8 ms·

I agree, at present, capital is abundant. That is, at the moment: Σ(capital available) > Σ(investment opportunities) And this imbalance of demand for and su

by cs702 6y ago

I agree, at present, capital is abundant. That is, at the moment: Σ(capital available) > Σ(investment opportunities) And this imbalance of demand for and supply of investment opportunities is showing up everywhere as... asset price inflation. You can see it in rising angel valuations, rising early-stage VC valuations, rising later-stage VC valuations, rising growth-equity valuations, rising leveraged buyout valuations, rising stock market valuations, rising cryptocurrency prices, rising home prices, etc. Feeding frenzies and bidding wars for high quality assets have become more and more common. Asset prices keep going up and up and up... The multi-trillion-dollar question: Is this sustainable?

A12-B 6y ago
Ironically, whoever answers the question probably wont be paid trillions of dollars. That is because the most likely answer to the question is that it is not sustainable, meaning there's two options: we switch to a non-capital system, and they don't get paid, or everyone chooses to ignore them and they still don't get paid.
akharris 6y ago
I'm not sure that any founder should make a decision based on a future prediction of sustainability. Each founder should make decisions based on the environment he encounters when making a decision. In this case, the imbalance has existed for years and is getting more pronounced. My thoughts here are based on that dynamic. If this changes, then I'd likely change the advice.
- borski 6y ago
  Importantly, the imbalance has changed, and the valley has not seemed to hold a grudge. There have been shifts during the recessions, and certainly after the 2000 bust, but it's a fact of life: the power dynamic sometimes changes, and the best deal you're able to get at the time is the deal you are going to get. It's not entirely unlike mortgage rates, tbh; when you refi matters, due to the rates being variable. When you raise also matters, but sometimes raising is the important part, and the terms are the terms.
- SandersAK 6y ago
  Where do I sign up to LP for the AKH firehose fund?
nostrademons 6y ago
Of course not, but that doesn't matter if a.) you can get out before the top or b.) the world will have changed by then in a way that makes your current position worthless or c.) there is no alternative. Right now all three of those are true, to varying degrees. If you correctly called the top in 2007 and got out of the market, it wouldn't matter unless you got back in before 2012. As someone who lived through those years - at every point during that period, there was a loud chorus of voices saying that we were about to have a double-dip, prices didn't really correct far enough, and fair value indicated they should've gone back to where they were in 2002-2004. Remember that if you're in cash, you've chosen to put your wealth in an asset class whose controlling authority's stated policy is to make it worth consistently less every year.
- cs702 6y ago
  Agree. I like to think of a), b), and c) as: a) "epistemic arrogance" -- you believe you're smarter and know more than everyone else; b) "heads, you might win, tails, everyone loses anyway" -- so you might as well gamble on heads; c) "f*ck it, load up!" And there's also d): d) "wait it out" -- if you're already rich and infinitely patient, like Mr. Buffett. Maybe find a hobby to occupy your brain -- e.g., play Bridge online.
  - dr_dshiv 6y ago
    Or, you know, try to create value day in and day out :)
    - cs702 6y ago
      That's a given -- at least from my standpoint.
  - usmannk 6y ago
    a) "epistemic arrogance" -- you believe you're smarter and know more than everyone else; No, more like you decide to be less greedy than everyone else. You choose to leave money on the table in favor of getting out early.
throwz3123 6y ago
This sounds awfully a lot with stagflation. How can money which can't be spent hold value?
- imtringued 6y ago
  Stagflation is what happens when the central bank engages in expansive monetary policy but there are barriers to starting companies or working at jobs. This describes American healthcare, education and housing pretty well but it's a long term trend. Think about it. The fed gives a bank money, the bank gives money to you so you can build a house and then the city denies you the construction permit. You decide to just buy an existing house instead.
jasode 6y ago
>... asset price inflation. [...] Is this sustainable? No but society has basically locked us all into it. I made a previous comment on why devaluing the currency causes a worldwide game theory of economic actors protecting their purchasing power to counteract it: https://news.ycombinator.com/item?id=15728480 https://news.ycombinator.com/item?id=15728480 Can we reconfigure society? It doesn't seem like it. Some critics today think that Bitcoin's limit of 21 million to support its philosophy against inflation is wrong. Hey, maybe it isn't society that wants inflation but it's the US Govt and/or The Fed Reserve forcing it on us. Well, surveys say the majority of Americans want $2000 stimulus checks so that money has to come from somewhere. It's easier for politicians to print new money rather than sell Yellowstone Park to China for a few trillion dollars.
