[HN Gopher] Well-behaved bubbles often make history
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Well-behaved bubbles often make history
Author : jger15
Score : 65 points
Date : 2021-06-15 13:27 UTC (9 hours ago)
(HTM) web link (future.a16z.com)
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| fredfoobar wrote:
| This fits in perfectly with my "bubbles are everywhere" thesis.
| +1 insightful.
| ipsum2 wrote:
| That sounds like confirmation bias.
| fredfoobar wrote:
| It sure does sound like it. But if you want to put some
| substance behind your thoughts, I recommend this book:
| https://www.amazon.com/Chaos-Making-Science-James-
| Gleick/dp/...
| sharadov wrote:
| A bubble is an objectively irrational shared belief in a better
| potential future ... No, bubbles in the world of economics are
| inherently bad, ponzi schemes concocted by charlatans.
| rgifford wrote:
| > Bubbles can be directly beneficial, or at least lead to
| positive spillover effects: The telecom bubble in the '90s
| created cheap fiber, and when the world was ready for YouTube,
| that fiber made it more viable. Even the housing bubble had some
| upside: It created more housing inventory, and since the new
| houses were quite standardized, that made it great training data
| for "iBuying" algorithms -- the rare case where the bubble is
| low-tech but the consequences are higher-tech.
|
| The housing bubble led to a short term increase in housing
| inventory, but it also dampened housing development (arguably
| forever). I'm guessing the net affect to housing supply was
| economically inefficient.
|
| Certainly a sign of the times when VC firms hype the positive
| externalities of bubbles as US companies climb to insanely high
| price to earnings ratios, interest rates are at record lows, and
| cheap money and debt abound.
|
| I have a feeling this ain't gonna age well.
| dumbfoundded wrote:
| To me, this doesn't feel like a bubble so much as fiat
| currencies like the dollar losing lots of value. Using gold
| price as a reference, gold has gone from ~$300 in 2000 to
| ~$1850 today. As the dollar loses value, things denominated in
| dollars but with real value like land go up. IMO, it doesn't
| seem like a bubble so much as the dollar is only worth about
| 15% of what it was 20 years ago.
| vmception wrote:
| There is a more timeless valuation metric that looks at asset
| valuations in reference to treasury yields.
|
| And it is helpful to look at treasury yields as a reference to
| how much money is in the system that needs to be placed. The
| entire incentive is to find an investment that earns money
| faster than the value of your money drops due to treasury &
| central bank activity.
|
| (The actions of issuing governments and central banks are the
| primary way more money gets into the economy than before, and
| this pushes down interest rates.)
|
| TINA - "There is no alternative" has been used over the last
| decade to suggest a problem: that there is no where else for
| investors to park money so they stretch valuations poorly.
|
| But "TINA" has always been the case, to a degree which has only
| been limited by geopolitics and fragmented economies in the
| past.
|
| Valuations have always been tied to how much money is in the
| system.
|
| So - yes - the capital formation and placement process is messy
| and there is wild short lived inefficiencies in some parts of
| the market such as a single collectibles market attracting too
| much capital or a single stock becoming a crowded trade. But
| across the entire asset classes bubbles might not necessarily
| be bubbles.
| AnimalMuppet wrote:
| I think I agree with that "more timeless valuation metric".
| Would you mind sharing what it is saying about current
| conditions?
| sokoloff wrote:
| What mechanism(s) of the housing bubble dampened housing
| development?
| rgifford wrote:
| We have and are still struggling to get back to the same
| level of housing development we had around 2000 [1]. If we
| adjusted for housing starts per capita this would look even
| worse.
|
| Why? I don't know, but I'll hazard two guesses:
|
| - Financing requirements around development became much
| stricter after 2008.
|
| - Housing was once seen as a risk free, stable investment.
|
| 1. https://fred.stlouisfed.org/series/HOUST
| paulpauper wrote:
| >I have a feeling this ain't gonna age well.
|
| People have been warning of this since 2014 when Facebook
| bought out WhatsApp.Even 2012 when Facbeook bought out
| Instagram. Maybe it will end well and surpass everyone's
| expectations. Why don't people ever predict that?
