Imho, the OP is entirely looking over the fact that many successful exits happen because a few BigCo's who are making real money on real products (ads for your local hairdresser) are so desparate for good software people that they'll do talent acquisitions.
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.
If the idea is that BigCo's who desperately need programmers are throwing cash at people in an attempt to get them, then what the OP is describing as a bubble is just a massively inefficient fad recruiting technique.
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....
My interpretation is that OP is not arguing that BigCo's aren't currently making money.
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.
A part of the reason that these larger companies are having to resort to acquisitions as a hiring mechanism for good programmers is because the bubble is encouraging good programmers to leave larger corporate environments to either start their own startups or join their peers at their startups. The bubble investment environment is allowing non-profitable companies to pay large salaries for engineers that they couldn't otherwise afford. The sheer amount of money feeding into this startup bubble is inducing this at a massive scale, driving up the price of programmers across industries.
Talk of overvaluation when based on anecdotal isolated evidence is unbecoming of HN. Please, if this is serious conversation, someone compile a valid statistical sample of indicators.
The money quote: "In an effort to bring more suckers in, they just passed a law that makes it legal to pimp these startups to people who don't know anything. You will be able to take their investment by swiping a credit card. Probably using a $4 billion valuation Square dongle for an iPhone. ... It just doesn't matter if the businesses are any good, not to satisfy the bubble. As long as more suckers are coming in."
It seems that every author that writes about being in a bubble thinks that they are the only ones that can see it.
ignoring the fact that everyday an article hits front page of HN talking about being in a bubble and no one can see it.
So when everybody is saying that nobody is seeing the signs of a bubble does that mean that we are in a bubble?
The justifications for why we aren't in a bubble has been evolving over time. I remember when the reason that we weren't in a bubble is because none of the companies involved were publicly traded, and therefore a failure/depression wouldn't affect the average Joe. Now that we're seeing companies with astronomical valuations reaching for IPOs, I don't see this argument trotted out much anymore.
Here's an idea. If you think it's a bubble then get on it as fast as you can as there's clearly money to be made and cash in as soon as possible or whenever it is you think the bubble is going to burst.
Sorry. I guess I've read too many articles recently about it being a bubble. I even agree, just not care very much.
I have no opinion whether this is a bubble or not. Just one thing:
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.
I believe that by 'Ponzi Scheme' he's referring to the idea that you can sell growth in users to investors. E.g. "We're not profitable, but we're growing by 100k users per week!" The idea being that the only 'value' you have is in user growth, and once that slows down then you're sunk. While this might not technically be a Ponzi Scheme, it has some similarities to one.
What about founders that cash out during an investment round, ala Groupon?
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"
Honest question: Who cares if it's a bubble? If you aren't going to act on the opinion/information, it might not be worthy of your time, attention and focus. "Watch out! Bubble!" conversations generally just raise our anxiety without being actionable.
While I agree there's a bubble and that the recent JOBS act has the potential to turn things into a frenzy (see Taibbi: http://www.rollingstone.com/politics/blogs/taibblog/why-obam... ), I'm not sure I agree it's near the scale of the mortgage derivative bubble. The mortgage mess involved trillions of dollars across the entire global economy, and set back the entire middle class when it popped (along with destroying and pushing to the brink of destruction some of the biggest financial institutions in the world).
It's not really a bubble. It's more of a gold rush. A new way to get rich has opened up, and it's not clear who will succeed and who will fail. So people rush in and stake claims.
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.
"We don't have a mechanism to, as a society, say let's not go all the way with this bubble"
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.
> 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.
"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.
That's not how I'd identify a bubble. Then again, I'm not an economist.
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.
The subprime lending bubble to build up a giant mass of capital, the financial crisis collapse, the banks and funds who pimped the MBS paid a nominal fine to maintain the appearance of punishment, that capital is now flowing to VC funds?
A bubble is the overvaluation of an asset class, or merely...inflation. "Inflation is always and everywhere a monetary phenomenon."
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.
[+] [-] skrebbel|14 years ago|reply
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.
[+] [-] burgerbrain|14 years ago|reply
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....
[+] [-] jstanderfer|14 years ago|reply
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.
[+] [-] imjk|14 years ago|reply
[+] [-] tgrass|14 years ago|reply
[+] [-] joedev|14 years ago|reply
[+] [-] kylebrown|14 years ago|reply
[+] [-] brudgers|14 years ago|reply
Determining if that constitutes a bubble is left as an exercise for the reader.
[+] [-] stuckk|14 years ago|reply
So when everybody is saying that nobody is seeing the signs of a bubble does that mean that we are in a bubble?
[+] [-] pyre|14 years ago|reply
[+] [-] brudgers|14 years ago|reply
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.
[+] [-] bo1024|14 years ago|reply
[+] [-] Paul_S|14 years ago|reply
Sorry. I guess I've read too many articles recently about it being a bubble. I even agree, just not care very much.
[+] [-] aristidb|14 years ago|reply
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.
[+] [-] fr0sty|14 years ago|reply
Early investors in startups cash out during later funding rounds or acquisitions.
QED.
[+] [-] pyre|14 years ago|reply
[+] [-] joezydeco|14 years ago|reply
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"
[+] [-] kephra|14 years ago|reply
So startup bubble is a gambling scheme, not a Ponzi scheme.
[+] [-] AznHisoka|14 years ago|reply
[+] [-] ekanes|14 years ago|reply
[+] [-] tdicola|14 years ago|reply
[+] [-] wmil|14 years ago|reply
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.
[+] [-] jgmmo|14 years ago|reply
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.
[+] [-] fr0sty|14 years ago|reply
"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.
[+] [-] rgrieselhuber|14 years ago|reply
[+] [-] eli_gottlieb|14 years ago|reply
Anyone who bought Amazon at the bottom of the last tech-bubble pop, for example, has made 10x their investment.
[+] [-] bradleyland|14 years ago|reply
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.
[+] [-] molsongolden|14 years ago|reply
[+] [-] tgrass|14 years ago|reply
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.
[+] [-] skylan_q|14 years ago|reply
Merely inflation? It's much more than that. It's dis-coordination within an economy.
[+] [-] GlennS|14 years ago|reply
[+] [-] api|14 years ago|reply
[+] [-] burgerbrain|14 years ago|reply
Now maybe that is an isolated incident, but I'm not so sure.
[+] [-] BHSPitMonkey|14 years ago|reply
http://scripting.com/stories/2012/04/19/itsDefinitelyABubble...
http://scripting.com/stories/2012/04/19/itsDefinitelyABubble...
http://scripting.com/stories/2012/04/19/itsDefinitelyABubble...