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Here's The Evidence That The Tech Sector Is In A Massive Bubble

81 points by jnazario 13y ago

d4vlx 13y ago
I was in university during the late 90's .com boom and the current situation does not feel the same. While some of the high prices being paid for startups and talent in silicon valley point to some possible over heating it does not seem to be affecting the wider tech world in the way that .com boom did. In 1999 and early 2000 every investing show on TV would constantly be talking about the new highs that Microsoft, Cisco, Nortel hit or the latest up and comers and the massive amounts of money being poured into it all. It wasn't the normal speal, it was like watching a cheer leading squad cheer on the the never ending boom. I don't know quite how to describe it, it was kind of eerie and surreal. And it wasn't just the investing shows that were doing it, it was being talked about all over the place, even outlets that would not normally talk about anything money or stock related. The current situation does not seem much like that to me. Sure there are several cases of companies with sky high valuations and questionable future revenue but it's not industry wide like 1999.
- teddyh 13y ago
  The eternal claim of bubble-deniers is “This time it’s different!” This does not prove or disprove anything, of course. But it does make “This time it’s different!” an insufficient proof of something not being a bubble.
  - pg 13y ago
    And that is in turn the eternal claim of bubble believers, usually delivered as reflexively as above. https://www.hnsearch.com/search#request/comments&q=%22this+time+it's+different%22&start=0 https://www.hnsearch.com/search#request/comments&q=%22this+t... Is d4vlx mistaken? If so tell us how.
    - teddyh 13y ago
      I do not claim to have some proof towards either “side” of bubblism or non-bubblism. I was merely trying to point out that d4vlx’s comment essentially only said “This time it’s different!”, and I wanted to explain that this does not prove it’s not a bubble, since every bubble is different than the last one. My comment does not show that it is a bubble, nor was I trying to do so. The most that could be claimed is that I was trying to show that the possibility that it is a bubble still exists.
      - DenisM 13y ago
        You aren't doing justice to d4vlx’s comment. What he said is that this bubble has not permeated the community outside of tech, whereas the .com bubble did (and I would add the housing bubble, and the per-depression bubble). A larger bubble is always producing a larger bust, with non-linear effect. "This time is different" is normally referring to "tech is changing the world, we don't need he profits, it will grow forever, this time it's different" or "they don't make any more land, housing prices will grow forever, this time it's different". It's not at all the same things to point out that the scale of the bubble is much smaller. Lumping the two together produces a strong impression that your comment is disingenuous.
        teddyh 13y ago
        So, this could simply be a smaller bubble. “This time it’s smaller!” is an equally non-persuasive argument.
        d4vlx 13y ago
        What is the difference between a "market correction" and a "bubble"? Do you think there is a risk of the entire web industry imploding like it did in 2000?
        teddyh 13y ago
        The risk of anything happening very much like the last time is always low.
  - d4vlx 13y ago
    I agree that basically all I am saying is "This time it’s different". That is my interpretation of the situation, take it for what you will. I am not trying to prove anything and do not believe in predicting the markets in general.
  - gaius 13y ago
    This time it is different. I'm not denying it mind, but I too was there in the 90s. It was a crazy time. You would get in a taxi and the driver would be talking about stocks, giving out tips, talking about his portfolio. It was everywhere. Nowadays not so much. And outside Silly Valley, allowing for inflation tech wages have been basically flat since '01. A few years later it was the housing bubble, and everybody, everywhere was talking about property, buying, selling, renovating, letting. Now, if you put your ear to the ground, it doesn't sound like before. But then as now, money is too cheap and money cannot stand still, it has to go somewhere, then a bit later it just evaporates. So it's bubble, but a different kind of bubble.
    - eli_gottlieb 13y ago
      This time it's the bubble of a massive capital glut. There's nowhere for the money to be used productively right now except for high tech.
      - pnathan 13y ago
        I would agree - from the perspective of someone who isn't an insider but follows stock news - that there's a cash glut in the market (AAPL's the well known one here). Where to put that cash? Just maybe it's reasonable to stuff it in startups as part of a diversification strategy; use it as part of a "Black Swan Farming" approach. At any rate, there's a lot of, shall we say, underperforming froth in the tech startup world at the moment. Stuff that doesn't appear to have a direct connection of value to what's being offered. Whether it constitutes a broad marker of the tech market being in a systemic bubble is debatable, but certainly some of the ridiculousness of a bubble is visible if you watch the news float by. It's my opinion that we don't have a broad bubble in tech. The stock market is probably getting close to a bear market. That's true enough, we've had a long bull run. But it might (I bet it's more likely) be the case that there's a "Startup" + VC/angel market inflation.
- jarofgreen 13y ago
  So if its different from the .com boom, what does that mean? Does that mean it won't crash ... or that it will crash in a different way?
  - d4vlx 13y ago
    In essence I was saying that I am not seeing as many or as sever warning signs. That is just my interpretation based on the very limited information that I have now and had then. I am not trying to make any predictions, I do believe in predicting the market.
  - gaius 13y ago
    There is too much money, and it has nowhere to go. Even the property bubble is starting up again. It won't be "the value of tech stocks" that crashes, it will be "the value of money". Which means inflation, and anything imported will become more expensive.
colinbartlett 13y ago
The author lost all credibility with. "Guess which way this line is likely to go next." Past performance is not indicative of future results.
- gaius 13y ago
  The market can stay irrational longer than you can stay solvent.
  - czbond 13y ago
    Great quote and very true!
- fiatmoney 13y ago
  That's a trite disclaimer. If the economy as a whole is growing at N%, and the price of equity in the economy is growing at M%, eventually the two WILL converge. At what overall level & when that happens is difficult to predict, but unless you think nominal GDP is going to grow at 10% in steady-state, steady-state stock returns of 10% are impossible.
