Mark Cuban Warns: This Bubble Is Far Worse Than The Tech Bubble Of 2000

Tyler Durden's picture

Just over a year ago, we warned that while the world of speculative capital is focused intently on the Twitter and Facebook #Ref/0 fundamental valuations in the publicly-traded equity markets, the real dot-com 2.0 bubble is occurring in the private markets. Few paid attention, prefering the head in the sand "well the music is still playing" meme; but one (or two) billionaires noticed, and with all eyes intently focused on Nasdaq 5,000 (as some indicator that we made it back to Nirvana), Mark Cuban unleashes uncontestible exposition why is this bubble far worse than the tech bubble of 2000.

It is different this time... and, as Mark Cuban explains, far worse...

Ah the good old days.  Stocks up $25, $50, $100 more in a single day.  Day trading was all the rage.  Anyone and everyone you talked to had a story about how they had made a ton of money on such and such a stock. In an hour.  Stock trading millionaires were being minted by the week, if not sooner.

 

You couldn’t go anywhere without people talking about the stock market.  Everyone was in or new someone who was in. There were hundreds of companies that were coming public and could easily be bought and sold.  You just pick a stock and buy it. Then you pray it goes up. Which most days it did.

 

Then it ended. Slowly by surely the air came out of the bubble and the stock markets declined and declined till the air was completely gone.  The good news was that some people were able to see it coming and get out. The bad is that others were able to get out, but at significant losses.

 

If we thought it was stupid to invest in public internet websites that had no chance of succeeding back then, it’s worse today.

 

In a bubble there is always someone with a “great” idea pitching an investor the dream of a billion dollar payout with a comparison to an existing success story.  In the tech bubble it was Broadcast.com, AOL, Netscape, etc.  Today its, Uber, Twitter, Facebook, etc.

 

To the investor, its the hope of a huge payout.  But there is one critical difference.  Back then the companies  the general public was investing in were public companies. They may have been horrible companies, but being public meant that investors had liquidity to sell their stocks.

 

The bubble today comes from private investors who are investing in apps and small tech companies.

 

Just like back then there were always people telling you their idea for a new website or about the public website they invested in, today people always have what essentially boils down to an app that they want you to invest in.  But unlike back then when the dream of riches was from a public company, now its from a private company.  And there in lies the rub.

 

People we used to call individual or small investors, are now called Angels.  Angels. Why do they call them Angels ? Maybe because they grant wishes ?

 

According to some data I found, there are 225k Angels in the US. Like the crazy days of the internet boom,  I wonder how many realize what they have gotten into ?

 

But they are not alone.

 

For those who can’t figure out how to be Angels. You can sign up to be part of the new excitement called Equity Crowd Funding. Equity Crowd Funding allows you to join the masses to chase investments with as little as 5k dollars.  Oh the possibilities !!

 

I have absolutely not doubt in my mind that most of these individual Angels and crowd funders are currently under water in their investments. Absolutely none. I say most. The percentage could be higher

 

Why ?

 

Because there is ZERO liquidity for any of those investments. None. Zero. Zip. 

 

All those Angel investments in all those apps and startups.  All that crowdfunded equity. All in search of their unicorn because the only real salvation right now is an exit or cash pay out from operations.  The SEC made sure that there is no market for any of these companies to go public and create liquidity for their Angels.  The market for sub 25mm dollar raises is effectively dead. DOA . Gone. Thanks SEC. And with the new Equity CrowdFunding rules yet to be finalized, there is no reason to believe that the SEC will be smart enough to create some form of liquidity for all those widows and orphans who will put their $5k into the dream only to realize they can’t get any cash back when they need money to fix their car

 

So why is this bubble far worse than the tech bubble of 2000 ?

 

Because the only thing worse than a market with collapsing valuations is a market with no valuations and no liquidity.

 

If stock in a company is worth what somebody will pay for it, what is the stock of a company worth when there is no place to sell it ?

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Of course, tomorrow's mainstream business media channels will trot out various asset-gatherers and commssion-takers who will denigrate Mr. Cuban's clarifications - just as they did Janet Yellen's Biotech warnings last year - but the question is: who do you believe? The billionaire with no ax to grind or the market maven "TV personality" with vested interests up the wazoo?

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If examples are needed, see below...

Click image for interactive and sortable WSJ infographic

 

Source: WSJ

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johngaltfla's picture

There are no bad bubbles if you know how and when to short them. Of course under this administration and the Fed's new top secret rules, shorting and winning could result in summary execution...

