13 ms·

Yes it's a bubble, so what?

115 points by tfehring 9y ago

tfehring 9y ago
Interesting article I found in FT Alphaville's Further Reading section from yesterday [0]. The narrative around the likes of Tesla and cryptocurrencies is likely a tired one to many HN readers, but the broader narrative and arguments made by the authors make up for it. I did not contribute to this article and am not affiliated with the authors in any way. [0] Registration required: https://ftalphaville.ft.com/2018/04/24/1524552922000/Further-reading/ https://ftalphaville.ft.com/2018/04/24/1524552922000/Further...
aosmith 9y ago
Did someone pay to have this written? Seems sketchy IMHO.
- tehsauce 9y ago
  The section on "companies in the top 10 decade to decade" seemed to be a very weak argument to me. Reminded me of reasoning sometimes used by cryptocurrency investors "it crash 3 times and recovered, therefore it's guaranteed to do the same in the future". But other than that, what seems sketchy?
  - koalala 9y ago
    What to you seems wrong with that extrapolation? As there's no real precedent to look at for cryptocurrencies, all we have at the moment is their short history to adjust our beliefs with. Is there some other view on the fundamentals of cryptos that you're incorporating in your thought process? For a more pragmatic look on Bitcoin which i've been using see www.alfaquotes.com, they calculate fundamental value by dividing total cost of hardware and power needed to mine 6 months worth of bitcoin by the amount mined, so just the cost basis for miners. I agree that Bitcoin has been superseded feature-wise by other cryptos, but seems to be a functioning e-gold right now.
robocat 9y ago
"Tesla has been an excellent example of a micro-bubble. Tesla’s current price is arguably fair if most cars are powered by electricity in 10 years, if most of these cars are made by Tesla, if Tesla can make those cars with sufficient margin and quality control and can service the cars properly, and if Tesla can raise additional capital sufficient to cover a $3 billion annual cash drain and another billion to service its debt."
- StudentStuff 9y ago
  So far the QC is sorely lacking on Tesla's cars, nevermind getting parts for your car after a few years. Its incredible what Tesla has gotten away with in terms of locking people out from repairing their own cars!
  - williamdclt 9y ago
    Apple did the exact same for computers, Tesla is surfing on the same kind of hype wave I suppose
    - danmaz74 9y ago
      But cars cost A LOT more than phones...
      - montalbano 9y ago
        What about tractors? See John Deere: https://motherboard.vice.com/en_us/article/pamkqn/watch-tractor-hacking-john-deere-right-to-repair-documentary https://motherboard.vice.com/en_us/article/pamkqn/watch-trac...
      - ctdonath 9y ago
        Principles shouldn't depend on price for applicability.
  - deleted 9y ago
    [deleted]
peterburkimsher 9y ago
Suppose the article is correct, and all but one or two of the top tech companies will underperform over the next decade. What about the companies that fail? Some will be bought out, others will liquidate. Business entities will cease to exist. Code I write is protected by an Intellectual Property clause in my contract. The company owns everything. If the company is gone, can I release my code? Everyone is using git, and many companies use private Github repos. In the same way that copyright expires after a length of time, could Github automatically release code as open-source when companies go bankrupt? I just wish the progress won't all be lost when the bubble bursts.
- dragonwriter 9y ago
  > Code I write is protected by an Intellectual Property clause in my contract. The company owns everything. If the company is gone, can I release my code? Generally, the company or it's assets will be sold. Unless your contract specified that such a transfer releases your code (and it probably doesn't), the new owner will have the same rights as the firm that actually employed you had. Even if the firm is liquidated, that is likely to involving auctioning of assets, including IP portfolios.
  - m_eiman 9y ago
    What if nobody buys anything at the auction?
    - rwmj 9y ago
      This is an interesting question because it's what has happened to a lot of old software. It's especially problematic for old games that people want to play on emulators - at the point where these companies went bust it didn't seem as if the game "IP" had any value. Anyway what definitely doesn't happen (at least in any western country) is that the software becomes "abandonware" or copyright somehow disappears. The copyright will be owned by someone for many more years, even if that person or entity is impossible to trace.
      - 9y ago
joe_the_user 9y ago
What are the problems with bubbles if investors can be cushioned from their worst effects when they occur? The two main problems are mis-allocation of resources and maldistribution of wealth (investors don't worry where their capital goes and investment becomes a more significant source of wealth than work). Both of these problems are very much in evidence today.
