Living in one of the epicenters of the latest tech boom, I have a first-person perspective on the situation, and it looks like another speculation boom to me. Soon, I’ll see what it’s like at ground zero in San Francisco. Things have really accelerated in the last couple years, and I’m at a bit of a loss as to why. Are the video games and apps my kids use on ipads really worth all that much money? Is Twitter really all that much different from instant messaging? Hasn’t FaceBook lost its lustre?
I fail to see the added value adding up to what the market says it does.
This time, I think the bubble has the potential for being worse than the last couple, because it’s a twofer. The first big bubble I saw in my life was the 1999 tech bubble, and then the next was the housing bubble. Today, it looks like we have both at the same time, although the housing bubble is a bit more geographically restricted this time. Nevertheless, the rental market is out of control in major cities, and this just can’t go on forever.
Another aggravating factor is that inequality has skyrocketed since the 90s and industry has been thoroughly gutted, so if both tech and real estate fail we’re in for some major pain.
Business Insider came out with an article about a month ago making the case that we may in fact be in another tech bubble. Here are a couple parts that caught my attention:
If you think tech IPO data suggests a bubble of over-investment, then you’ll be reassured/terrified by the new report on tech startup investment funding from PricewaterhouseCoopers: In 2013, the software industry received 37% of all venture capital for the year, the highest percentage since PwC began tracking investment since 1995.
Internet-specific companies got more than $7 billion in new funding in 2013. In 2007, the peak year before the credit crunch recession, those same types of companies received just over $5 billion.
[...]
Here, verbatim, are a couple of quotes from the New York Times on the subject of Twitter’s stock price. The background is that Twitter does not make a profit but its stock has hit $62 at the time of writing:
“I just haven’t seen something like this in a long time,” said Robert S. Peck of SunTrust Robinson Humphrey, who had set a price target of $50 before the I.P.O. but cut his rating to hold two weeks ago when shares reached $59.” They don’t have earnings. They don’t have free cash flow.”
As Barron’s, an investment advisory publication, put it over the weekend, “At $45 billion, the company may have the highest market value of any firm that isn’t generating any earnings since the dot-com bubble of 1999-2000.”
The New York Times quoted one tech investor:
“We all know how this plays out,” said Paul Kedrosky, a venture capitalist and entrepreneur. “There is no question that this is fueling some kind of bubble.”
What worries me is that it seems that with each new boom and bust, we don’t learn our lesson, but return immediately to speculation, neglecting the stable, reliable sectors of the economy. And if speculation is what underlies the bulk of our wealth, where does that leave us when it fails?
