Yes it's a bubble, so what?(researchaffiliates.com)
researchaffiliates.com
Yes it's a bubble, so what?
https://www.researchaffiliates.com/en_us/publications/articles/668-yes-its-a-bubble-so-what.html
105 comments
It's important to note that stock markets provide some shielding from inflation in countries experiencing hyperinflation. If you look at places like Argentina, or Venezuela, you'll see that those with the means to do so use the stock market to shield value or even extract it (i.e., evade capital controls) via ADRs traded locally and on the NYSE. I don't know if Zimbabwe had companies listed on the NYSE, so I don't know if this scheme was used there.
The government always allows this for a simple reason: most of the people doing this are its friends and family.
The government always allows this for a simple reason: most of the people doing this are its friends and family.
US corporate earnings are set to plausibly increase by 45% for 2018-2020.
So whether this market should be very concerning in regards to being a bubble, much depends on if it keeps going up as earnings rise so quickly. If the market goes sideways or generally produces a mediocre return instead, the market's PE ratio will fall dramatically in just three years. The S&P 500 PE will drop from 25 today, to something closer to 14-16. We're now six months into a sideways market despite a massive increase in earnings (which was likely priced in ahead of time).
So whether this market should be very concerning in regards to being a bubble, much depends on if it keeps going up as earnings rise so quickly. If the market goes sideways or generally produces a mediocre return instead, the market's PE ratio will fall dramatically in just three years. The S&P 500 PE will drop from 25 today, to something closer to 14-16. We're now six months into a sideways market despite a massive increase in earnings (which was likely priced in ahead of time).
It's quite funny to just search "nasdaq index" on google, then switch to "Max" and see the graph.
You see a quite step growth starting February/March 2016 that doesn't seem completely rational.
Also lately, you have a kind of plateau with some hiccups.
I've the feeling that the bubble will burst withing a year, and next year or two, most tech companies valuations will be halved. But it's only a feeling, I've no deep rational behind it.
You see a quite step growth starting February/March 2016 that doesn't seem completely rational.
Also lately, you have a kind of plateau with some hiccups.
I've the feeling that the bubble will burst withing a year, and next year or two, most tech companies valuations will be halved. But it's only a feeling, I've no deep rational behind it.
I was a bit torn on crypto as someone from a value investing background.
My conclusion was to punt on the stuff - where else can you buy something and sell it for 10x within the year? - but to cash out a good chunk of the winnings so if they go to zero I'll have the cash. So far so good.
I regard the nuttiness as a bit of a make hay while the sun shines situation.
My conclusion was to punt on the stuff - where else can you buy something and sell it for 10x within the year? - but to cash out a good chunk of the winnings so if they go to zero I'll have the cash. So far so good.
I regard the nuttiness as a bit of a make hay while the sun shines situation.
Where else? I can think of several places. Vegas is the first that comes to mind. But I'm guessing that like most "punters" and participants in a bubble, you perceive the downside risks to not be equivalent...
I think the odds are more in your favour with crypto.
"7. One aspect of bitcoin-related energy consumption that won't disappear so easily is the residual carbon footprint left by bitcoin mining, which is currently dispensing as much CO2 a year as 1,000,000 transatlantic flights."
cryptocurrencies are not another asset class but a potential new financial and social system.
Interesting article I found in FT Alphaville's Further Reading section from yesterday [0]. The narrative around the likes of Tesla and cryptocurrencies is likely a tired one to many HN readers, but the broader narrative and arguments made by the authors make up for it.
I did not contribute to this article and am not affiliated with the authors in any way.
[0] Registration required: https://ftalphaville.ft.com/2018/04/24/1524552922000/Further...
I did not contribute to this article and am not affiliated with the authors in any way.
[0] Registration required: https://ftalphaville.ft.com/2018/04/24/1524552922000/Further...
Did someone pay to have this written? Seems sketchy IMHO.
The section on "companies in the top 10 decade to decade" seemed to be a very weak argument to me. Reminded me of reasoning sometimes used by cryptocurrency investors "it crash 3 times and recovered, therefore it's guaranteed to do the same in the future".
But other than that, what seems sketchy?
But other than that, what seems sketchy?
What to you seems wrong with that extrapolation? As there's no real precedent to look at for cryptocurrencies, all we have at the moment is their short history to adjust our beliefs with. Is there some other view on the fundamentals of cryptos that you're incorporating in your thought process?
For a more pragmatic look on Bitcoin which i've been using see www.alfaquotes.com, they calculate fundamental value by dividing total cost of hardware and power needed to mine 6 months worth of bitcoin by the amount mined, so just the cost basis for miners.
I agree that Bitcoin has been superseded feature-wise by other cryptos, but seems to be a functioning e-gold right now.
For a more pragmatic look on Bitcoin which i've been using see www.alfaquotes.com, they calculate fundamental value by dividing total cost of hardware and power needed to mine 6 months worth of bitcoin by the amount mined, so just the cost basis for miners.
I agree that Bitcoin has been superseded feature-wise by other cryptos, but seems to be a functioning e-gold right now.
