It's definitely a bubble
scripting.com
scripting.com
If that wasn't happening, i'd call it a bubble. But the BigCo's are making money. Real money, not ponzi investment hype nonsense. As long as these companies stay profitable, there's no bubble.
I think.
But hey, I'm just a programmer, no economist. Of whom there's not a shortage, by the way.
Instead he's saying that the amount of resources being pumped into the ecosystem (financing, incubators, startups) is significantly larger than what is required.
That the market as a whole won't grow fast enough to satisfy the needs of all the investment capital being deployed.
It's hard to reason about inflation because different goods do tend to inflate at differing rates. Perhaps we should measure the change in inflationary rates before and after some specific event.
Hello, zombie economy.
There is absolutely no reason why so many non-programmers should be getting so rich helping programmers find jobs at BigCo's. Strictly speaking the economy might demand this sort of money with this recruitment technique so economically it might be sound, but it seems to me there is a good deal of room here for disruption....
Determining if that constitutes a bubble is left as an exercise for the reader.
So when everybody is saying that nobody is seeing the signs of a bubble does that mean that we are in a bubble?
No it's when your barber is investing in a startup.
And that's what the new law is designed to do.
The reason this is important is because the way one makes money from startups is not by investing in one.
It's by investing in 100.
And your barber doesn't have that kind of cash.
Sorry. I guess I've read too many articles recently about it being a bubble. I even agree, just not care very much.
This is not a Ponzi Scheme.
Get your definition of Ponzi Schemes right, please. Ponzi Schemes are a specific type of fraud, not to be generalised to everything that relies on superficially similar principles.
So startup bubble is a gambling scheme, not a Ponzi scheme.
Right from the wikipedia:
"A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from profit earned by the individual or organization running the operation"
Note that Wikipedia later in the article does clarify some of these points. To quote:
- In a Ponzi scheme, the schemer acts as a "hub" for the victims, interacting with all of them directly. In a pyramid scheme, those who recruit additional participants benefit directly. (In fact, failure to recruit typically means no investment return.)
- A Ponzi scheme claims to rely on some esoteric investment approach and often attracts well-to-do investors; whereas pyramid schemes explicitly claim that new money will be the source of payout for the initial investments.
In the case of Groupon founders cashing out, that was even publicly announced, and quite certainly not fraudulent in itself.
Early investors in startups cash out during later funding rounds or acquisitions.
QED.
In a Ponzi scheme, there is a central party that refunds investors on demand, and does so with money from new investors.
A Ponzi scheme is always a fraud, frothy valuations in a bubble might indicate market manipulation, but not _necessarily_ fraud.
The other factor is that there has been a huge loss of faith in Wall Street. The SEC and ratings agencies don't seem to be able to do their job in the face of increasingly complex financial products being brought to market.
I think that a lot of investors prefer losing their money on a crazy idea that failed to losing money to fraud.
Yes we do. You can short stocks. It's like placing a bet that the stock will go down in the future.
If this is a bubble, and you know that eventually certain companies behaving this way are gonna tank -- then you can bet right now that way and earn a big payout if that's the case.
Put your money where your mouth is.
"Markets can remain irrational a lot longer than you and I can remain solvent." -- John Maynard Keynes
That is: if you short a stock (leaving aside that you cannot short non-public stock) and it continues to go up you will need to continue adding money to your account to cover your accumulating losses. If it goes up high enough and you don't have enough collateral your position is closed and you are broke.
It is not enough just to identify a bubble you also have to call the top with a reasonably degree of accuracy.
Anyone who bought Amazon at the bottom of the last tech-bubble pop, for example, has made 10x their investment.
If you look at past bubbles, there's a pretty obvious pattern. A financial boondoggle is used to build a giant mass of capital. The financial boondoggle collapses, but those who profited (massively) from the boondoggle pay only a nominal fine to maintain the appearance of punishment. The capital that was built up in the last boondoggle is used to get the ball rolling on the next one.
If you want to know about how bubbles form, I think you're better off learning about confidence scams than you are economics. As with many things, the difference between a businessman and a con man isn't black & white. We're talking shades of grey here. If I were tasked with finding the next bubble, I'd trace the people responsible, rather than looking broadly at the market in an attempt to identify swells of capital without much perceived value.
And another way: The value of any asset as evinced by its price is merely the willingness and ability of someone to pay for it.
If you accept the EMH, then you understand we are incapable of seeing the big picture. Something can be valuable to your neighbor without being valuable to you. At the same time, if you do not know when to sell an asset, or know whom to sell it to, then you are a fool to buy it just because the price has risen for the last three weeks.
Economics is not accounting. It does not prescribe value.
Merely inflation? It's much more than that. It's dis-coordination within an economy.
Most of the "printed money" that has been generated by the Fed since 2008 has gone to the financial sector shrinking their balance sheets by something like $3.5 TRILLION (as opposed to the Fed expanding the balance sheet by $1.5TT). That's deflationary. The Fed has been on the gas since 2008 to maintain the price level.
As far as the bubble in "tech", it's a misallocation of resources. This is what happens in all the hot sectors (Tech in 1999, Housing in 2005, Tulips in 1700). There's a lot of money chasing returns that are no longer availabe. So they look for riskier assets. It's not that there are no valuable tech companies, just that there aren't enough valuable tech companies. But everyone thinks they've got a winner.
Bubbles are hard to predict, hard to stop and hard not to participate in. But one thing I learned from the real estate crash: you don't take advice about the bubble from realtors.
Price inflation causes money to lose value, so we can't really say there is an overvaluation simply because prices have increased. It could very well be the case that valuation hasn't drastically changed at all, but newer, cheaper money is flooding in which causes price inflation.
What's going on is that there are profits in the economy without an outlet for making more profits.
So I assume you are suggesting that a bubble is when an industry is out of sync with the general economy, in terms of pricing and/or growth. I would argue that that is not critical to the notion of a bubble. A bubble is overvaluation of an asset class. To restrict it with dis-coordination would mean a bubble could not occur during hyper-inflation.
Now maybe that is an isolated incident, but I'm not so sure.
[1]: http://www.1800vw.bizhosting.com/1969.htm
[2]: http://en.wikipedia.org/wiki/Criticism_of_the_Space_Shuttle_... Cost per kg from here
edit: A quick search turned up a cost of less than $5,500/kg to LEO so it would only cost $492,882,500!
Great for SpaceX for achieving that, but it's really not a measuring stick for value.
http://scripting.com/stories/2012/04/19/itsDefinitelyABubble...
http://scripting.com/stories/2012/04/19/itsDefinitelyABubble...
http://scripting.com/stories/2012/04/19/itsDefinitelyABubble...