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Yes! Both the bubble and the crash are almost purely psychological. It's greed and fear coming in waves. There can be technical fundamentals, but to take the e

Yes! Both the bubble and the crash are almost purely psychological. It's greed and fear coming in waves. There can be technical fundamentals, but to take the example of Bitcoin, you don't need any technical fundamentals. Humans can create and destroy value on top of a very complex random number generator.

ryandrake 4y ago
It just feels like the psychology behind a bank run. 1. Convince people their bank is in trouble. 2. They withdraw all their money. 3. Now the bank really is in trouble. Or 1. Convince people stocks are going to go down. 2. Mass sell-off. 3. Now stocks really are going down. I think this is just a self-fulfilling prophecy where business leaders convinced themselves a slowdown is coming, causing them to take actions that will result in a slowdown. A lot of what happens at the CxO level is looking around at your peer companies and imitating what they are doing.
- CamperBob2 4y ago
  1. Convince people stocks are going to go down. 2. Mass sell-off. 3. Now stocks really are going down. Pet conspiracy theory: boom/bust cycles are not only inevitable, but desirable to some extent. If the housing and stock markets didn't undergo catharsis every so often, new/beginning investors wouldn't be able to buy in. The signs are usually telegraphed well in advance, but not by collusion or intent. A self-organizing conspiracy of sorts. It could be interpreted as "herd mentality" but I think that oversimplifies what's really going on, and why.
  - eric-hu 4y ago
    > Pet conspiracy theory: boom/bust cycles are not only inevitable, but desirable to some extent. I wouldn’t call this a conspiracy theory at all. The founder of Bridgewater Associates, the largest hedge fund in the world, spent time and money to publish this idea in various forms. I learned about it from here: https://youtu.be/PHe0bXAIuk0 https://youtu.be/PHe0bXAIuk0 There’s more to this idea—-the long term debt cycle—-but the premise is exactly what you stated. There are benefits to both the boom and bust phases of the economy.
- suzzer99 4y ago
  Or - stocks have been ridiculously overvalued for a while now and are just coming back to earth somewhat. https://www.longtermtrends.net/market-cap-to-gdp-the-buffett-indicator/ https://www.longtermtrends.net/market-cap-to-gdp-the-buffett... I'm not saying I know that's what's happening. But I wouldn't be surprised.
  - nemo44x 4y ago
    Stocks were valued mainly pretty good when you consider interest rates. As rates go up then the expected return on stocks needs to change (we expect more return on them) so the prices fall. For instance, a dividend paying stock will see its price fall when interest rates increase because the dividend yield is a percentage of the stock price. When interest rates are low the yield can be low which means the price of the underlying stock is high. Until their profits catch up with the new reality the stock price will remain lower. As for high flying tech (cloud, etc) - yeah, probably too much speculation there.
- gryBrd1987 4y ago
  Yup. Powell has been saying for months he wants people to save and pull cash out of the economy. This is intentional because DC decided tech workers were undermining Washingtons of course most correct and immutable control over agency. Why if all these people kept earning and could acquire more assets and live comfortable, politicians and uber rich would have no place in our society. The fundamentals must be maintained. Fundamentals being we serve their goals, not the other way around.
