I was expecting to see discussions of something like a yield curve in this article, not the fashion sense of CEOs...
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...
Exactly, unless the author of the article reveals his positions in the market it’s hard to take seriously.
Not saying I disagree about the possibility of a bubble - but timeframes and magnitude matter - and talk is cheap. A public investment portfolio or asset allocation strategy is worth a 1000 Medium posts.
Otherwise the prediction in the article amounts to ‘something will crash... at some point’. It’s really that generic.
In the current late stage of a cheap debt infused bull market it appears to be more sane to predict a crash and hence discourage people form investing in it altogether (or at least be extremely cautious) rather than speculating on where exactly the market top will occur.
If you miss the timing of the crash all of these gains will have disappeared anyway. Downturns often happen too fast for normal people to react to in time to save their gains.
It's most likely time to buy again directly after a crash or significant pullback has happened and valuations have come down to a more rational level.
No one can predict a market under the current circumstances (federal reserves keeping rates artificially low, pumping new funny money into the market over a period of 5-10 years).
Market timing may be impossible, you can still observe that it's getting irrational.
Observe crypto currencies at the peak, people were talking nonsense that was never going to be true, and it was quite obviously a bubble. That irrationality just makes it harder to predict when the crash will come.
Yield curve is a somewhat rational measure, bubbles aren't rational (from a financial perspective).
BTW I was given 0.01 of these new fangled bitcoin years ago and promptly forgot about it. I sold in October before the crash. I make no claims to be any kind of investing expert, but I assume that counts as putting my money where my mouth is.
It's not "market timing" to acknowledge that the longer we go without a crash the more likely that crash is to occur given the length of our current cycle (all other economic or fashion indicators aside). You shouldn't base your economic outlook based on "articles like this", but you should certainly consider the history of our boom/bust economy and how late we are in the cycle.
TBH I don't see much of a bubble by these metrics. My indicators for "not in a bubble" are:
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.
Yup. There are plenty of signs for a general economic recession in the US, but tech specifically doesn't seem overvalued in comparison, and we're in a state of anything but irrational exuberance in terms of attitudes towards the tech industry and unprofitable startups.
While Apple is often deemed to be a 'tech' company, theres tech companies and tech companies. Whilst it might share many similarities with Uber for example, there are important differences and I think in this context saying there isn't a bubble because Apple is sensibly priced is missing the point.
Apple isn't high growth, its making a profit, its business model doesn't depend on a non existent or unproven concept.
Also I don't think Ubers valuation peaked in 2015 either? They seem to have been raising funds on a $50/60bn valuation in 2015, v $85bn when they floated.
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.
The problem is not identifying bubbles, but knowing when they are going to burst. We have a massive real estate bubble here in Australia, yet I have not the slightest idea when it might burst.
“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.“
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.
Have you ever been laid off? Because that's EXACTLY how it happens. The young, new, and expensively specialized are dumped first. (It's less about hard and soft skills than it is about generalist vs specialist, and business school preaches that management science is a generalist practice.)
> 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
This has been true for almost a decade at this point.
If you adjust for inflation it's been true for about 50 years in every part of the software industry (especially games, fintech, insurtech, automation, web..) among the top companies. Everywhere you look people have made a ton of money whenever the state of the art gets to a point where you can apply software tech to something that's not been done with software before. It's a sort of ongoing 'goldrush' where developers move from one field to another as tech gets to the point where computers are fast enough and clever enough for an existing industry to realise there's enough value in optimization to make it worth paying for.
The only thing that's changed recently is that now startups aren't waiting for lumbering old incumbents of whatever industry it is to invite them in. Now software companies are pushing the incumbents out because the data that old industries use as a moat is open enough to not be a barrier any more.
Six figures these days is equivalent to a lot less when this guy was a "CEO". You'd think for how wise this guy pretends to be, he'd understand the rising cost of living and inflation has made a six figure salary barely enough to scrape by in some cities, and is really only a comfortable salary in most others. This entire article just reads like a thinly-disguised millennial hate piece.
A website idea that I've had for a while now but haven't gotten around to implementing is a website to track predictions by people and whether they ever come to pass. Fear mongering is very profitable and it is very damaging to society. We should track every doom sayer's prediction so that when they inevitably make another we can see their track record.
>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.
All this post says is how things were the last time a tech bubble burst. It doesn't give any reasons why the timing should be the same for the next one.
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.
I'm not sure how a professor at a pretty good school like NYU has a blunt tone like this.
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.
[%] 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...
The unemployment rate that everyone uses (U.3) actually only counts people who have looked for work in the last 4 weeks since the BLS survey is taken. After that, they fall into (U.6), which is for people who have looked for work in the past year, and after that, they disappear from the stats all together.
Because of this, counterintuitively, the official (U.3) employment rate can go up during a prolonged recession. This happened in 2008 - 2009 when people stopped looking for work.
If you don't trust that site, here is the Civilian labor force participation rate, which indicates the percentage of the working population is actually engaged in the labor force:
I like the behavioral signs pointed out in this article - of both people and organizations. The signs of a bubble are becoming much more pronounced than 3 or 4 years ago. Add to that the temporary yield curve inversion a few months ago, and again this week. Along with negative 10-year yields in Germany today...
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.
This sort of prediction: "Things are going really well therefore they must be about to turn really bad." Has a certain emotional appeal but they are not a reliable indication of when a recession is about to occur.