- chii 6y ago
  > $2000 stimulus checks so that money has to come from somewhere. It's easier for politicians to print new money printing money out of thin air, vs borrowing money (via gov't bonds) are different things. I believe the US borrowed this money for the stimulus cheques.
  - hippich 6y ago
    Borrowed from whom? If it is another federal organization, then I do not see a difference. If my left pocket borrows money from the right one to give money to someone, yet my right pocket was empty to begin with, any money were created out of thin air during such a borrowing process.
    - sangnoir 6y ago
      > Borrowed from whom? Borrowed from taxpayers. The instrument is an AOT tax deduction/rebate for the 2021 tax year. "We know you are going to pay your taxes, you can have some of it back right now".
      - imtringued 6y ago
        Yeah a stimulus check is just a tax rebate for private individuals instead of doing a tax rebate for corporations.
loceng 6y ago
It seems that capital is only abundant through the VC-finance industrial complex, relative dumb money from LPs who buy into whatever thesis a VC firm constructs, and then those VCs will relatively poorly make decisions - only expecting the success of 2-3"unicorns" to pay off their losses and make all their profit - meanwhile that forces, applies pressure to all of their investments to charge more than they may otherwise need to, and use tactics that may not be great, and then that leaves them open to be competed against, disrupted; mind you, their ideal scenario/exit is to IPO and pass that risk off onto society in general. I am trying to combat this with the design decisions for my projects, we'll see if I succeed or if it has any impact.
dv_dt 6y ago
If it is sustainable depends on the quality of investment returns. But that phrase abstracts a lot - the quality of things/services/business produces for that investment need to lead to new or improved productivity in economic activity. It also may take a longer time frame for the improved productivity to manifest than it does for the economic metrics to reflect it. Meaning that one thing to watch out for is that the capital abundance may recede before the investments are able to return the productivity - and that would be tragic because there are an abundance of neglected investment areas which we as a society and an economy can realize benefits. To the extent that our capital investment allocation paths don't match societal needs is the real challenge with this bubble.
s17n 6y ago
The root cause is increased wealth inequality. "Capital" is assets that are invested by their owner instead of just immediately consumed. So, the amount of capital that exists is variable, depending on the preference of asset owners, which is a function of the rates of return they can expect, as well as the utility of consumption. So its backwards to to say "rates of return go down because there's too much capital" - what's really happening is that a lot of assets are held by people who are so rich that the marginal utility of additional consumption to them is essentially zero, which in turn means that they are willing to invest their assets until the rate of return is also close to zero.
- nly 6y ago
  Interesting concept. Do you have any links to research or theories about this way of looking at it?
  - s17n 6y ago
    Nah, just made it up, it's probably total crap
    - danans 6y ago
      Even if you made it up, your comment is basically describing the diminishing marginal utility of wealth. https://www.economicshelp.org/blog/12309/concepts/diminishing-marginal-utility-of-income-and-wealth/#:~:text=Diminishing%20marginal%20utility%20of%20income%20and%20wealth%20suggests%20that%20as,may%20not%20make%20you%20happy%E2%80%9D https://www.economicshelp.org/blog/12309/concepts/diminishin... https://www.investopedia.com/ask/answers/072815/what-marginal-utility-income.asp https://www.investopedia.com/ask/answers/072815/what-margina... The net effect is that consumption (and associated demand) is suppressed at the lower to middle end of the income scale, where individuals' income isn't enough to sustain their needs + wants. When these individuals spend, the demand for labor + raw materials per $ spent is high, because they are often buying consumables or durables (food, washing machines, etc). At the high end of the income/wealth distribution, there are few needs that aren't met or exceeded, so their wealth ends up chasing assets and investments that induce far less demand for labor per $ invested. A the extreme end of this are private equity funds (billions managed by a small number of people).
onlyrealcuzzo 6y ago
Isn't this just another way of saying that some people think money is worth more / or less than it is currently valued? Like - if you think there's too much capital compared to X - couldn't capital just be worth less or X be worth more?