exit 13y ago
will be interesting to see whether the drive to get people to learn programming survives this bubble
- czbond 13y ago
  I don't believe it will. It dipped considerably after 2000. I believe the "learn to program" mantra has been pushed by A) Companies making money on this space B) Companies whose tech labor costs are too high. Pair this with the fact that I have a CS degree and know about 8 languages
  - exit 13y ago
    > Pair this with the fact that I have a CS degree and know about 8 languages i don't follow. what happens when we pair a and b with this fact?
    - czbond 13y ago
      I guess I was trying to gramtically incorrectly say that I wasn't some "MBA without insight into engineering" stating the opinion.
Ellipsis753 13y ago
If it's a bubble as a programmer is there anything I can do about it or do differently? I don't have any shares.
- betterunix 13y ago
  General advice: 1. Settle your debts soon. Losing your job does not mean losing your debts. 2. If you have no debts, save your money with low-risk investments (or a bank account, but then you are probably losing to inflation). If you lose your job you will still need to have some money available.
  - textminer 13y ago
    What's the best way for an average person to invest? Can and should ones buy index fund, or just lower-risk hedge funds?
    - Patrick_Devine 13y ago
      Usually money retreats from the equities markets to the bond markets when bubbles pop. The bond markets are a lot less sexy, but they offer a coupon (tech equities almost never offer a dividend), and the value of the bond will often rise above the face value of the bond when people are scrambling to find a safe place to park their money. Just look for some bond funds which have had reasonable performance through the last few bubbles if you don't want to invest directly into bonds. You can also do a bond ladder, but some people advise against them. EDIT: changed "usually" to "often" when describing the value of a bond
    - enoch_r 13y ago
      1. Figure out your risk profile--if you're young and won't need to use your savings for a while, you can take a lot more risks. 2. Your risk profile determines the ratio of stocks to bonds that you want to invest in. Stocks are higher risk, but they've historically given much higher returns than bonds. One bit of classic investment advice is "put {your age}% in bonds, everything else in stocks." 3. Buy index funds or ETFs. For longer term, ETFs are a better deal, and while supposedly less "convenient," it really isn't hard to open an account with an online broker and buy ETFs. You have a lot of options here, but the S&P500 is the standard. You could put some percentage into emerging markets, small-caps, etc. The nice thing about ETF's, or index funds for that matter, is that they're partially diversified by nature, so unless you really try you're not going to get a portfolio that's highly susceptible to one particular type of risk. Remember that every time you trade you're probably paying a brokerage fee, though--if you pay an $8 fee on a $1000 investment, that's almost 1% gone--a few months of expected returns! 4. Repeat as you save money. 5. Ignore all market advice, news that "X is a bubble," "Y is about to crash," "Z is about to take off," etc. People who are consistently right about this sort of thing are making billions in the stock market, not writing blog posts or newspaper columns. And even if they are working on Wall St, it's difficult to tell the difference between luck and acumen. If returns were purely random, with nothing called "skill," we'd be statistically quite likely to see someone like Warren Buffett--who has beaten the market consistently--just like we're statistically quite likely to see someone win the lottery. Buy and hold, only sell to spend. That's the only strategy you follow! 6. Exception to 5: if you like to gamble. :) There's nothing wrong with having a "fun" investment or two, as long as you know that they're a consumption good and don't really count on keeping them.
tinco 13y ago
So much technical analysis, and so little actually valuable information. The thing is, anyone can draw a sawtooth over these kinds of things. The catch is, how wide is the sawtooth? Why would the market crash _now_ and not in for example, 2 years, or 5, or 10? You can't predict that with simple technical analysis, you need actual indicators. What are the indicators they suggest? Anecdotal evidence that some companies have some investments in businesses that don't seem like they're worth it. So what if AH stopped investing in early stage B2C startups? Perhaps they've just looked at their portfolio and determined their risk to be saturated? And what does the valuation of B2C have to do with the overall valuation of the tech industry? Why is no one showing the numbers, how much money is in B2C tech startups right now? How much is in B2B tech? How much revenue are these sectors generating? How can we be expected to make a judgement over if we're in a bubble or not if instead of useful numbers they give us a bunch of anecdotes? Articles like these are FUD, I don't know what the motivation is. Please note that I'm not saying we're not in a bubble. I'm just saying this article is not helping us deciding if we're in one.
j_baker 13y ago
Is it just me, or does it feel like the tech sector can't do well without someone crying bubble? This article in particular starts off with some relatively good data, but the rest of it is just anecdotal hogwash. Particularly the wage issue.
bjourne 13y ago
Assume the stock market follows the theory of supply and demand. The amount of stocks is mostly constant, so if the stock prices increases then the demand must also have increased. Why has the demand increased? Because more people want to put more money there. Why do they want that? Because they have more money and the only reasonable thing to do with that money is to buy stocks. Why do they have more money? Tax cuts for the rich. There is only so many yachts and cars you can buy, the rest of the unallocated capital has to be invested somehow. Will the demand for stock continue to grow? Perhaps if there are more tax cuts or if more money is "freed" so it can be put in stocks.
- judk 13y ago
  It isn't "tax cuts", it is QE3, with the government pumping hundreds of billions of dollars into the securities markets.
  - bjourne 13y ago
    It was tax cuts during Bush's years. But yes, the end result is basically the same though.
websitescenes 13y ago
I couldn't agree more only I would say there are now hundreds of small bubbles that will pop at random and continuously. I'm talking about the startups that have no real value besides the fact that someone has invested in them. These businesses are propped up and made to look successful while in reality, they are nothing more than a localized bubble. Now don't get me wrong, there are startups with real services and long term value but most are just a show. It seems like the goal of many major investors is to prop up a startup make it look successful, offer stocks publicly, cash out and repeat. These people are not creating lasting wealth. They are mining money from the general public.