- thisisit 9y ago
  > What are the problems with bubbles if investors can be cushioned from their worst effects when they occur? I don't think both can be mutually exclusive. For a bubble to occur investors have to be irrationally exuberant. If they are more prudent and cushion themselves from the worst effects then we might not have a bubble, ever.
  - crdoconnor 9y ago
    >I don't think both can be mutually exclusive. For a bubble to occur investors have to be irrationally exuberant. Not necessarily. They could just be thinking that everybody else is irrationally exuberant. c.f. https://en.wikipedia.org/wiki/Keynesian_beauty_contest https://en.wikipedia.org/wiki/Keynesian_beauty_contest
  - joe_the_user 9y ago
    "For a bubble to occur investors have to be irrationally exuberant." Well, if some system which guarantees a class of investors won't suffer even if the market tanks, you can't really say these investors irrationally exuberant. It's more like they're quite rationally enthusiastic, knowing full well they can't lose.
  - AnimalMuppet 9y ago
    More precisely, for it to be a bubble, people have to be buying because the asset is going up, not because of the fundamentals. It's hard to do that and not be "irrationally exuberant", because you are explicitly disconnected from the rational valuation of the asset.
- 9y ago
grosjona 9y ago
I have a suspicion that bubbles can only exist when media is centralized. Today's media is too decentralized to create the wave of panic that is necessary to burst a bubble. There will always be some people somewhere who didn't get the news and who still believe that x has value and will be happy to buy when they see a price drop... Also, the fear of missing out among millenials is stronger than their fear of losing everything.
- tim333 9y ago
  Wouldn't >Today's media is too decentralized to create the wave of panic that is necessary to burst a bubble mean bubbles would be common but not burst? Anyway I suspect history will continue in the usual manner rather than it being very different this time.
- bildung 9y ago
  > I have a suspicion that bubbles can only exist when media is centralized. Many of the worst bubbles in history occured in countries with very decentralized media, e.g. the Railway Mania in the UK in the 1840s was (relative to today) bigger then the global one in 2007+. So, no, media centralization can't be the reason :)
- autokad 9y ago
  Media can create a bubble, but more often then not they are just chasing it. As far as bubbles cant pop now, well we just had the crypto pop.
  - nrhk 9y ago
    Lol it has not truly popped yet, it will climb higher and crash even harder for the next five years until the tech matures and people have a better idea of what's achievable.
- lainga 9y ago
  I doubt the 17th-century Dutch were all reading the same issue of Tulip Investors' Weekly.
- 9y ago
tim333 9y ago
One of the best thinkers on bubbles I've come across is Jeremy Grantham https://qz.com/111094/this-fund-tracks-36-bubbles-and-33-have-completely-popped/ https://qz.com/111094/this-fund-tracks-36-bubbles-and-33-hav... He's ambivalent at the moment - thinks it'll go up more but probably fall in the future. http://www.cityam.com/278218/jeremy-grantham-predicted-last-two-bubbles-warns-stock http://www.cityam.com/278218/jeremy-grantham-predicted-last-...
- sveme 9y ago
  > He's ambivalent at the moment - thinks it'll go up more but probably fall in the future. He'll always be right with this assessment.
  - refurb 9y ago
    Exactly. I'm going to make a brave prediction that "the market will drop, then go up again and drop again." It's called a business cycle!
    - harry8 9y ago
      Too specific, you've ordered your predictions. Best to keep it to "The market will fluctuate"
  - simonh 9y ago
    To be fair to him, that's not exactly a direct quote so not really fair to pin it on him. He thinks some will go down below where they are now, which is a bit more of a specific view.
    - tim333 9y ago
      Yeah his call was much more specific. I think 2 years up then much down. Easy to be wrong on that.
tim333 9y ago
I was a bit torn on crypto as someone from a value investing background. My conclusion was to punt on the stuff - where else can you buy something and sell it for 10x within the year? - but to cash out a good chunk of the winnings so if they go to zero I'll have the cash. So far so good. I regard the nuttiness as a bit of a make hay while the sun shines situation.
- ACow_Adonis 9y ago
  Where else? I can think of several places. Vegas is the first that comes to mind. But I'm guessing that like most "punters" and participants in a bubble, you perceive the downside risks to not be equivalent...
  - tim333 9y ago
    I think the odds are more in your favour with crypto.
cft 9y ago
