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Silicon Valley Insider: "If 2000 Was A Bubble Factor Of 10, We Are At A 9 Right Now"
Submitted by Simon Black of Sovereign Man blog,
If someone mentions the Dotcom Bubble, Pets.com is easily the first thing to come to mind.
The online pet product store failed hard and it failed fast. In just 268 days, the company went from IPO to liquidation, managing to lose $300 million in the process.
Yet it had looked good to investors, at least for a while.
Pets.com spent exorbitant amounts of money on advertising; its sock-puppet mascot was the 90s equivalent of a viral phenomenon.
But while the company spent hand over fist on advertising, Pets.com’s was losing money on every sale because they priced their inventory at BELOW cost. Duh.
Pets.com went public on the NASDAQ in February 2000 (right as the bubble burst) at $11 per share.
The stock peaked at $14, valuing the company at over $300 million. Not bad for a company whose business model virtually assured they would lose money.
But reality set in just nine months later. The company’s stock fell over 99%, and management announced they would liquidate.
Now… we could criticize Pets.com management all day long for a ridiculous business model. But bear in mind, investors bought the story.
People believed that profits didn’t matter. And back then it was typical for loss-making companies to be valued at hundreds of millions of dollars.
Have things really changed since then?
Facebook bought revenueless Instagram for $1 billion in 2012. Snapchat, the revenueless sexting app, is now valued at $10 billion.
There are so many examples like this. And like 1999, no one seems to care.
Silicon Valley investors keep writing huge checks. “Likes” are the new valuation metric. Not profits.
Several top Silicon Valley insiders are now hoisting the red flag saying enough is enough.
Bill Gurley, one of the most successful venture capitalists in the world, told the Wall Street Journal last week that “Silicon Valley as a whole . . . is taking on an excessive amount of risk right now. Unprecedented since ’99.”
Fred Wilson of Union Square Ventures echoed this sentiment on his blog, railing against the widely accepted model that it’s acceptable for companies to be “[b]urning cash. Losing money. Emphasis on the losing.”
George Zachary of Charles River Ventures wrote, “It reminds me of 2000, when investment capital was flooding into startups and flooded a lot of marginal companies. If 2000 was a bubble factor of 10, we are at an 8 to 9 in my opinion right now.”
As with all bubbles, it all comes down to there being too much money in the system.
Capital is far too cheap, and that pushes people into making risky and foolish decisions.
When you’re guaranteed to lose money on a tax-adjusted, inflation-adjusted basis by holding your savings in a bank account, almost anything else looks like a better alternative.
That’s why stocks keep pushing higher, why junk bonds yield a pitiful 5%, and why bankrupt governments can borrow at 0%.
Jared Flieser of Matrix Partners in Palo Alto summed it up when he told the Wall Street Journal, “You can’t afford to sit on the bench.”
In other words, money managers view NOT investing as losing, even if investing means taking huge risks.
It’s an abominable position to be in. If you do nothing, you lose. If you do anything, you take on huge risks.
This, of course, is thanks to a monetary system in which a tiny central banking elite conjures trillions of dollars out of thin air in its sole discretion.
History tells us that this party eventually stops, creating all sorts of unpleasant financial carnage. This has happened so many times before, and it would be arrogant to presume that this time is any different.
But it begs the question: what does one do? Is it worth trying to ride the bubble and try to get out before it all collapses?
Perhaps. But there are still pockets of value in the world that I would submit are more secure places to be.
In public markets, the junior mining sector has many companies that are trading for less than their tangible cash value. It is the exact antithesis of Pets.com.
In private markets, Startups in other thriving communities around the world (from New Zealand to right here in Chile) are valued at much more appropriate levels.
For yield, we’ve seen US dollar bank accounts in certain parts of the world paying upwards of 7%, and one low-risk company owned by the debt-free government of Singapore issuing bonds yielding over 5%.
There are options.
It’s like music. A lot of people think that music is dead. Where are today’s Led Zeppelin, Pink Floyd, Grateful Dead, Bob Marley, and Bob Dylan?
And based on the crap spewed out over the centralized, corporate-controlled radio, they’d be right.
But music is definitely not dead. There’s some amazing stuff out there. The corporate titans that control the system aren’t going to play any of it for you.
But it’s there. Just like the great investments. You have to look where no one else is looking. And you have to dig a little bit more to find gold.
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a factor of 9 with a population that is much larger...
"winning", for some anyway...
I was going to say "11", but I'm spinaltappin' from the 80's....
Sounds like we all need to stop looking at the POMO calendar and start looking at the IPO lock-up calendar, again, to find short-selling opportunities.
Honey, get your shorts on!
Simon Black. International man of mystery. Tell me what you are selling or stop this BS...
I listened to one of Simon's podcasts, recently, while trying to repair the fuel tank for our tractor. It was better than expected.
Too much rust in the tank. The MIG would just melt through when trying to weld sheet metal patches. I had to buy a new aftermarket tank.
Who knows the next INTW and its lock-up date?