- tcbawo 13y ago
  There will be collateral damage also. When the tide goes out, companies that derive their revenue from failing companies will suffer.
jrochkind1 13y ago
I think OP is probably right. But the quote at the end from the New Yorker article omits the next part where Draper himself does -not- believe there's a dip or crash coming -- although the author thinks Draper's evidence points there, Draper does not, he thinks we're at the part of his graph where the next thing is a boom, not a crash. The very next sentence: > I asked him what he thought the next dip would look like, and he frowned. The coast was socked in, and the Ritz golf course seemed kind of scraggly. “Well, first we need a boom,” he said. My gut feeling is to agree with the OP, but the OP is a bit sloppy with it's evidence.
3pt14159 13y ago
This is not a fucking bubble. I was working for a startup when I was 14 back in actual bubble days. There is no way that investment money is flowing from mom and pop investors to startups. None. Back then there was, because VCs could unload a company with ZERO product onto the stock exchange "we're building the online parking ticket payment platform of the future" 300 million dollar valuation, no revenue, no deals, just a broken half finished application and every mom and pop doing back of the napkin math as to how much they would be worth once NYC and Toronto jumped on board their platform. Do you know why Pinterest is worth a crap ton of money? Because they own women online. Just like Facebook owned twentysomethings online. When you control how a demographic shares information, it is trivially easy to generate revenue. Before you even both getting distracted by revenue, you focus on how far you can build out your base before you make money off of it. I've been saying we're not in a bubble for the past 5 years, and we still arn't. If I've had a 7 digit exit for a machine learning company and I can't just walk into a VC firm and raise money for my next thing, then we arn't in a bubble.
- gaius 13y ago
  There is no way that investment money is flowing from mom and pop investors to startups It is tho'. QE -> inflation -> erosion of life savings. The difference is, this time these guys don't get a choice.
  - tptacek 13y ago
    Inflation is lower today than it was in the middle of the housing bubble.
    - gaius 13y ago
      It is certainly reported as such. But when energy[1], travel[2] and food[3] are all going up "faster than inflation" then the official number is misleading, no? And interest rates on savings - because there is so much money sloshing around - are at historic lows. [1] http://www.bbc.co.uk/news/business-24716146 http://www.bbc.co.uk/news/business-24716146 [2] http://www.theguardian.com/uk/2011/dec/20/rail-fares-rise http://www.theguardian.com/uk/2011/dec/20/rail-fares-rise [3] http://www.dailymail.co.uk/news/article-2463143/The-cost-living-rising-faster-UK-Europe-soaring-food-energy-bills.html http://www.dailymail.co.uk/news/article-2463143/The-cost-liv... Deliberately linked to both the Graun and the Mail there so no political bias.
mangeletti 13y ago
The prices of acquisitions, despite their possible justifications, is becoming a bubble because of all the recent revelations about the value of ("big") data, and of users' time spent online (i.e., a land-grab). Investors are learning that data and user acquisition (regardless of how much money is made per user) is really valuable, but it's hard to value both, since the monetization of both has proven inconsistent and, in some cases. For instance, Facebook has a lot of users and even more data. Their current valuation in the open market puts their market capitalization at 94 times what they currently earn (net profit) in a quarter. That's about 4 times what is "normal" for a popular investment, and about 7 times more than Apple (which is currently the most valuable company on the planet). Now, the bubble doesn't have to burst. Assuming companies like EMC, IBM, and the hundreds of smaller companies with data analysis offerings can come up with increasingly efficient and offerings that increase revenue per user/data-point. The best that most user/data-centric start-ups can currently get (without loads of capital) is affiliate commissions or "data-driven" ads (from Google, et al). This is rapidly changing, and if it can keep pace with the demands, there's no reason the current bubble can't turn into a profit center. Another thing worth noting is that, while user/data-centric start-up valuations are (very much) on the high end, other, unrelated software and hardware/IaaS companies are thriving in sectors that aim at replacing human workers in various fields (ecommerce, marketing, accounting, medical [you name it], etc.) with machines. This is intrinsically valuable and cannot be described as a bubble any more than replacing manual gas pumps/attendants with automatic ones can. It's just the fruition of efficient ideas, coupled with readily available technology at prices that the SMB market can afford. TL;DR The bubble in user/data-centric start-up valuation doesn't reflect the rest of the technology sector, and user/data-centric start-ups are quickly learning how to turn the aforementioned into a profit.
- alphydan 13y ago
  >> 7 times more than Apple (which is currently the most valuable company on the planet). Something is missing in that sentence. The most "valuable publicly traded tech company"? Or is it another definition of valuable? or of company? At around 400bn it's less valuable than Saudi Aramco (with a value around $2 - $5 trillion USD, PetroChina (1Tn) or Pemex (also about 400bn!). http://blogs.mccombs.utexas.edu/titman/2010/03/01/more-thoughts-on-the-value-of-saudi-aramco/ http://blogs.mccombs.utexas.edu/titman/2010/03/01/more-thoug... http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aA1jwRD9tCuA http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aA1jw... http://www.ft.com/cms/s/2/5de6ef96-8b95-11db-a61f-0000779e2340.html#axzz2jcPMMnkj http://www.ft.com/cms/s/2/5de6ef96-8b95-11db-a61f-0000779e23...
conanbatt 13y ago
The fundamental difference between the valuations today and those in the 2000 is that most tech companies are actually operationally solvent. That is not true for all of them, but if a crisis hit valuations and investors lost all confidence, companies with operational solvency will care very little and will not close down. There is something similar to a bubble that plagues the sector and its those B2C companies that insistently build themselves to capture users and get their value from selling out to the big boys without ever making a decent profit.
Fingel 13y ago
