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Every time I see one of these announcements, the valuations go up and up and up and up. I remember not long ago being wowed by a 1B acquisition. That was called

Every time I see one of these announcements, the valuations go up and up and up and up. I remember not long ago being wowed by a 1B acquisition. That was called a unicorn because of how incredible it was. And now we're at 29B. Is this just because money is all a joke?

vmception 5y ago
Kind of? If you follow monetary policy circles, you would know that we are only close to the predicted level of fantastic market distortions that should be expected. It is fantastic to see it play out, such as valuations much larger than before, as well as the unexpected areas of speculation and shifts in market tolerances for worse deals. But we aren't even done yet! And this comes with a pretty clear agreement on the limitations of monetary policy, like we know massive central bank balance sheet increases don't accomplish their [stated] goals well. But we also expect central bank balance sheets to increase by further distorting the market. When central banks purchase things, whoever they bought it from now has money that didn't exist before the transaction. This money doesn't "trickle down" into the economy, instead it more so pools with these people that are active in the capital markets, and they are trying to figure out how to make more of that money faster than the central bank buys and creates more. So the only way to do that is to attempt greater and greater deals. Because there is nothing else to buy - the central bank already bought the "good investments" (bundles of mortgages, treasuries, investment grade corporate bonds, even some junk bonds) and is also looking for more just like you are! So now you have to take greater risks, maybe this $29 Billion deal that the central bank won't try to get in on! The conundrum is that now the capital markets are expecting the central bank to buy everything, especially the dips. (most central banks don't buy stocks, but when they buy fairly illiquid bonds from people those people often buy stocks. in US a lot of the stimulus money came directly from the central bank after Congress modified its charter to give currency directly to people in exchange for nothing, and the recipients also bought stocks. the same sentiment is distributed in all socioeconomic classes even the top 0.01%.). So if the central bank gives a hint at reducing purchases (called "tapering"), the markets crash, and the central bank is strongly advised to continue! The stated purpose is to get people to invest in "main street", instead of just the same small collection of assets. Turns out, it doesn't matter and nobody wants to invest in random entrepreneurs. The market is signaling that it would rather pay to not invest in randoms (in many parts of the world, government bonds have a negative yield, which means people are paying to own a bond while also further losing on inflation). So if you do have access to the capital markets due to your pedigree or network or net worth, the stuff you sell - your company's shares that you typed up on a sheet of paper, or whatever - will have a much higher valuation because other people have nothing else [eligible] to buy and need to put their money somewhere! The US is the strongest hold out on negative interest rates, and is the largest market too, so the anticipation of the "season finale" is that the US gets to that territory as well, and then we really get to see some fireworks in the market as it is a major psychology barrier as well. Watch the 2 year and the 10 year treasury rates, as they are seen as having the most liquidity and trading activity. https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield https://www.treasury.gov/resource-center/data-chart-center/i... As you can see they are really close to 0% right now, for a prolongued period of time. Getting to this negative stage requires SOOOOooooo much infathomable amounts of money, hoarding government bonds. But the central bank is the main purchaser of these bonds, from both the treasury and private owners on the secondary market, as they buy they push the yields closer to zero. (bond price increase = lowers yield) fun times ahead! expect greater valuations and quick!
- jollybean 5y ago
  +1. This is the real comment about the situation, because the valuation is so 'ridiculous', it almost makes the nature of the business activity secondary. For non-financial folks, dust off the little equation you may have learned in high school, where you value something that goes out forever, but where the rate of growth is higher than that of inflation and the risk-free cost of capital. It goes to infinity. So as interest rates go down, valuations grow. But as interest rates really get low ... the valuations vault into the stratosphere. Only in a weird universe can we really expect these companies to grow at those rates for very long periods of time ahead of absolutely everything else without much risk. So the discussion is really about markets, less so local types of consumer payments.
  - deleted 5y ago
    [deleted]
- rossmohax 5y ago
  What would you recommend to read/watch to understand better this kind of things?
  - vmception 5y ago
    hmmm, not sure, at this point I think you would be better off using what I wrote as a summary and hopping in to current events Matt Levine’s writings on Bloomberg occasionally go into macroeconomic territory, he has a facetious and satirical approach to current events in capital markets There are a few other sensational editorial publications about macroeconomics and credit markets, but I wouldn't recommend them for actually learning Sadly, I think this leaves a void between dry material, and sensational disinformation sites
