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A key constituent of almost every "bubble" (massively overused term) is a long period where everyone laughs at the doubters. Contrary to popular understanding,

A key constituent of almost every "bubble" (massively overused term) is a long period where everyone laughs at the doubters. Contrary to popular understanding, almost every major bubble has been reported as such before the fact. When Bitcoin was running up, everyone said it was a bubble. Read issues of the Economist from 04/05, they even had a cover story on the housing bubble. Before 2001, we had "irrational exuberance" (and the Fed choosing to cut rates into a boom). Before inflation in the 1970s, read minutes from the Fed...literally three or four years before multiple board members said: "There is going to be significant inflation". Before multiple currency crises in Britain through the 1960/70s, again BoE was telling govt: "If you continue you will cause inflation and devalue" (amazingly, one prime minister was actually responsible for both devaluations in this period). Go back even further, I read a paper about the Bicycle Bubble in Britain in the 1870s...again, lots of press about how it was a bubble. It isn't hard. These aren't "black swans". This is human nature, it never changes. Because something is not happening now, does not mean it can never happened (incidentally, when these things do pop...you usually have a year plus to get out...humans are slow). The amount of self-important puffery going on in tech is somewhat unique (the people involved are unusually insufferable) but it will burst. No path to profitability for most tech companies, most will go to zero. This has happened with every innovation, every capital cycle since the early 19th century. Again: not hard. Also: it isn't just tech. It is technology innovation plus the most short-sighted practice of monetary policy in history. What is happening in Europe and Japan is staggeringly dumb (I am glad I will live to see the fallout from this group of self-appointed "experts" using all this massive intellect to drive the economy off a cliff).