I could care less if the bubble pops. In fact, it would probably be a good thing. Everyone who is in tech for the wrong reasons would have to find something else to do. San Francisco might go back to being a liveable city. And the real hackers, the ones working on real problems (instead of novel ways to share pictures of cats online) would suddenly find themselves back in an environment that closer resembles reality.
hkarthik 13y ago
Are a few firms overvalued right now? Of course. But that's nothing new. Healthy markets have a mix of overvalued and undervalued stocks. The main difference today is that most rational investors understand the diversity of software firms. The business model and drivers of a company like Facebook differ wildly from a company like Workday. But back in the 90s, they both would have been lumped in together as "tech stocks". The only common ground between tech firms today is that they often compete for the same talent and investment. But that seems to be changing slowly as the industry matures.
pearjuice 13y ago
The question was never whether we are in a bubble or not. It has always been when it would pop.
tptacek 13y ago
My memories of the 90's bubble: * Extended friends and family, none of whom worked in tech, were all considering investing in tech stocks. * For that matter: everyone I knew was investing in equities. * Largely profitless Internet brands bought up most of the Superbowl ad inventory * Startups were funded whose business models were dominated by inventory and logistics costs * Startup marketing (not just promotion, but all of marketing) was focused on epic launch events * Companies with no profits routinely had public offerings * Seemingly hopeless capital-intensive ideas (like 1 hour free delivery of candy bars) were kept afloat for years by investment dollars * Most American consumers had limited access to the network, and nobody had ubiquitous mobile access * You could close your eyes and fall backwards into an A-round (for instance: we managed to do it), which was the de facto standard first financing vehicle for startups * The major investment banks not only fought over tech IPOs, but housed famous talking heads who spoke on TV and wrote op-eds cheerleading specific tech startups * To get a web app launched, you bought several Sun servers and a 3-4RU Cisco router, each of which cost mid-5-figures. Oracle was your database. * Cisco would "sell" you routers in exchange for company equity, and book the sale as revenue * Totally reasonable for a startup to write its whole deployment stack, including application logic, in C * Virtually all software development was done waterfall-style, frequently with an MBA calling the shots * Just-formed startups had 5+ person "marketing" teams and 2-3 person "bizdev" teams * $100k+ logos, $75k/yr to PR/branding firms * Startups promoted themselves with print ads in magazines. That was a normal thing to do. This is just a random list; I'm sure others here have better points. Writing it, I'm struck by how much worse startups and startup business practices were while generating so much more interest from the broader market than they do now. I have a hard time believing that anyone who thinks we're in another dot-com bubble was actually working during the dot-com bubble. The article itself is almost offensively bad. The fed funds rate was over 5% during the dot-com bubble. Stocks are doing well now, but so is everything else, and the notable tech stocks helping drive the market are drowning in cash that they're generating directly from consumers. "We're due for a downturn"? What does that even mean? Buy puts? Salaries are high? Maybe we're having an easier time paying engineers now that we're not using that money to buy TV ads or pay MBAs to "monetize eyeballs with brand equity". The rest of the article seems to be a critique of how big companies are choosing to spend their money --- but whether or not you think Yahoo should buy Tumblr or Twitter should be giving VP/Engs 10MM in stock, companies making decisions with their own money isn't what characterizes a stock bubble. Obviously, what this article is really trying to do is to make a prose slideshow with links to other Business Insider articles, because its author had nothing better to write today. Jose, you're not dumb. You can find better articles than this. Unless this submission was sarcastic, in which case, well played.
chalst 13y ago
The following is false, confusing the short-term financing available under QE3 with the cost of financing business investments: > Interest rates are basically at zero and have been for some time. When borrowers are paying close to zero interest on loans, that makes money cheap to get. > People with money generally have a choice: save it in interest-paying, risk-free bank accounts or invest it in riskier assets that may pay more money over time. When interest is at zero, virtually any other kind of investment is likely to pay more because the risk-free alternative is so lousy. So investment asset bubbles get created. Stocks tend to go up. QE3 consists of a series of very short-term loans (initially they were 1-day loans) that keep being redeemed and reissued, with the promise that the money injected into the system in this way will be taken out in the medium term. (This death sentence on the QE3 money is the reason why the money injected into the economy has not had the inflationary impact predicted by gold bugs). Such very short-term loans are very valuable for financial institutions: they can finance short-term speculative investments and can be used as a partial basis to create longer-term financing. However, they do not provide the kind of investment Business Insider claims. For this kind of investment, you need financing over a period of years. 10-year treasuries, which provide a basline for the cost of longer-term financing, are relatively cheap, at 3.4% interest, but they are most certainly not interest free. Every venture capitalist understands this, I am sure. A competent journalist who covers business financing will understand this too.
null_ptr 13y ago
“The thought was that well-fed developers could create value better than the stock market.” And amen to that. I can't believe the quote above was meant to be a snarky comment instead of a blunt dose of realism.
dkwak 13y ago
What's a good resource for learning about the web bubble of the 90's? I would assume that a large portion of the HN audience (including myself) didn't actually live or work during this time, so it's hard to compare to today's tech industry. Is it worth knowing the details behind it?
jkarni 13y ago
Are the first two points made in the article really legitimate? Central banks decrease interest rates in crises, so I wouldn't expect lower interest rates to be correlated with (or to be reason to increase your credence in) a bubble. And the past stock market prices alone being evidence for future prices? Doesn't that assume that the random-walk hypothesis (and the efficient-market hypothesis) are wrong?

