Examining the New Bubble 186
abb_road writes "Whether or not we're in the midst of another boom-bust cycle in technology is a matter of fierce debate. BusinessWeek discusses what constituted that last bubble and looks at current trends to see if we're on the verge of a new one. From the article: 'The Great Bubble of the late '90s shaped a generation of Internet entrepreneurs and investors much as the Great Depression shaped a generation of economizers in the mid-20th century. 'The bubble generation is much more attuned to the fact that things can get really out of hand,' says Bill Burnham, a former partner at Mobius Venture Capital. 'There's a level of caution that has been ingrained.'"
Oh, puh-*leese*! (Score:5, Insightful)
Since my own existence only dates back some 40 years, I can't claim firsthand experience of the Great Depression, but comparisons between the Dot-Com Bust and the Great Depression are so overblown that it ain't even funny. From the usual suspects [wikipedia.org]:
Almost all countries were affected; the worst hit were the most industrialized, including the United States, Germany, Britain, France, Canada, Australia, and Japan. Cities around the world were hit hard, especially those based on heavy industry. Construction virtually halted in many countries. Farmers and rural areas suffered as prices for crops fell by 40-60%. Mining and lumbering areas were perhaps the hardest hit because demand fell sharply and there was little alternative economic activity.
I guess it's to be expected, though. We're supposedly in this War on Terror [gp.org], but so far, I haven't been asked to participate in a single Meatless Tuesday [rice.edu]. Where do I go to get my ration cards [oldchesterpa.com], anyway?
People love bubbles (Score:4, Insightful)
'The bubble generation is much more attuned to the fact that things can get really out of hand,'
If this is true, it'll last another 5-10 years before we forget all lessons learned (correct or not) and return to business as usual. Our species is really good at self-deception, group-think, extrapolation forecasting, and greed, with varying results. We deluded ourselves regarding tulips, electronics, radio, the internet, and who knows how many other bubbles; we will do so again.
For a couple very good talks on the self-deception issue (somewhat OT), listen to Robert Trivers [itconversations.com] and Nassim Taleb [itconversations.com]
Bad Time? (Score:2, Insightful)
I don't necessarily agree with that statement either, but not for the same reasons many others probably don't. It might be a bad time to try to start a long term company online, but if you have a one-two year get rich quick idea that will most likely work what do you have to lose?
Re:Dude, you ain't Greenspan. (Score:3, Insightful)
Is that really a bubble though? Health care hasn't reached absurd levels because of positive-feedback of speculation. Pending disaster? Milking a demographic for everything you can (wait, since when is this NOT the norm)? Sure, but I don't think that's a bubble.
Bubble behavior is predictable.... (Score:3, Insightful)
Regarding the stock market, historically, whenever a new technology/infatuation arrives on the scene, tons of money get thrown in, the market gets irrationally exuberant, stock prics go way up and then implosion. Stock prices get corrected and after the dust settles the new golden age begins from whoever is left standing. In this case that's eBay, Amazon, Yahoo.
No one "loses" money either. If you invested 10K in the market and your investment rises to 100K and then drops back down to 8K, you only lost 2K and only then if you decide to cash in and take the loss. For all those people who "lost" money, hedge funds made a ton so it's more of a redistrbution from the hands of the many to those of the few as opposed to a "loss"
What screws people is no exit strategy. The stock buying public is always right during the trend but never are they right at the top or bottom. Can't be satisfied with a 300% percent gain...
things can get really out of hand ... (Score:2, Insightful)
The IT industry (Score:3, Insightful)
Where as the IT industry just started to come of age. It started to mature in leaps and bounds, this won't stop untill we hit the peak where any more power is just pointless (photorealism all round). It's more or less like the old steam engines. A lot of people saw "improvements" all the time and went "Wow this has got to keep going! It'll never stop and I'll become super rich!" The same is happening now, and will continue to do so forever.
Greed will make a bubble in every industry that shows any majror improvements, right now IT is the favoured thing. Tomorrow it maybe nano technology, whatever it is the same pattern will repeat. Idiots won't listen, they'll do the same shit they always do and they'll get lucky once or twice and assume they will do it again.
Re:Oh, puh-*leese*! (Score:1, Insightful)
Not to mention gasoline rationing, or recycling aluminum or rubber. Of course, people might start to complain if they had to cut back.
Re:not the market that's bubbling... (Score:1, Insightful)
The US economy is heading for a Recession, the only question is whether it will be inflationary or deflationary; the choice is really left to the federal reserve. If the Fed doesn't raise interest rates the US dollar will continue to free fall compared to the rest of the western world resulting in (much) higher prices to import goods (the US imports large quantities of natural resources and manufactured goods) this will result in the real-wealth of their citizens dropping (dramatically). If the Fed raises interest rates to a level to limit inflation investment spending in the ecconomy will decrease lowering employment and decreasing productivity compared to the rest of the world.
Why is this happening?
Quite simply, because the US Government has been running a $500,000,000,000 deficit a year for several years.
