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Want To Know Where The Next Bear Market Is? Look Around!
Submitted by Jared Dillian's The 10th Man blog via Mauldin Economics,
I am a sometimes gold bug and hard-money advocate, and a hard-core fiscal conservative. I have a pretty bearish outlook on the markets, I am generally skeptical of company management and especially journalists, and I think most investors, even the professional ones, are clueless.
I’m one of those hopeless romantics who pays down his debt (often ahead of schedule), would never ask for a bailout, and would be loath to sign up for unemployment benefits or even Social Security. If I looked hard enough, I could probably find a tinfoil hat that fits.
However, people who fit this profile are not typically big advocates of technology. You can’t use social media after the Snowden revelations, your phone is like a LoJack for the government, and who would trust a self-driving car?
I would. Do you know how much reading you could get done?
I love technology, and in spite of my bearish bent, I am a huge technology optimist and futurist. I was foaming-at-the-mouth bullish on Facebook back in 2008, when it was not yet public, at a $20 billion valuation. I said it would someday be worth $100 billion. People threw rotten eggs at me. It is now worth twice that.
I said it would be worth a trillion. It’s not there yet. Back then, in 2008, in the middle of the gosh-darn financial crisis, people were already talking about the bubble brewing in Silicon Valley.
Seven years later, I think that is a more reasonable discussion to have.
Opulence
But it’s hard to know where to begin.
Let me start by saying the level of opulence in Silicon Valley has far exceeded what was present in the Bay Area 15 years ago. The developers with the $350 ripped jeans and $125 flip-flops have been around for years, but this is different.
Check out San Francisco Magazine’s description of the food court at a well-known tech company:
There’s a produce section that’s forging farm-direct relationships. A whole-animal butcher who makes bone broth in-house. A fish counter that sources its own fish with the help of the sushi bar. Which—by the way, there’s a sushi bar and an oyster depot. Four Barrel coffee and Blue Bottle coffee. The obligatory Project Juice kiosk. A cheese guy. Tapas. Noodles. A wine shop. Ice cream. Pizza. Tacos. A salad bar. A bakery.
You might be deceived into thinking this is normal, especially in San Francisco where you are occasionally forced to dodge sidewalk poop (there’s an app for that), but it’s not.
The real estate market, too, has gone parabolic. See for yourself: pull up Zillow and cruise around Palo Alto to see the two-bedroom ranch houses going for $3-4 million.
But these sorts of things are never reliable signs of a top, because stupid can always get stupider, and it usually does. As I wrote in last week’s piece about trend following, it’s not productive to try to top-tick things anyway. But if Silicon Valley has a meaningful correction, it’s going to send shockwaves throughout the economy.
What Cycle?
For starters, seven years ago, people were saying California was ungovernable. And bankrupt. This was back when muni bonds had a bit of a scare. People really thought that California would default.
Fast forward to 2015, and Jerry Brown is a hero—even being mentioned as a presidential candidate. But anyone who knows California knows that state revenues are almost entirely dependent on capital gains. All it takes is a few WhatsApps and Moonbeam can dream big about $70 billion snail rails.
I believe that someday we will have self-driving cars. And I believe that Uber and Airbnb will start a revolution. And I believe that Elon Musk will one day get us to Mars, and that all cars will someday be electric. And I believe in Moore’s Law for solar and that someday we will render conventional utilities completely useless. And I believe in Moore’s Law for the human genome, too.
I believe in all of these things. But I also know that there are people in their early twenties who are getting impatient that they’re not yet decamillionaires, that seed round valuations are getting so big that venture capitalists are doing “pre-seed rounds,” and that these obnoxious tech CEOs behave like oracles, telling us how we should run our lives.
The technologists believe in the future, but they don’t know what the financier knows: that there is a cycle and all of human progress is three steps forward, two steps back.
The tech people have forgotten that there is even a cycle at all.
Some of them never knew. In fact, most of the Silicon Valley folks weren’t old enough to be working during the last big bear market 15 years ago that wiped everyone out. Think about that.
The technology guys take a very dim view of the Wall Street guys with their Ferragamo ties and bold pinstripes, and yes, the Wall Street guys tend to run from one side of the boat to the other. But what they know that the rest of the world doesn’t know is that overinvestment leads to malinvestment, which leads to a bear market to work off the excesses.
Just look at the energy sector, for example. In the just-released issue of Bull’s Eye Investor, I recommend to my subscribers a play on an industry that hugely benefits from the protracted slump in natural gas.
A client of mine runs a very successful hedge fund in San Francisco. I don’t want to speculate about his net worth here, but let’s just say it’s a lot. He tells me of cocktail parties he is invited to, where he’s easily the poorest person in the room.
If you want to know where the next bear market is, look around at the people who are enjoying unimaginable wealth. Mr. Market has a habit of correcting things over time.
My guess is that you won’t be paid $200K/year to drive trucks in North Dakota for much longer. The best thing about capitalism is that everything is temporary. The last time around, people had the stock, could have sold it, and didn’t.