Don't you find these sliders "Your continued use of this site acts as your consent to the use of these cookies pursuant to the Research Affiliates Cookie Policy. " annoying as hell? Am I going to read it and close the page before reading the article? Or will I read the article, memorize the domain name and then never come back because they use cookies? Is that what GDPR will be in practice: good intentions but absurd results?
humanrebar 9y ago
> At the end of January 2018, the seven largest-cap stocks in the world were all tech fliers: Alphabet, Apple, Microsoft, Facebook, Amazon, Tencent, and Alibaba. Arguably we're just bucketing companies poorly. "Tech" isn't a commodity, clientele, or business model. We don't group companies based on the fact that they notably have physical storefronts. Otherwise H&M, Ford, H&R Block, and McDonald's would all be in the "brick and mortar" sector. If the trend is "software is eating the world", it stands to reason that the market will be more and more "tech" over time.
- LMYahooTFY 9y ago
  "Tech" is a colloquial term that I wouldn't think needs much explanation on HN. As far as I've ever heard, "Brick and Mortar" has never referred to an industry. It's just an adjective for business that has a store front on a street. And we actually do group them in this regard, it simply isn't relevant all of the time.
  - sp332 9y ago
    The point is that Facebook and Amazon are not really in the same industry either.
    - humanrebar 9y ago
      Right. Facebook and Google? Yes. Amazon and Alibaba? You could make an argument for that. Facebook and Alibaba? Probably not.
    - LMYahooTFY 9y ago
      They're not all within the "Technology Sector"? I understand the nuance, and Amazon is a black swan that we could debate endlessly. Isn't the more relevant consideration here how they're categorized in market/investment terms?
      - kgwgk 9y ago
        Actually Amazon is classified as Consumer Discretionary. It represents over 20% of the SPDR Consumer Discretionary ETF (XLY).
aerovistae 9y ago
Reads like a hit job on Tesla, to me.
- kgwgk 9y ago
  There is one single paragraph on Tesla, less than 5% of the article. And it's just an example where several others could have been used instead.
  - aerovistae 9y ago
    It's the only company mentioned by name in their Key Points at the top, and then it's one of the first things they talk about, and is the only company they talk about in detail. To you, that's by chance and doesn't mean anything. To me, it's because the piece was written with Tesla in mind-- the piece was designed as a vehicle for an opinion on Tesla, disguised as an article about bubbles.
    - autokad 9y ago
      tesla is the poster child for a bubble, so I do not think this alone is evidence as a hit article on tesla. To me, best case scenario is Tesla sells more cars than Ford. What does that mean for the stock? as the case with all stocks with this kind of hyper PE ratio, the stock has to go into no growth territory for like a decade as its earnings grow to match its stock price. that means the best possible case for tesla stock is that it will stop growing for about 10 years, bouncing around the same price.
      - aerovistae 9y ago
        guess we'll see.
    - kgwgk 9y ago
      Maybe they created the company fifteen years ago and growed it to manage $200bn just to prepare this hit piece. They really disguised it well, hiding their negative opinion on Tesla within a long article about bubbles published on their website with no reference to Tesla on the title.
cs702 9y ago
This is a great, well-written piece, worth reading in its entirety. Here are a few passages that will be of interest to the HN community: ...Let’s begin by offering a definition of the word “bubble.” We all hear the word thrown around carelessly and often, but it lacks a formal definition. Let’s try. Ockham’s Razor guides us: Keep it simple. We define a bubble as a circumstance in which asset prices 1) offer little chance of any positive risk premium relative to bonds or cash, using any reasonable projection of expected cash flows, and 2) are sustained because investors believe they can sell the asset to someone else for a higher price tomorrow, with little regard for the underlying fundamentals. At the beginning of 2000, the 10 largest market-cap tech stocks in the United States, collectively representing a 25% share of the S&P 500 Index—Microsoft, Cisco, Intel, IBM, AOL, Oracle, Dell, Sun, Qualcomm, and HP—did not live up to the excessively optimistic expectations. Over the next 18 years, not a single one beat the market: five produced positive returns, averaging 3.2% a year compounded, far lower than the market return, and two failed outright. Of the five that produced negative returns, the average outcome was a loss of 7.2% a year, or 12.6% a year less than the S&P 500. Reasonable observers can disagree, but we believe we are experiencing a tech bubble, based on our relatively rigorous definition of the term. At the end of January 2018, the seven largest-cap stocks in the world were all tech fliers: Alphabet, Apple, Microsoft, Facebook, Amazon, Tencent, and Alibaba. Never before has any sector so dominated the global roster of