"Tesla has been an excellent example of a micro-bubble. Tesla’s current price is arguably fair if most cars are powered by electricity in 10 years, if most of these cars are made by Tesla, if Tesla can make those cars with sufficient margin and quality control and can service the cars properly, and if Tesla can raise additional capital sufficient to cover a $3 billion annual cash drain and another billion to service its debt."
So far the QC is sorely lacking on Tesla's cars, nevermind getting parts for your car after a few years. Its incredible what Tesla has gotten away with in terms of locking people out from repairing their own cars!
If you own a salvaged Tesla, you can’t get a single part (not even a screw or a little plastic bolt cover), you can’t use the supercharger, you can’t use AutoPilot, you can’t apply for any recall (not even government mandated ones) and the software diagnostics tool is paid by the hour.
There are several Youtube users that have salvaged a water-damaged Tesla by using the battery, engine and electronics from a crash-damaged Tesla using nothing but backyard engineering. Tesla doesn’t supply parts so they have to grab everything from donor vehicles.
There are several Youtube users that have salvaged a water-damaged Tesla by using the battery, engine and electronics from a crash-damaged Tesla using nothing but backyard engineering. Tesla doesn’t supply parts so they have to grab everything from donor vehicles.
How are you supposed to get repairs then?
The car is disposable, meant to be sent to the crusher once its out of warranty. Really screwed up business model IMO, but people seem to be buying Tesla's still.
That is not true. The very first Tesla had little that Tesla bothered to repair, and so for any major repair, Tesla would tell the insurance that the car was totaled. Which was a boon for people who salvage them.
A friend salvaged a 85 that had no structural damage, but was dimmed totaled by insurance. Tesla then revised the policy and now Tesla repairs more. I know a mechanics at Tesla, and his job is to repair Teslas. Tesla used to send him across the globe and shipped parts so he could repair the car on site. Now, Tesla expands its repair facilities, so no more travel for him.
A friend salvaged a 85 that had no structural damage, but was dimmed totaled by insurance. Tesla then revised the policy and now Tesla repairs more. I know a mechanics at Tesla, and his job is to repair Teslas. Tesla used to send him across the globe and shipped parts so he could repair the car on site. Now, Tesla expands its repair facilities, so no more travel for him.
Those youtube videos are highly recommended
strange there hasn't been a lawsuit about this as its almost certainly massively illegal.
Nope, John Deere (tractors) has been doing it for ages and the farmers are trying to fight it.
https://motherboard.vice.com/en_us/article/pamkqn/watch-trac...
https://motherboard.vice.com/en_us/article/pamkqn/watch-trac...
It's entirely legal because all of the rules surrounding the right to repair and maintain cars are related to emissions certifications, which Tesla doesn't have to do... Other car manufacturers, like Nissan, certify their fully electric vehicles as zero emission solely to have them count in their total fleet CAFE standards numbers, but that means that they have to provide warranties, parts, repair manuals, etc. in line with the federal rules. Tesla exists outside that system.
We should be pushing to have the warranties and the safety critical systems parts and repair information covered under the NHTSA safety certification rather than the EPA emissions certification, but that hasn't been necessary until very recently, and honestly, the majority of people willing to buy a Tesla aren't going to work on them, just like the majority of people buying a regular car aren't going to work on them, so it hasn't been a real issue yet. Personally, I wouldn't buy anything that I don't have a legally enforceable guarantee of aftermarket parts, manuals, etc. on because I don't trust any company to actually provide ongoing support, esp. in tech cough google chat services cough. Particularly given the dollar figures involved...
We should be pushing to have the warranties and the safety critical systems parts and repair information covered under the NHTSA safety certification rather than the EPA emissions certification, but that hasn't been necessary until very recently, and honestly, the majority of people willing to buy a Tesla aren't going to work on them, just like the majority of people buying a regular car aren't going to work on them, so it hasn't been a real issue yet. Personally, I wouldn't buy anything that I don't have a legally enforceable guarantee of aftermarket parts, manuals, etc. on because I don't trust any company to actually provide ongoing support, esp. in tech cough google chat services cough. Particularly given the dollar figures involved...
If you're in the US (I'm going by the reference to a lawsuit), then I don't think it is. This is just the way this company does business and in the states they are free to do so.
why would it be illegal?
I have to say knowing someone who has a salvaged Tesla, that this doesn't sound right at all. He's a very happy owner of an early (2013?) Tesla. Biggest complaint after 4 years is the rear toe-in, but that was fixed at the alignment shop. Maybe there are issues with the newer ones, but he loves his and the few issues he's had were easily fixed. He uses (and pays for) Supercharging.
"If you own a salvaged Tesla, you can’t get a single part (not even a screw or a little plastic bolt cover), you can’t use the supercharger".
With ebay and other on-line tools there is a thriving 'Junkyard' scene for Teslas... parts are available and relatively cheap. Maintenance levels are lower (no ICE/transmission) and most parts have German equivalents. Yes, there are 'makers', 'hackers', and backyard mechanics... some of them are dangerous (crazy car mods). Biggest concerns are the cooling system for the batteries and the wiring harness since those are safety critical and unique to Tesla.
On the other hand we have have 60k deadly Takata airbags driving around on the road (post recall) and no-body (not NHTSA or the insurance companies) are trying to do something about it. Think about all of the bad fuel pumps and rotting hoses on old gas-powered cars...
https://www.washingtonpost.com/local/trafficandcommuting/why...?
https://jalopnik.com/thousands-of-you-are-still-riding-aroun...
