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Every year since the current boom started, people have predicted that we are in a bubble that is about to burst. Every year since then, that prediction has been

Every year since the current boom started, people have predicted that we are in a bubble that is about to burst. Every year since then, that prediction has been wrong. It's pretty clear that most of these predictions have been motivated by sentiment or mood affiliation (e.g. "these new startups don't really make anything, techies are ruining San Francisco, so they must therefore be bound to fail") rather than economic facts. So, I just don't listen to those predictions anymore. If a slowdown, or a slump, or a crash happens, I'm sure I'll notice it without the naysayers' help. I'll start to worry when it becomes significantly easier to hire engineers.

increment_i 10y ago
I'd be interested to hear your take on what these economic facts are. Just curious.
- gkop 10y ago
  Presumably this is highly weighted toward economic facts: https://fred.stlouisfed.org/graph/?g=6w6u https://fred.stlouisfed.org/graph/?g=6w6u
daveguy 10y ago
If the anything they aren't making is money then it is a bubble and it will eventually burst. When growth in users is seen as orthogonal to growth in income then the whole thing will come crashing down. If growth in users can be consistently converted to growth in income then it's not a bubble. Many people are skeptical of whether user growth can be consistently converted. Very true observation on the effects of a burst bubble -- if it happens everyone will notice. No one is good at predicting the end of a bubble so it is generally better not to pay attention to the predictions until you start observing effects directly.
arjie 10y ago
I don't believe anyone who won't buy a bunch of options short the companies they describe as going to collapse. I mean, if you _know_ something is going to collapse, you've got a money-making opportunity. And if it's the total collapse you're predicting, you can make out like a bandit. If you don't have the money to do this, I don't really trust your ability to make money anyway. That doesn't mean I believe anyone who backs their prediction with money. Necessary but not sufficient condition. There are thousands saying it's going to the moon tomorrow, and thousands saying it's going to crater tomorrow. Someone's going to be right no matter what. When the cost of failure is zero, everyone's going to have an opinion and there's no way to know if anyone's opinion mirrors their true preference. Their true preference may yet be wrong, but at least it's their true preference, so it may be worthwhile to spend time finding out why and see if it truly applies.
- taejo 10y ago
  The market can stay irrational longer than I can stay solvent. :)
  - arjie 10y ago
    All the more reason to not make predictions one can't back, then, isn't it? :P
  - draw_down 10y ago
    Really the only retort to "put your money where your mouth is" talk.
imh 10y ago
I like all the constant bubble talk. As I see it, the more wary people are, the less likely we are to collectively make dumb decisions that lead to an actual bubble. It's not like any of this talk goes around with total certainty.
- jldugger 10y ago
  Making WebVan style bad investments because you can resell it is only part of the problem. The other part of the problem is systemic: it only takes a few dumb actors to make everyone act poorly. When AIG underwrote credit default insurance priced premiums too cheaply for the eventual outcome, a lot of people had no idea how widely distributed their mistake was -- because contracts weren't tradable, and a number of firms were engaged in contract type arbitrage, nobody had any clue what percentage of their liability traced back to AIG. But it wasn't zero just because they never bought from them -- you needed to know your transitive exposure to counterparties to properly offset risk. Obviously AIG got to where it did because of a flawed system that allowed AAA rated companies to issue insurance with no capital, but the analogy of a system of largely rational actors making collective mistakes still holds. One collective bubble argument in tech is ad driven. Every ad driven app & game I've tried has been largely advertised other ad driven games. This represents and form of investment -- spend ad money now and get back more ad money over time. If a few actors are overly optimistic, they'll be outbidding other advertisers and raising the return on ads. Which can produce a couple of adverse feedback loops. Firstly, other companies look at the going rate, and have no way of predicting a crash in ad rates. But if the rate is high now, they will probably choose to produce more ad driven apps. Second incumbent advertising networks (Google, Facebook) will derive immediate benefit, and have extra cash to invest to support more opportunities further out on the risk-reward spectrum. Thirdly, the optimistic actors themselves have a sort of feedback loop -- if rates rise based on their entrance, then their models may well predict rates continuing to rise. Emboldening to buy more, and higher. The trouble is, we don't know if this is the case or not. It seems possible, but there's also a number of micropayment based games that might explain an increasing ad rate. And we can tell ourselves that ad blockers are way less common and less effective on mobile, so maybe we shouldn't expect desktop and mobile markets to converge to the same place.
- twblalock 10y ago

increment_i 10y ago

I'd be interested to hear your take on what these economic facts are. Just curious.