The long hangover from 2008 has put the cycle out of whack, but I always remember a quote from - I thought it was someone like Soros - saying that the number cranes on the skyline was an indicator of an impending crash. Apparently there is something called the Skyscraper Index which makes largely the same point.
There are a lot of cranes in Manchester and London at the moment.
seem to remember reading that by now, internet companies have created more value than was destroyed in the dot com crash.
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.
Can we please have a moratorium on Medium articles? They are now a paywalled site and even content providers are invited to pay to view their bloated blog pages. The site itself offers nothing in addition to the content we freely provided them.
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
[+] [-] Moodles|6 years ago|reply
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...
[+] [-] aserafini|6 years ago|reply
Not saying I disagree about the possibility of a bubble - but timeframes and magnitude matter - and talk is cheap. A public investment portfolio or asset allocation strategy is worth a 1000 Medium posts.
Otherwise the prediction in the article amounts to ‘something will crash... at some point’. It’s really that generic.
[+] [-] starbugs|6 years ago|reply
If you miss the timing of the crash all of these gains will have disappeared anyway. Downturns often happen too fast for normal people to react to in time to save their gains.
It's most likely time to buy again directly after a crash or significant pullback has happened and valuations have come down to a more rational level.
No one can predict a market under the current circumstances (federal reserves keeping rates artificially low, pumping new funny money into the market over a period of 5-10 years).
[+] [-] benj111|6 years ago|reply
Observe crypto currencies at the peak, people were talking nonsense that was never going to be true, and it was quite obviously a bubble. That irrationality just makes it harder to predict when the crash will come.
Yield curve is a somewhat rational measure, bubbles aren't rational (from a financial perspective).
BTW I was given 0.01 of these new fangled bitcoin years ago and promptly forgot about it. I sold in October before the crash. I make no claims to be any kind of investing expert, but I assume that counts as putting my money where my mouth is.
[+] [-] StanislavPetrov|6 years ago|reply
[+] [-] kinkora|6 years ago|reply
[+] [-] subjectHarold|6 years ago|reply
[deleted]
[+] [-] nostrademons|6 years ago|reply
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.
[+] [-] ummonk|6 years ago|reply
[+] [-] benj111|6 years ago|reply
Apple isn't high growth, its making a profit, its business model doesn't depend on a non existent or unproven concept.
Also I don't think Ubers valuation peaked in 2015 either? They seem to have been raising funds on a $50/60bn valuation in 2015, v $85bn when they floated.
[+] [-] unknown|6 years ago|reply
[deleted]
[+] [-] unknown|6 years ago|reply
[deleted]
[+] [-] shuckles|6 years ago|reply
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.
[+] [-] danieltillett|6 years ago|reply
[+] [-] fuckyah|6 years ago|reply
[deleted]
[+] [-] slimscsi|6 years ago|reply
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.
[+] [-] braindouche|6 years ago|reply
[+] [-] ng12|6 years ago|reply
This has been true for almost a decade at this point.
[+] [-] onion2k|6 years ago|reply
The only thing that's changed recently is that now startups aren't waiting for lumbering old incumbents of whatever industry it is to invite them in. Now software companies are pushing the incumbents out because the data that old industries use as a moat is open enough to not be a barrier any more.
[+] [-] shakezula|6 years ago|reply
[+] [-] threeisoneis|6 years ago|reply
[+] [-] C1sc0cat|6 years ago|reply
[+] [-] unknown|6 years ago|reply
[deleted]
[+] [-] skrebbel|6 years ago|reply
[+] [-] friedman23|6 years ago|reply
>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.
[+] [-] karmakaze|6 years ago|reply
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.
[+] [-] baoha|6 years ago|reply
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.
[+] [-] bellBivDinesh|6 years ago|reply
[+] [-] C1sc0cat|6 years ago|reply
[+] [-] Bombthecat|6 years ago|reply
If you predict often enough, one day you will be right...
[+] [-] shoo|6 years ago|reply
* 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...
[+] [-] topmonk|6 years ago|reply
Because of this, counterintuitively, the official (U.3) employment rate can go up during a prolonged recession. This happened in 2008 - 2009 when people stopped looking for work.
An estimate of the actual employment rate, including long term discouraged workers, is here: http://www.shadowstats.com/alternate_data/unemployment-chart...
If you don't trust that site, here is the Civilian labor force participation rate, which indicates the percentage of the working population is actually engaged in the labor force:
https://www.bls.gov/charts/employment-situation/civilian-lab...
[+] [-] fuckyah|6 years ago|reply
[deleted]
[+] [-] fuckyah|6 years ago|reply
[deleted]
[+] [-] acchow|6 years ago|reply
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.
[+] [-] chvid|6 years ago|reply
[+] [-] bencollier49|6 years ago|reply
There are a lot of cranes in Manchester and London at the moment.
[+] [-] rgblambda|6 years ago|reply
[+] [-] bubblewrap|6 years ago|reply
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.
[+] [-] j7ake|6 years ago|reply
[+] [-] _iiu1|6 years ago|reply
[+] [-] lapinot|6 years ago|reply
Multiplication of people writing frantic click bait articles about how bad the current state is.
[+] [-] davesque|6 years ago|reply
[+] [-] roymurdock|6 years ago|reply
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