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How to keep the money machine going: If one of your investors or potential acquirers is a big company and you already have contacts with them, get that company

How to keep the money machine going: If one of your investors or potential acquirers is a big company and you already have contacts with them, get that company to do a Euro corporate bond issuance, and use the proceeds to buy your company A) this is already happening B) it isn't the strangest thing that has happened Silicon Valley downturn talk is ignoring broader macroeconomic fundamentals, at this point in time. Economically unsound? SURE! Are you in a privileged enough position to make a lot of money? DEFINITELY!

api 10y ago
This is why I don't think a 2001-style crash is coming. A slowdown maybe, but not too hard a landing. Since 2008 global central banks have made it abundantly clear that deflation in any major asset class will not be permitted. If it begins to occur, governments and central banks will intervene with infinite QE and other actions that will restore "confidence" in the market and prop up the asset. In some cases that amounts to actually entering stock, bond, and RE markets and buying stuff with printed money, or giving printed money directly to banks with incentives to do the same. Major players in this unwritten pact include the USA, China, and the EU. It's so large you might almost think of it as WWIII, but being fought with monetary policy (mostly) instead of guns. It's not really a classical bubble but (IMHO) more properly thought of as an economic war. The loser of this global conflict will be the first nation or economic union unable to pump any further. At this point the loser will experience hyper-deflationary collapse and will be bought by the winners. Either that or the war will go hot with the loser being forced to substitute military action for economic might. Startup stock is obviously not on the list of TBTF assets, but it certainly rides on others like stocks, bonds, and real estate. To the extent that startup markets are international, dips will be seen by foreign actors as buying opportunities. Chinese money is already flooding into SV and tech in general. EU money is there as well, albeit more quietly, since right now real yields in the EU are in some cases actually negative and people are looking for ways to diversify more globally. Ploughing some money into high-risk assets like startup stock can be part of a larger diversification push, and the startup world is so tiny compared to the truly massive markets of bonds, stocks, and real estate, that all it takes is a little bit of this behavior to keep the music playing. Edit: add in the fact that startup crowdfunding is going live and you now have a second firehose opening up. I do think things have gotten frothy but I don't think it's over.
- cloudjacker 10y ago
  yeah accurate, but if you take out the 'conflict' and 'WWIII' parts you'll see that it is a coordinated effort between all the major players to spur all the economies. The central banks are all trying to get people to diversify into higher risk assets further up the yield curve, by pushing everything into negative yielding territory. They are trying to spur the economy by getting everyone else to circulate money to groups that are marginalized out of low growth investment grade sectors. No accident and no economic war whatsoever. Pump further? As long as the marginally higher risk businesses don't default all at once, the central banks and everyone else will get all of their principle back. Of the investment grade bonds being issued, it is largely no questions asked general purpose money for the corporation issuing it. They can use those billions to buy up startups all they want making all the laborers very wealthy. If they want.
  - api 10y ago
    That's a great alternative take. I was seeing it as a conflict primarily because the world does not provide us with an infinite supply of resources or human capital. This pumping can therefore only work to the extent that it can generate some medium-long term real ROI. Otherwise you get an eventual deflationary collapse when waves of debt defaults occur because nothing anywhere is generating a return sufficient to maintain payments on your also-inflating asset prices. (See also: house prices vs. median income in major cities.) The conflict, therefore, is being fought by major powers via their ability to generate real ROI. It's a game of chicken. The loser is the one who deflates first and gets purchased by the winners. Cooperative behavior is not mutually exclusive with this hypothesis. It's in the best interest of individuals within all of these major super-states to hedge by investing in the others. Whether or not this overcomes the game of chicken aspect and leads to a win/win/win outcome depends on whether we can all -- collectively -- scale and grow or whether limits to growth are reached.
- DenisM 10y ago
  Clearly, supply and demand are out of whack - there is too much capital ready to produce stuff, and not enough consumer cash to buy all that which can be produced. And yet central banks keep pumping money into the supply side. It boggles the mind. Why? Why not pump the money into the demand side?

api 10y ago

This is why I don't think a 2001-style crash is coming. A slowdown maybe, but not too hard a landing. Since 2008 global central banks have made it abundantly clear that deflation in any major asset class will not be permitted. If it begins to occur, governments and central banks will intervene with infinite QE and other actions that will restore "confidence" in the market and prop up the asset. In some cases that amounts to actually entering stock, bond, and RE markets and buying stuff with printed money, or giving printed money directly to banks with incentives to do the same. Major players in this unwritten pact include the USA, China, and the EU. It's so large you might almost think of it as WWIII, but being fought with monetary policy (mostly) instead of guns. It's not really a classical bubble but (IMHO) more properly thought of as an economic war. The loser of this global conflict will be the first nation or economic union unable to pump any further. At this point the loser will experience hyper-deflationary collapse and will be bought by the winners. Either that or the war will go hot with the loser being forced to substitute military action for economic might. Startup stock is obviously not on the list of TBTF assets, but it certainly rides on others like stocks, bonds, and real estate. To the extent that startup markets are international, dips will be seen by foreign actors as buying opportunities. Chinese money is already flooding into SV and tech in general. EU money is there as well, albeit more quietly, since right now real yields in the EU are in some cases actually negative and people are looking for ways to diversify more globally. Ploughing some money into high-risk assets like startup stock can be part of a larger diversification push, and the startup world is so tiny compared to the truly massive markets of bonds, stocks, and real estate, that all it takes is a little bit of this behavior to keep the music playing. Edit: add in the fact that startup crowdfunding is going live and you now have a second firehose opening up. I do think things have gotten frothy but I don't think it's over.

cloudjacker 10y ago
yeah accurate, but if you take out the 'conflict' and 'WWIII' parts you'll see that it is a coordinated effort between all the major players to spur all the economies. The central banks are all trying to get people to diversify into higher risk assets further up the yield curve, by pushing everything into negative yielding territory. They are trying to spur the economy by getting everyone else to circulate money to groups that are marginalized out of low growth investment grade sectors. No accident and no economic war whatsoever. Pump further? As long as the marginally higher risk businesses don't default all at once, the central banks and everyone else will get all of their principle back. Of the investment grade bonds being issued, it is largely no questions asked general purpose money for the corporation issuing it. They can use those billions to buy up startups all they want making all the laborers very wealthy. If they want.
- api 10y ago
  That's a great alternative take. I was seeing it as a conflict primarily because the world does not provide us with an infinite supply of resources or human capital. This pumping can therefore only work to the extent that it can generate some medium-long term real ROI. Otherwise you get an eventual deflationary collapse when waves of debt defaults occur because nothing anywhere is generating a return sufficient to maintain payments on your also-inflating asset prices. (See also: house prices vs. median income in major cities.) The conflict, therefore, is being fought by major powers via their ability to generate real ROI. It's a game of chicken. The loser is the one who deflates first and gets purchased by the winners. Cooperative behavior is not mutually exclusive with this hypothesis. It's in the best interest of individuals within all of these major super-states to hedge by investing in the others. Whether or not this overcomes the game of chicken aspect and leads to a win/win/win outcome depends on whether we can all -- collectively -- scale and grow or whether limits to growth are reached.
DenisM 10y ago
Clearly, supply and demand are out of whack - there is too much capital ready to produce stuff, and not enough consumer cash to buy all that which can be produced. And yet central banks keep pumping money into the supply side. It boggles the mind. Why? Why not pump the money into the demand side?