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I've heard the argument that the dotcom crash was so catastrophic because the Internet as a market wasn't proven at that point. That'd mean a dotcom like crisis

I've heard the argument that the dotcom crash was so catastrophic because the Internet as a market wasn't proven at that point. That'd mean a dotcom like crisis is the lowest point this industry can reach. Which in some way is reassuring.

JCM9 4y ago
That was a factor, but more fundamentally it was companies with wild valuations and no realistic prospects of becoming a profitable and self-sustaining business. There is some of that out there right now. Market corrections exist in part to flush those companies out of the system.
- tluyben2 4y ago
  Some of that? There are a lot of companies that raised 20m+ without any hope of ever paying that back and actually heavily depending on new rounds of funding to survive at all. This was all wrapped up as ‘pump everything in growth’ which works as long as it works and that was no different in 1999 when companies were also just buying users (one of my clients at the time gave away free groceries the first month of your membership; guess what the retention was after that month) with investor money. When that dried up, all users left in a a few months and the companies were gone. This will happen again. Everyone I know (business and personal) uses a lot of freemium services from startups they will never pay for; they will simply leave the second they have to pay or when ads appear. And that has to happen for these companies to have a chance at all.
RandomLensman 4y ago
Not sure that follows. If (big "if") interest rates go up a lot, then a lot of investors might not reach for VC or PE to enhance their returns at even close to current allocation (and growth would be heavily discounted). Look at how the telecoms industry looks now compared to the heights of 2003 or so.
- marcosdumay 4y ago
  This. What happened in 2000 was that interest rates got up and money became scarcer, so there was nobody willing to put any money into more risky investments like VCs. Today we are in a completely different realm of money availability, but it is becoming scarcer again.
- DebtDeflation 4y ago
  >If (big "if") interest rates go up a lot It's not a "big if" at all. Zero nominal rates and negative real rates are an anomaly in economic history over the last few centuries. Rates are headed higher, much higher. The Fed has been holding off in the hope that inflation would be "transitory" but it's now been a year and a half of >7% CPI increases with no sign of abating.
  - RandomLensman 4y ago
    Agreed on the long history. I'd still argue there is sizable "if" as one way to reduce government debt would be to use inflation (just like in the 1950s). So while rates will go up, the question is how much they will go up and if the level they reach will be high enough to cause substantial portfolio reallocations.
    - weatherlite 4y ago
      Agreed. It's not only government debt - everyone is indebted (people, businesses) at a historical high. How much can you raise interest rate without crushing them I don't know. On the other hand how much can you let inflation go up without crushing the working class and emerging markets indebted in USD? It's an impossible situation.
  - deleted 4y ago
    [deleted]
- refurb 4y ago
  If interest rates go up and inflation stays high then real returns stay low. I don’t see VC/PE investment dropping as a percent of investments since it’s a unique high risk/high return investment than 5% bonds can’t match.

JCM9 4y ago

That was a factor, but more fundamentally it was companies with wild valuations and no realistic prospects of becoming a profitable and self-sustaining business. There is some of that out there right now. Market corrections exist in part to flush those companies out of the system.

tluyben2 4y ago
Some of that? There are a lot of companies that raised 20m+ without any hope of ever paying that back and actually heavily depending on new rounds of funding to survive at all. This was all wrapped up as ‘pump everything in growth’ which works as long as it works and that was no different in 1999 when companies were also just buying users (one of my clients at the time gave away free groceries the first month of your membership; guess what the retention was after that month) with investor money. When that dried up, all users left in a a few months and the companies were gone. This will happen again. Everyone I know (business and personal) uses a lot of freemium services from startups they will never pay for; they will simply leave the second they have to pay or when ads appear. And that has to happen for these companies to have a chance at all.

RandomLensman 4y ago

Not sure that follows. If (big "if") interest rates go up a lot, then a lot of investors might not reach for VC or PE to enhance their returns at even close to current allocation (and growth would be heavily discounted). Look at how the telecoms industry looks now compared to the heights of 2003 or so.

marcosdumay 4y ago
This. What happened in 2000 was that interest rates got up and money became scarcer, so there was nobody willing to put any money into more risky investments like VCs. Today we are in a completely different realm of money availability, but it is becoming scarcer again.
DebtDeflation 4y ago
>If (big "if") interest rates go up a lot It's not a "big if" at all. Zero nominal rates and negative real rates are an anomaly in economic history over the last few centuries. Rates are headed higher, much higher. The Fed has been holding off in the hope that inflation would be "transitory" but it's now been a year and a half of >7% CPI increases with no sign of abating.
- RandomLensman 4y ago
  Agreed on the long history. I'd still argue there is sizable "if" as one way to reduce government debt would be to use inflation (just like in the 1950s). So while rates will go up, the question is how much they will go up and if the level they reach will be high enough to cause substantial portfolio reallocations.
  - weatherlite 4y ago
    Agreed. It's not only government debt - everyone is indebted (people, businesses) at a historical high. How much can you raise interest rate without crushing them I don't know. On the other hand how much can you let inflation go up without crushing the working class and emerging markets indebted in USD? It's an impossible situation.
- deleted 4y ago
  [deleted]
refurb 4y ago
If interest rates go up and inflation stays high then real returns stay low. I don’t see VC/PE investment dropping as a percent of investments since it’s a unique high risk/high return investment than 5% bonds can’t match.