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Comment by brianmcconnell | Hacker News Reader

I've lived in SF since the early 90s and have been through several business cycles. It feels like 1999 all over again, maybe 1998. A couple months ago I saw an ad on the NY subway for a company that delivers dog food and pet supplies to your door (deja vu anyone).

Property prices and rents in SF have spiked 30-40%, in some cases doubled, in less than a year. Same pattern as with the NASDAQ in 1999-2000. This is predictably driving the cost of doing business up, especially for companies that need to pony up for an actual office, payroll, etc.

Of course the details are different from 1999, but it feels a lot like that time. As Mark Twain said "History doesn't repeat itself, but it does rhyme."

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There's a great Drucker quote here:

> The greatest of modern economists, the late Joseph A. Schumpeter, labored mightily for twenty-five years to find the “cycle.” But at best, his “business cycle” is the result of so many different cyclical movements that it can only be analyzed in retrospect. And a business-cycle analysis that only tells where the cycle has been but not where it will go, is of little use in managing a business.

Basically, let's all stop laboring over whether there is a bubble or not, no one can predict it.

> ...no one can predict it.

Nonsense.

It's quite clear that the extraordinary actions of the major central banks over the past several years has inflated numerous bubbles. The question is not whether they exist, but how big they can get, how long they can last and how they will pop or deflate.

In other words, precisely timing a bubble's demise and accurately estimating the magnitude of a correction so as to benefit from the correction may be damn near impossible for most of us (markets can remain irrational for longer than men can remain solvent, and all that) but it's quite possible to recognize growing risk that a market isn't pricing in, and adjust your behavior accordingly so that you're less exposed to the risk.

> Nonsense.

> may be damn near impossible for most of us

Huh?

> but it's quite possible to recognize growing risk that a market isn't pricing in

I'm genuinely curious if you know anyone who has the ability to do this? If you know someone, I'm putting all of my stock in their company.

> Huh?

As I said, precisely timing a bubble's demise and accurately estimating the magnitude of a correction so as to benefit from the correction may be damn near impossible for most of us. And even if you do time the market well and have a good sense of the size of a correction, you probably don't have access to the investment instruments that will allow you to reap the greatest rewards.

> I'm genuinely curious if you know anyone who has the ability to do this? If you know someone, I'm putting all of my stock in their company.

What do you mean?

Right now in the Bay Area, you have lots of folks in tech who refuse to recognize that today's hot market is in large part fueled by monetary policy. They assume that they have job security and will always be able to jump to another six-figure job with a phone call or two. As a result, many fail to save. And many spend a very large portion of what they make in unproductive ways because they believe their risk of loss of income is close to zero even though it is actually much, much higher. This[1] is a good example of the mentality that is particularly prevalent amongst younger engineers and entrepreneurs here.

You don't have to be a hedge fund manager to see the froth in the market today, and even if the fun could potentially carry on for years more, any individual in tech in the Bay Area can reduce his or her risk exposure by a) avoiding certain types of employers (even if they pay handsomely today) and/or b) taking the opportunity to save while compensation levels are so high.

[1] http://www.futurealoof.com/posts/the-san-francisco-safety-ne...

I feel like we're talking about two different things here...

You stated:

> it's quite possible to recognize growing risk that a market isn't pricing in

How is this possible? What data, metrics, tools, do you have that shows an increase in risk other than a basic "intuition"? That's my point - if such a tool did exist to the common person (as you suggest, the techie in SV who isn't saving), financial institutions would be all over that. They aren't (but they claim to be)

The blog post you reference, is just one data point. Just because one person feels that way, doesn't mean the whole culture is that way.

> They assume that they have job security and will always be able to jump to another six-figure job with a phone call or two. As a result, many fail to save.

I'm not disagreeing with this sentiment, but we'd both be drawing fairly baseless conclusions. Counter-point - Are there not loads of people who survived the 90's .com boom and making a killing today in SV? (i.e. PG is one example) So why would savings matter then?

> How is this possible? What data, metrics, tools, do you have that shows an increase in risk other than a basic "intuition"? That's my point - if such a tool did exist to the common person (as you suggest, the techie in SV who isn't saving), financial institutions would be all over that. They aren't (but they claim to be).

The challenge is not finding data; the challenge is identifying which data is truly important and allowing yourself to make objective decisions based on the data.

I'll give you a simple example: I am currently short JC Penney through options. Before I took my positions, one of the things I noted was a divergence between what the equities market was saying about the company's prospects and what the credit market was saying about the company's prospects. The credit market was notably more pessimistic about the company's position at the time (obviously measured by the risk of JC Penney defaulting on its debt), and now you see the equities market catching up.

From what I can tell, a lot of folks in Silicon Valley don't even want to look at data. Startups with little to no revenue raising million-plus convertible notes with $5-15 million caps and sub-5% interest rates? And some of them have already raised capital? That's a data point that makes junk bonds yielding 7% look good by comparison.

> A couple months ago I saw an ad on the NY subway for a company that delivers dog food and pet supplies to your door (deja vu anyone).