81 points by jnazario 13y ago

d4vlx 13y ago

I was in university during the late 90's .com boom and the current situation does not feel the same. While some of the high prices being paid for startups and talent in silicon valley point to some possible over heating it does not seem to be affecting the wider tech world in the way that .com boom did. In 1999 and early 2000 every investing show on TV would constantly be talking about the new highs that Microsoft, Cisco, Nortel hit or the latest up and comers and the massive amounts of money being poured into it all. It wasn't the normal speal, it was like watching a cheer leading squad cheer on the the never ending boom. I don't know quite how to describe it, it was kind of eerie and surreal. And it wasn't just the investing shows that were doing it, it was being talked about all over the place, even outlets that would not normally talk about anything money or stock related. The current situation does not seem much like that to me. Sure there are several cases of companies with sky high valuations and questionable future revenue but it's not industry wide like 1999.

teddyh 13y ago
The eternal claim of bubble-deniers is “This time it’s different!” This does not prove or disprove anything, of course. But it does make “This time it’s different!” an insufficient proof of something not being a bubble.
- pg 13y ago
  And that is in turn the eternal claim of bubble believers, usually delivered as reflexively as above. https://www.hnsearch.com/search#request/comments&q=%22this+time+it's+different%22&start=0 https://www.hnsearch.com/search#request/comments&q=%22this+t... Is d4vlx mistaken? If so tell us how.
  - teddyh 13y ago
    I do not claim to have some proof towards either “side” of bubblism or non-bubblism. I was merely trying to point out that d4vlx’s comment essentially only said “This time it’s different!”, and I wanted to explain that this does not prove it’s not a bubble, since every bubble is different than the last one. My comment does not show that it is a bubble, nor was I trying to do so. The most that could be claimed is that I was trying to show that the possibility that it is a bubble still exists.
    - DenisM 13y ago
      You aren't doing justice to d4vlx’s comment. What he said is that this bubble has not permeated the community outside of tech, whereas the .com bubble did (and I would add the housing bubble, and the per-depression bubble). A larger bubble is always producing a larger bust, with non-linear effect. "This time is different" is normally referring to "tech is changing the world, we don't need he profits, it will grow forever, this time it's different" or "they don't make any more land, housing prices will grow forever, this time it's different". It's not at all the same things to point out that the scale of the bubble is much smaller. Lumping the two together produces a strong impression that your comment is disingenuous.
      - teddyh 13y ago
        So, this could simply be a smaller bubble. “This time it’s smaller!” is an equally non-persuasive argument.
        d4vlx 13y ago
        What is the difference between a "market correction" and a "bubble"? Do you think there is a risk of the entire web industry imploding like it did in 2000?
        teddyh 13y ago
        The risk of anything happening very much like the last time is always low.
- d4vlx 13y ago
  I agree that basically all I am saying is "This time it’s different". That is my interpretation of the situation, take it for what you will. I am not trying to prove anything and do not believe in predicting the markets in general.
- gaius 13y ago
  This time it is different. I'm not denying it mind, but I too was there in the 90s. It was a crazy time. You would get in a taxi and the driver would be talking about stocks, giving out tips, talking about his portfolio. It was everywhere. Nowadays not so much. And outside Silly Valley, allowing for inflation tech wages have been basically flat since '01. A few years later it was the housing bubble, and everybody, everywhere was talking about property, buying, selling, renovating, letting. Now, if you put your ear to the ground, it doesn't sound like before. But then as now, money is too cheap and money cannot stand still, it has to go somewhere, then a bit later it just evaporates. So it's bubble, but a different kind of bubble.
  - eli_gottlieb 13y ago
    This time it's the bubble of a massive capital glut. There's nowhere for the money to be used productively right now except for high tech.
    - pnathan 13y ago
      I would agree - from the perspective of someone who isn't an insider but follows stock news - that there's a cash glut in the market (AAPL's the well known one here). Where to put that cash? Just maybe it's reasonable to stuff it in startups as part of a diversification strategy; use it as part of a "Black Swan Farming" approach. At any rate, there's a lot of, shall we say, underperforming froth in the tech startup world at the moment. Stuff that doesn't appear to have a direct connection of value to what's being offered. Whether it constitutes a broad marker of the tech market being in a systemic bubble is debatable, but certainly some of the ridiculousness of a bubble is visible if you watch the news float by. It's my opinion that we don't have a broad bubble in tech. The stock market is probably getting close to a bear market. That's true enough, we've had a long bull run. But it might (I bet it's more likely) be the case that there's a "Startup" + VC/angel market inflation.
jarofgreen 13y ago
So if its different from the .com boom, what does that mean? Does that mean it won't crash ... or that it will crash in a different way?
- d4vlx 13y ago
  In essence I was saying that I am not seeing as many or as sever warning signs. That is just my interpretation based on the very limited information that I have now and had then. I am not trying to make any predictions, I do believe in predicting the market.
- gaius 13y ago
  There is too much money, and it has nowhere to go. Even the property bubble is starting up again. It won't be "the value of tech stocks" that crashes, it will be "the value of money". Which means inflation, and anything imported will become more expensive.

colinbartlett 13y ago

The author lost all credibility with. "Guess which way this line is likely to go next." Past performance is not indicative of future results.

gaius 13y ago
The market can stay irrational longer than you can stay solvent.
- czbond 13y ago
  Great quote and very true!
fiatmoney 13y ago
That's a trite disclaimer. If the economy as a whole is growing at N%, and the price of equity in the economy is growing at M%, eventually the two WILL converge. At what overall level & when that happens is difficult to predict, but unless you think nominal GDP is going to grow at 10% in steady-state, steady-state stock returns of 10% are impossible.

exit 13y ago

will be interesting to see whether the drive to get people to learn programming survives this bubble

czbond 13y ago
I don't believe it will. It dipped considerably after 2000. I believe the "learn to program" mantra has been pushed by A) Companies making money on this space B) Companies whose tech labor costs are too high. Pair this with the fact that I have a CS degree and know about 8 languages
- exit 13y ago
  > Pair this with the fact that I have a CS degree and know about 8 languages i don't follow. what happens when we pair a and b with this fact?
  - czbond 13y ago
    I guess I was trying to gramtically incorrectly say that I wasn't some "MBA without insight into engineering" stating the opinion.

