Tech bubble? No, no way, nope, says Silicon Valley investor

Hello again, 1999

I'm surprised daily reading the tech press and seeing story after story about revenue-free companies generating huge valuations and IPOs of companies that have no long term business plan. I feel like I went back in time 15 years and that we've learned nothing. I know interest rates are low, and there was bound to be a stock bubble after the real estate mess, but technology AGAIN? Pick something else next time, like tulips!

It's the dotcom bubble all over again, but with phones and social media this time. It's interesting because the Apple/Android smartphone ecosystem allows for lots of cool useful things to be built. It also allows for dotcom era startups to pop up out of the woodwork again and easily build user data-collecting apps that don't actually have much technical merit. And this time it's beyond easy -- the phone platforms practically give you every functionality you would have to build yourself through APIs.

Let's look at some of the parallels...

- Outsized startup founder/CEO personalities and puff piece journalism about them?....Check.

- Companies with no revenue model beyond ads?....Check.

- Buzzwords then: Eyeballs, Sticky, Web. Buzzwords now: Big Data, Mobile, Social, Cloud.

- Huge infrastructure spend....Physical then, virtual/cloud now. (Too bad, no dotcom bankruptcy sales this time....)

- Sky high real estate?...Check, in NYC and SF, just like last time.

- Insane employment market? Not as bad as then, but anyone who can say "Hadoop" has a job now.

It's funny, I've been over in my little corner of tech (systems/infrastructure) through both bubbles, and watched people get filthy rich, all while mostly ignoring it. Maybe if there's a third one I'll ditch the actual knowledge and go work for a cloud-based social frictionless mobile infotainment monetizer as a Big Data Specialist or something.

All I know is this -- all the coders cranking out phone apps now are going to be just like all the HTML developers back in 1999 when the music stopped. Hopefully this tech recession won't be as bad...

those who profit most from the hidden existence of a thing...

...are those who profit most from that thing's continued existence.

See "voter fraud" for example.

Bubbles only happen when the public is involved

Ha ha ha, good one.

The next major bail-out will be Fracking companies in the USA. Oil prices are on their way down and the amount of debt and asset sales Fracking companies are making suggests troubled waters ahead. Fed will bail some out and there will be consolidation amoungst others. It's the price the US gov is willing to pay to put the screws on the Russian economy. It won't be cheap though.

Yep, both are effectively bubbles.

A lot of the tech stocks are effectively at bubble prices. So are a lot of mainstream stocks. He is right though, there is also a bond bubble; the current rate on regular bonds is 0%; on the "inflation tracking" ones (they calculate a CPI - Consumer Price Index -- based inflation figure every 6 months, and add or subtract that onto that 6 month's interest figure to roughly track inflation) some have a yield (before inflation) of less than -1%.

These companies are usually quite overvalued; however, I don't think it's as bad as some are making out. After all, they have significant physical assets (the hardware for AWS and the video streaming service, the data centers, warehouses for the physical shipping and so on); significant customized software (I hesitate to call this "IP" -- the software for AWS, the video streaming, the Amazon web store, and so on), actual "IP" (patents and such), plenty of loyal customers throwing money their way, and so on. There are of course R&D and employee value as well. I'm not advocating liquidation by any means, I'm just saying the investors wouldn't take a total wash even if the whole thing was shut down tomorrow.

Some companies are puzzling though, they'll have a large stock value, but not making significant money, have no plans to start making significantly more money*, no significant physical assets if they run hosted or in the cloud rather than having their own data center. Nothing wrong with breaking even (on average) if they are making enough money to cover expenses and be paid -- really -- but it doesn't justify a huge stock price. Well, that's "internet" companies.

As for companies that sell servers, switches, etc... as always happens in computers, some companies will wash out, some will have slumps, some will go up in stature and make some good margins on the hardware they sell. I find it pretty unpredictable. There's a bubble in a sense, but it's partly the investor gamble that they've invested in one of the ones that starts raking in cash.

*sometimes it's a matter of "monetizing the users" *cough* would make the users flee (adding too many or too intrusive ads; or going from free to pay.) In some cases like craigslist (which doesn't have stock AFAIK), profit maximization is simply not a goal.

I agree with one thing...

...we do not fight against death enough. We simply accept it and I do not believe that sickness and death from old age is inescapable. It isn't; we have not found a way to avoid it because we all think that it is somehow necessary; that life here in Earth is "but a veil of tears" and that death is a surcease from sorrow. Nuts! Death is the end, not a beginning.

Hmmm....

“My candidate for the bubble today would be the super low interest rates, even negative rates, [so] the bubble is, in effect, government bonds."

After a couple years of subpar returns in my IRA I divested myself of all my bond funds, and I haven't really started doing my end of year research yet to figure out if/how I will shift money around. So I popped on over to http://etfdb.com/etfdb-category/government-bonds/ to see what things look like. Of the top 10 best rated ETFs on the site 6 had YTD returns of less than 3%. Yes, two of them had better than 20% returns, but they were all in 20+ bond funds. Doesn't look like much of a bubble to me.

There is one difference to 1999

Back then nobody cared about those companies going bust. It was purely a stock market thing.

Today people have built infrastructures and other companies on top of revenue less companies. Also companies are now much better, plus there is a new and dangerous idea, the idea that a company may be "to big to fail".

Maybe this time, instead of companies failing, giving rise to new generations of companies, they might be propped up by the government. This would have been unthinkable in the 1990s, but the banking crises made this an option. And this is, effectively, what has turned the banking crises into a crises for real life economies.