"If you own a salvaged Tesla, you can’t get a single part (not even a screw or a little plastic bolt cover), you can’t use the supercharger".
With ebay and other on-line tools there is a thriving 'Junkyard' scene for Teslas... parts are available and relatively cheap. Maintenance levels are lower (no ICE/transmission) and most parts have German equivalents. Yes, there are 'makers', 'hackers', and backyard mechanics... some of them are dangerous (crazy car mods). Biggest concerns are the cooling system for the batteries and the wiring harness since those are safety critical and unique to Tesla.
On the other hand we have have 60k deadly Takata airbags driving around on the road (post recall) and no-body (not NHTSA or the insurance companies) are trying to do something about it. Think about all of the bad fuel pumps and rotting hoses on old gas-powered cars...
https://www.washingtonpost.com/local/trafficandcommuting/why...?
https://jalopnik.com/thousands-of-you-are-still-riding-aroun...
Apple did the exact same for computers, Tesla is surfing on the same kind of hype wave I suppose
But cars cost A LOT more than phones...
What about tractors? See John Deere:
https://motherboard.vice.com/en_us/article/pamkqn/watch-trac...
https://motherboard.vice.com/en_us/article/pamkqn/watch-trac...
Principles shouldn't depend on price for applicability.
It's not like it's that much better with other automakers. I have a 2008 Prius touchscreen that could use replacement. From the manufacturer, you're looking at 700-1k for that repair, on a car that is worth possibly 3k. I could search through a junkyard for a replacement, but even then, I'm possibly spending 15% of the value of the car on a non-essential repair.
Getting specialized/rare parts in general is just a pricy proposition. It's a sad fact of buying machines these days.
Getting specialized/rare parts in general is just a pricy proposition. It's a sad fact of buying machines these days.
[deleted]
Not saying the quote's depiction is accurate, but I like the way that the stock price is connected to a future state. Much easier to understand than "the PE ratio is too high".
The stock price is always connected to a future state. The PE ratio is one way to think about that connection. But if the future state is going to be amazing, then the (current) PE isn't really a relevant number. The PE only works if there's normal continuity between the current state and the future.
Or rather, the PE only doesn't work if there's a large discontinuity between the current state and the future. If the amazing future isn't going to show up, then you're left with "the PE ratio is too high".
Or rather, the PE only doesn't work if there's a large discontinuity between the current state and the future. If the amazing future isn't going to show up, then you're left with "the PE ratio is too high".
stock price is the market consensus on the current value of all future cash flows to the firm (in a wisdom of the crowds kinda way). stock price getting disconnected from that underlying basis is one way to define a bubble.
Financial projections will undervalue Tesla because they are very different from other car companies - they are a monopoly with gigantic barriers to entry on many fronts. Other carmakers could copy some features of Tesla's cars, but they can't easily copy the multi-billion-dollar factories that make other features possible. They have better engineers than other car companies and a culture that works them harder. They avoided the dealership system and built their own stores. Elon Musk's PR stunts and Twitter feed are a much more effective method of advertising than the TV and Internet ads other car companies use.
> very different
> gigantic barriers to entry
What are those? I'm fond of Tesla, but they don't have an insurmountable moat around their technology. There's nothing intrinsically novel about their approach (especially outside the US where direct to consumer is a common model), they just had the benefit of a clean slate to build it out, rather than incrementally changing systems, platforms and procedures like other car manufacturers.
The halo of an eccentric billionaire genius wears off pretty quickly if they can't continue to compete on price, design, safety, and other areas of public perception.
It remains to be seen if Tesla engineers are objectively "better" than those at other car manufacturers, because very few directly compete at present. The number of "ground up" electric cars is quite small, compared with ones hamstrung by retrofitting electric powertrains into existing platforms.
> Elon Musk's PR stunts and Twitter feed are a much more effective method of advertising than the TV and Internet ads other car companies use.
Elon Musk's PR stunts and Twitter feed are a much more effective method of advertising to the ahead-of-the-curve, switched on audience who're interested in Tesla's current offering than the TV and Internet ads other car companies use. Again, there's nothing yet showing you can extrapolate this out once other manufacturers are truly competing in the same space.
I think they're great, and I want one - but we do need to be a little pragmatic about their position in the industry.
What are those? I'm fond of Tesla, but they don't have an insurmountable moat around their technology. There's nothing intrinsically novel about their approach (especially outside the US where direct to consumer is a common model), they just had the benefit of a clean slate to build it out, rather than incrementally changing systems, platforms and procedures like other car manufacturers.
The halo of an eccentric billionaire genius wears off pretty quickly if they can't continue to compete on price, design, safety, and other areas of public perception.
It remains to be seen if Tesla engineers are objectively "better" than those at other car manufacturers, because very few directly compete at present. The number of "ground up" electric cars is quite small, compared with ones hamstrung by retrofitting electric powertrains into existing platforms.
> Elon Musk's PR stunts and Twitter feed are a much more effective method of advertising than the TV and Internet ads other car companies use.