BrosephStiglitz's picture

Let's not forget that shorting stocks (even if timed well) will not mitigate potential counterparty risk. 

In a post-crisis financial world which is (still) awash with leverage, there is no guarantee that your broker will still be solvent.

Edit: also, I think I'd sooner look abroad.  The US is doing "well" right now because everyone else has a steaming turd of an economy.  I believe that China may see a stock market crash before the US.

Herd Redirection Committee's picture

The Western World is currently under ZIRP (or is that NIRP).  But not the whole world.  In countries where mortgage rates top 9%, there will definitely be a place for equity crowdfunding.  Its more of an unsecured loan than it is a stock purchase.

BrosephStiglitz's picture

I do certainly agree that equity funding a start-up, or a small business comes with major risks and some assholes seem to be happy to throw cash at businesses with very little substance.  In essence chasing flashy pitches over concrete revenue generating assets.

That's fine if you're equity funding a marketing start-up, but for everything else you can expect a big fat zero in terms of profit booked. 

(In fact, let's not forget that.. a REAL small business with REAL potential, will have a whole range of opportunities open to it, such as debt financing via banks, or more favorable terms from some serious angel investors.  When I look at a lot of the crowdfunding pitches, I am quite certain that the weakest companies utilize this kind of funding to stay afloat, purely because the investors are typically rather unsophisticated, or are the investors themselves, in turn, unable to navigate more established equity markets.  

And in that sense you might as well be betting on horses, or a coin toss.) 

PS: Don't forget that if you did invest in an equity stake of a crowdfunded business, and that business happened to have loans on their books as liabilities, the creditor would be legally entitled to the assets in the event of bankruptcy ahead of you.  You would probably assume a 100% loss of your principal, and would have to rely upon extracting enough profit from the business before it went bankrupt for the investment to be in the black.

max2205's picture

Annnnndddddd it's gone!

 

It will take about 3 months to burn what cash there is left....boom.

Midas's picture

A question for the community.  I remember during the tech bubble having to listen to everyone brag about how much money they were "making" because the stock prices were going up day after day.  This last run up I haven't been hearing any of that from my co-workers or family members.  Should I be hanging out with algos, HAL2000, and executives from TBTF banks to catch up on the bragging?

BrosephStiglitz's picture

Honestly most people haven't re-entered stocks.  They are still wary of them.  I believe stocks haven't seen the highest highs yet for that reason..  I expect that will change as the US stock indexes really take off once various other countries start to implode.  Typically once everyone you know is talking about stocks this and stocks that, it is time to sell and get the hell out of dodge.

We haven't hit the "greed" stage of the market cycle yet. 

macholatte's picture

 

 

You know it's time to sell when shoeshine boys give you stock tips. This bull market is over.

-- Joseph Kennedy 1929

BrosephStiglitz's picture

The same thing happened end of '13 with Bitcoin. Everyone I knew was buying into it.  After two people who had absolutely no business investing (totally clueless assholes) messaged me, and I read an article about Bitcoin in the WSJ (and correctly surmised some people with big market shares needed muppets to offload to, and liquidity was tight) I suggested to people to sell.

Nobody did of course, because, y'know.. people are headstrong.  The market crashed from ~1000 USD/Bitcoin the following week. 

NB: I should have shorted. 

Greenskeeper_Carl's picture

i occasionally listen to clark howard in the car if my kid is with me, and I remember hearing people calling in and asking him  "should I buy some of those bitcoin things i keep hearing about" and thinking to myself that this bitcoin mania has just about reached its top if older people who listen to clark howard are calling to ask about this. sure enough, not long afte that it began its steady decline

BrosephStiglitz's picture

Yeah.. around my entire economics school, everyone was talking about Bitcoin this, Bitcoin that.  Those two guys who messaged me weren't even in investing circles.  One is an IT technician, the other was flipping burgers.  Nothing against them as individuals of course, both good people, but not exactly up to date on markets.

In other news the EUR is back to its slide against the dollar this morning.. 

ebworthen's picture

Shitcoin; another binary distraction almost as bad as politicians.

The key point in Cuban's article is "no one to sell too".  You just know that the founders and insiders sold at the top and it is the yield chasing retirees and wide-eyed iMillenial and AO ("Always On") generations that are buying and holding this crap.

Just think of Pets.com and their ilk, and the resulting slaughter in 2000-2001.  Lather, rinse, repeat.