| slg wrote:
| What are examples of companies that have maintained an
| extremely high price to earnings ratio for decades and never
| crashed down to Earth? I don't ask this to sarcastically
| imply it doesn't happen. I generally would like examples if
| people have them.
| rgifford wrote:
| I'm personally not sure what's gonna happen. I don't foresee
| US economic growth rates of the past 40 years sustained for
| the next 40.
|
| We kicked the can down the road in 2008, 2012, 2014, sure.
| Anytime the S&P500 suffers we lower interest rates, open swap
| lines, buy corporate debt, and now we're talking about a 10T
| infrastructure program. Just take a sober look at US federal
| spending and entitlement programs. At what point is the US
| itself a bubble? Burry's answer: "When the degree to which we
| can tax our population eclipses the interest on our debt"
| [1].
|
| It's not pessimism to tell someone they're standing under a
| massive, precariously placed boulder. Just because you like
| them, just because it's inconvenient, just because it's very
| rare people get hit by boulders -- it doesn't make the
| boulder go away. The boulder is current debt levels and it's
| just gotten bigger over the past 10 years.
|
| 1. https://youtu.be/pDXHMbnF1nw
| hemantv wrote:
| Because pessimistic sounds smart, optimists make things
| steve76 wrote:
| So you believe enough to treat the people who work for you like
| garbage, make them grovel for a paycheck, if you even pay them,
| destroy communities with cut throat ambition and turn traitor on
| people who fought for you and helped you along the way. But you
| don't believe enough to keep people from robbing your own store
| or burning down your city or weaponizing the flu to commit
| horrible worldwide mass murder. Delusions by some of the worst
| people in the world today.
| megameter wrote:
| Inside the bubble, this is just called "morale".
|
| It's very visible as a phenomenon in gaming. What gets pitched in
| new games is not rules and assets, but a whole set of beliefs and
| values: there are games where you are spurred towards world
| conquest, and games where you are meant to relax and socialize.
| The value system is literally encoded into the play through those
| rules and assets. Therefore, game makers have a ready-made market
| wherever they can pitch people's beliefs back to them, like "I'm
| secretly the hero", or "playing longer makes me more powerful."
|
| And then the negative side of that comes into play when the game
| pops someone's bubble: "that's unrealistic", "it doesn't let me
| play how I want", "that other player is using a cheap move" - and
| it gets really out of control in video gaming specifically when
| the hype is built on a promise of all possible worlds being
| contained within the game, or being patched in through updates.
| Star Citizen has been managing this sort of hype for years, and
| No Man's Sky had the player bubble popped but eventually came out
| the other end of it many, many updates later. Cyberpunk 2077
| likewise had feverish hype followed by massive disappointment,
| though that story still has time to play out.
|
| I often tell myself to reexamine my grip on things. If I hold an
| idea too tight, I'm sure to lose objectivity - I don't need a
| _tight_ grip on anything, just the pragmatically useful one. And
| playing very difficult games has helped me loosen my grip, in
| fact; good strategy and techniques often result just from seeing
| the game as it "really" is and playing into that, and that's a
| useful life lesson.
| 6gvONxR4sf7o wrote:
| > A bubble is _an objectively irrational shared belief in a
| better potential future_ ...
|
| An _objectively irrational_ bubble is generally akin to a ponzi
| scheme, where everyone hopes someone else is left holding the
| bag. Phrasing it as a bunch of people who just believe in a
| better future is an extreme enough euphemism I 'd expect to see
| it in a Silicon Valley parody.
| dang wrote:
| " _Please don 't post shallow dismissals, especially of other
| people's work. A good critical comment teaches us something._"
|
| https://news.ycombinator.com/newsguidelines.html
| 6gvONxR4sf7o wrote:
| I just edited it. Acceptable?
| dang wrote:
| It's certainly better but the swipe at the end seems
| completely gratuitous to me, and breaks the HN guideline
| against snark.
|
| Moreover, you're still breaking this site guideline: "
| _Please respond to the strongest plausible interpretation
| of what someone says, not a weaker one that 's easier to
| criticize._" The author is not saying anything as stupid as
| "it's a bunch of people who just believe in a better
| future", and reducing other people's statements to stupid
| statements is a trope of poor internet comments.