Elon Musk's PR stunts and Twitter feed are a much more effective method of advertising to the ahead-of-the-curve, switched on audience who're interested in Tesla's current offering than the TV and Internet ads other car companies use. Again, there's nothing yet showing you can extrapolate this out once other manufacturers are truly competing in the same space.
I think they're great, and I want one - but we do need to be a little pragmatic about their position in the industry.
> They have better engineers than other car companies
Huh... Quality of Teslas by most accounts is terrible. Not to mention the recent scandals over autopilot safety. Not sure where you got that idea.
Huh... Quality of Teslas by most accounts is terrible. Not to mention the recent scandals over autopilot safety. Not sure where you got that idea.
All launches of a completely new automobile by any automaker will tend to have quality problems. It’s unclear whether Tesla’s quality issues are significantly different from those experienced by more established automakers.
Ok, but that doesn't really demonstrate that Tesla have better engineers.
I have never been in any Teslas car. But I am so curious about this:
>Quality of Teslas by most accounts is terrible
Can you elaborate a little bit about this?
>Quality of Teslas by most accounts is terrible
Can you elaborate a little bit about this?
Peruse Tesla owner forums and reddit. The model 3 in particular has quality issues on brand new cars. Compare it to buying a Honda or Toyota - you're not going to have the kinds of problems described.
I did what you asked. I stopped after a few minutes.
http://www.odyclub.com/forums/54-2011-2017-odyssey/197033-bo...
https://www.civicx.com/threads/any-issues-so-far-fit-finish-...
https://www.tacomaworld.com/threads/misaligned-rear-bumper.5...
http://www.odyclub.com/forums/54-2011-2017-odyssey/197033-bo...
https://www.civicx.com/threads/any-issues-so-far-fit-finish-...
https://www.tacomaworld.com/threads/misaligned-rear-bumper.5...
Well of course you're going to see people post about issues they're having if you look on forums. Nobody goes out of their way to look on forums and make posts sharing their frustration over the lack of problems they have with their car.
I've been on Honda and Toyota forums in the past, and there was nothing like "my car panels are misaligned fresh out of the factory".
Come on, I'm trying to be scientific about this and you're just going to swing in with a rude, ad hominem argument about "Tesla fanboys"? Claiming that Tesla having bad QC is "common knowledge" doesn't somehow insulate you and your friends from stuff like confirmation bias.
And to address your other point, if you search the web for panel alignment issues on Honda or Toyota cars there seem to be plenty of those out there as well.
And to address your other point, if you search the web for panel alignment issues on Honda or Toyota cars there seem to be plenty of those out there as well.
Fair enough! My main point was it's not clear that engineers at Tesla are better than those elsewhere. Even if all car companies are terrible. The other biases are my own, and are purely anecdotal based on my own experience and what others tell me. I'll leave it to other people with more time to do a scientific comparison.
Googling "toyota quality control issues" returns news about a recall of 1.75 million cars. So it seems the "reliable" brands have the same problems. Unless we can quantify it better, it's hard to compare.
JD Power typically produce rankings of faults per 100 vehicles, which seems to be the best metric: http://www.jdpower.com/press-releases/jd-power-2018-us-vehic...
Unfortunately Tesla aren't part of this study.
Unfortunately Tesla aren't part of this study.
Except when Toyota does a recall, its just a note in the mail and a little extra work at your next service appointment.
When Tesla does a recall, its a major headline news story and fodder for many forum trolls to use in their rants against the company. (plus, a notice and a little extra work at your next service appointment)
When Tesla does a recall, its a major headline news story and fodder for many forum trolls to use in their rants against the company. (plus, a notice and a little extra work at your next service appointment)
> Elon Musk's PR stunts and Twitter feed are a much more effective method of advertising than the TV and Internet ads other car companies use.
I think there's a bias here. This kind of PR resonates more with "techie" people (as found on HN) than with the rest. For some groups of people, TV ads are probably much more effective.
I think there's a bias here. This kind of PR resonates more with "techie" people (as found on HN) than with the rest. For some groups of people, TV ads are probably much more effective.
Musk's tweet from 9:00 is the 10:00 news headlines. News headlines are (probably) more effective than ads.
In the USA that might be but abroad I don't think it'll be enough. I doubt Musk's tweets make (regularly) the headlines in Germany, Japan or China.
Not even in Norway where we have more Teslas per head than anywhere else.
> they are a monopoly with gigantic barriers to entry
A monopoly on what, precisely?
A monopoly on what, precisely?
Suppose the article is correct, and all but one or two of the top tech companies will underperform over the next decade. What about the companies that fail? Some will be bought out, others will liquidate. Business entities will cease to exist.
Code I write is protected by an Intellectual Property clause in my contract. The company owns everything. If the company is gone, can I release my code?
Everyone is using git, and many companies use private Github repos. In the same way that copyright expires after a length of time, could Github automatically release code as open-source when companies go bankrupt? I just wish the progress won't all be lost when the bubble bursts.
Code I write is protected by an Intellectual Property clause in my contract. The company owns everything. If the company is gone, can I release my code?
Everyone is using git, and many companies use private Github repos. In the same way that copyright expires after a length of time, could Github automatically release code as open-source when companies go bankrupt? I just wish the progress won't all be lost when the bubble bursts.