by cs702 6y ago

A12-B 6y ago

Ironically, whoever answers the question probably wont be paid trillions of dollars. That is because the most likely answer to the question is that it is not sustainable, meaning there's two options: we switch to a non-capital system, and they don't get paid, or everyone chooses to ignore them and they still don't get paid.

akharris 6y ago

I'm not sure that any founder should make a decision based on a future prediction of sustainability. Each founder should make decisions based on the environment he encounters when making a decision. In this case, the imbalance has existed for years and is getting more pronounced. My thoughts here are based on that dynamic. If this changes, then I'd likely change the advice.

borski 6y ago
Importantly, the imbalance has changed, and the valley has not seemed to hold a grudge. There have been shifts during the recessions, and certainly after the 2000 bust, but it's a fact of life: the power dynamic sometimes changes, and the best deal you're able to get at the time is the deal you are going to get. It's not entirely unlike mortgage rates, tbh; when you refi matters, due to the rates being variable. When you raise also matters, but sometimes raising is the important part, and the terms are the terms.
SandersAK 6y ago
Where do I sign up to LP for the AKH firehose fund?

nostrademons 6y ago

Of course not, but that doesn't matter if a.) you can get out before the top or b.) the world will have changed by then in a way that makes your current position worthless or c.) there is no alternative. Right now all three of those are true, to varying degrees. If you correctly called the top in 2007 and got out of the market, it wouldn't matter unless you got back in before 2012. As someone who lived through those years - at every point during that period, there was a loud chorus of voices saying that we were about to have a double-dip, prices didn't really correct far enough, and fair value indicated they should've gone back to where they were in 2002-2004. Remember that if you're in cash, you've chosen to put your wealth in an asset class whose controlling authority's stated policy is to make it worth consistently less every year.

cs702 6y ago
Agree. I like to think of a), b), and c) as: a) "epistemic arrogance" -- you believe you're smarter and know more than everyone else; b) "heads, you might win, tails, everyone loses anyway" -- so you might as well gamble on heads; c) "f*ck it, load up!" And there's also d): d) "wait it out" -- if you're already rich and infinitely patient, like Mr. Buffett. Maybe find a hobby to occupy your brain -- e.g., play Bridge online.
- dr_dshiv 6y ago
  Or, you know, try to create value day in and day out :)
  - cs702 6y ago
    That's a given -- at least from my standpoint.
- usmannk 6y ago
  a) "epistemic arrogance" -- you believe you're smarter and know more than everyone else; No, more like you decide to be less greedy than everyone else. You choose to leave money on the table in favor of getting out early.

throwz3123 6y ago

This sounds awfully a lot with stagflation. How can money which can't be spent hold value?

imtringued 6y ago
Stagflation is what happens when the central bank engages in expansive monetary policy but there are barriers to starting companies or working at jobs. This describes American healthcare, education and housing pretty well but it's a long term trend. Think about it. The fed gives a bank money, the bank gives money to you so you can build a house and then the city denies you the construction permit. You decide to just buy an existing house instead.

jasode 6y ago

>... asset price inflation. [...] Is this sustainable? No but society has basically locked us all into it. I made a previous comment on why devaluing the currency causes a worldwide game theory of economic actors protecting their purchasing power to counteract it: https://news.ycombinator.com/item?id=15728480 https://news.ycombinator.com/item?id=15728480 Can we reconfigure society? It doesn't seem like it. Some critics today think that Bitcoin's limit of 21 million to support its philosophy against inflation is wrong. Hey, maybe it isn't society that wants inflation but it's the US Govt and/or The Fed Reserve forcing it on us. Well, surveys say the majority of Americans want $2000 stimulus checks so that money has to come from somewhere. It's easier for politicians to print new money rather than sell Yellowstone Park to China for a few trillion dollars.