pcurve 5y ago
That's part of it, but it's concentrated around certain sectors (technology and startups) There is x5 ~ x10 premium being put on these companies compared to others. Valuations in other sectors are still somewhat reasonable.
muzani 5y ago
Yeah, I think the "unicorn" bar needs to be pushed up to $10B at least, because of inflation. It's very rare though, but fintech seems to hit it frequently. Perhaps finance people have less money raising money. Or perhaps people are more willing to pay for things that save/make money.
paxys 5y ago
Back when 1B acquisitions were considered incredible most of the world did not know what the internet was. If the size of the pie grows 30X the amount of money in it will as well.
- throwawayzRUU6f 5y ago
  Just several years ago, Facebook IPO-ed at ~$90B valuation, before sliding all the way down to ~$45B. Facebook was already a giant global corporation with close to a billion active users, nearly all of them from western countries. AfterPay's valuation puts it at two thirds of mid-2012 Facebook. Up until now, I've never heard of them
  - AQuantized 5y ago
    'several years' in this case being almost a decade
JohnJamesRambo 5y ago
Yes money is all a joke right now. https://fred.stlouisfed.org/series/M1SL https://fred.stlouisfed.org/series/M1SL
- Toine 5y ago
  Is that the amount of cash circulating right now ? That is terrifying...
- osrec 5y ago
  Is that massive jump covid related?
  - comodore_ 5y ago
    I watch this every 6 months or so https://www.youtube.com/watch?v=PTUY16CkS-k https://www.youtube.com/watch?v=PTUY16CkS-k
  - buster 5y ago
    I don't understand the difference but the text below particularly points out a change in measurement in May, 2020. I suppose that's the reason.
  - arthurcolle 5y ago
    money printer goes brrr
  - dna_polymerase 5y ago
    No, it's a change in methodology. The "money printer goes brr"-crowd is just unable to digest information.
    - leppr 5y ago
      No, that "crowd" is talking about the 30% increase in a year of M2 money supply, which is unprecedented in US history. The gymnastics going on with the M1 curve don't change that underlying fact, although it does provide a convenient strawman deflection in arguments so less informed people stop at this rebuttal and believe the whole "huge money supply increase" narrative is a hoax.
m12k 5y ago
The market value of a company or person is determined by the market value of whatever they're shoveling around every day. Shoveling around software is valuable, but shoveling around money even more so. It just doesn't get more pure than that - it's literally the thing we use to measure the value of everything else.
shoto_io 5y ago
Facebook acquired Instagram for 1bn. Ridiculous by today's standards.
- mrtksn 5y ago
  I remember the jokes about how FB purchased a photo filter app and how easy it was to make photo effects. Sometimes it feels like techies not always get what is valuable and what is not as much.
  - danwills 5y ago
    I want to share my recent fractal renderings, that I think are valuable, here's a fun example: https://drive.google.com/file/d/1AT9bcRZygdcCiMs5TvRXK50iik5yxbNO/view?usp=drivesdk https://drive.google.com/file/d/1AT9bcRZygdcCiMs5TvRXK50iik5... Despite it being where-everyone presumably-is I do not want to use Instagram, so I am not sure what's best to do.. is there a good-enough 'open'/decentralised alternative now? Maybe a simple rss feed would do it?
    - bufferoverflow 5y ago
      Imgur.
    - shoto_io 5y ago
      What's the reason you don't want to use Instagram?
      - danwills 5y ago
        It's not part of the public internet, that's probably the main problem, but I also have quite a strong aversion to things run by large corporations. At the moment I let google in, but that's it. (and they completely ruined my previous picasa-album sharing of my galleries of fractals, so I'm not hugely happy here either!) I am more interested to find a passionate niche of ppl that really love the journey than getting general exposure, I guess that's another side of things: 2d fractals don't really have much mass-market appeal, but if you know what's going on there, it's a lot more interesting to follow!
TheAlchemist 5y ago
Notice that it’s all stock - no real money is changing hands here. All assets are at all time highs - bubble levels for most. Hence those « valuations » - but if history repeats itself, things can change quickly.
papito 5y ago
Dogecoin is literally a joke, and is promoted by some billionaires, who are allegedly smart.
- tigerBL00D 5y ago
  Lack of regulation means that there is no penalty for trading on non-public (insider) information or for stock manipulation. Lack of regulation is what everyone wants, right? Except regulation is there to prevent all sorts of fraud that ultimately leaves someone's granny holding the bag. The said billionaires are not so dumb. They know what they can get away with and their close friends may know what they're going to tweet before they do it.
skeeter2020 5y ago
if you've got one of these frothy valuations and can find another company that will take an all-stock deal you're basically buying a company that hopefully has some real assets underneath all the foam, but if not you're paying with waht is essentially self-minted fiat currency. In the meantime you better believe the insiders are quietly converting to something more concrete.