To be fair, this is a lot more feasible now than it was back then. I'm not sure what's making it so. Higher volume of willing-and-able-to-internet customers? Better routing? But I cite as evidence the number of established players who are dipping their toes into the same-day-service market.

I'd be more willing to believe in pet-goods delivery as part of a generalized grocery-delivery service.

Normally yes, but NYC is sort of the Big Exception in the US - it's the only city in the country where the density is so insanely high that I can imagine niche delivery businesses surviving.

We've seen this with eBay Now - the economics are sustained by limiting service to only zip codes with sufficient density.

I agree. The main problem with the original idea, IIRC, is that the product is cheap and heavy-- low margins and high shipping costs. The consumer was simply better off getting it at the store.

the ads i've seen in the subway are from wag.com, which is indeed part of a generalized delivery service.

Delivery costs have plummeted because of the enormous amount of machine intelligence being used by courier companies. Better routing algorithms reduce fuel and staffing costs, better machine vision technology allows package labels to be read and sorted at high speed. Mail-order companies and delivery services have formed a symbiotic virtuous circle of business development - greater volumes of mail reduce per-unit costs, which encourages an increase in volume. Amazon are the prime (no pun intended) example of this, with their progressive diversification into selling bulkier and lower-value items.

Yea--I've noticed a pattern too, but it seems like I'm wrong so many times--especially with the stock market. The first crash was easy to spot, but this one seems different. I know so many people still living off the bubble money they made in 2000. I see a lot of people struggling. I've seen wages go down, but the average american tries to keep up appearances. I sometimes wonder if Obama secretly knows how bad the economy is going to be in a few years? I think he knows the minimum wage will be very important to so many people in the future? I've noticed that divide between the rich and poor is really getting bigger.

The basic problem isn't so much having a standard distribution of rich and poor (a large bump in the middle with tails on either side), what's happening now is we are trending towards having a big pile of poor people, relatively speaking who are wage slaves and can't afford basics like rent and health care, and another much smaller pile of rich people who could give fuck all about everyone else. Our system works pretty well when the rich are slightly have mores (slightly better house, car, etc) but when they just cleave off of the rest of society, there isn't a good outcome to be had there.

I was still a kid then but in 1998/1999 was there active talk of a bubbles like there is now?

I feel like we have had varying levels of bubble phobia for at least a year now. It's starting to feel like it would be more surprising if there wasn't a bubble then if there was.

And isn't the whole point of a bubble that people are bidding something up unaware that it's value is fictitious? Which seems difficult if everyones constantly talking about a bubble, no?

In 1999, I think there was a lot more effort going into the stories explaining "Why This Time Is Different."

There were a few cautionary stories back then, but most of the tech press and most of the mainstream press was full of hype. There was a cottage industry back then creating stories explaining how the Internet was going to let the economy grow and grow and make us all rich. I still see those stories, but it seems like many more people want to be The Guy Who Spotted the Bubble rather than the Pied Piper

"I was still a kid then but in 1998/1999 was there active talk of a bubbles like there is now?"

Yes, and the prevailing counterargument at the time was, "But this time it's different! The fundamentals of everything have changed, because...internet!"

If you look at historical bubbles, and particularly at historical technology bubbles -- the South Sea Bubble, the Mississippi Bubble, the 1920s Bubble, the bubbles of the mid to late 1800s -- "This time it's different!" has been a pretty consistent pattern of denial. Typically there's a rational basis for the exuberance at first, but this onto this basis is piled a whole lot of speculative investment and fervor, wildly inflating valuations beyond the boundaries of plausible expected return.

Some of that mass irrationality has to do with easy access to capital, and some of it has to do with easy openings to capital markets. The latter is usually required to really kick a bubble into high gear. [So the operative question in this case is: what effect will the opening of private startups to public investment have?]

Are we currently in a bubble? Really, really hard to say. I don't feel qualified to make that judgment. But to answer your question, yes, most bubbles have at least a few naysayers who are bearish on the situation. But their voices tend to get drowned out, especially by those with interests in keeping the bubble going.

"We have reached a permanent plateau of prosperity."

Nit: "Stock prices have reached what looks like a permanently high plateau." Profesor Irving Fisher of Yale, autumn, 1929, 3 days before the great crash.

Quoted on page 70 of J.K. Gailbraith's The Great Crash 1929 which I very strongly recommend to anyone.

There was a lot of talk about why things were different because we had entered a "new economic era". Some attributed this to the Internet. Others to Alan Greenspan.

was there active talk of a bubbles like there is now

Yes. Most surreal immediately prior to the crash. NASDAQ peaked in March of 2000, many start-ups continued, though increasingly desperate for funding (which generally never came) through early 2001, by which time many finally gave up the ghost.

I remember distinctly looking around especially at the younger workers (often just out of college, early 20s, now in their mid to late 30s) wondering what they'd do when the music stopped. For most it was back to mom & dad.

B2C meant "back to Cleveland".

I believe that poster has since been debunked as part of a comedy website.

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