[HN Gopher] Well-behaved bubbles often make history ___________________________________________________________________ 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) (TXT) w3m dump (future.a16z.com) | 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] ___________________________________________________________________ (page generated 2021-06-15 23:00 UTC)