> Code I write is protected by an Intellectual Property clause in my contract. The company owns everything. If the company is gone, can I release my code?
Generally, the company or it's assets will be sold. Unless your contract specified that such a transfer releases your code (and it probably doesn't), the new owner will have the same rights as the firm that actually employed you had. Even if the firm is liquidated, that is likely to involving auctioning of assets, including IP portfolios.
Generally, the company or it's assets will be sold. Unless your contract specified that such a transfer releases your code (and it probably doesn't), the new owner will have the same rights as the firm that actually employed you had. Even if the firm is liquidated, that is likely to involving auctioning of assets, including IP portfolios.
For a concrete case of this happening, see OpenSolaris after Oracle bought Sun. Since Oracle then owned all the copyrights for Solaris (since Sun had a contributor license agreement that assigned copy right to Sun), Oracle was able to stop sharing source code updates to Solaris with impunity.
This is all off the the top of my head so it might not be accurate.
This is all off the the top of my head so it might not be accurate.
What if nobody buys anything at the auction?
This is an interesting question because it's what has happened to a lot of old software. It's especially problematic for old games that people want to play on emulators - at the point where these companies went bust it didn't seem as if the game "IP" had any value.
Anyway what definitely doesn't happen (at least in any western country) is that the software becomes "abandonware" or copyright somehow disappears. The copyright will be owned by someone for many more years, even if that person or entity is impossible to trace.
Anyway what definitely doesn't happen (at least in any western country) is that the software becomes "abandonware" or copyright somehow disappears. The copyright will be owned by someone for many more years, even if that person or entity is impossible to trace.
"Anyway what definitely doesn't happen (at least in any western country) is that the software becomes "abandonware" or copyright somehow disappears. The copyright will be owned by someone for many more years, even if that person or entity is impossible to trace."
I actually wrote my bachelor's thesis for my law degree on this exact topic (it was titled, roughly translated from Dutch, 'Intellectual property in bankrupcty'). What you're saying is not correct (well, depends a bit on how you define 'correct').
Under Dutch law (and I have reasons to believe it's very similar in many other civil law jurisdictions), what happens is that in bankruptcy (of a corporation, it's different when a natural person dies or goes into bankruptcy) the liquidator will take over and try to sell any assets, the proceeds of which will be used to pay out the creditors. Often software (and other intellectual property rights) is either forgotten about or no buyer can be found for it. When the liquidator thinks he has sold everything worthwhile and after a judge's OK, the corporation ceases to exist. When the IP wasn't sold, it essentially becomes 'owned' by nobody.
However, if it turns out that that remnant IP is worth something, a creditor can ask a judge to re-open the bankruptcy proceedings so that the IP can still be transferred. The exact grounds for this are a bit complicated and refined by case law, but for current purposes it's sufficient to say that this can only happen as long as any material claim be made by a creditor; most claims would expire after 5 years (there are nuances in when this period is 'reset' and so on).
So essentially, after this period, there is nobody owning this IP. Whether that constitutes 'abandonware' depends on how one defines that term because it's not a legal concept, but after that period there is nobody who can make any claims on anyone using such IP.
Of course in practice it will seldom be so clear cut; for example if (in the highly hypothetical case that) you build a $100mm company out of the orphan IP from a company that had part of its assets bought by another company, someone at some point will probably try to claim that they bought the IP as part of those assets.
Then there is another quirk in Dutch law, which might have been 'fixed' a few years ago (there was talk about it when I wrote the thesis but haven't kept up with whether it actually made it into law). IP, as long as it was created and not bought by the entity going into bankruptcy, was not part of the assets a liquidator could sell to pay creditors with. So there was some part of the IP the liquidator couldn't sell, nor even transfer if he wanted to! This essentially meant that any such IP became 'open' in the sense that nobody could lay claim to it in a court of law. For software, this basically boiled down to the fact that whoever was in the position to copy the source code and destroy any backups, could become the effective 'owner' of it! (There are many pitfalls and traps, I think it would require a programmer with extensive knowledge of the history of the company and the software, and with a law degree or at least deep knowledge of the law beyond reading up for a weekend, to pull this off; but the first part is more common than you'd think, and for the second part one could work with a lawyer).
In my research, I have found several cases where the lawyers, liquidators, banks and judges involved clearly didn't know the details of the law and parties could have made 100's of thousands or millions (of Euros or guilders - cases like this have been going back for a long time) had they known. I even looked into a few cases to see if there was any money to be made there by buying any 'dormant' IP and/or claims, and there might have been - but it would take significant investments to check, so I didn't/don't think it would be a viable business, certainly not for a risk-averse software/law nerd like myself.
I actually wrote my bachelor's thesis for my law degree on this exact topic (it was titled, roughly translated from Dutch, 'Intellectual property in bankrupcty'). What you're saying is not correct (well, depends a bit on how you define 'correct').
Under Dutch law (and I have reasons to believe it's very similar in many other civil law jurisdictions), what happens is that in bankruptcy (of a corporation, it's different when a natural person dies or goes into bankruptcy) the liquidator will take over and try to sell any assets, the proceeds of which will be used to pay out the creditors. Often software (and other intellectual property rights) is either forgotten about or no buyer can be found for it. When the liquidator thinks he has sold everything worthwhile and after a judge's OK, the corporation ceases to exist. When the IP wasn't sold, it essentially becomes 'owned' by nobody.
