6 ms·

This year I mean it -- it's a bubble (2007)

71 points by pg 16y ago

jdp23 16y ago
Good perspectives. John Cassidy's 2002 book "dot.con, How America Lost Its Mind and Money in the Internet Era" is also good reading from a time when bubble predictions proved to be very accurate.
chailatte 16y ago
Secondmarket valuations: Facebook: 50 Billions Twitter: 3 Billions Zynga: 5 Billions http://vator.tv/news/2010-11-30-facebook-valued-at-highest-ever-50-billion http://vator.tv/news/2010-11-30-facebook-valued-at-highest-e...
Semiapies 16y ago
This is how a lot of financial commentary goes. There were people predicting a bubble and a downturn Real Soon Now for internet-related companies by 1994.
- jerf 16y ago
  It's actually part of the cycle. The boy-cries-wolf effect is part of what helps the bubble grow bigger by making it easier to ignore those who continuously breathlessly pronounce that the wolf is here. Even otherwise-rational people start wondering if maybe this time really is different. Then it isn't. That said, I don't think we're anywhere near "bubble" territory. If it looks like a bubble it's only because it's a less sick sector of the economy against a backdrop of a dreadfully sick economy; in the land of the insolvent the $1 profit is king.
  - Semiapies 16y ago
    Agreed - and even further, in the midst of a downturn, there's a huge bias against believing that any business could be making a real profit. After the sky falls, everyone turns into Chicken Little.
  - rmah 16y ago
    The economy is "dreadfully sick" mostly from the point of view of lower and middle income people. It's "so-so" for the wealthy. It's fairly good for larger companies. Public company profits are very strong for 2010 and balance sheets tend to be very solid. Public companies have been sitting on their huge cash hoards (estimated at around $1 tril) but have recently been doing stock buybacks and increasing dividends. More importantly, profitability is strongly up across almost every sector. Much of that is from cost cutting rather than increased sales, but companies that do a lot of business overseas have been seeing a better top line as well. Sadly, none of this has helped the unemployment picture. Companies simply do not want to hire more people in the US for a variety of reasons. Debt loads for consumers is still very high and because the real estate market is still weak, people's most valuable asset is often a chain around their necks. A rather mixed picture, IMO.
ojbyrne 16y ago
Balanced against the constant, nearly-infinite, breathless hype that is pumped out by the bucket-load by the tech blogs, a little healthy skepticism is a good thing in my opinion.
- jamesaguilar 16y ago
  Skepticism is only healthy when it is borne out in truth. Pointless skepticism is not healthy. So if you constantly believe there is going to be a bubble, and there isn't one, that is an example of unhealthy skepticism.
  - Semiapies 16y ago
    Well, actual skepticism is perfectly right and proper, as it's entirely based on the demand that things really be "borne out in truth" before they're accepted as true. Certain political movements aside, "skepticism" does not mean "adamant denial of some claim no matter what evidence is presented".
  - quanticle 16y ago
    That's not the problem with predicting there's a bubble. The problem is that any such prediction automatically carries an implication of, "The bubble will pop soon." Unfortunately, timing bubbles is a tricky thing, and the market has a way of staying irrational longer than you can stay solvent. Numerous commentators correctly identified the tech. bubble of the '90s and the housing bubble of the 2000s. However, very few of those commentators were able to successfully time the popping of these two bubbles (and the ones that did make correct predictions may have got lucky). For my part, I don't think another tech bubble has inflated. In the '90s there were numerous companies whose entire strategy revolved around making an unprofitable business model profitable with internet magic. I don't see as much of that today. But who knows? If advertising revenue declines sufficiently, even Google could be in trouble.
  - ojbyrne 16y ago
    Which was the defense of those who said "there's no web bubble" in 2000, "no housing bubble" in 2005, "no tulip bubble" in 1636, the East India company would make everyone rich in 1670. A bubble by definition isn't evident until after the fact. But I'll still advance Bebo as the exemplar of an emerging bubble. Acquired for $850 million, sold 2 years later for < $10 million. And there's other similar cases.