largest market-cap companies. At the peak of the tech boom, four of the top seven companies by market cap were in the tech sector, and at the peak of the oil bubble, five of the top seven were in the energy sector. Only the Japanese stock market’s bubble at yearend 1989 has matched today’s tech sector dominance of the global market-capitalization league tables.9 Not only do we have the FANGs, we have FANG+ futures, affording investors a chance to buy the world’s trendiest tech stocks with almost no collateral, and the list is amended quarterly to make sure only the trendiest are on the list. Can all of the seven tech highfliers [Alphabet, Apple, Microsoft, Facebook, Amazon, Tencent, and Alibaba] collectively succeed to sufficiently justify their $4.3 trillion combined market capitalization at yearend 2017? Nothing is impossible, but this outcome is implausible. Sure, some of the new tech giants are at valuation multiples that are not extravagant, but several sport startling multiples—and all trade at levels that require robust continued growth. These companies are at war—in some cases directly with one another—for market share, competing for the same eyeballs, and are facing a growing risk of regulatory constraints. Our purpose in this article is not to prove that current conditions represent a bubble. Reasonable people may reach the opposite conclusion. After all, some level of cash flow expectations can justify any price. It’s a matter of subjective judgment as to whether such lofty cash flow expectations are sensible, implausible, or preposterous. Considering all the caveats required to support current prices, we think tech stocks are at the implausible stage in their collective market value, with some individual stocks (and most cryptocurrencies) at the preposterous level. We believe tech stocks are in another bubble, with the potential to impact investable asset classes far beyond the tech sector, albeit not as extreme as the 1999–2000 bubble, labeled by many “the mother of all bubbles.” Highly recommended if you're interested in the subject.
adventured 9y ago
US corporate earnings are set to plausibly increase by 45% for 2018-2020. So whether this market should be very concerning in regards to being a bubble, much depends on if it keeps going up as earnings rise so quickly. If the market goes sideways or generally produces a mediocre return instead, the market's PE ratio will fall dramatically in just three years. The S&P 500 PE will drop from 25 today, to something closer to 14-16. We're now six months into a sideways market despite a massive increase in earnings (which was likely priced in ahead of time).
textmode 9y ago
"7. One aspect of bitcoin-related energy consumption that won't disappear so easily is the residual carbon footprint left by bitcoin mining, which is currently dispensing as much CO2 a year as 1,000,000 transatlantic flights."
cryptonector 9y ago
It's important to note that stock markets provide some shielding from inflation in countries experiencing hyperinflation. If you look at places like Argentina, or Venezuela, you'll see that those with the means to do so use the stock market to shield value or even extract it (i.e., evade capital controls) via ADRs traded locally and on the NYSE. I don't know if Zimbabwe had companies listed on the NYSE, so I don't know if this scheme was used there. The government always allows this for a simple reason: most of the people doing this are its friends and family.
tabtab 9y ago
A company's "value" is different these days. People use Facebook (FB) because others are using it, and they know others are using it. Consumers go there because either everyone else goes there, or they THINK everyone else goes there. If the collective "know" shifts for whatever reason, the value can drop quick, regardless of how many buildings FB owns or how many employees FB has. The market "value" of a company is less tied to physical stuff and tangible property. It's more tied to collective perceptions, and these perceptions can shift like the wind for real or fake reasons (misperceptions), including sheer fads. Too many economic models count physical or tangible property to "value" a company. Instead, the "value" is virtual: in people's heads. And it's circular: if an AI company convinces investors they are great, investors put more money in, allowing them to do better things than AI co's who can't dazzle the crowd. And that could swap if this year's loser happens upon a better dazzle story.
kakwa_ 9y ago
It's quite funny to just search "nasdaq index" on google, then switch to "Max" and see the graph. You see a quite step growth starting February/March 2016 that doesn't seem completely rational. Also lately, you have a kind of plateau with some hiccups. I've the feeling that the bubble will burst withing a year, and next year or two, most tech companies valuations will be halved. But it's only a feeling, I've no deep rational behind it.
arisAlexis 9y ago
cryptocurrencies are not another asset class but a potential new financial and social system.