Re:Nope (Score:3, Insightful)
50% between bonds and money market (Score:3, Insightful)
As long as your stock is diversified it really doesn't matter. Short of another black monday/black tuesday you will be fine. Will you lose some money in the short term? Of course. But the market rebounds, you don't lose shares. By moving that money from stocks to bonds/money market now you lose out on the potential interest in the meantime.
All a "correction" means is that you can afford more stock during the correction. Buy, buy buy!
Re:People love bubbles (Score:5, Insightful)
I'd say we are best at greed. I remember in 1998-1999 myself and other people saying that it was a bubble and there would be a major correction or crash and I am no financial genius. What happened was that people who were financial geniuses knew it was a bubble but figured they could get out at the last minute and still make a killing. Meanwhile, they kept telling everyone else it wasn't a bubble in order to get everyone else to put their money in the market and sustain the bubble a little longer. They managed to keep things going for years after it was obvious that it was unsustainable. A lot of those financial geniuses came out smelling like roses while us schlubs lost money.
What is worse than the people losing money is that the market is in a sort of exhausted state with no direction. People have no where to put their money except into real estate, driving those prices up into another bubble. A real estate bubble was the last phase of Japan's economy after it's boom in the 1970's and 1980's before it went into the never ending slide/doldrums that it is in today. There needs to be investment into something that creates new ideas, new wealth and new real growth not new McMansions and impotence cures for aging baby boomers.
Fields where investment would be nice but probably won't happen:
Alternate fuels, Safe nuclear fission power plants or practical fusion.
Something else that won't happen:
Reorganize our entire suburban sprawl into small tightly integrated cities with housing next to workplace and markets. This would limit the need for cars to go everywhere. If people walked more we would have less need for a hydrogen car, or electric car or any kind of car. It would probably also help with the obesity epidemic, asthma epidemic caused by air pollution and all the health problems that go with it.
Really pie in the sky would be:
Cheap space flight, space elevator, asteroid mining and orbital solar power plants.
These would not be bubbles because something that would be productive and self sustaining would come from the investment, not a burst of activity and spending that leads nowhere.
Eh, it may not be that different (Score:5, Insightful)
E.g., for the greed part, don't assume that all investors were unable to learn that those "internet companies" tend not to last. But that was ok. They didn't plan to hold onto that stock for ever. They planned to buy some "my_cat_photos.com" site at cents per share, hype it to insane values, then sell right before the company crashes and burns and let someone else take the loss.
(And those in the most profitable position were the stock analysts, some of which had no remorse in telling their clients "buy!" while they told their own agents "sell!" I.e., they were in a position to _create_ a bubble around a company, and profit from it.)
A lot of the hyping dot-com stock you may have read fell basically in this category, and partially in the dishonesty one. It's not that those people were too stupid to see that a company without income can't survive. They were hoping _you_ would be stupid enough to believe them and help them pump up the share price. When they proclaimed an income-less and busines-plan-less new economy, well, the money making part of that economy was actually very present in their mind: it was the stock market. Namely hoping that some other dolt would buy the pumped up shares before they crash and burn.
And a lot of the posing, posturing and seemigly illogical behaviour of the dot-coms actually fit that hype-and-dump pattern. Now _some_ of the company owners may have blown money on gazillions of employees, Ferraris and buying football teams just out of stupidity. ("Look, ma! I'm someone! I can throw money out the window just like the rich guys!") But for a lot of them and for some VCs this simply constituted a kind of behaviour they could pump before they dump. It could be hyped as a young, dynamic, fast-growing company that's poised to take over the world. At the rate they're growing, they'll soon be the next Microsoft, and you'll be sorry that you didn't buy their shares when they were cheap! The fact that the only "fast growing" part were the expenses, well, they hoped you wouldn't notice that.
E.g., for the dishonesty part, one of the things that started the bubble was... advertising money. See, in the early day of the Internet web sites had maybe one ad banner on the main page, and some of us even clicked on them. And ad rates were based on this in more than one way. I.e., not only did the advertiser only count on paying for 10,000 or 100,000 views of that ad, but they also counted on the relatively high return on that investment, since people hadn't been yet buried in obnoxious ads and desensitized to them.
But in true "tragedy of the commons" fashion, someone figured that they could rake in twice the money if they put two ads on their site. Or 10x the money if they put an ad banner on each page. Some went as far as to imagine a site which would have a tiny content frame in the middle, while the rest of the screen would be filled by wall-to-wall ads. I know I've actually worked for one.
Some were even less honest than that, and also generously inflated their page view statistics. If you believed them, some sites had millions of pages (and thus ad views) served per month, even though they were barely more than someone's blog site. And not even the blog site of someone famous.