However, if it turns out that that remnant IP is worth something, a creditor can ask a judge to re-open the bankruptcy proceedings so that the IP can still be transferred. The exact grounds for this are a bit complicated and refined by case law, but for current purposes it's sufficient to say that this can only happen as long as any material claim be made by a creditor; most claims would expire after 5 years (there are nuances in when this period is 'reset' and so on).
So essentially, after this period, there is nobody owning this IP. Whether that constitutes 'abandonware' depends on how one defines that term because it's not a legal concept, but after that period there is nobody who can make any claims on anyone using such IP.
Of course in practice it will seldom be so clear cut; for example if (in the highly hypothetical case that) you build a $100mm company out of the orphan IP from a company that had part of its assets bought by another company, someone at some point will probably try to claim that they bought the IP as part of those assets.
Then there is another quirk in Dutch law, which might have been 'fixed' a few years ago (there was talk about it when I wrote the thesis but haven't kept up with whether it actually made it into law). IP, as long as it was created and not bought by the entity going into bankruptcy, was not part of the assets a liquidator could sell to pay creditors with. So there was some part of the IP the liquidator couldn't sell, nor even transfer if he wanted to! This essentially meant that any such IP became 'open' in the sense that nobody could lay claim to it in a court of law. For software, this basically boiled down to the fact that whoever was in the position to copy the source code and destroy any backups, could become the effective 'owner' of it! (There are many pitfalls and traps, I think it would require a programmer with extensive knowledge of the history of the company and the software, and with a law degree or at least deep knowledge of the law beyond reading up for a weekend, to pull this off; but the first part is more common than you'd think, and for the second part one could work with a lawyer).
In my research, I have found several cases where the lawyers, liquidators, banks and judges involved clearly didn't know the details of the law and parties could have made 100's of thousands or millions (of Euros or guilders - cases like this have been going back for a long time) had they known. I even looked into a few cases to see if there was any money to be made there by buying any 'dormant' IP and/or claims, and there might have been - but it would take significant investments to check, so I didn't/don't think it would be a viable business, certainly not for a risk-averse software/law nerd like myself.
If no one is likely to sue it's a moot point.
What are the problems with bubbles if investors can be cushioned from their worst effects when they occur?
The two main problems are mis-allocation of resources and maldistribution of wealth (investors don't worry where their capital goes and investment becomes a more significant source of wealth than work). Both of these problems are very much in evidence today.
The two main problems are mis-allocation of resources and maldistribution of wealth (investors don't worry where their capital goes and investment becomes a more significant source of wealth than work). Both of these problems are very much in evidence today.
> What are the problems with bubbles if investors can be cushioned from their worst effects when they occur?
Leverage, basically. Suppose you and a lot of other people make a six-figure salary. You're all able to borrow multiples of that figure to buy houses, which pushes the price of housing up. Banks lend freely, on the assumption that the good times won't end.
Then something changes and the high salaries dry up. The lack of high-income jobs mean that 1/ house prices fall, and 2/ people can't service their mortgage. The losses are passed on to the banks and from there to the rest of the economy.
What I'm describing is an amalgamation of 2000 and 2008, but I think there's a real risk of it happening, especially in an environment of rising interest rates. Leverage is dangerous and few people escape a bubble unscathed.
Leverage, basically. Suppose you and a lot of other people make a six-figure salary. You're all able to borrow multiples of that figure to buy houses, which pushes the price of housing up. Banks lend freely, on the assumption that the good times won't end.
Then something changes and the high salaries dry up. The lack of high-income jobs mean that 1/ house prices fall, and 2/ people can't service their mortgage. The losses are passed on to the banks and from there to the rest of the economy.
What I'm describing is an amalgamation of 2000 and 2008, but I think there's a real risk of it happening, especially in an environment of rising interest rates. Leverage is dangerous and few people escape a bubble unscathed.
Also a structural recession, which is really hard to cure and there is little the government can do.
You got tons of people with skills X, but skills X is not valuable anymore, and they have to learn new skills and basically start their careers over.
You got tons of people with skills X, but skills X is not valuable anymore, and they have to learn new skills and basically start their careers over.
> What are the problems with bubbles if investors can be cushioned from their worst effects when they occur?
I don't think both can be mutually exclusive. For a bubble to occur investors have to be irrationally exuberant. If they are more prudent and cushion themselves from the worst effects then we might not have a bubble, ever.
I don't think both can be mutually exclusive. For a bubble to occur investors have to be irrationally exuberant. If they are more prudent and cushion themselves from the worst effects then we might not have a bubble, ever.
>I don't think both can be mutually exclusive. For a bubble to occur investors have to be irrationally exuberant.
Not necessarily. They could just be thinking that everybody else is irrationally exuberant.
c.f. https://en.wikipedia.org/wiki/Keynesian_beauty_contest
Not necessarily. They could just be thinking that everybody else is irrationally exuberant.
c.f. https://en.wikipedia.org/wiki/Keynesian_beauty_contest
"For a bubble to occur investors have to be irrationally exuberant."