Cliff Claven Cheers's picture

Since when does this Cuban mofo care about widows and orphans?  Every week those shark tank dudes buy shares of companies and then build the products in China at pennies on the dollar versus the US, why because of pollution.  Mark Cuban is helping pollute China to make a buck for himself and actually creating widows and orphans.   Watch this video and see what that low life MofO is contributing to:

Chai Jing's review: Under the Dome – Investigating China’s Smog
LooseLee's picture

Wishful thinking that 'retail' has any discretionary $$$ to 'invest' in equities. Too much debt, too much 'inflation' in necessities, and too much BS in the media for that. Many learned a lesson and the CNBC's just reinforce it as it was the same BS they spewed as that bubble burst. No. I suspect only the 'big boys' have much of a stake in this bubble unlike the late 90's bull run...Will be interesting to see the carnage when reality finally rears its ugly head... IMO the next "bubble' that Joe Sixpak participates in will be the Gold/Silver bubble which is imminent...

Cthonic's picture

  "I remember during the tech bubble having to listen to everyone brag about how much money they were "making" because the stock prices were going up day after day.  This last run up I haven't been hearing any of that from my co-workers or family members."

 

You'll hear from them, just as soon as they claw their way out of the holes they dug for themselves in 2001 and 2008.

Redneck Hippy's picture

The companies that Cuban is talking about are not the billion dollar cap companies like Dropbox that could IPO tomorrow.  Those are funded by VCs not crowdfunding.

BrosephStiglitz's picture

It's true and 99.999% of those crowdfunded companies are just an ATM for the owners right now.  Little-no revenue generation, in many cases highly dependent on (paltry) small business grants.

A lot of people are going to lose their investments in entirety.  I've been watching Crowdcube myself (UK based crowdfunding company).  I have not found a single investment worth pursuing after 8 months.  I'd sooner buy scratch cards.

Greshams Law's picture

I think you're on to something. Let's crowdfund a company that buys scratch cards. I'll call it CrowdScratch.

Parrotile's picture

Too reminiscent of a Scabies outbreak (common in Psych Residential facilities, even today!)

Something to give 'em a sense of "ownership"? How about "My Lotto" or similar??

delacroix's picture

it's not uncommon for a broker to recall stock they loaned you to sell short, forcing you to buy to cover,  usually at a loss, just before it moves in the direction where you would profit.  scottrade has done this 3 times to me personally.

BrosephStiglitz's picture

I guess if they are doing the loaning, their loss is your gain.  They are obviously trying to mitigate the risk on their end.  Shitty thing to do though. 

Panafrican Funktron Robot's picture

Reason 1a why I switched to buying puts, had the same shit happen to me back in early 2008.

confederacy of the dunces's picture
confederacy of the dunces (not verified) johngaltfla Mar 4, 2015 9:15 PM

Tyler(s) is/are running out of material. I am an uber-bear, but you have to admit, the Fed has pushed this thing so much further than any bear ever thought possible. It is amazing how the the duct-tape and bubble gum is holding this thing together. Hell, I am even staring to think logic does not matter in the new normal world we live in...wait, fuck that,  the thing will crumble -- just don't know when?

Oldwood's picture

It really doesn't seem to take that much when the players have only one casino and they can't cash their chips in anywhere else. For the bubble to pop requires someplace for the money to flow to and there is no place left. So the band plays on.

Arthor Bearing's picture

The last crash happend in the September of a two-term president's last full year of his last term. Expect similar but not identical timing this time. You heard it here first.

juantrades's picture

It would certainly be a big coincidence.

lunaticfringe's picture

I too, never thought I'd see anything like this. But then again, you gotta remember that not in the history of the United States have we ever had zombie banks, QE, and ZIRP maybe NIRP. This shit is unprecedented and so is this distorted bubble. When you thnk of it that way- at least for me- I stop drooling. 

jameswvu99's picture

I agree, and now feel this bubble will be bigger than the Tech and real estate put together. 

lucyvp's picture

in the bubble of 2000, i traded cisco for clorox and did well.  in the bubble of 2007 i traded spy for treasuries and did well, I dont see any undervalued asset now.   maybe gold,  but i dont think it is way under valued.  there is know where to hide.

saints51's picture

My personal opinion: gold is expensive. I think Silver is the only undervalued asset in the market today.

Panafrican Funktron Robot's picture

"I dont see any undervalued asset now."

I would say anything related to crude oil is pretty much a no-brainer undervalued asset.  Anyone still making money at these prices is a buy.

OldPhart's picture

Atlanta's Fed Pres, Lockhart, grew up in Bakersfield, CA.  He'd be pretty familiar with baling wire (as well as duct-tape, bubble gum, WD-40) and redneck engineering.  He's the key to how this has been supported all this time.