So basically what started the bubble was the idea that "hey, looky, we can make a bunch of cash by defrauding the advertisers!" Except that in the resulting 3-way con-war between websites, ad providers, and the companies paying for the ads (with the ad providers trying hard to cheat _both_ the webmasters and the paying customers), the prices per ad dropped like a rock, making that gold mine a
Bubbles (Score:2, Insightful)
Re:Dude, you've missed a lot of bubbles (Score:5, Insightful)
Maybe. However since bubbles are really a sort of cross between a pyramid scheme and a lottery the only people who are hurt are those who are not paying attention. Case in point: we sold our house at or near the peak and we are now renting. There is a pretty good chance that when we buy at the bottom we will have made 30% or more. Only people who are buying right now when all indicators suggest that prices haven't reached the bottom will be hurt. I.e. paying attention pays off! Look at basic forces. House values historically grow at 1-2% a year over the long term. If prices grow faster than that there had better be a very strong driving force or - its a bubble. Now, if you detect a bubble early and can afford the risk by all means take advantage of the idiots but be aware that what you are doing requires impecable timing or you can be severly burned!
The house bubble was created by FED policy (follow the links at http://www.patrick.net/housing/crash.html#links [patrick.net]) but I think there is a deeper problem. Our taxation methodolgy is fundamentally broken. The solution (IMHO) - the Georgist "one tax". NOTE: That is NOT a flat tax.
Re:Dude, you've missed a lot of bubbles (Score:3, Insightful)
Ahem. Tell that to those who lost their jobs because they worked for the companies that went bust (or took it on the chin) in the dot com fiasco. Or those whose retirement savings lost half their value. Tell that to the construction/realtors/appraisers/mortgage brokers who are edging closer to being jobless. I'm not saying that there's no personal responsibility, but it's kind of cold to just say to someone who is, say, a construction worker, "You should have been smarter and seen that the housing explosion was really just a bubble artificially inflated by increased liquidity by the Fed and loose lending standards" when he's been out there swinging a hammer all day.
What do you have to lose? (Score:2, Insightful)
Lesson learned (Score:3, Insightful)
Of course. When you're suddenly half a million dollars in debt because you leveraged options from a company whose only product was a website, you tend to learn the lesson.
Re:Completely different! (Score:3, Insightful)
Well, it is a fundamentally different climate, as far as startups go.
The early stages are pretty similar. You'd have an idea and get some venture capital. Then you'd use that money to grow your business. You'd generate buzz, and then people would start to get excited about your company and maybe you'd sell some units to boot.
In the 90's, what you'd do more often at that point is do an IPO, and you'd all become millionaries overnight. Now, the problem is that most of these companies weren't worth the billions that their market cap said they were, and they'd never make dollar one in profit. I think I'm preaching to the choir on this one.
What happens more often now is that you try to sell yourself to a larger corporation. You get bought out for a few million bucks in real, honest-to-God money, enough for the founders to go buy a nice house and the VCs to take a profit. This is what my bosses [robotgenius.net] told me we'd be doing from the get-go, and given the number of buyouts I've heard about recently (SiteAdvisor, Claria even), it seems to be becoming the rule.
Hey, I probably won't instantly become a millionaire, but at least I'm making a decent living in a semi-realistic economy rather than making a great living in an economy based on speculation, distortion, hallucination and lies. Those people were seriously living in a surreal world. For example, my girlfriend once worked at a small, independent coffee shop in Oakland. When the Dot Com Crash happened, she got at least ten applications from people who'd worked pointless, nothing jobs in high-tech firms asking $17 an hour to make lattes. I think one of the managers actually laughed out loud at them.
Re:i n f l a t i o n ? (Score:3, Insightful)
Just as "Real estate is the safest investment you can make" is no longer true, gold its self is in a bubble. There is absolutely no reason gold has doubled in price in the past few years. For those who didn't click the link, gold is now going for OVER $700 AN OUNCE. That's insane.
Just like everything else in the world, the price of gold is regulated by supply, demand, and risk factors. Gold is getting pricey because there's lots of demand, because people listen to people like you, who say "gold is the ever-consistant standard of money". They see scary financials coming up, so they buy gold. More demand = higher prices.
A better index would be the Dow or the NASDAQ plotted against the consumer price index, if you want to take into account the variances of inflation and the buying power of the dollar.
And yes, it is rising. It's a bubble, but not as big a one as last time. The bubble people should be worried about right now isn't online, it's the damn housing bubble. People with variable rate mortgates are going to get slammed in 2006/2007, housing prices are falling, the number of houses on the market has jumped dramatically at the same time that new home construction is still at an all time high, interest rates are rising... when it crashes, it's going to crash hard, and there'll be a global economic impact. Myspace doesn't have a damn thing to do with it.
~Will
Gold has traditionally been a terrible investment (Score:1, Insightful)
Re:Dude, you've missed a lot of bubbles (Score:1, Insightful)
Finance is also doing very well right now. My bonus last year was excellent, and my salary is quite comfortable. I know this is not going to last forever, so I am not going on overseas vacations or going out for $300 dinners. I am still living in a small fairly shitty apartment, saving my money, and investing the rest in index funds. I would like to own a place, but I am waiting on the sidelines until this bubble pops and I can afford something very comfortably. People I know that are buying now are all pretty much living paycheck to paycheck.
I went a little off track, but my point is that its not really that difficult to see when things are just a little too good to be true, and to prepare for them. Unfortunately, most people see that a little too late... usually after they close on a 700 sq ft 600k condo.