Warning Signs That a Bubble Is About to Burst

Market timing is pretty much impossible for most people. So many people said we’re heading for a crash 3, 4, 5 years ago. They lost out on so many gains. We might crash tomorrow, or we might crash in 5 years. Nobody knows for sure. Market timing based on articles like this is a fool’s game.

I’d really love these people who constantly predict the crash to also predict when the market will pick up, but of course they never do. They just keep predicting a crash and eventually get lucky. And we only remember the correct predictions. Why don’t they put their money where their mouth is and actually show us all that they’re investing according to their predictions as well...

1. New grads are more interested in getting a job at a big company than in getting a job at a hot startup.

2. Fundraising requires revenue.

3. There is a constant negative press cycle around the industry.

4. People are moving out of Silicon Valley.

5. CEOs from the last bubble are getting indicted.

All of these are present today. Meanwhile, out of the article's list, the only bubble indicator I see is that Apple, Facebook, Google, and Amazon have all built shiny new headquarters. Tech P/Es are incredibly low compared to the general market (Apple is at 14 vs. the market's 25 or so), and the market P/E is not out of line with interest rates (P/E of 25 implies a real rate of return of about 4%, vs. about 2% for Treasuries. Mark Zuckerburg and Larry Page are too busy raising kids to either attend to their companies or be celebrities, Tim Cook is busy running his company, and Jeff Bezos is busy getting divorced. Haven't noticed any particular CEO fashion. People are looking to grey-haired figures for leadership, not young people. Six-figure tech salaries are just inflation: there's money (real money, not bubble-money) in tech, and intense competition for employees, and so that filters down to wages.

If anything, the real tech bubble burst in 2015 with the unraveling of Theranos, Zenefits, and Uber, and we've been in tech recession since. 2015 also seemed to be peak Silicon Valley rent increases, and the last time you could raise capital on just an idea. There was a mini-bubble in crypto in 2017, but that also popped, and the dominant zeitgeist today is complaints about how shitty life is, how there's no growth anywhere, and how we're on the precipice of a revolution, civil war, environmental catastrophe, dictatorship, or all 4.

1. Pricing anomalies where the price of two assets that have fundamental relation to each other violate that relation. For example, in the 1999 bubble, 3Com was a majority owner of Palm, but their market caps were inverted for almost two months.

2. Huge upward movements in price without any corresponding changes in fundamentals. NASDAQ doubled in 2000 without commensurate good news in the prospect of telecom and internet companies. Similar was Bitcoin's tenfolding, or whatever, in 2018.

3. Huge downward movements in price without fundamental news. Again, NASDAQ decreased by 3/4 of its value in a year and a half even though there was only a short recession, rates were low, and economic fundamentals like productivity were growing fast. Part of the reason I listed downwards movements as separate from upwards is that volatility in valuation is an important feature in and of itself.

I'm curious if anyone has indicators to add to the list or is able to apply these indicators to current events.

And as always, even if you have identified a bubble, trading profitably on this is subject to the efficient market hypothesis.

So, when this bubble breaks, companies will lay off the coders and have a bunch of managers managing each other into profitability? Makes perfect sense.

Implying Management is a “hard skill” and coding isn’t Is disingenuous at best.

This has been true for almost a decade at this point.

>Mediocrity + two years of tech experience = six figures. Kids who can code and are two years out of school, who are mediocre, are making $100,000-plus in the market. What’s worse is that they believe they’re worth it. If you can code, yay for you. But you have no real hard skills or management ability. Not recognizing that you’re overpaid means you won’t have the funds to avoid your parents’ basement when shit gets real.

Frankly, this person doesn't seem to know what he is talking about. The most profitable companies in the world are software businesses. Why? Because software is a nearly infinite margin product. The marginal cost of software is so inexpensive that the most profitable companies in the world give it away for free.

Given that selling software is so profitable and is a skilled trade (limiting the supply of developers) it is logical that the compensation of software engineers is so high and it will remain high as long as logic and a technical understanding of computers is required to develop software. Software's penetration into the economy is only just starting.