It will be the same this time. They will ride it all the way to the bottom. It’s human nature. Everyone gives the GoPro guy so much crap for stuffing everyone with stock, but maybe he knows something the rest of us don’t.
Nothing lasts forever.
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"you won’t be paid $200K/year to drive trucks in North Dakota for much longer"
The problem is, those guys were normal middle-class folks maybe with families who made some coin at the peak. The asswipes with $125 flipflops (that cost 50 cents to produce in Veitnam) are the ones who need to go, but won't, because they're plugged into the system.
the collapse will be the great leveler. it is doubtful relative wealth will still exist. once the dollars we all hold show their true value of 0 it won't how many of them we make or hold.
The issue with the oil field work is supply and demand and that work in ND might dry up because the demand goes away, not that it is existing this way out of opulence. Oil work has a long history of paying well and it isn't just out of generosity but necessity in attracking people to do the work. For me I did oil work in college where I was basically the lowest rank on the offshore oil platform I was on and got a base rate of minimum wage, but everyone who was on the platform was working at least 14 hours a day 7 days a week, so with me I was making around $1200 per week because I lived on an oil platform and put in long hours getting a large amount of OT and DT, not that they were just showing money at me with me able work normal hours and live a normal life. The problem is that shale oil is a high priced extraction method compared to other kinds of extraction methods, not the the rank and file workers who do that work.
Boy, you said a mouth full. Oh, and the guy paid income tax I bet.
On the other hand, these kids will never pay a DIME of income tax. THey have a whole staff to make sure of that.
Their family money is made borrowing at .1 percent and then making 4% parking it at the fed.
These are the young Jamie's and Lloyds and the countless others...
http://thechive.com/2012/08/17/rich-kids-of-instagram-part-deux-46-photos/
My 23 yr old son was driving trucks for the W TX oil fields. $200k? Try $70k which is pretty darn good for a 23 yr old mechanic but it is far from $200k. That job died courtesy of $50 oil. What's a kid to do when his Dad has no connections? Anybody out there got any $200k job positions for a dumbass 20 something kid? /s
Its an oilfield 'tradition' for independant contractors to talk their gross, not their net. Hear a lot of that in Fort McMurray, independant contract welders may gross $250k/year, but its closer to working at a local shop for $70k/year once all the expenses have been paid.
The smart ones do fine. Know a guy who worked as a welder on the Alaska Pipeline and retired in his 30's. Not a bad life - work your tail off for a while and live off the proceeds. But most seem to blow it when they make it. The key is being smart about it.
Thank you Sir. One of the better attributes of ZH is that there is usually someone around who knows the facts.
As one who grew up in the Midwest, I would characterize your son's wage as $20 thousand to drive the truck, and $50,000 to live in North Dakota;)
Jealous much?
my friend's step-sister makes $71 /hr on the laptop . She has been without a job for five months but last month her check was $16117 just working on the laptop for a few hours. Look At This www.globe-report.com
Hey Tyler, how do we get rid of these whore peddling spammers?
Stop this bullshit predicting bullshit. Ain't no one who has a crystal ball.
Go smoke some more hopium.
I just busted ass putting my mum in a assisted living home.
I predict with my crystal ball sack if we can get old enuff, we will shit our pants, too.
10 Mio passwords
Earlier this week, noted security researcher and consultant Mark Burnett made waves when he posted 10 million stolen usernames and passwords on his blog.
The data set has been published -- but what will the FBI have to say about it?
latest:
http://tersee.com/#!f=de,en&q=passwords&t=text
Once the petrodollar dies, cashiers at Mickey D's will be earning $200,000 a year...
tghats exactly right. the MSM is already talking about raising min wage to 13-15 hr. and wages in the 20+ hr category have been stagnent if not declining for the last 6 years.
I don't think that's what he meant.
yeah he is talking about devaluing the currency. rising wages will do just that. more income, more loans, more newly printed franklins.
"Nothing lasts forever"
Are you sure the UK Aristocracy have been around for Centuries.
David Cameron's father-in-law lives in the family estate they have had since the 16th Century.
Old money lasts.
Haha he spelt Bull like this - B.e.a.r. What a retard.
typical home in socal 600K for a 3 bedroom 1200 Sq ft. who the fuck can afford that? on top of property taxes(yes you never really own your home), health, auto, cellphone, food!?!? in 2012 that same property was going for 350K and was still way too expensive. this is fucking rediculous. and for all you new grads, good luck financing a mortgage with all that student loan debt and inability to find employment. gotta have experience right? well how do you get experience if you cant get a fucking job in the forst place!
If you can't lie, cheat, steal, setup a company website and telephone switchboard, and fake your work history, you don't deserve a job. No one will hire you if you're not a good conman. What do you think you're getting hired to do??
wait a second. i didnt say i wanted to be CEO lmfao
+1 cigarEngineer
I agree but I would take it a step further. Getting hired is so 20th Century.
Millenials shouldn't even bother with that. They can just live at their mom's house at 33 years old, live off of Kraft Easy Mac with Monsters and Red Bulls and play role playing computer games virtually all night with their virtual girlfriends. Their four year degree in business management helps them manage their credits in their online games.