Ellipsis753 13y ago

If it's a bubble as a programmer is there anything I can do about it or do differently? I don't have any shares.

betterunix 13y ago
General advice: 1. Settle your debts soon. Losing your job does not mean losing your debts. 2. If you have no debts, save your money with low-risk investments (or a bank account, but then you are probably losing to inflation). If you lose your job you will still need to have some money available.
- textminer 13y ago
  What's the best way for an average person to invest? Can and should ones buy index fund, or just lower-risk hedge funds?
  - Patrick_Devine 13y ago
    Usually money retreats from the equities markets to the bond markets when bubbles pop. The bond markets are a lot less sexy, but they offer a coupon (tech equities almost never offer a dividend), and the value of the bond will often rise above the face value of the bond when people are scrambling to find a safe place to park their money. Just look for some bond funds which have had reasonable performance through the last few bubbles if you don't want to invest directly into bonds. You can also do a bond ladder, but some people advise against them. EDIT: changed "usually" to "often" when describing the value of a bond
  - enoch_r 13y ago
    1. Figure out your risk profile--if you're young and won't need to use your savings for a while, you can take a lot more risks. 2. Your risk profile determines the ratio of stocks to bonds that you want to invest in. Stocks are higher risk, but they've historically given much higher returns than bonds. One bit of classic investment advice is "put {your age}% in bonds, everything else in stocks." 3. Buy index funds or ETFs. For longer term, ETFs are a better deal, and while supposedly less "convenient," it really isn't hard to open an account with an online broker and buy ETFs. You have a lot of options here, but the S&P500 is the standard. You could put some percentage into emerging markets, small-caps, etc. The nice thing about ETF's, or index funds for that matter, is that they're partially diversified by nature, so unless you really try you're not going to get a portfolio that's highly susceptible to one particular type of risk. Remember that every time you trade you're probably paying a brokerage fee, though--if you pay an $8 fee on a $1000 investment, that's almost 1% gone--a few months of expected returns! 4. Repeat as you save money. 5. Ignore all market advice, news that "X is a bubble," "Y is about to crash," "Z is about to take off," etc. People who are consistently right about this sort of thing are making billions in the stock market, not writing blog posts or newspaper columns. And even if they are working on Wall St, it's difficult to tell the difference between luck and acumen. If returns were purely random, with nothing called "skill," we'd be statistically quite likely to see someone like Warren Buffett--who has beaten the market consistently--just like we're statistically quite likely to see someone win the lottery. Buy and hold, only sell to spend. That's the only strategy you follow! 6. Exception to 5: if you like to gamble. :) There's nothing wrong with having a "fun" investment or two, as long as you know that they're a consumption good and don't really count on keeping them.

tinco 13y ago

So much technical analysis, and so little actually valuable information. The thing is, anyone can draw a sawtooth over these kinds of things. The catch is, how wide is the sawtooth? Why would the market crash _now_ and not in for example, 2 years, or 5, or 10? You can't predict that with simple technical analysis, you need actual indicators. What are the indicators they suggest? Anecdotal evidence that some companies have some investments in businesses that don't seem like they're worth it. So what if AH stopped investing in early stage B2C startups? Perhaps they've just looked at their portfolio and determined their risk to be saturated? And what does the valuation of B2C have to do with the overall valuation of the tech industry? Why is no one showing the numbers, how much money is in B2C tech startups right now? How much is in B2B tech? How much revenue are these sectors generating? How can we be expected to make a judgement over if we're in a bubble or not if instead of useful numbers they give us a bunch of anecdotes? Articles like these are FUD, I don't know what the motivation is. Please note that I'm not saying we're not in a bubble. I'm just saying this article is not helping us deciding if we're in one.

j_baker 13y ago

Is it just me, or does it feel like the tech sector can't do well without someone crying bubble? This article in particular starts off with some relatively good data, but the rest of it is just anecdotal hogwash. Particularly the wage issue.

bjourne 13y ago

Assume the stock market follows the theory of supply and demand. The amount of stocks is mostly constant, so if the stock prices increases then the demand must also have increased. Why has the demand increased? Because more people want to put more money there. Why do they want that? Because they have more money and the only reasonable thing to do with that money is to buy stocks. Why do they have more money? Tax cuts for the rich. There is only so many yachts and cars you can buy, the rest of the unallocated capital has to be invested somehow. Will the demand for stock continue to grow? Perhaps if there are more tax cuts or if more money is "freed" so it can be put in stocks.

judk 13y ago
It isn't "tax cuts", it is QE3, with the government pumping hundreds of billions of dollars into the securities markets.
- bjourne 13y ago
  It was tax cuts during Bush's years. But yes, the end result is basically the same though.

websitescenes 13y ago

I couldn't agree more only I would say there are now hundreds of small bubbles that will pop at random and continuously. I'm talking about the startups that have no real value besides the fact that someone has invested in them. These businesses are propped up and made to look successful while in reality, they are nothing more than a localized bubble. Now don't get me wrong, there are startups with real services and long term value but most are just a show. It seems like the goal of many major investors is to prop up a startup make it look successful, offer stocks publicly, cash out and repeat. These people are not creating lasting wealth. They are mining money from the general public.

