Bloop bloop bloop ... pop!
I think there is a tech bubble and it is going to burst soon. Where 'soon' could be anything up to several years.
I vividly remember the moment in 2006 when I was struck firmly with the thought that we were smack in the middle of a credit boom and the bust was on its way:not only in the grips of a consumer credit boom, but that the bust is not far away. The story goes that Wall Street financiers can tell when there's a stock market bust coming when they get unsolicited share tips from bellhops. I reckon there's a consumer credit bust coming, because I'm getting unsolicited credit offers from checkout operators.
I had a similar feeling in the dizzy heights of the original dot-com bubble. It was before LiveJournal (!!) so I don't (machine-assistedly-)recall what the particular precipitating event was, but I do remember the feeling that the world had gone completely hatstand and there was no way that this could make sense in cold hard cash terms. And there were no end of examples after that.
I have had that feeling again today, this time about the US tech/VC sector. As before, there have been lots of things that have built up a picture of a massively-booming sector, and then an increasing drip-drip of things that suggest it may have gone too far, and then finally one of them hits me between the eyes as so obviously ludicrous that I feel that we must be near the top.
What I'm talking about is the South-Sea Bubble "company for carrying out an undertaking of great advantage, but nobody to know what it is" moment. Crucially, it is painfully obvious afterwards that it made no sense, and it is easy to mock, but at the time, with all the excitement, it does sort-of nearly make sense if you compare it to other things that appear to be legit, and if you accept that everything is entirely different this time.
The thing that pushed me over the edge today on the high-tech scene was this blog post on the Wall St Journal: No Team? No Idea? No Problem! This VC Will Fund Your Startup Anyway. It's not actually a venture capital fund - they invest in things that have a reasonable chance of success, like, say, 1 in 10. It's not an accelerator or business incubator, which support startup companies with a promising idea before a VC would be interested. No, it's before even that stage: you don't need a well-formed plan for what you are going to try to do, let alone how you are going to do it, or who you are going to do it with, or how much it would cost, or anything like that. And note, of course, that VCs already routinely invest in tech startups before it is at all clear how they could ever make money. Apparently this fund has "no difficulty finding investors".
This is bonkers and cannot go on. This may or may not be a hoax or an over-egged puff piece for an outlier - as indeed might that South Sea idea. But, crucially, it doesn't stand alone. There are lots of things almost this silly. It can't last.
Except, of course, it can last a surprisingly long time despite being manifestly unsupported, in that Wile E. Coyote running off the cliff kind of way. Note that my post about the credit crunch was a year before that phrase was on everyone's lips, and two years before the fallout hit consumers.
I'd be tempted to short NASDAQ or something, but the risk profile is terrible, and I am absurdly risk averse in general. If you go long - i.e. buy shares or other securities - the most you can lose is the money you spent, and there is no theoretical limit to your gain. If you go short, the most you can gain is the current value of the shares you borrow, and there is no theoretical limit to your losses. No thank you. Also, AIUI, to avoid being wiped out by margin calls or recalls before you come good, you have to be a lot surer about the timing than I am here.
Hold on, there must be a way of trading this with the risk profile the other way round. Aha - there are such things as long-dated put options - you pay money for the right but not the obligation to sell a security at a particular strike price (at or below the current market price) at a particular date. If the price is above the strike price by then, the option expires unexercised and you've lost the money you spent. If the price has fallen below the strike price by then - or at any time before then - you are in the money on this contract. Minus the premiums you paid, and, I would guess, a lot of charges if you're a retail investor: to exercise the option, you have to buy the shares - if, like I would be, you're betting on the shares falling in value rather than hedging yourself against shares you own falling in value - and then sell them.
Hmm. I think not. Firstly, and most importantly, markets can remain irrational a lot longer than you or I can remain solvent, as the bisexual Saint Maynard of Keynes observed. Secondly, trying to play clever rich people at their own game is unlikely to succeed: they will have rigged it to mitigate their losses even when they turn out wrong. Thirdly, I should remember how badly I suck at stock prediction. And finally, I would have to have spare cash I was prepared to throw about on such things, which I don't, really.
I must get on with throwing my money about on this double glazing, instead of procrastinating by reading crazed tech nonsense on the web. And let's face it, double glazing sales people are minnows by comparison to the sharks who can sell you a long-dated put on stock indexes.