Symmetry 16y ago
"The Noah principle: predicting rain doesn’t count, building arks does." -Warren E. Buffett
- pjscott 16y ago
  And even then, it only counts once the rain starts.
- paganel 16y ago
  > "The Noah principle: predicting rain doesn’t count, building arks does." >-Warren E. Buffett He sure got that right :) http://www.nytimes.com/2010/11/17/opinion/17buffett.html?_r=2&src=me&ref=general http://www.nytimes.com/2010/11/17/opinion/17buffett.html?_r=...
akozak 16y ago
If we were, in fact, in a bubble of sufficient size, wouldn't these predictions be at least somewhat correct? That is to ask, when do you actually know if these statements are true or false? Couldn't you conceivably be in a bubble that develops over a decade which suddenly comes crashing down to pre-bubble-assessment levels in the early half of that growth?
- Semiapies 16y ago
  Depending on how it's hedged, that's like predicting, "It will probably rain in the next quarter of a year"; a prediction over a scale that large approaches a probability of 1 under most circumstances.
  - akozak 16y ago
    That would be really interesting though; if the probability of a bubble approaches 1 given enough time. Is that an accepted law of economics?
    - Semiapies 16y ago
      "Bubbles" are complicated and regularly conflated with other things entirely. What is more certain and established is that the economy has a boom and bust cycle.
    - newt 16y ago
      The probability that there will be a bubble in some sector at some time in the future approaches 1.0 The probability that it has already started to inflate is supposed to be a lot less, but in the last decade and a half, it seems there have been a lot of bubbles in various parts of the economy.
edanm 16y ago
Reminded me of pg's article about the PR industry. From the article: "Suits make a corporate comeback," says the New York Times. Why does this sound familiar? Maybe because the suit was also back in February, September 2004, June 2004, March 2004, September 2003, November 2002, April 2002, and February 2002. http://www.paulgraham.com/submarine.html http://www.paulgraham.com/submarine.html
- amanfredi 16y ago
  In five years it seems that bloggers have about caught up to traditional media in reporting at the whims of PR firms. Would anyone say there's a higher proportion of PR-resistant bloggers than newspapers or magazines?
fleitz 16y ago
The problem is that because Wall St focuses on making money via financial smoke and mirrors that whenever they see something steadily rise in value they always assume it's a bubble rather than people working their asses off.
- quanticle 16y ago
  The two aren't mutually exclusive. I'm sure the coders at Pets.com were working their asses off too. It didn't make the business model any more sustainable. In fact, that's actually the problem with the labor theory of value. It ignores the fact that all the work in the world is of no value if there isn't someone willing to pay for it. That, in a nutshell was the crux of the dot-com bubble. A lot of people put a lot of work into making cool things, but totally ignored how much people were willing to pay. Raw enthusiasm gained them followers and investors, but enthusiasm cannot mask the lack of profit forever.
Figs 16y ago
Why do people insist on putting enormous, annoying floating crap bars over their websites?
varjag 16y ago
In your recent essay, you wrote: "..And barring financial catastrophe, I think in the coming year it will become the norm." (emphasis mine) You appear to be skeptical of doomsday predictions, why the caveat?
trotsky 16y ago
Just because you can identify a bubble doesn't mean you are any good at knowing when it will pop, in fact it's much easier to do the former than the latter. And obviously, just because it hasn't popped yet doesn't mean it's not a bubble. I sold all my yhoo into a strong rally in 1999 because I thought it had an outlandish price. It went on to trade for more than double what I sold it for, but hasn't ever reached that level post crash. Good call or bad call? Hard to say really but it sure seemed dumb at the time even though I ended up being right.
newt 16y ago
To be fair, it is possible to say "it's a bubble" and have to wait a few years to be proved right. It takes nerve to hang on until you're proved right. See The Big Short http://en.wikipedia.org/wiki/The_Big_Short http://en.wikipedia.org/wiki/The_Big_Short for good examples of this during the recent sub-prime housing bubble.