115 points by tfehring 9y ago

Interesting article I found in FT Alphaville's Further Reading section from yesterday [0]. The narrative around the likes of Tesla and cryptocurrencies is likely a tired one to many HN readers, but the broader narrative and arguments made by the authors make up for it. I did not contribute to this article and am not affiliated with the authors in any way. [0] Registration required: https://ftalphaville.ft.com/2018/04/24/1524552922000/Further-reading/ https://ftalphaville.ft.com/2018/04/24/1524552922000/Further...

aosmith 9y ago

Did someone pay to have this written? Seems sketchy IMHO.

tehsauce 9y ago
The section on "companies in the top 10 decade to decade" seemed to be a very weak argument to me. Reminded me of reasoning sometimes used by cryptocurrency investors "it crash 3 times and recovered, therefore it's guaranteed to do the same in the future". But other than that, what seems sketchy?
- koalala 9y ago
  What to you seems wrong with that extrapolation? As there's no real precedent to look at for cryptocurrencies, all we have at the moment is their short history to adjust our beliefs with. Is there some other view on the fundamentals of cryptos that you're incorporating in your thought process? For a more pragmatic look on Bitcoin which i've been using see www.alfaquotes.com, they calculate fundamental value by dividing total cost of hardware and power needed to mine 6 months worth of bitcoin by the amount mined, so just the cost basis for miners. I agree that Bitcoin has been superseded feature-wise by other cryptos, but seems to be a functioning e-gold right now.

robocat 9y ago

"Tesla has been an excellent example of a micro-bubble. Tesla’s current price is arguably fair if most cars are powered by electricity in 10 years, if most of these cars are made by Tesla, if Tesla can make those cars with sufficient margin and quality control and can service the cars properly, and if Tesla can raise additional capital sufficient to cover a $3 billion annual cash drain and another billion to service its debt."

StudentStuff 9y ago
So far the QC is sorely lacking on Tesla's cars, nevermind getting parts for your car after a few years. Its incredible what Tesla has gotten away with in terms of locking people out from repairing their own cars!
- williamdclt 9y ago
  Apple did the exact same for computers, Tesla is surfing on the same kind of hype wave I suppose
  - danmaz74 9y ago
    But cars cost A LOT more than phones...
    - montalbano 9y ago
      What about tractors? See John Deere: https://motherboard.vice.com/en_us/article/pamkqn/watch-tractor-hacking-john-deere-right-to-repair-documentary https://motherboard.vice.com/en_us/article/pamkqn/watch-trac...
    - ctdonath 9y ago
      Principles shouldn't depend on price for applicability.
- deleted 9y ago
  [deleted]

peterburkimsher 9y ago

Suppose the article is correct, and all but one or two of the top tech companies will underperform over the next decade. What about the companies that fail? Some will be bought out, others will liquidate. Business entities will cease to exist. Code I write is protected by an Intellectual Property clause in my contract. The company owns everything. If the company is gone, can I release my code? Everyone is using git, and many companies use private Github repos. In the same way that copyright expires after a length of time, could Github automatically release code as open-source when companies go bankrupt? I just wish the progress won't all be lost when the bubble bursts.

dragonwriter 9y ago
> Code I write is protected by an Intellectual Property clause in my contract. The company owns everything. If the company is gone, can I release my code? Generally, the company or it's assets will be sold. Unless your contract specified that such a transfer releases your code (and it probably doesn't), the new owner will have the same rights as the firm that actually employed you had. Even if the firm is liquidated, that is likely to involving auctioning of assets, including IP portfolios.
- m_eiman 9y ago
  What if nobody buys anything at the auction?
  - rwmj 9y ago
    This is an interesting question because it's what has happened to a lot of old software. It's especially problematic for old games that people want to play on emulators - at the point where these companies went bust it didn't seem as if the game "IP" had any value. Anyway what definitely doesn't happen (at least in any western country) is that the software becomes "abandonware" or copyright somehow disappears. The copyright will be owned by someone for many more years, even if that person or entity is impossible to trace.
    - 9y ago

joe_the_user 9y ago

What are the problems with bubbles if investors can be cushioned from their worst effects when they occur? The two main problems are mis-allocation of resources and maldistribution of wealth (investors don't worry where their capital goes and investment becomes a more significant source of wealth than work). Both of these problems are very much in evidence today.