  - vkou 4y ago
    Somehow, I doubt that Marxism-Leninism and a destruction of social class in America is going to be achieved on the backs of... Comfortable, gruntled white collar employees making 200k-500k/year from selling ads.
    - gryBrd1987 4y ago
      Mostly I was agreeing with the analogy of a run on a bank. Fed pulled out of funding the economy as it was. Less money for them to spend on coffees, Ubers, etc.; less to “trickle down” given the uncertainty of grandpa Powell’s intention to bring pain to households (except his own of course; he’s got enough to be insulated from his actions). If you want to go on a specific tangent involving dead men’s philosophy, be my guest. I was merely attempting to illustrate how apt the bank run analogy is.
- itsoktocry 4y ago
  >Or 1. Convince people stocks are going to go down Stocks are not the economy. We literally have a cold war with China escalating, a hot war in Europe (which we aren't directly involved in..yet), all after years of loose monetary and fiscal policy, inflation is at generation highs, with rates rising and housing relating prices crashing, and on and on... Maybe HN needs some more serious economic analyses posted if people think all of this is caused by a 15% fall in SPX.
  - bee_rider 4y ago
    At least we can get jobs in the MIC I guess.
    - umeshunni 4y ago
      MIC?
      - waterhouse 4y ago
        Guessing "military-industrial complex".
3pt14159 4y ago
I was there during the dot com bubble bursting. Psychology factored into it, but it wasn't the primary reason the bubble bursted. The main two reasons were: 1. Hype around new technologies is sometimes warranted. Electrification, for example. It wasn't clear how long it would take for these weird new internet companies to really start turning a buck, but after a few years spreadsheet parameters were updated and the whole financial industry saw the writing on the wall for most web companies. 2. Many profitable and completely unfunded web companies primarily received their funding from other web companies that were. This set off a cascading reaction of bankruptcies and massive layoffs. Advertisers, publishers, tool makers, and many others were in this second category of legit business that lost the vast majority of their customers. One of the downsides of an inflating currency is that there is a general feeling of "well I have to invest my money somewhere!" that is hard to overcome and leads to bubbles until the sky starts falling, so I agree with you that psychology is a factor; but the fundamentals still dominate in the medium to long term.
- UncleOxidant 4y ago
  The current environment has a similar feeling to the early part of the dot com bubble-burst. In that early part of the burst we had the feeling that it could get bad, but we also were sort of deluding ourselves into thinking that it wouldn't be that bad. ...also HN today kind of looking like fuckedcompany[1] back in those days. [1] https://en.wikipedia.org/wiki/Fucked_Company https://en.wikipedia.org/wiki/Fucked_Company
  - deleted 4y ago
    [deleted]
  - 3pt14159 4y ago
    I agree that there are similarities, but many of the web businesses these days are legit with happy customers. The challenge seems to be more widespread across the economy and there are a few not-so-black-swan-anymore looking things on the horizon (e.g., a Sino war) that could dramatically change the picture for the whole industry. My take away is that we may have a mild recession, but the likelihood of a massive recession is a lot higher than it has been in decades.