tcbawo 13y ago
There will be collateral damage also. When the tide goes out, companies that derive their revenue from failing companies will suffer.

jrochkind1 13y ago

I think OP is probably right. But the quote at the end from the New Yorker article omits the next part where Draper himself does -not- believe there's a dip or crash coming -- although the author thinks Draper's evidence points there, Draper does not, he thinks we're at the part of his graph where the next thing is a boom, not a crash. The very next sentence: > I asked him what he thought the next dip would look like, and he frowned. The coast was socked in, and the Ritz golf course seemed kind of scraggly. “Well, first we need a boom,” he said. My gut feeling is to agree with the OP, but the OP is a bit sloppy with it's evidence.

3pt14159 13y ago

This is not a fucking bubble. I was working for a startup when I was 14 back in actual bubble days. There is no way that investment money is flowing from mom and pop investors to startups. None. Back then there was, because VCs could unload a company with ZERO product onto the stock exchange "we're building the online parking ticket payment platform of the future" 300 million dollar valuation, no revenue, no deals, just a broken half finished application and every mom and pop doing back of the napkin math as to how much they would be worth once NYC and Toronto jumped on board their platform. Do you know why Pinterest is worth a crap ton of money? Because they own women online. Just like Facebook owned twentysomethings online. When you control how a demographic shares information, it is trivially easy to generate revenue. Before you even both getting distracted by revenue, you focus on how far you can build out your base before you make money off of it. I've been saying we're not in a bubble for the past 5 years, and we still arn't. If I've had a 7 digit exit for a machine learning company and I can't just walk into a VC firm and raise money for my next thing, then we arn't in a bubble.

gaius 13y ago
There is no way that investment money is flowing from mom and pop investors to startups It is tho'. QE -> inflation -> erosion of life savings. The difference is, this time these guys don't get a choice.
- tptacek 13y ago
  Inflation is lower today than it was in the middle of the housing bubble.
  - gaius 13y ago
    It is certainly reported as such. But when energy[1], travel[2] and food[3] are all going up "faster than inflation" then the official number is misleading, no? And interest rates on savings - because there is so much money sloshing around - are at historic lows. [1] http://www.bbc.co.uk/news/business-24716146 http://www.bbc.co.uk/news/business-24716146 [2] http://www.theguardian.com/uk/2011/dec/20/rail-fares-rise http://www.theguardian.com/uk/2011/dec/20/rail-fares-rise [3] http://www.dailymail.co.uk/news/article-2463143/The-cost-living-rising-faster-UK-Europe-soaring-food-energy-bills.html http://www.dailymail.co.uk/news/article-2463143/The-cost-liv... Deliberately linked to both the Graun and the Mail there so no political bias.

mangeletti 13y ago

The prices of acquisitions, despite their possible justifications, is becoming a bubble because of all the recent revelations about the value of ("big") data, and of users' time spent online (i.e., a land-grab). Investors are learning that data and user acquisition (regardless of how much money is made per user) is really valuable, but it's hard to value both, since the monetization of both has proven inconsistent and, in some cases. For instance, Facebook has a lot of users and even more data. Their current valuation in the open market puts their market capitalization at 94 times what they currently earn (net profit) in a quarter. That's about 4 times what is "normal" for a popular investment, and about 7 times more than Apple (which is currently the most valuable company on the planet). Now, the bubble doesn't have to burst. Assuming companies like EMC, IBM, and the hundreds of smaller companies with data analysis offerings can come up with increasingly efficient and offerings that increase revenue per user/data-point. The best that most user/data-centric start-ups can currently get (without loads of capital) is affiliate commissions or "data-driven" ads (from Google, et al). This is rapidly changing, and if it can keep pace with the demands, there's no reason the current bubble can't turn into a profit center. Another thing worth noting is that, while user/data-centric start-up valuations are (very much) on the high end, other, unrelated software and hardware/IaaS companies are thriving in sectors that aim at replacing human workers in various fields (ecommerce, marketing, accounting, medical [you name it], etc.) with machines. This is intrinsically valuable and cannot be described as a bubble any more than replacing manual gas pumps/attendants with automatic ones can. It's just the fruition of efficient ideas, coupled with readily available technology at prices that the SMB market can afford. TL;DR The bubble in user/data-centric start-up valuation doesn't reflect the rest of the technology sector, and user/data-centric start-ups are quickly learning how to turn the aforementioned into a profit.

alphydan 13y ago
>> 7 times more than Apple (which is currently the most valuable company on the planet). Something is missing in that sentence. The most "valuable publicly traded tech company"? Or is it another definition of valuable? or of company? At around 400bn it's less valuable than Saudi Aramco (with a value around $2 - $5 trillion USD, PetroChina (1Tn) or Pemex (also about 400bn!). http://blogs.mccombs.utexas.edu/titman/2010/03/01/more-thoughts-on-the-value-of-saudi-aramco/ http://blogs.mccombs.utexas.edu/titman/2010/03/01/more-thoug... http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aA1jwRD9tCuA http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aA1jw... http://www.ft.com/cms/s/2/5de6ef96-8b95-11db-a61f-0000779e2340.html#axzz2jcPMMnkj http://www.ft.com/cms/s/2/5de6ef96-8b95-11db-a61f-0000779e23...

conanbatt 13y ago

The fundamental difference between the valuations today and those in the 2000 is that most tech companies are actually operationally solvent. That is not true for all of them, but if a crisis hit valuations and investors lost all confidence, companies with operational solvency will care very little and will not close down. There is something similar to a bubble that plagues the sector and its those B2C companies that insistently build themselves to capture users and get their value from selling out to the big boys without ever making a decent profit.