Well, if some system which guarantees a class of investors won't suffer even if the market tanks, you can't really say these investors irrationally exuberant. It's more like they're quite rationally enthusiastic, knowing full well they can't lose.
Well, if some system which guarantees a class of investors won't suffer even if the market tanks, you can't really say these investors irrationally exuberant. It's more like they're quite rationally enthusiastic, knowing full well they can't lose.
More precisely, for it to be a bubble, people have to be buying because the asset is going up, not because of the fundamentals. It's hard to do that and not be "irrationally exuberant", because you are explicitly disconnected from the rational valuation of the asset.
I have a suspicion that bubbles can only exist when media is centralized. Today's media is too decentralized to create the wave of panic that is necessary to burst a bubble. There will always be some people somewhere who didn't get the news and who still believe that x has value and will be happy to buy when they see a price drop...
Also, the fear of missing out among millenials is stronger than their fear of losing everything.
Also, the fear of missing out among millenials is stronger than their fear of losing everything.
> I have a suspicion that bubbles can only exist when media is centralized.
Many of the worst bubbles in history occured in countries with very decentralized media, e.g. the Railway Mania in the UK in the 1840s was (relative to today) bigger then the global one in 2007+. So, no, media centralization can't be the reason :)
Many of the worst bubbles in history occured in countries with very decentralized media, e.g. the Railway Mania in the UK in the 1840s was (relative to today) bigger then the global one in 2007+. So, no, media centralization can't be the reason :)
I doubt the 17th-century Dutch were all reading the same issue of Tulip Investors' Weekly.
Media can create a bubble, but more often then not they are just chasing it.
As far as bubbles cant pop now, well we just had the crypto pop.
As far as bubbles cant pop now, well we just had the crypto pop.
Lol it has not truly popped yet, it will climb higher and crash even harder for the next five years until the tech matures and people have a better idea of what's achievable.
What evidence do you have to back the assertion that millenials have a strong FOMO versus their fear of losing everything any of the other generations? (Anecdotes don't count as evidence)
Why wouldn't bubbles be able to exist without a centralized media?
Why wouldn't bubbles be able to exist without a centralized media?
Wouldn't
>Today's media is too decentralized to create the wave of panic that is necessary to burst a bubble
mean bubbles would be common but not burst? Anyway I suspect history will continue in the usual manner rather than it being very different this time.
>Today's media is too decentralized to create the wave of panic that is necessary to burst a bubble
mean bubbles would be common but not burst? Anyway I suspect history will continue in the usual manner rather than it being very different this time.
One of the best thinkers on bubbles I've come across is Jeremy Grantham https://qz.com/111094/this-fund-tracks-36-bubbles-and-33-hav...
He's ambivalent at the moment - thinks it'll go up more but probably fall in the future. http://www.cityam.com/278218/jeremy-grantham-predicted-last-...
He's ambivalent at the moment - thinks it'll go up more but probably fall in the future. http://www.cityam.com/278218/jeremy-grantham-predicted-last-...
> He's ambivalent at the moment - thinks it'll go up more but probably fall in the future.
He'll always be right with this assessment.
He'll always be right with this assessment.
Don't you find these sliders "Your continued use of this site acts as your consent to the use of these cookies pursuant to the Research Affiliates Cookie Policy. " annoying as hell? Am I going to read it and close the page before reading the article? Or will I read the article, memorize the domain name and then never come back because they use cookies? Is that what GDPR will be in practice: good intentions but absurd results?
> At the end of January 2018, the seven largest-cap stocks in the world were all tech fliers: Alphabet, Apple, Microsoft, Facebook, Amazon, Tencent, and Alibaba.
Arguably we're just bucketing companies poorly. "Tech" isn't a commodity, clientele, or business model.
We don't group companies based on the fact that they notably have physical storefronts. Otherwise H&M, Ford, H&R Block, and McDonald's would all be in the "brick and mortar" sector.
If the trend is "software is eating the world", it stands to reason that the market will be more and more "tech" over time.
Arguably we're just bucketing companies poorly. "Tech" isn't a commodity, clientele, or business model.
We don't group companies based on the fact that they notably have physical storefronts. Otherwise H&M, Ford, H&R Block, and McDonald's would all be in the "brick and mortar" sector.
If the trend is "software is eating the world", it stands to reason that the market will be more and more "tech" over time.
Yep. It seems akin to grouping Standard Oil and US Steel because they both got big riding the industrialization wave. The grouping isn't one of market segment, it's one of over-arching society-wide trend. Nowadays companies in different market segments are getting big riding a computerization wave.
"Tech" is a colloquial term that I wouldn't think needs much explanation on HN.
As far as I've ever heard, "Brick and Mortar" has never referred to an industry. It's just an adjective for business that has a store front on a street. And we actually do group them in this regard, it simply isn't relevant all of the time.
As far as I've ever heard, "Brick and Mortar" has never referred to an industry. It's just an adjective for business that has a store front on a street. And we actually do group them in this regard, it simply isn't relevant all of the time.
The point is that Facebook and Amazon are not really in the same industry either.
Right.
Facebook and Google? Yes. Amazon and Alibaba? You could make an argument for that. Facebook and Alibaba? Probably not.