thisisit 9y ago
> What are the problems with bubbles if investors can be cushioned from their worst effects when they occur? I don't think both can be mutually exclusive. For a bubble to occur investors have to be irrationally exuberant. If they are more prudent and cushion themselves from the worst effects then we might not have a bubble, ever.
- crdoconnor 9y ago
  >I don't think both can be mutually exclusive. For a bubble to occur investors have to be irrationally exuberant. Not necessarily. They could just be thinking that everybody else is irrationally exuberant. c.f. https://en.wikipedia.org/wiki/Keynesian_beauty_contest https://en.wikipedia.org/wiki/Keynesian_beauty_contest
- joe_the_user 9y ago
  "For a bubble to occur investors have to be irrationally exuberant." Well, if some system which guarantees a class of investors won't suffer even if the market tanks, you can't really say these investors irrationally exuberant. It's more like they're quite rationally enthusiastic, knowing full well they can't lose.
- AnimalMuppet 9y ago
  More precisely, for it to be a bubble, people have to be buying because the asset is going up, not because of the fundamentals. It's hard to do that and not be "irrationally exuberant", because you are explicitly disconnected from the rational valuation of the asset.
9y ago

grosjona 9y ago

I have a suspicion that bubbles can only exist when media is centralized. Today's media is too decentralized to create the wave of panic that is necessary to burst a bubble. There will always be some people somewhere who didn't get the news and who still believe that x has value and will be happy to buy when they see a price drop... Also, the fear of missing out among millenials is stronger than their fear of losing everything.

tim333 9y ago
Wouldn't >Today's media is too decentralized to create the wave of panic that is necessary to burst a bubble mean bubbles would be common but not burst? Anyway I suspect history will continue in the usual manner rather than it being very different this time.
bildung 9y ago
> I have a suspicion that bubbles can only exist when media is centralized. Many of the worst bubbles in history occured in countries with very decentralized media, e.g. the Railway Mania in the UK in the 1840s was (relative to today) bigger then the global one in 2007+. So, no, media centralization can't be the reason :)
autokad 9y ago
Media can create a bubble, but more often then not they are just chasing it. As far as bubbles cant pop now, well we just had the crypto pop.
- nrhk 9y ago
  Lol it has not truly popped yet, it will climb higher and crash even harder for the next five years until the tech matures and people have a better idea of what's achievable.
lainga 9y ago
I doubt the 17th-century Dutch were all reading the same issue of Tulip Investors' Weekly.
9y ago

tim333 9y ago

One of the best thinkers on bubbles I've come across is Jeremy Grantham https://qz.com/111094/this-fund-tracks-36-bubbles-and-33-have-completely-popped/ https://qz.com/111094/this-fund-tracks-36-bubbles-and-33-hav... He's ambivalent at the moment - thinks it'll go up more but probably fall in the future. http://www.cityam.com/278218/jeremy-grantham-predicted-last-two-bubbles-warns-stock http://www.cityam.com/278218/jeremy-grantham-predicted-last-...

sveme 9y ago
> He's ambivalent at the moment - thinks it'll go up more but probably fall in the future. He'll always be right with this assessment.
- refurb 9y ago
  Exactly. I'm going to make a brave prediction that "the market will drop, then go up again and drop again." It's called a business cycle!
  - harry8 9y ago
    Too specific, you've ordered your predictions. Best to keep it to "The market will fluctuate"
- simonh 9y ago
  To be fair to him, that's not exactly a direct quote so not really fair to pin it on him. He thinks some will go down below where they are now, which is a bit more of a specific view.
  - tim333 9y ago
    Yeah his call was much more specific. I think 2 years up then much down. Easy to be wrong on that.

tim333 9y ago

I was a bit torn on crypto as someone from a value investing background. My conclusion was to punt on the stuff - where else can you buy something and sell it for 10x within the year? - but to cash out a good chunk of the winnings so if they go to zero I'll have the cash. So far so good. I regard the nuttiness as a bit of a make hay while the sun shines situation.