| AnimalMuppet wrote:
| Here's my theory of bubbles:
|
| You have an asset (doesn't matter what it is). It's going up
| because the fundamentals improved, or because favorable press, or
| whatever. That's not a bubble. Stuff goes up all the time.
|
| So people start buying it, because it's going up, and they want
| in on the action. That's still not a bubble. People buy stuff
| that's going up all the time.
|
| Now there's new money flowing into that asset. So now the price
| goes up because of the new money flowing in, and the new money
| was flowing in because the price was going up. _Now_ it 's a
| bubble. But it's not dangerous yet. People can lose their shirts,
| but it won't hurt the overall economy.
|
| It becomes a _dangerous_ bubble when (lots of) people invest in
| the asset _with borrowed money_. Now if it crashes, it can take
| banks with it. If that happens at a large enough scale, you
| damage the economy as a whole.
| forgotmysn wrote:
| what's the difference between "People buying stuff that's going
| up" and "New money flowing in?"
| AnimalMuppet wrote:
| None. "People buying stuff that's going up" is _exactly_ "new
| money flowing in" to that asset.
|
| But I may have left some confusion in my fourth paragraph.
| It's a bubble when it becomes a self-reinforcing feedback
| loop. People bought because it's going up, _which makes it go
| up more_ , so _more_ people buy, so it goes up _even more_ ,
| and so on. I didn't state that clearly enough.
| nicoburns wrote:
| IMO the trouble starts all the way back with "So people start
| buying it, because it's going up". That's speculation. And it
| uses up some of the wisdom of the crowd rather than
| contributing to it.
| api wrote:
| I think a naturally occurring Ponzi scheme is the simplest and
| best definition of a bubble.
| mandelbrotwurst wrote:
| If the government deems all banks "too big to fail", does that
| remove the risk?
| Nursie wrote:
| Hardly, it may (or may not) help to mitigate the fallout
| though.
| l33tbro wrote:
| If only. The debt becomes worn as inflation and higher taxes.
| pxue wrote:
| no. because bank going bankrupt doesn't wipe away YOUR debt.
| it wipes away banks obligation to the governing body.
|
| also micro-lending will be as big in west as it's in China in
| the next decade. borrowing 10k to margin trade the stock
| market is inherently more risky than borrowing 10M for a
| mortgage.
| dgb23 wrote:
| Can even get worse if the borrowed money only exists based on
| promises in the first place.
|
| The tragedy is that that these crashes often increase
| inequality and concetrate power. The victims are innocent and
| the perpetrators are not held accountable.
| endisneigh wrote:
| What a strange article - how would you know if a bubble is "well
| behaved" before the fact?
| rchaud wrote:
| Seems to me that the whole point of venture capital is to get
| in on the bubble, any bubble, before too many others do.
| dang wrote:
| Since the article is taking a historical perspective, I'm not
| sure it needs to?
| fnord77 wrote:
| > Star Trek was right about some parts of the future: Material
| goods got very cheap indeed, and Amazon's price and delivery
| speed are rapidly approaching the Replicator.
|
| this is not sustainable, at all and will collapse at some point
| in the future
| dang wrote:
| Fun and perhaps marginally relevant fact: the author posted the
| following in what I believe was the first cryptocurrency thread
| on HN:
|
| https://news.ycombinator.com/item?id=253999
|
| That was 3 months before the Bitcoin paper was published. I
| wonder how many years went by before a second HN comment even
| mentioned the energy critique of Bitcoin mining.
| coolspot wrote:
| Yep, looks like you found Satoshi's HN account - blastomere.
|
| Things they talk about - energy consumption, crypto puzzles,
| similarity to gold, etc. In 2008! It is either Satoshi or
| someone very close - Hal Finney, Nick Szabo, Wei Dai, Dave
| Kleiman, etc.
| piercebot wrote:
| Blastomere links to Nick Szabo blog posts:
|
| https://news.ycombinator.com/threads?id=blastomere
|
| ...links to:
|
| http://unenumerated.blogspot.com/2005/12/bit-gold.html
| candyman wrote:
| Currency is something that isn't a store of value. Cash should be
| thought of as a depreciating asset like a car. We do need bubbles
| though - it just a way through an investment cycle in something
| new. In January 2009 NVDA was below $10 and the investment
| community certainly didn't appreciate the longer term future
| there. Coinbase (COIN) is a very interesting idea these days.