vmception 5y ago

Kind of? If you follow monetary policy circles, you would know that we are only close to the predicted level of fantastic market distortions that should be expected. It is fantastic to see it play out, such as valuations much larger than before, as well as the unexpected areas of speculation and shifts in market tolerances for worse deals. But we aren't even done yet! And this comes with a pretty clear agreement on the limitations of monetary policy, like we know massive central bank balance sheet increases don't accomplish their [stated] goals well. But we also expect central bank balance sheets to increase by further distorting the market. When central banks purchase things, whoever they bought it from now has money that didn't exist before the transaction. This money doesn't "trickle down" into the economy, instead it more so pools with these people that are active in the capital markets, and they are trying to figure out how to make more of that money faster than the central bank buys and creates more. So the only way to do that is to attempt greater and greater deals. Because there is nothing else to buy - the central bank already bought the "good investments" (bundles of mortgages, treasuries, investment grade corporate bonds, even some junk bonds) and is also looking for more just like you are! So now you have to take greater risks, maybe this $29 Billion deal that the central bank won't try to get in on! The conundrum is that now the capital markets are expecting the central bank to buy everything, especially the dips. (most central banks don't buy stocks, but when they buy fairly illiquid bonds from people those people often buy stocks. in US a lot of the stimulus money came directly from the central bank after Congress modified its charter to give currency directly to people in exchange for nothing, and the recipients also bought stocks. the same sentiment is distributed in all socioeconomic classes even the top 0.01%.). So if the central bank gives a hint at reducing purchases (called "tapering"), the markets crash, and the central bank is strongly advised to continue! The stated purpose is to get people to invest in "main street", instead of just the same small collection of assets. Turns out, it doesn't matter and nobody wants to invest in random entrepreneurs. The market is signaling that it would rather pay to not invest in randoms (in many parts of the world, government bonds have a negative yield, which means people are paying to own a bond while also further losing on inflation). So if you do have access to the capital markets due to your pedigree or network or net worth, the stuff you sell - your company's shares that you typed up on a sheet of paper, or whatever - will have a much higher valuation because other people have nothing else [eligible] to buy and need to put their money somewhere! The US is the strongest hold out on negative interest rates, and is the largest market too, so the anticipation of the "season finale" is that the US gets to that territory as well, and then we really get to see some fireworks in the market as it is a major psychology barrier as well. Watch the 2 year and the 10 year treasury rates, as they are seen as having the most liquidity and trading activity. https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield https://www.treasury.gov/resource-center/data-chart-center/i... As you can see they are really close to 0% right now, for a prolongued period of time. Getting to this negative stage requires SOOOOooooo much infathomable amounts of money, hoarding government bonds. But the central bank is the main purchaser of these bonds, from both the treasury and private owners on the secondary market, as they buy they push the yields closer to zero. (bond price increase = lowers yield) fun times ahead! expect greater valuations and quick!

jollybean 5y ago
+1. This is the real comment about the situation, because the valuation is so 'ridiculous', it almost makes the nature of the business activity secondary. For non-financial folks, dust off the little equation you may have learned in high school, where you value something that goes out forever, but where the rate of growth is higher than that of inflation and the risk-free cost of capital. It goes to infinity. So as interest rates go down, valuations grow. But as interest rates really get low ... the valuations vault into the stratosphere. Only in a weird universe can we really expect these companies to grow at those rates for very long periods of time ahead of absolutely everything else without much risk. So the discussion is really about markets, less so local types of consumer payments.
- deleted 5y ago
  [deleted]
rossmohax 5y ago
What would you recommend to read/watch to understand better this kind of things?
- vmception 5y ago
  hmmm, not sure, at this point I think you would be better off using what I wrote as a summary and hopping in to current events Matt Levine’s writings on Bloomberg occasionally go into macroeconomic territory, he has a facetious and satirical approach to current events in capital markets There are a few other sensational editorial publications about macroeconomics and credit markets, but I wouldn't recommend them for actually learning Sadly, I think this leaves a void between dry material, and sensational disinformation sites

pcurve 5y ago

That's part of it, but it's concentrated around certain sectors (technology and startups) There is x5 ~ x10 premium being put on these companies compared to others. Valuations in other sectors are still somewhat reasonable.