Deathrips's picture

Don't forget!

 

Mark Cuban's a dumbshit.

A blind squirrel finds a nut...but still a shill.

RIPS

NoPension's picture

How do you short a " stock" when there is no stock or market?
WTF am I missing?
Wasn't that the point of the article?

daveO's picture

Don't forget circuit breakers. Rigged.

Cornfedbloodstool's picture

Is this the Dallas mavericks owner Mark Cuban?

OldPhart's picture

My last bad bubble had a bathtub around it.

VangelV's picture

I disagree. Bubbles are created by an artificial lowering of interest rates and the creation of debt and money by the regulated financial system.  They are a sign of malinvestment, which makes individuals poorer, creates more waste, and lowers the real standard of living.  To think that an ordinary indivdual can 'trade' bubbles is the ultimate in folly.  

TheReplacement's picture

No.  Bubbles are always bad.  Bubbles mean malinvestment, waste, fraud, and theft - someone has to lose and that is a drain on our species even if seemingly insignifcant.  Explain how insignificant it is to the child of a 7-11 cashier shot during a robbery by a desperado who was financially layed low by a bubble bursting.  Broken windows are bad.

davidalan1's picture

Loathe him, dont know why....

 

Might be because he is Boring

A dork

A charlatan

Ubiquitous

A copy cat

a NO Shark

Got LUCKY

did i say boring?

Fuck you Cuban

And this is not jealousy talking..

 

nuubee's picture

He's just never struck me as a particularly smart guy. He may be rich, but it's hard to respect him as a man. That's just me.

davidalan1's picture

Agree, whats with all his sychophants down voting me on ZH?...too funny...bunch of shark watching lovers...

Jstanley011's picture

My fave Cuban quote was about Bryant's rape case, and I quote, "From a business perspective, it's great for the NBA."

Jackass.

Panafrican Funktron Robot's picture

Met him down in MIA at the afterparty @ Fontainbleu post-Mavs championship, pretty down to earth dude oddly enough.  Has a strong bullshit detector.  Treats his employees well.  Seems like a solid dude.

D-2's picture

Sounds like jealousy to me.

daveO's picture

I had no opinion until Kudlow and Cramer took him to task for his anti-tribal comments. When I saw Cramer's fake, sad puppy dog expression, I thought to myself, this Cuban guy's got it together.

TuesdayBen's picture

I like Mark Cuban for the same reason I like Charles Barkley.  They think for themselves, are unafraid of what others think, and freely speak their mind...

Rare men.

unieater's picture

It something we all are familiar with MCS (Mark Cuban Syndrome) defined as “When you have so much money, you think your opinion matters!” 

No one cares what he thinks except those fools that watch Shark Tank!!

OldPhart's picture

I walk by the TV my wife insists we have to have (she sleeps with the gabble on, I'm relegated to the couch or/(usually) spare room) television.  Fuck, don't know how long we've been married since 2/14/79, some one younger figger that shit out, but it's been a long, long, time to the point that we no longer envision pounding the others head in with a ball peen hammer, severing such with a boy scout knife, then shoving up her ass...um, hers involves a different bodily function but results in a similar outcome, so we both watch out for each other.

All I know about M Cuban is that he's on some show my wife wants to see. 

All I want is to read Zero Hedge comments to learn what happened in the world.  ({TOOTHLESS EVIL GRIN}  (yeah, really they're all gone...)  I'm a ZH GEEZER, agewise.  Surround me with Kumbayas and hatespeech as you send my dead ass off to Soylent, Inc.  Fuck you one and all on my OldPharts Big Adventure...I hope I'm tasteful and chewy and stick in your teeth so you look like total Nerds to those GYCF (Girls You Can't Fuck)...(damned near my whole life, but a house, job, money, and stability makes me a late-middle aged rock star to females of all ages (if only wife would agree)...I'm dripping in puss that I'm just too old to even think about let alone entertain between the need for blood pressure meds, cholesteral meds and  cialis/viagra.

Last time this called 'Salute' was when both of us wore hefty hose a la Joe Namith somewhere in 1978.  Everything I had on fell off for lack of size and we had a second son.  (Young People....You REALLY don't want to go digging for missing armor!  By then, it's too late.  And you can't get that stuff from under your nails for like ten years or so...accept your fate, your 'ring' wll be lost until Gollem finds it.)

EggSlayer's picture

M Cuban thinks he's all the hog's shit and ass. aint that the balognie