chii 6y ago
> $2000 stimulus checks so that money has to come from somewhere. It's easier for politicians to print new money printing money out of thin air, vs borrowing money (via gov't bonds) are different things. I believe the US borrowed this money for the stimulus cheques.
- hippich 6y ago
  Borrowed from whom? If it is another federal organization, then I do not see a difference. If my left pocket borrows money from the right one to give money to someone, yet my right pocket was empty to begin with, any money were created out of thin air during such a borrowing process.
  - sangnoir 6y ago
    > Borrowed from whom? Borrowed from taxpayers. The instrument is an AOT tax deduction/rebate for the 2021 tax year. "We know you are going to pay your taxes, you can have some of it back right now".
    - imtringued 6y ago
      Yeah a stimulus check is just a tax rebate for private individuals instead of doing a tax rebate for corporations.

loceng 6y ago

It seems that capital is only abundant through the VC-finance industrial complex, relative dumb money from LPs who buy into whatever thesis a VC firm constructs, and then those VCs will relatively poorly make decisions - only expecting the success of 2-3"unicorns" to pay off their losses and make all their profit - meanwhile that forces, applies pressure to all of their investments to charge more than they may otherwise need to, and use tactics that may not be great, and then that leaves them open to be competed against, disrupted; mind you, their ideal scenario/exit is to IPO and pass that risk off onto society in general. I am trying to combat this with the design decisions for my projects, we'll see if I succeed or if it has any impact.

dv_dt 6y ago

If it is sustainable depends on the quality of investment returns. But that phrase abstracts a lot - the quality of things/services/business produces for that investment need to lead to new or improved productivity in economic activity. It also may take a longer time frame for the improved productivity to manifest than it does for the economic metrics to reflect it. Meaning that one thing to watch out for is that the capital abundance may recede before the investments are able to return the productivity - and that would be tragic because there are an abundance of neglected investment areas which we as a society and an economy can realize benefits. To the extent that our capital investment allocation paths don't match societal needs is the real challenge with this bubble.

s17n 6y ago

The root cause is increased wealth inequality. "Capital" is assets that are invested by their owner instead of just immediately consumed. So, the amount of capital that exists is variable, depending on the preference of asset owners, which is a function of the rates of return they can expect, as well as the utility of consumption. So its backwards to to say "rates of return go down because there's too much capital" - what's really happening is that a lot of assets are held by people who are so rich that the marginal utility of additional consumption to them is essentially zero, which in turn means that they are willing to invest their assets until the rate of return is also close to zero.

nly 6y ago
Interesting concept. Do you have any links to research or theories about this way of looking at it?
- s17n 6y ago
  Nah, just made it up, it's probably total crap
  - danans 6y ago
    Even if you made it up, your comment is basically describing the diminishing marginal utility of wealth. https://www.economicshelp.org/blog/12309/concepts/diminishing-marginal-utility-of-income-and-wealth/#:~:text=Diminishing%20marginal%20utility%20of%20income%20and%20wealth%20suggests%20that%20as,may%20not%20make%20you%20happy%E2%80%9D https://www.economicshelp.org/blog/12309/concepts/diminishin... https://www.investopedia.com/ask/answers/072815/what-marginal-utility-income.asp https://www.investopedia.com/ask/answers/072815/what-margina... The net effect is that consumption (and associated demand) is suppressed at the lower to middle end of the income scale, where individuals' income isn't enough to sustain their needs + wants. When these individuals spend, the demand for labor + raw materials per $ spent is high, because they are often buying consumables or durables (food, washing machines, etc). At the high end of the income/wealth distribution, there are few needs that aren't met or exceeded, so their wealth ends up chasing assets and investments that induce far less demand for labor per $ invested. A the extreme end of this are private equity funds (billions managed by a small number of people).

onlyrealcuzzo 6y ago

Isn't this just another way of saying that some people think money is worth more / or less than it is currently valued? Like - if you think there's too much capital compared to X - couldn't capital just be worth less or X be worth more?