When people say we're in a bubble, what they're implying is that the bubble is about to burst. Yes we're in a tech bubble, this is how life is now and I don't see it changing. If/when it bursts, we'll start growing into another one. No clear reason is given why the bubble we're in now can't keep growing for a while longer. If anything the trade war is deflating the bubble. At some point there will be an event or signal when the bubble pops if not sufficiently deflated. The post doesn't mention anything to this effect in my reading.

I think it's more interesting to consider the magnitude of the investors' and CEOs' filter bubble. Maybe that's what the article is trying to get at, and that makes some sense. That bubble is larger and more self-sustaining than any earlier time. I think it's going to take a steady series of failed unicorns to get that signal in.

Beside personally criticizing people by their personal choice, which I found baseless, there is zero information here. There are people with that life style like that all the time, just because they happen to be tech CEO doesn't mean it's a sign to a macro thing like bubble.

One thing I've been regreting the most after 10 year living in the valley is that I shouldn't have listened to the 'tech bubble' propaganda back in 2016, nor delayed buying my first house, which should have saved me ton of cash.

If you predict often enough, one day you will be right...

* as others mention, yield curve inversion. e.g: https://financial-charts.effingapp.com/yield-curve

* unemployment rate climbing after hitting a local minima. e.g. https://financial-charts.effingapp.com/usa-unemployment

Some other indicators that expected long-term stock market returns may be low:

* valuation ratios -- in terms of P/B, P/E, CA(P/E), etc, are high [+], compared to historical norms. e.g. https://www.starcapital.de/en/research/stock-market-expectat...

* supply & demand factors, in terms of how much the average investor has allocated to the stock market [@]. e.g. https://financial-charts.effingapp.com/

[%] periods when recessions occur tend to be formally defined after the fact, by economists looking backwards at historical data. this may not be particularly helpful for anyone trying to time the market before a crash. "Prediction is very difficult, especially about the future." -- Bohr.

[+] some people may push back on this, saying "stocks are priced high relative to what alternatives?" -- if all alternative asset classes are also "overpriced", then maybe that just means there's far too much cash floating about, and not many good investment opportunities remaining. but if all asset prices are "overpriced", then nothing is, cash is just devalued...

[@] n.b. the blog post that this indicator is based on is intended as somewhat of a joke, as an example of how it is possible to construct rather arbitrary and misleading indicators that look good --- but it's an interesting read: http://www.philosophicaleconomics.com/2013/12/the-single-gre...

I took a large hedge against a recession in my portfolio today because I think this one can be severe given the amount of QE.

There are a lot of cranes in Manchester and London at the moment.

Maybe people are just speculating wildly because they stakes are high - maybe that's not even wrong behavior?

Also interested in the "giant penises" description of high building. Isn't it simply space efficient to build high rather than flat? At least if space is restricted, like on Manhattan Island, it makes sense. Maybe not so much if you are located in a desert with unlimited space in all directions.

Also, there is a signalling aspect to marketing. Being able to afford expensive marketing (including huge building, expensive ads) proves that you have at least some kind of success so that you were able to come up with the money.

Multiplication of people writing frantic click bait articles about how bad the current state is.

Until he can say when and how the debt collection chain will break down and spiral out of control, what types of non performing loans will spark a recession, and how he's going to hedge and make money off that recession, not interested

Just product placement for his new book

Did the author just implied that one would start or/and run a company out of some moral responsibility for others' families livelihood?

Markets crash based on fundamentals. The specific examples - Meyer, Holmes - are not indicative of market crashes let a lone direct signals or full on causes of them even when a few are grouped together.

Remember the time when people said Trump would kill the market? Dow 22k? I'm not saying it won't eventually happen with the next correction, but if I listened to those guys then, I would've missed ~10%. We don 't know if that correction will be 5, 10, 50%.

Dave Ramsey - Don't time the market. Buy Indicies.