| It's not easy to see the long term but that was true for NVDA and
| FB at the IPO when the shares tanked to $18.
| cwkoss wrote:
| A lot of these examples seem to be conflating normal business
| cycle peaks with bubbles. I think calling every "thing that goes
| up and then down later" a bubble is stretching the definition
| past the point of utility into absurdity.
|
| I found this article disjointed and meandering and am not sure
| what the author intends the reader to take away from it. Smells
| like an article from someone who likes to call themselves an
| expert by using buzzwords to reductively categorize history into
| their personal arbitrary framework, but doesn't have much
| practical experience in what they preach.
| baron816 wrote:
| Someone could definitely write a book on bubbles that never
| popped, or the bubbles that popped, but didn't have too.
|
| Narratives drive what happen to bubbles, and I assume there have
| been bubbles that were captured by the wrong narrative at the
| wrong time.
| paulpauper wrote:
| _But each time Amazon added a category, they acquired users who
| would spend on their existing categories, and, later, merchants
| who could offer newer categories. Each search tweak Google made
| gave them a new set of tools to monetize clicks, but also
| reinforced the instinct to perform lots of searches. Facebook's
| marketplace is partly a way to monetize the site, but it also
| gives buyers and sellers one more reason to log in every day; as
| it turns out, one of the most addictive games ever launched on
| the Facebook platform is called "Affordable Exercise Equipment
| Quest," and I'm a daily active user._
|
| If someone had just bought shares of these three stocks a decade
| ago and turned off their computer,went outside, and did nothing
| else, they would have beat probably 99.5% of money
| managers/funds. Moreover, it would not have required any special
| insight or skills, but rather just investing in companies that a
| decade ago were already very big and dominant and in the news,
| not trying to find a hidden gem.
| Udik wrote:
| I remember Facebook's ipo. If I'm not wrong, the shares crashed
| for a few weeks/months right after the initial enthusiasm. It
| wasn't clear at all that Facebook was going to keep growing
| indefinitely.
|
| By the way, did you buy Coinbase shares? In ten years it could
| be another example of some obvious buy ("big, dominant and in
| the news"). Or they might have turned to junk, too.
| paulpauper wrote:
| Remarkably, facebook was still worth around $100 billion on
| its IPO even tbough it seems so long ago. It had huge growth
| leading up to the IPO. It fell due to concerns about Facebook
| not being able to monetize mobile, which proved to be
| unfounded.
|
| NO, I would not buy coinbase stock
| throwkeep wrote:
| I could see Coinbase as the world's bank and stock market all
| in one. Or a pets.com cautionary tale. Check back in a decade
| or two!
| koolba wrote:
| > If someone had just bought shares of these three stocks a
| decade ago and turned off their computer,went outside, and did
| nothing else, they would have beat probably 99.5% of money
| managers/funds.
|
| Will that be true a decade from now? For these companies to 10x
| again would end up with massive market caps, nearly $20T for
| AMZN.
| paulpauper wrote:
| If amazon, google, and facbeook become the economy, then
| there is still much more room for upside. We saw this with
| Covid in which Amazon and Walmart became major suppliers and
| distributors of goods and services.
| jl2718 wrote:
| People always look to irrationality as the first explanation for
| bubbles. This is lazy thinking. I find that there are almost
| always structural cash flows that create them by some sort of
| economic or regulatory intervention, and the crash by reversal of
| the same. Similarly, I don't think there are technology bubbles.
| Obsolescence is a very slow and steady process while you're going
| through it, but everybody remembers that one day the whole world
| turned in their rotary phones for the iPhone X.
| hardtke wrote:
| I wonder how much of current asset appreciation is due to our
| largest trading partners (China, Europe, Japan, Korea, Taiwan)
| wanting to make sure they can maintain large trade surpluses to
| maximize manufacturing employment. Rather than send trade
| proceeds home, they buy stuff in the US (treasuries and
| equities) to keep exchange rates stable.
| nitwit005 wrote:
| > A bubble is an objectively irrational shared belief in a better
| potential future ... but that doesn't just describe someone
| bidding up asset prices; it also describes anyone who chooses to
| build that kind of future.