gkop 10y ago
Presumably this is highly weighted toward economic facts: https://fred.stlouisfed.org/graph/?g=6w6u https://fred.stlouisfed.org/graph/?g=6w6u

daveguy 10y ago

If the anything they aren't making is money then it is a bubble and it will eventually burst. When growth in users is seen as orthogonal to growth in income then the whole thing will come crashing down. If growth in users can be consistently converted to growth in income then it's not a bubble. Many people are skeptical of whether user growth can be consistently converted. Very true observation on the effects of a burst bubble -- if it happens everyone will notice. No one is good at predicting the end of a bubble so it is generally better not to pay attention to the predictions until you start observing effects directly.

arjie 10y ago

I don't believe anyone who won't buy a bunch of options short the companies they describe as going to collapse. I mean, if you _know_ something is going to collapse, you've got a money-making opportunity. And if it's the total collapse you're predicting, you can make out like a bandit. If you don't have the money to do this, I don't really trust your ability to make money anyway. That doesn't mean I believe anyone who backs their prediction with money. Necessary but not sufficient condition. There are thousands saying it's going to the moon tomorrow, and thousands saying it's going to crater tomorrow. Someone's going to be right no matter what. When the cost of failure is zero, everyone's going to have an opinion and there's no way to know if anyone's opinion mirrors their true preference. Their true preference may yet be wrong, but at least it's their true preference, so it may be worthwhile to spend time finding out why and see if it truly applies.

taejo 10y ago
The market can stay irrational longer than I can stay solvent. :)
- arjie 10y ago
  All the more reason to not make predictions one can't back, then, isn't it? :P
- draw_down 10y ago
  Really the only retort to "put your money where your mouth is" talk.

imh 10y ago

I like all the constant bubble talk. As I see it, the more wary people are, the less likely we are to collectively make dumb decisions that lead to an actual bubble. It's not like any of this talk goes around with total certainty.

jldugger 10y ago
Making WebVan style bad investments because you can resell it is only part of the problem. The other part of the problem is systemic: it only takes a few dumb actors to make everyone act poorly. When AIG underwrote credit default insurance priced premiums too cheaply for the eventual outcome, a lot of people had no idea how widely distributed their mistake was -- because contracts weren't tradable, and a number of firms were engaged in contract type arbitrage, nobody had any clue what percentage of their liability traced back to AIG. But it wasn't zero just because they never bought from them -- you needed to know your transitive exposure to counterparties to properly offset risk. Obviously AIG got to where it did because of a flawed system that allowed AAA rated companies to issue insurance with no capital, but the analogy of a system of largely rational actors making collective mistakes still holds. One collective bubble argument in tech is ad driven. Every ad driven app & game I've tried has been largely advertised other ad driven games. This represents and form of investment -- spend ad money now and get back more ad money over time. If a few actors are overly optimistic, they'll be outbidding other advertisers and raising the return on ads. Which can produce a couple of adverse feedback loops. Firstly, other companies look at the going rate, and have no way of predicting a crash in ad rates. But if the rate is high now, they will probably choose to produce more ad driven apps. Second incumbent advertising networks (Google, Facebook) will derive immediate benefit, and have extra cash to invest to support more opportunities further out on the risk-reward spectrum. Thirdly, the optimistic actors themselves have a sort of feedback loop -- if rates rise based on their entrance, then their models may well predict rates continuing to rise. Emboldening to buy more, and higher. The trouble is, we don't know if this is the case or not. It seems possible, but there's also a number of micropayment based games that might explain an increasing ad rate. And we can tell ourselves that ad blockers are way less common and less effective on mobile, so maybe we shouldn't expect desktop and mobile markets to converge to the same place.
twblalock 10y ago