MegaButts 7y ago
The joke goes "economists correctly predicted 10 of the last 2 recessions." You can always retroactively find predictions to match reality, but that doesn't mean you have much ability to figure out how much they're guessing more than anyone else at the time. Hindsight is 20/20. I've been reading about how the economy is going to crash next year for 5 years. Of course it seems inevitable that it will crash, but I'm not convinced anyone can predict when. And I'm not sure how many people can predict why.
- samsonradu 7y ago
  I’m not sure that economies ‘can’ actually crash while running on 0 or below interest rates. I mean why crash when one can just buy more time, it’s free! Just keep on borrowing. I think the real danger is on the other end, hyper-inflation. However, the reason this has not happened yet is due to globalization, cheap money in developped economies flow into emerging economies (China for the past decades), which is not necessarily a bad thing. We’ve only seen massive inflation in products that cannot be imported, like housing.
  - MegaButts 7y ago
    Would you not consider hyper-inflation a recession? If suddenly all my savings, and most everybody's savings, are worth a lot less, it seems like a recession.
  - nradov 7y ago
    Western countries are far more likely to default than to resort to hyperinflation when they're no longer able to service their debts.
    - whatshisface 7y ago
      I'm not sure what would be worse for world peace, USD hyperinflation or a treasury default.
pessimizer 7y ago
> A key constituent of almost every "bubble" (massively overused term) is a long period where everyone laughs at the doubters. I'd almost say that it's a requirement. A generally suspected risk of market failure is priced in because people hedge against it. The atmosphere has to get to a point where hedging against it is a fireable/blacklistable offense among "serious" investors, because then even when people do insure against a total failure, the people they insure with are even more likely to be invested in the garbage than they are. edit: When the denigration of short sellers and "slanderers" of an industry gets increasingly loud and paranoid, I'd think that's the best indication of all. It indicates that there's probably a culture of concealment growing under the surface of that industry, where it's worthwhile to spend significant resources to protect valuations. That's only worthwhile if the problems are deep (i.e. it's a better RoI to concentrate on silencing critics than spending on product) and/or if the timeframe of holding the bag is becoming generally short (e.g. we're being acquired/going public in a month, full PR press now.)
ilikehurdles 7y ago
Calling things a "bubble" correctly is also a bit of "a broken clock is still right twice a day" kind of chance. People have been saying Real Estate is a bubble about to burst for almost 10 years now. When I attended a home-buying seminar in 2014, folks in attendance were stating how housing is a bubble and it's best to wait for prices to drop before getting into ownership; yet by all measures just about any property in the US would have appreciated a ton in the last five years, and anyone who heeded that advice has lost out on a hefty return. The previous owners of my home sold it for double what they purchased it for. In five years of inaction, the wealth transferred in the form of rent can pay for a down-payment. That's a lot of market value to bet on a burst wiping out. Maybe the folks who paralyze their decision-making out of fear of a bubble burst will eventually get to shout "I told you so" from the rooftops. Or maybe they won't. But every day that they're wrong is a day they're losing out on the opportunities others are taking advantage of.
- larrik 7y ago
  The real estate bubble did burst 11 years ago, and a lot (most?) of the country still hasn't reached those values. My condo is still worth barely 60% of what I paid for it in 2008. California (SV especially) is another matter, though.
  - NotSammyHagar 7y ago
    The sv increase in home prices probably matches most thriving city's home price change. At least the tech cities like Seattle and Austin and ...
  - ilikehurdles 7y ago
    I don’t see the evidence that most of the country hasn’t recovered in real estate prices. It seems like the median price is well above what it was at its peak before 2008.
    - refurb 7y ago
      Look at the Case-Shiller city indexes. Cities like Chicago, Las Vegas, others, are close to their 2008 peak, but haven't yet surpassed it.
hash872 7y ago
Eh. This is only true because there's an absolutely staggering amount of financial commentary, and some % of it is negative- and then after a recession you can always go back and use confirmation bias to find the negative comments that 'predicted' it. Recessions & crashes are normal parts of markets and will never go away. Fringey characters like Roubini or Grant's Interest Rate Observer just call for a recession every single year (really! Roubini has predicted a recession every single year since 2008!) Then when it happens pundits can say he 'predicted' it, because they ignore all the times he was wrong. Anyone can easily go through past financial commentary and find quotes saying that good times & growth periods won't work out, it's a bubble, it'll crash soon etc. No one ever points out all the times negative commentary is simply wrong, mostly because being contrarian & negative is fun. Modern Internet companies are fundamentally changing the world similar to the Industrial Revolution. And lumping Facebook/Google/Amazon in with Juicero or whatever is just lazy, handwavey analysis. Yes, some tech companies won't make it out of the next recession- but some are huge, immensely profitable players that are here to stay
- benj111 7y ago
  "And lumping Facebook/Google/Amazon in with Juicero or whatever is just lazy" They have been lumped in together. A company that does X on the internet is valued as a tech company, not as an X company.
  - deleted 7y ago
    [deleted]
- roenxi 7y ago
  On the one hand, yes. On the other hand, the 2008 recession [0] saw unemployment 1 person in 20 lose their jobs. If 1 person in 20 is doing something that is not value-adding there would have to be massive and obvious evidence of that beforehand. Recessions and crashes aren't necessarily evidence of anything in particular. But there is a tendency for people to assume that economic outcomes are mysterious and unexplainable. Many of them are obviously not; things happen for reasons. Exactly what those reasons are is a very political question, but it is obvious that a lot of people do clearly see these things coming a mile away and we just don't have a method of distinguishing them from the broken clocks. [0] https://en.wikipedia.org/wiki/File:US_employment_1995-2012.png https://en.wikipedia.org/wiki/File:US_employment_1995-2012.p...
benj111 7y ago
As the saying goes "the market can remain irrational longer than you can remain solvent." Its easy to spot a mispricing, not so easy to identify when it will correct. I for example havent bought any bonds for a long while because I perceive them to be over priced, I've felt that way for 10 years. Am I an Oracle that can see more than 10 years into the future? Have I messed up and missed out on 10 years returns? Maybe I'm wrong and we're in a new normal. Only hindsight will tell us. At this point though even though I feel bonds are over priced I can't say definitively that you shouldn't buy bonds, and if I had I would have been wrong for the past 10 years.

MegaButts 7y ago

The joke goes "economists correctly predicted 10 of the last 2 recessions." You can always retroactively find predictions to match reality, but that doesn't mean you have much ability to figure out how much they're guessing more than anyone else at the time. Hindsight is 20/20. I've been reading about how the economy is going to crash next year for 5 years. Of course it seems inevitable that it will crash, but I'm not convinced anyone can predict when. And I'm not sure how many people can predict why.

samsonradu 7y ago
I’m not sure that economies ‘can’ actually crash while running on 0 or below interest rates. I mean why crash when one can just buy more time, it’s free! Just keep on borrowing. I think the real danger is on the other end, hyper-inflation. However, the reason this has not happened yet is due to globalization, cheap money in developped economies flow into emerging economies (China for the past decades), which is not necessarily a bad thing. We’ve only seen massive inflation in products that cannot be imported, like housing.
- MegaButts 7y ago
  Would you not consider hyper-inflation a recession? If suddenly all my savings, and most everybody's savings, are worth a lot less, it seems like a recession.
- nradov 7y ago
  Western countries are far more likely to default than to resort to hyperinflation when they're no longer able to service their debts.
  - whatshisface 7y ago
    I'm not sure what would be worse for world peace, USD hyperinflation or a treasury default.