Fingel 13y ago

I could care less if the bubble pops. In fact, it would probably be a good thing. Everyone who is in tech for the wrong reasons would have to find something else to do. San Francisco might go back to being a liveable city. And the real hackers, the ones working on real problems (instead of novel ways to share pictures of cats online) would suddenly find themselves back in an environment that closer resembles reality.

hkarthik 13y ago

Are a few firms overvalued right now? Of course. But that's nothing new. Healthy markets have a mix of overvalued and undervalued stocks. The main difference today is that most rational investors understand the diversity of software firms. The business model and drivers of a company like Facebook differ wildly from a company like Workday. But back in the 90s, they both would have been lumped in together as "tech stocks". The only common ground between tech firms today is that they often compete for the same talent and investment. But that seems to be changing slowly as the industry matures.

pearjuice 13y ago

The question was never whether we are in a bubble or not. It has always been when it would pop.

tptacek 13y ago

My memories of the 90's bubble: * Extended friends and family, none of whom worked in tech, were all considering investing in tech stocks. * For that matter: everyone I knew was investing in equities. * Largely profitless Internet brands bought up most of the Superbowl ad inventory * Startups were funded whose business models were dominated by inventory and logistics costs * Startup marketing (not just promotion, but all of marketing) was focused on epic launch events * Companies with no profits routinely had public offerings * Seemingly hopeless capital-intensive ideas (like 1 hour free delivery of candy bars) were kept afloat for years by investment dollars * Most American consumers had limited access to the network, and nobody had ubiquitous mobile access * You could close your eyes and fall backwards into an A-round (for instance: we managed to do it), which was the de facto standard first financing vehicle for startups * The major investment banks not only fought over tech IPOs, but housed famous talking heads who spoke on TV and wrote op-eds cheerleading specific tech startups * To get a web app launched, you bought several Sun servers and a 3-4RU Cisco router, each of which cost mid-5-figures. Oracle was your database. * Cisco would "sell" you routers in exchange for company equity, and book the sale as revenue * Totally reasonable for a startup to write its whole deployment stack, including application logic, in C * Virtually all software development was done waterfall-style, frequently with an MBA calling the shots * Just-formed startups had 5+ person "marketing" teams and 2-3 person "bizdev" teams * $100k+ logos, $75k/yr to PR/branding firms * Startups promoted themselves with print ads in magazines. That was a normal thing to do. This is just a random list; I'm sure others here have better points. Writing it, I'm struck by how much worse startups and startup business practices were while generating so much more interest from the broader market than they do now. I have a hard time believing that anyone who thinks we're in another dot-com bubble was actually working during the dot-com bubble. The article itself is almost offensively bad. The fed funds rate was over 5% during the dot-com bubble. Stocks are doing well now, but so is everything else, and the notable tech stocks helping drive the market are drowning in cash that they're generating directly from consumers. "We're due for a downturn"? What does that even mean? Buy puts? Salaries are high? Maybe we're having an easier time paying engineers now that we're not using that money to buy TV ads or pay MBAs to "monetize eyeballs with brand equity". The rest of the article seems to be a critique of how big companies are choosing to spend their money --- but whether or not you think Yahoo should buy Tumblr or Twitter should be giving VP/Engs 10MM in stock, companies making decisions with their own money isn't what characterizes a stock bubble. Obviously, what this article is really trying to do is to make a prose slideshow with links to other Business Insider articles, because its author had nothing better to write today. Jose, you're not dumb. You can find better articles than this. Unless this submission was sarcastic, in which case, well played.

chalst 13y ago

The following is false, confusing the short-term financing available under QE3 with the cost of financing business investments: > Interest rates are basically at zero and have been for some time. When borrowers are paying close to zero interest on loans, that makes money cheap to get. > People with money generally have a choice: save it in interest-paying, risk-free bank accounts or invest it in riskier assets that may pay more money over time. When interest is at zero, virtually any other kind of investment is likely to pay more because the risk-free alternative is so lousy. So investment asset bubbles get created. Stocks tend to go up. QE3 consists of a series of very short-term loans (initially they were 1-day loans) that keep being redeemed and reissued, with the promise that the money injected into the system in this way will be taken out in the medium term. (This death sentence on the QE3 money is the reason why the money injected into the economy has not had the inflationary impact predicted by gold bugs). Such very short-term loans are very valuable for financial institutions: they can finance short-term speculative investments and can be used as a partial basis to create longer-term financing. However, they do not provide the kind of investment Business Insider claims. For this kind of investment, you need financing over a period of years. 10-year treasuries, which provide a basline for the cost of longer-term financing, are relatively cheap, at 3.4% interest, but they are most certainly not interest free. Every venture capitalist understands this, I am sure. A competent journalist who covers business financing will understand this too.

null_ptr 13y ago

“The thought was that well-fed developers could create value better than the stock market.” And amen to that. I can't believe the quote above was meant to be a snarky comment instead of a blunt dose of realism.

dkwak 13y ago

What's a good resource for learning about the web bubble of the 90's? I would assume that a large portion of the HN audience (including myself) didn't actually live or work during this time, so it's hard to compare to today's tech industry. Is it worth knowing the details behind it?

jkarni 13y ago

Are the first two points made in the article really legitimate? Central banks decrease interest rates in crises, so I wouldn't expect lower interest rates to be correlated with (or to be reason to increase your credence in) a bubble. And the past stock market prices alone being evidence for future prices? Doesn't that assume that the random-walk hypothesis (and the efficient-market hypothesis) are wrong?