71 points by pg 16y ago

jdp23 16y ago

Good perspectives. John Cassidy's 2002 book "dot.con, How America Lost Its Mind and Money in the Internet Era" is also good reading from a time when bubble predictions proved to be very accurate.

chailatte 16y ago

Secondmarket valuations: Facebook: 50 Billions Twitter: 3 Billions Zynga: 5 Billions http://vator.tv/news/2010-11-30-facebook-valued-at-highest-ever-50-billion http://vator.tv/news/2010-11-30-facebook-valued-at-highest-e...

Semiapies 16y ago

This is how a lot of financial commentary goes. There were people predicting a bubble and a downturn Real Soon Now for internet-related companies by 1994.

jerf 16y ago
It's actually part of the cycle. The boy-cries-wolf effect is part of what helps the bubble grow bigger by making it easier to ignore those who continuously breathlessly pronounce that the wolf is here. Even otherwise-rational people start wondering if maybe this time really is different. Then it isn't. That said, I don't think we're anywhere near "bubble" territory. If it looks like a bubble it's only because it's a less sick sector of the economy against a backdrop of a dreadfully sick economy; in the land of the insolvent the $1 profit is king.
- Semiapies 16y ago
  Agreed - and even further, in the midst of a downturn, there's a huge bias against believing that any business could be making a real profit. After the sky falls, everyone turns into Chicken Little.
- rmah 16y ago
  The economy is "dreadfully sick" mostly from the point of view of lower and middle income people. It's "so-so" for the wealthy. It's fairly good for larger companies. Public company profits are very strong for 2010 and balance sheets tend to be very solid. Public companies have been sitting on their huge cash hoards (estimated at around $1 tril) but have recently been doing stock buybacks and increasing dividends. More importantly, profitability is strongly up across almost every sector. Much of that is from cost cutting rather than increased sales, but companies that do a lot of business overseas have been seeing a better top line as well. Sadly, none of this has helped the unemployment picture. Companies simply do not want to hire more people in the US for a variety of reasons. Debt loads for consumers is still very high and because the real estate market is still weak, people's most valuable asset is often a chain around their necks. A rather mixed picture, IMO.

ojbyrne 16y ago

Balanced against the constant, nearly-infinite, breathless hype that is pumped out by the bucket-load by the tech blogs, a little healthy skepticism is a good thing in my opinion.

jamesaguilar 16y ago
Skepticism is only healthy when it is borne out in truth. Pointless skepticism is not healthy. So if you constantly believe there is going to be a bubble, and there isn't one, that is an example of unhealthy skepticism.
- Semiapies 16y ago
  Well, actual skepticism is perfectly right and proper, as it's entirely based on the demand that things really be "borne out in truth" before they're accepted as true. Certain political movements aside, "skepticism" does not mean "adamant denial of some claim no matter what evidence is presented".
- quanticle 16y ago
  That's not the problem with predicting there's a bubble. The problem is that any such prediction automatically carries an implication of, "The bubble will pop soon." Unfortunately, timing bubbles is a tricky thing, and the market has a way of staying irrational longer than you can stay solvent. Numerous commentators correctly identified the tech. bubble of the '90s and the housing bubble of the 2000s. However, very few of those commentators were able to successfully time the popping of these two bubbles (and the ones that did make correct predictions may have got lucky). For my part, I don't think another tech bubble has inflated. In the '90s there were numerous companies whose entire strategy revolved around making an unprofitable business model profitable with internet magic. I don't see as much of that today. But who knows? If advertising revenue declines sufficiently, even Google could be in trouble.
- ojbyrne 16y ago
  Which was the defense of those who said "there's no web bubble" in 2000, "no housing bubble" in 2005, "no tulip bubble" in 1636, the East India company would make everyone rich in 1670. A bubble by definition isn't evident until after the fact. But I'll still advance Bebo as the exemplar of an emerging bubble. Acquired for $850 million, sold 2 years later for < $10 million. And there's other similar cases.