ACow_Adonis 9y ago
Where else? I can think of several places. Vegas is the first that comes to mind. But I'm guessing that like most "punters" and participants in a bubble, you perceive the downside risks to not be equivalent...
- tim333 9y ago
  I think the odds are more in your favour with crypto.

cft 9y ago

Don't you find these sliders "Your continued use of this site acts as your consent to the use of these cookies pursuant to the Research Affiliates Cookie Policy. " annoying as hell? Am I going to read it and close the page before reading the article? Or will I read the article, memorize the domain name and then never come back because they use cookies? Is that what GDPR will be in practice: good intentions but absurd results?

humanrebar 9y ago

> At the end of January 2018, the seven largest-cap stocks in the world were all tech fliers: Alphabet, Apple, Microsoft, Facebook, Amazon, Tencent, and Alibaba. Arguably we're just bucketing companies poorly. "Tech" isn't a commodity, clientele, or business model. We don't group companies based on the fact that they notably have physical storefronts. Otherwise H&M, Ford, H&R Block, and McDonald's would all be in the "brick and mortar" sector. If the trend is "software is eating the world", it stands to reason that the market will be more and more "tech" over time.

LMYahooTFY 9y ago
"Tech" is a colloquial term that I wouldn't think needs much explanation on HN. As far as I've ever heard, "Brick and Mortar" has never referred to an industry. It's just an adjective for business that has a store front on a street. And we actually do group them in this regard, it simply isn't relevant all of the time.
- sp332 9y ago
  The point is that Facebook and Amazon are not really in the same industry either.
  - humanrebar 9y ago
    Right. Facebook and Google? Yes. Amazon and Alibaba? You could make an argument for that. Facebook and Alibaba? Probably not.
  - LMYahooTFY 9y ago
    They're not all within the "Technology Sector"? I understand the nuance, and Amazon is a black swan that we could debate endlessly. Isn't the more relevant consideration here how they're categorized in market/investment terms?
    - kgwgk 9y ago
      Actually Amazon is classified as Consumer Discretionary. It represents over 20% of the SPDR Consumer Discretionary ETF (XLY).

aerovistae 9y ago

Reads like a hit job on Tesla, to me.

kgwgk 9y ago
There is one single paragraph on Tesla, less than 5% of the article. And it's just an example where several others could have been used instead.
- aerovistae 9y ago
  It's the only company mentioned by name in their Key Points at the top, and then it's one of the first things they talk about, and is the only company they talk about in detail. To you, that's by chance and doesn't mean anything. To me, it's because the piece was written with Tesla in mind-- the piece was designed as a vehicle for an opinion on Tesla, disguised as an article about bubbles.
  - autokad 9y ago
    tesla is the poster child for a bubble, so I do not think this alone is evidence as a hit article on tesla. To me, best case scenario is Tesla sells more cars than Ford. What does that mean for the stock? as the case with all stocks with this kind of hyper PE ratio, the stock has to go into no growth territory for like a decade as its earnings grow to match its stock price. that means the best possible case for tesla stock is that it will stop growing for about 10 years, bouncing around the same price.
    - aerovistae 9y ago
      guess we'll see.
  - kgwgk 9y ago
    Maybe they created the company fifteen years ago and growed it to manage $200bn just to prepare this hit piece. They really disguised it well, hiding their negative opinion on Tesla within a long article about bubbles published on their website with no reference to Tesla on the title.

