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Comment by pjmorris | Hacker News Reader

“Be fearful when others are greedy and greedy when others are fearful.” - Warren Buffett

I'm a bit more sanguine than the article (No one wants another GFC, and governments will go to ludicrous measures to avoid same), but it does seem to me that the party can't go on too much longer. I didn't see the 2001 crash coming, but saw the 2008 crash coming, and mostly moved out of its way. If you want a window into the world of financial news and predictions, I find Bill McBride at Calculated Risk [0] to be one of the better prognosticators from the wide menu of prognosticators available.

[0] http://calculatedriskblog.com/

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Alot of the party seems to have been concentrated in a few tech stocks - the usual FANG suspects, Microsoft, some newer IPOs, and a bunch of unicorn private companies.

It seems to me that one possible outcome would be for that rather localized party to end with valuations there returning to sustainable levels, while the rest of the market is less affected.

FAANG and most other tech valuations have grown enormously over the last 10 years, but they've roughly followed the growth of their revenue streams and potential monetization opportunities. There may be some short term corrections, but the notion that the majority of risk in the current economy is concentrated in FAANG and some tech IPOs seems overly simplistic and probably just wrong.

The GFC was a result of individuals taking on massive amounts of debt in aggregate. Corporate America has similarly taken on a lot of debt over the last decade for buy backs and growth. As the author of the article notes, the last 10 years have been great for cheap debt. Negative balances are still a risk and rates are going up. The companies taking on the most risk in terms of debt are for the most part not traditional tech. Think Chevron, GE, and other industrial and energy companies. I'd conclude that the majority of the economic risk is in fact not concentrated in FAANG or even most of tech, but elsewhere in the economy.

That doesn't mean some tech companies won't get caught in the storm. I think we could very easily see a couple mid-size players go the way of Yahoo (the Snaps and Ubers).

>The companies taking on the most risk in terms of debt are for the most part not traditional tech. Think Chevron, GE, and other industrial and energy companies.

You mean, precisely what would be considered 'traditional tech' in any sane world? :P

Industrial and energy companies have a much larger and more important impact on the economy than information technology.

We live in the strange topsy turvy world where 'information technology' has somehow been narrowed to "that guy who fixes your computer and administrates the servers" and 'tech' narrowed to mean what 'information technology' should.

It's because growth has been concentrated in software for a decade or two, and people only pay attention to growth.

It's actually more absurd than you note: "tech" today means "Internet tech", and people have largely forgotten that less than a generation ago IBM, HP, Sun, Oracle, Intel, AMD, and Microsoft were all "tech" companies. (You'd have to go back two generations for Chevron and GE to be "tech".) But that's the nature of psychology. Everything that was around when you were a kid is just part of the natural order of things, while the only new and exciting technology is the stuff you just heard of in the last year or two.

(It's pretty likely the pendulum will shift again in a year or two, and FAANG will no longer be tech, which will be reserved for crypto[currency - this is another good example, where if you're > 30 'crypto' means 'encryption' while if you're < 30 it means 'cryptocurrency'], robotics, self-driving cars, drones, and AI.)

I find it fascinating that your glib list of "cool new tech stuff" - cryptocurrency, robotics, self-driving cars, drones, and AI, seems to have a huge characteristic blind spot.

There's a major industry that for some reason people don't mention these days when they are imagining where the future is coming from, and I find it entirely inexplicable that it just doesn't register.

If I told you what it is, you probably would find it too obvious in retrospect, so I won't. I am over 30 BTW. And no, it's not green energy.

My guess is you're talking about biotech/medicine/health. This is the next sector poised to have transformative growth over the next 20 years.

according to a bloomberg article that I cant fully read, as of Feb 2018

<<The debt-to-equity ratio for the S&P 500 is 1.1 compared to an historical average of 1.7; >>

Corporations use debt to inflate valuations in the short run, so that sounds correct.

https://fred.stlouisfed.org/series/TOTDTEUSQ163N

Interesting - how did you see the 2008 crash coming? I saw nothing. (Note I'm from Germany, so many local US indicators may have escaped me)

I did totally see the 2001 crash coming (though not its exact time and large magnitude - just like everybody else, I guess?) - ludicrous business models had mountains of cash thrown after them... it was very obviously a hysteria.

In 2005 I received a postcard from my former next door neighbor, a realtor, offering a townhouse in our old neighborhood in South Florida for $300,000. I couldn't believe it: they'd been $100,000 when they were built, six years before. I'd bought mine for $140,000 in 2001 (much to the doubt and disbelief of my neighbors at the time, thinking it too much to pay.) When the advertised townhouse sold for $300,000, I started to ask 'Where did all this money come from?' I read voraciously, came to the same big picture conclusions that the people in 'The Big Short' did (I recommend both the book and the movie, at your preference), but didn't learn to make money off of it the way they did.

CR is an excellent blog. I've been reading since way back when Tanta was writing.

To sum up the entire thing, start being afraid when people are too successful(or fat and happy. Anyone who gets a big exit in a boiling market, you can now safely ignore). When things start getting really good, look for the exit and have at least a leg out the door.

I found them about a year before she passed. Great writer and educator, much appreciated and much missed. RIP Tanta.

Yes. Bill is great and has a lot of info in his posts but Tanta just covered so much good information in her essays. And with such flair.

Me too. I started reading CR in about 2006, found it incredibly educational, and yes, Tanta was a real talent who was gone too soon.

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