Symmetry 16y ago

"The Noah principle: predicting rain doesn’t count, building arks does." -Warren E. Buffett

pjscott 16y ago
And even then, it only counts once the rain starts.
paganel 16y ago
> "The Noah principle: predicting rain doesn’t count, building arks does." >-Warren E. Buffett He sure got that right :) http://www.nytimes.com/2010/11/17/opinion/17buffett.html?_r=2&src=me&ref=general http://www.nytimes.com/2010/11/17/opinion/17buffett.html?_r=...

akozak 16y ago

If we were, in fact, in a bubble of sufficient size, wouldn't these predictions be at least somewhat correct? That is to ask, when do you actually know if these statements are true or false? Couldn't you conceivably be in a bubble that develops over a decade which suddenly comes crashing down to pre-bubble-assessment levels in the early half of that growth?

Semiapies 16y ago
Depending on how it's hedged, that's like predicting, "It will probably rain in the next quarter of a year"; a prediction over a scale that large approaches a probability of 1 under most circumstances.
- akozak 16y ago
  That would be really interesting though; if the probability of a bubble approaches 1 given enough time. Is that an accepted law of economics?
  - Semiapies 16y ago
    "Bubbles" are complicated and regularly conflated with other things entirely. What is more certain and established is that the economy has a boom and bust cycle.
  - newt 16y ago
    The probability that there will be a bubble in some sector at some time in the future approaches 1.0 The probability that it has already started to inflate is supposed to be a lot less, but in the last decade and a half, it seems there have been a lot of bubbles in various parts of the economy.

edanm 16y ago

Reminded me of pg's article about the PR industry. From the article: "Suits make a corporate comeback," says the New York Times. Why does this sound familiar? Maybe because the suit was also back in February, September 2004, June 2004, March 2004, September 2003, November 2002, April 2002, and February 2002. http://www.paulgraham.com/submarine.html http://www.paulgraham.com/submarine.html

amanfredi 16y ago
In five years it seems that bloggers have about caught up to traditional media in reporting at the whims of PR firms. Would anyone say there's a higher proportion of PR-resistant bloggers than newspapers or magazines?

fleitz 16y ago

The problem is that because Wall St focuses on making money via financial smoke and mirrors that whenever they see something steadily rise in value they always assume it's a bubble rather than people working their asses off.

quanticle 16y ago
The two aren't mutually exclusive. I'm sure the coders at Pets.com were working their asses off too. It didn't make the business model any more sustainable. In fact, that's actually the problem with the labor theory of value. It ignores the fact that all the work in the world is of no value if there isn't someone willing to pay for it. That, in a nutshell was the crux of the dot-com bubble. A lot of people put a lot of work into making cool things, but totally ignored how much people were willing to pay. Raw enthusiasm gained them followers and investors, but enthusiasm cannot mask the lack of profit forever.

Figs 16y ago

Why do people insist on putting enormous, annoying floating crap bars over their websites?

varjag 16y ago

In your recent essay, you wrote: "..And barring financial catastrophe, I think in the coming year it will become the norm." (emphasis mine) You appear to be skeptical of doomsday predictions, why the caveat?

trotsky 16y ago

Just because you can identify a bubble doesn't mean you are any good at knowing when it will pop, in fact it's much easier to do the former than the latter. And obviously, just because it hasn't popped yet doesn't mean it's not a bubble. I sold all my yhoo into a strong rally in 1999 because I thought it had an outlandish price. It went on to trade for more than double what I sold it for, but hasn't ever reached that level post crash. Good call or bad call? Hard to say really but it sure seemed dumb at the time even though I ended up being right.

newt 16y ago

To be fair, it is possible to say "it's a bubble" and have to wait a few years to be proved right. It takes nerve to hang on until you're proved right. See The Big Short http://en.wikipedia.org/wiki/The_Big_Short http://en.wikipedia.org/wiki/The_Big_Short for good examples of this during the recent sub-prime housing bubble.