cs702 9y ago

This is a great, well-written piece, worth reading in its entirety. Here are a few passages that will be of interest to the HN community: ...Let’s begin by offering a definition of the word “bubble.” We all hear the word thrown around carelessly and often, but it lacks a formal definition. Let’s try. Ockham’s Razor guides us: Keep it simple. We define a bubble as a circumstance in which asset prices 1) offer little chance of any positive risk premium relative to bonds or cash, using any reasonable projection of expected cash flows, and 2) are sustained because investors believe they can sell the asset to someone else for a higher price tomorrow, with little regard for the underlying fundamentals. At the beginning of 2000, the 10 largest market-cap tech stocks in the United States, collectively representing a 25% share of the S&P 500 Index—Microsoft, Cisco, Intel, IBM, AOL, Oracle, Dell, Sun, Qualcomm, and HP—did not live up to the excessively optimistic expectations. Over the next 18 years, not a single one beat the market: five produced positive returns, averaging 3.2% a year compounded, far lower than the market return, and two failed outright. Of the five that produced negative returns, the average outcome was a loss of 7.2% a year, or 12.6% a year less than the S&P 500. Reasonable observers can disagree, but we believe we are experiencing a tech bubble, based on our relatively rigorous definition of the term. At the end of January 2018, the seven largest-cap stocks in the world were all tech fliers: Alphabet, Apple, Microsoft, Facebook, Amazon, Tencent, and Alibaba. Never before has any sector so dominated the global roster of largest market-cap companies. At the peak of the tech boom, four of the top seven companies by market cap were in the tech sector, and at the peak of the oil bubble, five of the top seven were in the energy sector. Only the Japanese stock market’s bubble at yearend 1989 has matched today’s tech sector dominance of the global market-capitalization league tables.9 Not only do we have the FANGs, we have FANG+ futures, affording investors a chance to buy the world’s trendiest tech stocks with almost no collateral, and the list is amended quarterly to make sure only the trendiest are on the list. Can all of the seven tech highfliers [Alphabet, Apple, Microsoft, Facebook, Amazon, Tencent, and Alibaba] collectively succeed to sufficiently justify their $4.3 trillion combined market capitalization at yearend 2017? Nothing is impossible, but this outcome is implausible. Sure, some of the new tech giants are at valuation multiples that are not extravagant, but several sport startling multiples—and all trade at levels that require robust continued growth. These companies are at war—in some cases directly with one another—for market share, competing for the same eyeballs, and are facing a growing risk of regulatory constraints. Our purpose in this article is not to prove that current conditions represent a bubble. Reasonable people may reach the opposite conclusion. After all, some level of cash flow expectations can justify any price. It’s a matter of subjective judgment as to whether such lofty cash flow expectations are sensible, implausible, or preposterous. Considering all the caveats required to support current prices, we think tech stocks are at the implausible stage in their collective market value, with some individual stocks (and most cryptocurrencies) at the preposterous level. We believe tech stocks are in another bubble, with the potential to impact investable asset classes far beyond the tech sector, albeit not as extreme as the 1999–2000 bubble, labeled by many “the mother of all bubbles.” Highly recommended if you're interested in the subject.

adventured 9y ago

US corporate earnings are set to plausibly increase by 45% for 2018-2020. So whether this market should be very concerning in regards to being a bubble, much depends on if it keeps going up as earnings rise so quickly. If the market goes sideways or generally produces a mediocre return instead, the market's PE ratio will fall dramatically in just three years. The S&P 500 PE will drop from 25 today, to something closer to 14-16. We're now six months into a sideways market despite a massive increase in earnings (which was likely priced in ahead of time).

textmode 9y ago

"7. One aspect of bitcoin-related energy consumption that won't disappear so easily is the residual carbon footprint left by bitcoin mining, which is currently dispensing as much CO2 a year as 1,000,000 transatlantic flights."

cryptonector 9y ago

It's important to note that stock markets provide some shielding from inflation in countries experiencing hyperinflation. If you look at places like Argentina, or Venezuela, you'll see that those with the means to do so use the stock market to shield value or even extract it (i.e., evade capital controls) via ADRs traded locally and on the NYSE. I don't know if Zimbabwe had companies listed on the NYSE, so I don't know if this scheme was used there. The government always allows this for a simple reason: most of the people doing this are its friends and family.

tabtab 9y ago

A company's "value" is different these days. People use Facebook (FB) because others are using it, and they know others are using it. Consumers go there because either everyone else goes there, or they THINK everyone else goes there. If the collective "know" shifts for whatever reason, the value can drop quick, regardless of how many buildings FB owns or how many employees FB has. The market "value" of a company is less tied to physical stuff and tangible property. It's more tied to collective perceptions, and these perceptions can shift like the wind for real or fake reasons (misperceptions), including sheer fads. Too many economic models count physical or tangible property to "value" a company. Instead, the "value" is virtual: in people's heads. And it's circular: if an AI company convinces investors they are great, investors put more money in, allowing them to do better things than AI co's who can't dazzle the crowd. And that could swap if this year's loser happens upon a better dazzle story.

kakwa_ 9y ago

It's quite funny to just search "nasdaq index" on google, then switch to "Max" and see the graph. You see a quite step growth starting February/March 2016 that doesn't seem completely rational. Also lately, you have a kind of plateau with some hiccups. I've the feeling that the bubble will burst withing a year, and next year or two, most tech companies valuations will be halved. But it's only a feeling, I've no deep rational behind it.

arisAlexis 9y ago

cryptocurrencies are not another asset class but a potential new financial and social system.