No one will hire you if you're not a good conman.
Sure accounts for most of the top execs where I've worked. The EVP in charge of Operations at one Wall St. firm waas tasked with developing a new broker system. Problem is he'd fired anyone smarter than he was and nobody was left to do the work. He cobbled together some BS smoke and mirrors but got found out, made a regional head (of the least important region) and told 'show us how it works'. Somehow he baoiled out and ended up CEO of another company - which he utterly desgtroyed whil making the top execs rich with stock options. Gov chose him to run the utter fraud called AIG .... I suspect because he's VERY good at providing the ILLUSION of 'success' - and that's all that matters these days.
The US is SO fucked....... the crooks are looting the last dollars left, only so long before there's nothign and it all hits the fan. Get ready for the new Dark Ages.
Glad I'll be dead soon.
When I lived in Miami, property taxes on a 2300 sq/ft house was $7500-12000/year.
The vitroil eminating from Wall Street against oil patch workers that get paid equally ridiculous sums of money is sour grapes.
Some how the influence of a central bank creating 3.5 trillion dollars from worthless assets is not mentioned.
Without all that 'liquidity' the tech guys would be in line for one of those ND truck driving jobs.
We are living (and were in 2000 as well) in a period of central banking. That is the era that will end. Other cycles may keep on cycling but not the CBs and their enormous power. Real producers will always demand real payment in the long run. Stuffing their wallets with paper medium of exchange will not keep them happy forever.
Part of me says you're right, but another part (the cynical part, I guess) says that I don't foresee this current cycle coming to an end anytime soon.
Every time i meet somebody who is doing great, or raking it in i say to them.. your socking a lot away right, in case things get bad.. They look at me like i am Crazy...
Depends what you're telling them to sock it away in.
Cash in the bank? You are Crazy.
Physical? You aren't Crazy.
My guess is that they think your crazy to save it in a bank, If you mentioned the word PM, they would call the FBI on you and tell them you are a terrorist.
From my personal observation, more they get paid the deeper they are in debt. These people take extravagant vacations and spend money as if it going out of style. They think the good times just keep on rolling and that they are special people.
I agree about the Silicon Valley types, but disagree about the WS types. This guy makes them sound like the pinacle of thoughtfulness.
WS Banksters and their Ferragamo ties are transaction whores that know nothing about finance. They know that getting bailed out is better than going down in flames, so that is their goal.
"But what they know that the rest of the world doesn’t know is that overinvestment leads to malinvestment, which leads to a bear market to work off the excesses."
Actually, a lot of us know, you arrogant fuck.
I would really appreciate it if the corporate lawyer who specializes in drafting regulatory submissions to various state and federal commissions would have a correction in his wage rate. It's amazing to work your ass off on the revenue generating side of a business, only to realize that asshole trying to carve out a reg that makes it so a customer must buy from you is worth more than you. That's really the power behind Silicon Valley right now. It's not developing something to be sold as much as creating the intellectual property right ring fence that prevents someone else from developing it.
I wish I could donate money to an international torrent server just to break the walls down.
Rant over.
"It will be the same this time. They will ride it all the way to the bottom."
Yes. The 'Truth' will prevail. And once people awaken to the fraud that has been perpetrated upon them, 'Truth' will also 'correct' that.
How frightening to think; "Is it safe to go to the store? Is someone waiting for me between here and there? Are my children safe now that the jig is up and they are soon coming for (me)?
How many 1% even entertain this thought?
It is written that you will reap what you have sown. Woe to them that have not heeded this.
Not a bear market on Wall Street.
All we are is dust in the wind.
Its not just out here in SV or North Dakota.....a friend just sent me a listing of what the Univ. of Wisconsin is paying for profs, football coaches, etc. The pay scale was mind boggling, especially when you compare the cost of living there to th SF Bay area......
Silicon Valley "youth" is a giant myth. Yes, there might be some young people there, but most workers are in the 37-50-year old range, or they're foreigners. Domestic grads who weren't able to get into the tech sector prior to its first collapse, mostly aren't even represented amongst the Americans working there.
$200k truck drivers in the Bakken? Don't even know where to begin to explain how much of an exxageration that is as well.
The only ones making that own their own truck. The going rate is $150/hr invoice, which means you still pay your fuel, insurance, and depreciation. If you work for someone else, in 2014 you'd expect abput 125k/yr before taxes...
Consider, however, that you can wait 3 weeks for repairs because mechanics are backed up. Plus it could cost you 5-10k. Think you could fux it yourself? Without a warehouse, forget it. Your fingers will freeze off and the diesel will gell up.
Tesla is down 5%...
BTFD!
I get hit up to join another social networking site once every 1-2 weeks - it's a shit show out there.
etoys!!!!!!!!!!!!!!!
Moore's Law isn't a law; it's a trend...in computation speed.
Ah the Tin foil hat song.
https://www.youtube.com/watch?v=wFNO2sSW-mU
Great article. Thanks ZH.