pessimizer 7y ago

> A key constituent of almost every "bubble" (massively overused term) is a long period where everyone laughs at the doubters. I'd almost say that it's a requirement. A generally suspected risk of market failure is priced in because people hedge against it. The atmosphere has to get to a point where hedging against it is a fireable/blacklistable offense among "serious" investors, because then even when people do insure against a total failure, the people they insure with are even more likely to be invested in the garbage than they are. edit: When the denigration of short sellers and "slanderers" of an industry gets increasingly loud and paranoid, I'd think that's the best indication of all. It indicates that there's probably a culture of concealment growing under the surface of that industry, where it's worthwhile to spend significant resources to protect valuations. That's only worthwhile if the problems are deep (i.e. it's a better RoI to concentrate on silencing critics than spending on product) and/or if the timeframe of holding the bag is becoming generally short (e.g. we're being acquired/going public in a month, full PR press now.)

ilikehurdles 7y ago

Calling things a "bubble" correctly is also a bit of "a broken clock is still right twice a day" kind of chance. People have been saying Real Estate is a bubble about to burst for almost 10 years now. When I attended a home-buying seminar in 2014, folks in attendance were stating how housing is a bubble and it's best to wait for prices to drop before getting into ownership; yet by all measures just about any property in the US would have appreciated a ton in the last five years, and anyone who heeded that advice has lost out on a hefty return. The previous owners of my home sold it for double what they purchased it for. In five years of inaction, the wealth transferred in the form of rent can pay for a down-payment. That's a lot of market value to bet on a burst wiping out. Maybe the folks who paralyze their decision-making out of fear of a bubble burst will eventually get to shout "I told you so" from the rooftops. Or maybe they won't. But every day that they're wrong is a day they're losing out on the opportunities others are taking advantage of.

larrik 7y ago
The real estate bubble did burst 11 years ago, and a lot (most?) of the country still hasn't reached those values. My condo is still worth barely 60% of what I paid for it in 2008. California (SV especially) is another matter, though.
- NotSammyHagar 7y ago
  The sv increase in home prices probably matches most thriving city's home price change. At least the tech cities like Seattle and Austin and ...
- ilikehurdles 7y ago
  I don’t see the evidence that most of the country hasn’t recovered in real estate prices. It seems like the median price is well above what it was at its peak before 2008.
  - refurb 7y ago
    Look at the Case-Shiller city indexes. Cities like Chicago, Las Vegas, others, are close to their 2008 peak, but haven't yet surpassed it.

hash872 7y ago

Eh. This is only true because there's an absolutely staggering amount of financial commentary, and some % of it is negative- and then after a recession you can always go back and use confirmation bias to find the negative comments that 'predicted' it. Recessions & crashes are normal parts of markets and will never go away. Fringey characters like Roubini or Grant's Interest Rate Observer just call for a recession every single year (really! Roubini has predicted a recession every single year since 2008!) Then when it happens pundits can say he 'predicted' it, because they ignore all the times he was wrong. Anyone can easily go through past financial commentary and find quotes saying that good times & growth periods won't work out, it's a bubble, it'll crash soon etc. No one ever points out all the times negative commentary is simply wrong, mostly because being contrarian & negative is fun. Modern Internet companies are fundamentally changing the world similar to the Industrial Revolution. And lumping Facebook/Google/Amazon in with Juicero or whatever is just lazy, handwavey analysis. Yes, some tech companies won't make it out of the next recession- but some are huge, immensely profitable players that are here to stay

benj111 7y ago
"And lumping Facebook/Google/Amazon in with Juicero or whatever is just lazy" They have been lumped in together. A company that does X on the internet is valued as a tech company, not as an X company.
- deleted 7y ago
  [deleted]
roenxi 7y ago
On the one hand, yes. On the other hand, the 2008 recession [0] saw unemployment 1 person in 20 lose their jobs. If 1 person in 20 is doing something that is not value-adding there would have to be massive and obvious evidence of that beforehand. Recessions and crashes aren't necessarily evidence of anything in particular. But there is a tendency for people to assume that economic outcomes are mysterious and unexplainable. Many of them are obviously not; things happen for reasons. Exactly what those reasons are is a very political question, but it is obvious that a lot of people do clearly see these things coming a mile away and we just don't have a method of distinguishing them from the broken clocks. [0] https://en.wikipedia.org/wiki/File:US_employment_1995-2012.png https://en.wikipedia.org/wiki/File:US_employment_1995-2012.p...

benj111 7y ago

As the saying goes "the market can remain irrational longer than you can remain solvent." Its easy to spot a mispricing, not so easy to identify when it will correct. I for example havent bought any bonds for a long while because I perceive them to be over priced, I've felt that way for 10 years. Am I an Oracle that can see more than 10 years into the future? Have I messed up and missed out on 10 years returns? Maybe I'm wrong and we're in a new normal. Only hindsight will tell us. At this point though even though I feel bonds are over priced I can't say definitively that you shouldn't buy bonds, and if I had I would have been wrong for the past 10 years.