muzani 5y ago

Yeah, I think the "unicorn" bar needs to be pushed up to $10B at least, because of inflation. It's very rare though, but fintech seems to hit it frequently. Perhaps finance people have less money raising money. Or perhaps people are more willing to pay for things that save/make money.

paxys 5y ago

Back when 1B acquisitions were considered incredible most of the world did not know what the internet was. If the size of the pie grows 30X the amount of money in it will as well.

throwawayzRUU6f 5y ago
Just several years ago, Facebook IPO-ed at ~$90B valuation, before sliding all the way down to ~$45B. Facebook was already a giant global corporation with close to a billion active users, nearly all of them from western countries. AfterPay's valuation puts it at two thirds of mid-2012 Facebook. Up until now, I've never heard of them
- AQuantized 5y ago
  'several years' in this case being almost a decade

JohnJamesRambo 5y ago

Yes money is all a joke right now. https://fred.stlouisfed.org/series/M1SL https://fred.stlouisfed.org/series/M1SL

Toine 5y ago
Is that the amount of cash circulating right now ? That is terrifying...
osrec 5y ago
Is that massive jump covid related?
- comodore_ 5y ago
  I watch this every 6 months or so https://www.youtube.com/watch?v=PTUY16CkS-k https://www.youtube.com/watch?v=PTUY16CkS-k
- buster 5y ago
  I don't understand the difference but the text below particularly points out a change in measurement in May, 2020. I suppose that's the reason.
- arthurcolle 5y ago
  money printer goes brrr
- dna_polymerase 5y ago
  No, it's a change in methodology. The "money printer goes brr"-crowd is just unable to digest information.
  - leppr 5y ago
    No, that "crowd" is talking about the 30% increase in a year of M2 money supply, which is unprecedented in US history. The gymnastics going on with the M1 curve don't change that underlying fact, although it does provide a convenient strawman deflection in arguments so less informed people stop at this rebuttal and believe the whole "huge money supply increase" narrative is a hoax.

m12k 5y ago

The market value of a company or person is determined by the market value of whatever they're shoveling around every day. Shoveling around software is valuable, but shoveling around money even more so. It just doesn't get more pure than that - it's literally the thing we use to measure the value of everything else.

shoto_io 5y ago

Facebook acquired Instagram for 1bn. Ridiculous by today's standards.

mrtksn 5y ago
I remember the jokes about how FB purchased a photo filter app and how easy it was to make photo effects. Sometimes it feels like techies not always get what is valuable and what is not as much.
- danwills 5y ago
  I want to share my recent fractal renderings, that I think are valuable, here's a fun example: https://drive.google.com/file/d/1AT9bcRZygdcCiMs5TvRXK50iik5yxbNO/view?usp=drivesdk https://drive.google.com/file/d/1AT9bcRZygdcCiMs5TvRXK50iik5... Despite it being where-everyone presumably-is I do not want to use Instagram, so I am not sure what's best to do.. is there a good-enough 'open'/decentralised alternative now? Maybe a simple rss feed would do it?
  - bufferoverflow 5y ago
    Imgur.
  - shoto_io 5y ago
    What's the reason you don't want to use Instagram?
    - danwills 5y ago
      It's not part of the public internet, that's probably the main problem, but I also have quite a strong aversion to things run by large corporations. At the moment I let google in, but that's it. (and they completely ruined my previous picasa-album sharing of my galleries of fractals, so I'm not hugely happy here either!) I am more interested to find a passionate niche of ppl that really love the journey than getting general exposure, I guess that's another side of things: 2d fractals don't really have much mass-market appeal, but if you know what's going on there, it's a lot more interesting to follow!

TheAlchemist 5y ago

Notice that it’s all stock - no real money is changing hands here. All assets are at all time highs - bubble levels for most. Hence those « valuations » - but if history repeats itself, things can change quickly.

papito 5y ago

Dogecoin is literally a joke, and is promoted by some billionaires, who are allegedly smart.

tigerBL00D 5y ago
Lack of regulation means that there is no penalty for trading on non-public (insider) information or for stock manipulation. Lack of regulation is what everyone wants, right? Except regulation is there to prevent all sorts of fraud that ultimately leaves someone's granny holding the bag. The said billionaires are not so dumb. They know what they can get away with and their close friends may know what they're going to tweet before they do it.

skeeter2020 5y ago

if you've got one of these frothy valuations and can find another company that will take an all-stock deal you're basically buying a company that hopefully has some real assets underneath all the foam, but if not you're paying with waht is essentially self-minted fiat currency. In the meantime you better believe the insiders are quietly converting to something more concrete.