10y ago
  https://archive.org/details/memoirsextraord13mackgoog https://archive.org/details/memoirsextraord13mackgoog https://en.m.wikipedia.org/wiki/Extraordinary_Popular_Delusions_and_the_Madness_of_Crowds https://en.m.wikipedia.org/wiki/Extraordinary_Popular_Delusi... But this time is different.
• H0n3sty 10y ago
  Most real estate agents, mortgage brokers, and building contractors couldn't see the real estate bubble either. It's hard to see a bubble when you're inside of it. The tech bubble may very well outlast the US dollar bubble.
• crystaln 10y ago
  This seems to violate yc and Paul Graham's general disdain for sarcasm.
• gchokov 10y ago
  Hilarious article. The fact that Silicon Valley VCs can make money out of extremely overpriced companies doesn't make them right. It's just an arrogant read this time. Mr Sam - you should be ashamed.
• nikdaheratik 10y ago
  Whatever this is, it isn't a repeat of the late 90s. The term "bubble" doesn't even mean anything except that alot of people, many of whom aren't even investing or selling short, assume that the prices are way higher than they should be. The 90s was a typical gold-rush type of scenario where no one knew what anything was worth, and so investment continued until someone figured out that there was no one everyone could make money even if the entire mountain was made of gold and started betting against the herd. Going by the cyclical pattern, we're overdue for a recession in the U.S. However, no one knows how severe it could be, especially considering that the "recovery" from the '08 meltdown was tepid at best. As far as tech investing goes, the best way to make money is to back a number of good looking horses and hope the wins pay for the losses. Which is the same as it always was. If you're smart, you'll also diversify in case something does happen to cause the entire industry to take a dive. However, short of a major quake taking down most of SV, the number of different ways businesses are trying to make money means that, IMO, it's more difficult for one event to take them all down, unlike 1999.
• jmanooch 10y ago
  Everyone who says we are in a bubble should come up with a systematically better way to allocate capital. Otherwise: shut up and fuck off. Because for all the hullaballoo about poor allocation in X or Y [Combinator] or Z company being correct, the broader premise, that the market is working out good things to do with money, is clearly somewhat proven by Silicon Valley's last decade of spend: cheap, connected, actually smart smartphones; electric cars becoming affordable; affordable re-useable rockets. All of which are vastly humanly benign, as well as good ways to make money (not all of which do, but some do, i.e. phones). So, pony up, or fuck the fuck off.
  • shinryuu 10y ago
    hello old friend :)
  • effingwewt 10y ago
    It's already been done, you're just too vehemently guarding your non-point to admit it. IPO. If these ridiculously over-valued companies ever went public, as stated MANY times in this discussion, they would get REALISTIC VALUATIONS, and come crashing back to earth quick, fast, and in a hurry. Companies are actively SCARED to IPO now, as it almost always means lower valuations once they have to prove feasibility, rather than convince rich people dumber than they to pony up the money. So how about come up with a cogent argument or GTFO? -Also, good things with money? One words. THERANOS.
• gedrap 10y ago
  I don't really get the point. So at the moment, today, tech industry isn't dead / crashed . So we can find people who said that it will and point at them that they were wrong. And if the crash comes tomorrow, are we going to say 'well, it was predicted soooo', do the usual post-fact rationalization on how obvious it was, etc. But so what? We can do exactly this for any prediction whatsoever. Wars, financial crashes, economical and political events, etc. People, from cab drivers to executives and ministers, make wrong predictions all the time. I honestly don't see the point of it, other than highlight that someone was wrong and... feel good about yourself that you were on the winning side this time? Should we stop predicting? Yeah, probably. But the ending 'And now Trump thinks we’re in a tech bubble too, so maybe it’s true.' doesn't really deliver this message.
• TedHerman 10y ago
  As other comments point out, whether there is a bubble (extreme overvaluation) or not depends in part on the financial background. If you just look at interest rates, they tell us that the future will be stable, the world is awash in capital, and you'll have decades to extract the value of your investment. For example, the $247 per LNKD user could be reasonable, notwithstanding that only around 1/4 of these users reportedly are active. So over 20 years, getting about a dollar a month per user will break even. And this is just one aspect, since global growth trends and unlocking network effects offer more value. But these metrics don't give the whole story. The central banking infrastructure pumps capital into the world due to deflationary fears, so can we really trust interest rates and assumptions of stability and growth trends to determine whether the value of unicorns is enduring? An interesting aspect is Altman's position, argued by citing "they were wrong time and time again" data points. His day job is to create new ventures, some of which will presumably disrupt existing giants and lower their value. This dynamic is dangerous to the assumption of stability in organizational trends upon which value metrics are based. In some sense, there is overvaluation (because new opportunities are undervalued), if not a bubble.
• zxcvvcxz 10y ago
  Let's put it this way -- if everything were fine and companies had strong fundamentals, we wouldn't need some investor to tell us otherwise.