Just leave some fuel in the tank next time. The liquid will absorb the excess heat and prevent blow-through from the welding arc. ;)
And remember, eyebrows WILL grow back.
Gen X, Y and Z have never seen the movie Spinal Tap. The reference to "11" eludes them. What a classic comedy.
Gen Xers are in their forties, and are most definitely aware of this movie.
Stonehenge...it reminds me of this economic recovery...in danger of being crushed by a dwarf.
It's a setting on our iPhones right?
Nice image, made me feel good....
When does lockup expire for GPRO? :)
Hint: 12/23
Why not just make 9 the highest, and play to that?
The population factor is a great point. Not much different than the groundwater supplies drying up. The cause being no different than in 1976 - which I remember well, but the population difference - 3X larger...
< CRASH COMING!
< CRASH NOT COMING!
Vote accordingly!
You mean today? Probably not.
I wonder how muh these guys get to predict the future? Too much, in my opinion.
Greenspan's famous "irrational exuberance" comment was also uttered about 2 years prior to the market peak.
Plus, this amp goes to 11, so....
try 1996.
Damn, was it really 96? Wow, I'm getting old and losing my marbles just like they said I would.
You know you're near a top when startups are comparing "burn rates."
In addition to the death cross, the Russell 2000 loses 5 year support
http://www.goldsqueeze.com/technical-analysis/russell-2000-loses-5-year-...
SF real-estate prices seems to agree with the assessment.
The difference between 1999 and now is that 1999 was more of a organic bubble (fueled by the Fed), while today's is (primarily) state backed (fueled by the Fed AND the government).
Facebook will not be allowed to fail. The NSA and CIA have too much at stake in it.
What, me worry? Only managed mutual funds are in the 401K’s. We’ve got professionals working for us.
Just keep issuing over-priced IPOs. Plenty of fund managers with piles of money to buy them.
If your a bull you have been making just loads on your accounts.
More like a 10+. The final collapse will begin in Silicon Valley. The largest property bubble in history is there. Outrageous paychecks to write code for tech companies. Nothing new, innovative, useful and needed, anymore. All worthless toys, another new I-Phone and I-watches. Tech companies, including some of the biggest are laying off thousands and shipping even more jobs overseas. It is all an illusion. For forty years tech powered America while automotive and other manufacturing declined and went overseas. Now the party is ending, but the faithful will hang on and lose it all. Once the tech bubble goes, not even Fed money creation will save the U.S. All that will be left is jobs at McD’s and those may even go away. Going from $125k working in tech to $25k at China World will cause great upheaval in this high-flying society. Goodbye McMansions and two SUVs in the driveway, hello tiny apartment and motor scooter. Be ready.
“The largest property bubble in history is there”
Technically, the LPB ever was in Japan.
Tokyo Imperial Palace
“During the height of the 1980s Japanese property bubble, the palace grounds were valued by some as more than the value of all the real estate in the state of California.“
I've started winding down my tech positions. They don't ship tech jobs overseas anymore, they bring the low-cost labor here. A friend of mine, who lives in a duplex, recently got infested by bed bugs from--you guessed it--the 10+ H1B monkeys living in the unit next to him.
Any talk of a crash fuels the market higher. The bots love bears/shorts.
“It reminds me of 2000, when investment capital was flooding into startups and flooded a lot of marginal companies. If 2000 was a bubble factor of 10, we are at an 8 to 9 in my opinion right now.”
And what is the scale you are using on these "new number(s)" again?...
Actually take me back to 2008 and allow me to relive the glory of that compared to this one! My money was certainly worth a helluva lot more in 2008 USD!!
God how I pine for the burst of '99!!!
"Grateful Dead, Bob Marley?"
I cannot wait! I'll see San Francisco emptied of these fucked up lousy geek ass techno youth that has invaded our city/ CRASH..... PLEASE
There's tech and then there's IPO ibank fueled madness.
Those dot coms that survived the 2000 culling have become massively profitable, dominating the current internet economy, is wrong to lump everything together.
If you chase alibaba tail than its your own damn fault.
There's tech and then there's IPO ibank fueled madness.
Those dot coms that survived the 2000 culling have become massively profitable, dominating the current internet economy, is wrong to lump everything together.
If you chase alibaba tail than its your own damn fault.
Just got back from SF last week... parking garage at a mid-scale apartment complex in north beach area.... LITERALLY half to two thirds of the cars in the garage were $75,000+ (including two ferraris)....
Maket top in 3....2.....1......
LOL - and how many of those are owned full and clear? Debt serfs in more beautiful cages...
Snatch Chat?
8 or 9? We got some room before hitting 10 then. Bullish!!!
Onward...
If 2000 was a 10...we are 20....as you forgot the government is leverage to the gills. Wall Street is stealing a much bigger chunk now and the normal economy is on life support comapred to 2000. The next election...which is usually preceeded by people figuring out that the current government has no clothes, clue or integrity. We are in DEEP DEEP DOO-DOO
If the Clinton stole the furntire, The Obama are going to empty the vaults and enich themselves like no one ever before in the White House.
Nice list of bands. Dylan is still around, of course (barely).