|
| Feels like they're redefining the term to be all encompassing.
| Normally something like Apple investing in R&D, and deciding to
| make the iPhone wouldn't be an "asset bubble".
| benreesman wrote:
| Powell say something spooky about rate outlook and I missed it?
| beckman466 wrote:
| > Even the housing bubble had some upside: It created more
| housing inventory, and since the new houses were quite
| standardized, that made it great training data for "iBuying"
| algorithms -- the rare case where the bubble is low-tech but the
| consequences are higher-tech.
|
| Yeah who cares that people lost their homes and their mental
| health. Honestly, wtf is this hell I am living in?
| dang wrote:
| " _Please respond to the strongest plausible interpretation of
| what someone says, not a weaker one that 's easier to
| criticize. Assume good faith._"
|
| https://news.ycombinator.com/newsguidelines.html
| beckman466 wrote:
| You're literally 'flagging' (removing) my comment because I
| am quoting and critiquing the blog of a powerful venture
| capitalist firm? Seriously dang?
| dang wrote:
| No, the problem is that you posted a low-quality flamewar
| comment attacking someone for what they obviously didn't
| say. I totally get why the housing bubble, and housing in
| general, brings up strong feelings, but you plainly broke
| that site guideline. Is that so hard to see?
|
| In fact you did the same thing in the past and we responded
| exactly the same way:
| https://news.ycombinator.com/item?id=25991731. That's what
| we do when we see any such comment, regardless of who makes
| it and regardless of topic. I assume no one will accuse us
| of trying to protect powerful medieval friars.
|
| HN has the rules it does for good reasons based on many
| years of experience. We're trying for at least a little bit
| of a different internet here.
|
| (Btw, your comment has not been removed; flagging isn't the
| same thing as removing.)
| paulpauper wrote:
| Many lost homes they either would have never had under a regime
| of tighter lending standards, or never should have had. It is
| not like anything was stolen from them. It's like buying a
| crypto coin for $1k, it goes to $4k, and then falls back to
| $1k. Was $3k really stolen from you or was it never really
| yours to begin with?
| RC_ITR wrote:
| And the implication isn't even true: the rate of change in new
| housing starts and total occupied units is relatively low after
| 2000. [0] The median occupied unit age also increased over this
| period [1], so unsurprisingly, A16z is just pulling things out
| of thin air that _feel_ right.
|
| [0] https://fred.stlouisfed.org/graph/fredgraph.png?g=ELEk [1]
| https://www.housingwire.com/wp-content/uploads/media/images/...
| actusual wrote:
| He's not saying the net result of the housing bubble was
| positive. He's only pointing out that there was a non-zero
| upside despite the heavy heavy downsides.
|
| Honestly, comments like this make general discourse so much
| harder. At the mere mention of a controversial topic, the top
| commenter likens the experience to living in hell.
| dumbfoundded wrote:
| It's a finance person trying to justify their existence.
| Finance people love variance (bubbles in the extreme case)
| because it's the only way they make money. If stocks grew 5% a
| year with little variance, the best strategy is just to hold,
| wait and cash out when you need to spend the money. But if it
| goes down 15% one year, then up 22% the next, there's a lot
| more money making opportunities. Financial analysts love
| bubbles. They make tons of money and if things go really bad,
| they get bailed out. The worst thing in the world is consistent
| growth without variance. It's a way to make money without
| actually making anything. Most people in finance will try to
| justify themselves through some sort of liquidity argument but
| the author appears to be getting more creative.
| jl2718 wrote:
| Idea: an efficient market would be one with zero long-term
| covariance between investments. So, index funds would
| disappear. So, index funds are not really based on the
| efficient market hypothesis, they are based on the assumption
| of plutocracy.
| dumbfoundded wrote:
| That doesn't really make any sense. Prices will always
| correlate as long as there's any connection between asset
| prices whether it's a supply chain or shared customer base
| or shared economic conditions. Businesses don't live in an
| isolated bubble. Index funds are nothing but arbitrary
| groupings of assets enabling diversification along whatever
| lines the fund chooses.
|
| I'm not sure what point you're trying to make but the
| argument is poor.
| [deleted]
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