ryandrake 4y ago

It just feels like the psychology behind a bank run. 1. Convince people their bank is in trouble. 2. They withdraw all their money. 3. Now the bank really is in trouble. Or 1. Convince people stocks are going to go down. 2. Mass sell-off. 3. Now stocks really are going down. I think this is just a self-fulfilling prophecy where business leaders convinced themselves a slowdown is coming, causing them to take actions that will result in a slowdown. A lot of what happens at the CxO level is looking around at your peer companies and imitating what they are doing.

CamperBob2 4y ago
1. Convince people stocks are going to go down. 2. Mass sell-off. 3. Now stocks really are going down. Pet conspiracy theory: boom/bust cycles are not only inevitable, but desirable to some extent. If the housing and stock markets didn't undergo catharsis every so often, new/beginning investors wouldn't be able to buy in. The signs are usually telegraphed well in advance, but not by collusion or intent. A self-organizing conspiracy of sorts. It could be interpreted as "herd mentality" but I think that oversimplifies what's really going on, and why.
- eric-hu 4y ago
  > Pet conspiracy theory: boom/bust cycles are not only inevitable, but desirable to some extent. I wouldn’t call this a conspiracy theory at all. The founder of Bridgewater Associates, the largest hedge fund in the world, spent time and money to publish this idea in various forms. I learned about it from here: https://youtu.be/PHe0bXAIuk0 https://youtu.be/PHe0bXAIuk0 There’s more to this idea—-the long term debt cycle—-but the premise is exactly what you stated. There are benefits to both the boom and bust phases of the economy.
suzzer99 4y ago
Or - stocks have been ridiculously overvalued for a while now and are just coming back to earth somewhat. https://www.longtermtrends.net/market-cap-to-gdp-the-buffett-indicator/ https://www.longtermtrends.net/market-cap-to-gdp-the-buffett... I'm not saying I know that's what's happening. But I wouldn't be surprised.
- nemo44x 4y ago
  Stocks were valued mainly pretty good when you consider interest rates. As rates go up then the expected return on stocks needs to change (we expect more return on them) so the prices fall. For instance, a dividend paying stock will see its price fall when interest rates increase because the dividend yield is a percentage of the stock price. When interest rates are low the yield can be low which means the price of the underlying stock is high. Until their profits catch up with the new reality the stock price will remain lower. As for high flying tech (cloud, etc) - yeah, probably too much speculation there.
gryBrd1987 4y ago
Yup. Powell has been saying for months he wants people to save and pull cash out of the economy. This is intentional because DC decided tech workers were undermining Washingtons of course most correct and immutable control over agency. Why if all these people kept earning and could acquire more assets and live comfortable, politicians and uber rich would have no place in our society. The fundamentals must be maintained. Fundamentals being we serve their goals, not the other way around.
- vkou 4y ago
  Somehow, I doubt that Marxism-Leninism and a destruction of social class in America is going to be achieved on the backs of... Comfortable, gruntled white collar employees making 200k-500k/year from selling ads.
  - gryBrd1987 4y ago
    Mostly I was agreeing with the analogy of a run on a bank. Fed pulled out of funding the economy as it was. Less money for them to spend on coffees, Ubers, etc.; less to “trickle down” given the uncertainty of grandpa Powell’s intention to bring pain to households (except his own of course; he’s got enough to be insulated from his actions). If you want to go on a specific tangent involving dead men’s philosophy, be my guest. I was merely attempting to illustrate how apt the bank run analogy is.
itsoktocry 4y ago
>Or 1. Convince people stocks are going to go down Stocks are not the economy. We literally have a cold war with China escalating, a hot war in Europe (which we aren't directly involved in..yet), all after years of loose monetary and fiscal policy, inflation is at generation highs, with rates rising and housing relating prices crashing, and on and on... Maybe HN needs some more serious economic analyses posted if people think all of this is caused by a 15% fall in SPX.
- bee_rider 4y ago
  At least we can get jobs in the MIC I guess.
  - umeshunni 4y ago
    MIC?
    - waterhouse 4y ago
      Guessing "military-industrial complex".

3pt14159 4y ago

I was there during the dot com bubble bursting. Psychology factored into it, but it wasn't the primary reason the bubble bursted. The main two reasons were: 1. Hype around new technologies is sometimes warranted. Electrification, for example. It wasn't clear how long it would take for these weird new internet companies to really start turning a buck, but after a few years spreadsheet parameters were updated and the whole financial industry saw the writing on the wall for most web companies. 2. Many profitable and completely unfunded web companies primarily received their funding from other web companies that were. This set off a cascading reaction of bankruptcies and massive layoffs. Advertisers, publishers, tool makers, and many others were in this second category of legit business that lost the vast majority of their customers. One of the downsides of an inflating currency is that there is a general feeling of "well I have to invest my money somewhere!" that is hard to overcome and leads to bubbles until the sky starts falling, so I agree with you that psychology is a factor; but the fundamentals still dominate in the medium to long term.

UncleOxidant 4y ago
The current environment has a similar feeling to the early part of the dot com bubble-burst. In that early part of the burst we had the feeling that it could get bad, but we also were sort of deluding ourselves into thinking that it wouldn't be that bad. ...also HN today kind of looking like fuckedcompany[1] back in those days. [1] https://en.wikipedia.org/wiki/Fucked_Company https://en.wikipedia.org/wiki/Fucked_Company
- deleted 4y ago
  [deleted]
- 3pt14159 4y ago
  I agree that there are similarities, but many of the web businesses these days are legit with happy customers. The challenge seems to be more widespread across the economy and there are a few not-so-black-swan-anymore looking things on the horizon (e.g., a Sino war) that could dramatically change the picture for the whole industry. My take away is that we may have a mild recession, but the likelihood of a massive recession is a lot higher than it has been in decades.