This entry crossposted to http://doug.dreamwidth.org/296803.html, where there are
comment(s) not shown here.
I vividly remember the moment in 2006 when I was struck firmly with the thought that we were smack in the middle of a credit boom and the bust was on its way:not only in the grips of a consumer credit boom, but that the bust is not far away. The story goes that Wall Street financiers can tell when there's a stock market bust coming when they get unsolicited share tips from bellhops. I reckon there's a consumer credit bust coming, because I'm getting unsolicited credit offers from checkout operators.
I had a similar feeling in the dizzy heights of the original dot-com bubble. It was before LiveJournal (!!) so I don't (machine-assistedly-)recall what the particular precipitating event was, but I do remember the feeling that the world had gone completely hatstand and there was no way that this could make sense in cold hard cash terms. And there were no end of examples after that.
I have had that feeling again today, this time about the US tech/VC sector. As before, there have been lots of things that have built up a picture of a massively-booming sector, and then an increasing drip-drip of things that suggest it may have gone too far, and then finally one of them hits me between the eyes as so obviously ludicrous that I feel that we must be near the top.
What I'm talking about is the South-Sea Bubble "company for carrying out an undertaking of great advantage, but nobody to know what it is" moment. Crucially, it is painfully obvious afterwards that it made no sense, and it is easy to mock, but at the time, with all the excitement, it does sort-of nearly make sense if you compare it to other things that appear to be legit, and if you accept that everything is entirely different this time.
The thing that pushed me over the edge today on the high-tech scene was this blog post on the Wall St Journal: No Team? No Idea? No Problem! This VC Will Fund Your Startup Anyway. It's not actually a venture capital fund - they invest in things that have a reasonable chance of success, like, say, 1 in 10. It's not an accelerator or business incubator, which support startup companies with a promising idea before a VC would be interested. No, it's before even that stage: you don't need a well-formed plan for what you are going to try to do, let alone how you are going to do it, or who you are going to do it with, or how much it would cost, or anything like that. And note, of course, that VCs already routinely invest in tech startups before it is at all clear how they could ever make money. Apparently this fund has "no difficulty finding investors".
This is bonkers and cannot go on. This may or may not be a hoax or an over-egged puff piece for an outlier - as indeed might that South Sea idea. But, crucially, it doesn't stand alone. There are lots of things almost this silly. It can't last.
Except, of course, it can last a surprisingly long time despite being manifestly unsupported, in that Wile E. Coyote running off the cliff kind of way. Note that my post about the credit crunch was a year before that phrase was on everyone's lips, and two years before the fallout hit consumers.
I'd be tempted to short NASDAQ or something, but the risk profile is terrible, and I am absurdly risk averse in general. If you go long - i.e. buy shares or other securities - the most you can lose is the money you spent, and there is no theoretical limit to your gain. If you go short, the most you can gain is the current value of the shares you borrow, and there is no theoretical limit to your losses. No thank you. Also, AIUI, to avoid being wiped out by margin calls or recalls before you come good, you have to be a lot surer about the timing than I am here.
Hold on, there must be a way of trading this with the risk profile the other way round. Aha - there are such things as long-dated put options - you pay money for the right but not the obligation to sell a security at a particular strike price (at or below the current market price) at a particular date. If the price is above the strike price by then, the option expires unexercised and you've lost the money you spent. If the price has fallen below the strike price by then - or at any time before then - you are in the money on this contract. Minus the premiums you paid, and, I would guess, a lot of charges if you're a retail investor: to exercise the option, you have to buy the shares - if, like I would be, you're betting on the shares falling in value rather than hedging yourself against shares you own falling in value - and then sell them.
Hmm. I think not. Firstly, and most importantly, markets can remain irrational a lot longer than you or I can remain solvent, as the bisexual Saint Maynard of Keynes observed. Secondly, trying to play clever rich people at their own game is unlikely to succeed: they will have rigged it to mitigate their losses even when they turn out wrong. Thirdly, I should remember how badly I suck at stock prediction. And finally, I would have to have spare cash I was prepared to throw about on such things, which I don't, really.
I must get on with throwing my money about on this double glazing, instead of procrastinating by reading crazed tech nonsense on the web. And let's face it, double glazing sales people are minnows by comparison to the sharks who can sell you a long-dated put on stock indexes.
This entry crossposted to http://doug.dreamwidth.org/296803.html, where there are
comment(s) not shown here.