Facebook and Google? Yes. Amazon and Alibaba? You could make an argument for that. Facebook and Alibaba? Probably not.
They're not all within the "Technology Sector"?
I understand the nuance, and Amazon is a black swan that we could debate endlessly.
Isn't the more relevant consideration here how they're categorized in market/investment terms?
I understand the nuance, and Amazon is a black swan that we could debate endlessly.
Isn't the more relevant consideration here how they're categorized in market/investment terms?
One sells products to consumers and has a massive cloud platform.
One is a social networking application that makes its money selling ads.
They both employ a lot of software engineers and have big datacenters but it becomes increasingly less meaningful to bucket them together.
One is a social networking application that makes its money selling ads.
They both employ a lot of software engineers and have big datacenters but it becomes increasingly less meaningful to bucket them together.
Actually Amazon is classified as Consumer Discretionary. It represents over 20% of the SPDR Consumer Discretionary ETF (XLY).
It is, however, often easier for tech companies to suddenly expand to a very different type of business. Recently, Facebook started its local market service. More famously, Apple records granted Apple computers right to use the same name under the condition they (obviously) didn't enter the music industry—at some point they became the biggest music company worldwide.
It also happens in other industries, but it's either slowed down by development costs or enabled by technological progress.
It also happens in other industries, but it's either slowed down by development costs or enabled by technological progress.
Reads like a hit job on Tesla, to me.
There is one single paragraph on Tesla, less than 5% of the article. And it's just an example where several others could have been used instead.
It's the only company mentioned by name in their Key Points at the top, and then it's one of the first things they talk about, and is the only company they talk about in detail.
To you, that's by chance and doesn't mean anything.
To me, it's because the piece was written with Tesla in mind-- the piece was designed as a vehicle for an opinion on Tesla, disguised as an article about bubbles.
To you, that's by chance and doesn't mean anything.
To me, it's because the piece was written with Tesla in mind-- the piece was designed as a vehicle for an opinion on Tesla, disguised as an article about bubbles.
tesla is the poster child for a bubble, so I do not think this alone is evidence as a hit article on tesla.
To me, best case scenario is Tesla sells more cars than Ford. What does that mean for the stock? as the case with all stocks with this kind of hyper PE ratio, the stock has to go into no growth territory for like a decade as its earnings grow to match its stock price.
that means the best possible case for tesla stock is that it will stop growing for about 10 years, bouncing around the same price.
To me, best case scenario is Tesla sells more cars than Ford. What does that mean for the stock? as the case with all stocks with this kind of hyper PE ratio, the stock has to go into no growth territory for like a decade as its earnings grow to match its stock price.
that means the best possible case for tesla stock is that it will stop growing for about 10 years, bouncing around the same price.
guess we'll see.
Maybe they created the company fifteen years ago and growed it to manage $200bn just to prepare this hit piece. They really disguised it well, hiding their negative opinion on Tesla within a long article about bubbles published on their website with no reference to Tesla on the title.
No, nice reducto ad absurdum, but just because they didn't create the company for this hit piece doesn't mean the authors hadn't been mulling over negative thoughts towards Tesla for awhile and found a convenient place to present them.
Have they a negative opinion on Tesla? That's obvious.
Have they written this article with the main (or only) objective of letting the world know that they think Tesla is overvalued? That's ridiculous.
They could have used another example, like Netflix. Maybe then you or someone else would come to say it was a hit job against Netflix.
Have they written this article with the main (or only) objective of letting the world know that they think Tesla is overvalued? That's ridiculous.
They could have used another example, like Netflix. Maybe then you or someone else would come to say it was a hit job against Netflix.
No, Tesla is just such an illustrative example.
This is a great, well-written piece, worth reading in its entirety. Here are a few passages that will be of interest to the HN community:
...Let’s begin by offering a definition of the word “bubble.” We all hear the word thrown around carelessly and often, but it lacks a formal definition. Let’s try. Ockham’s Razor guides us: Keep it simple. We define a bubble as a circumstance in which asset prices 1) offer little chance of any positive risk premium relative to bonds or cash, using any reasonable projection of expected cash flows, and 2) are sustained because investors believe they can sell the asset to someone else for a higher price tomorrow, with little regard for the underlying fundamentals.
At the beginning of 2000, the 10 largest market-cap tech stocks in the United States, collectively representing a 25% share of the S&P 500 Index—Microsoft, Cisco, Intel, IBM, AOL, Oracle, Dell, Sun, Qualcomm, and HP—did not live up to the excessively optimistic expectations. Over the next 18 years, not a single one beat the market: five produced positive returns, averaging 3.2% a year compounded, far lower than the market return, and two failed outright. Of the five that produced negative returns, the average outcome was a loss of 7.2% a year, or 12.6% a year less than the S&P 500.
Reasonable observers can disagree, but we believe we are experiencing a tech bubble, based on our relatively rigorous definition of the term. At the end of January 2018, the seven largest-cap stocks in the world were all tech fliers: Alphabet, Apple, Microsoft, Facebook, Amazon, Tencent, and Alibaba. Never before has any sector so dominated the global roster of largest market-cap companies. At the peak of the tech boom, four of the top seven companies by market cap were in the tech sector, and at the peak of the oil bubble, five of the top seven were in the energy sector. Only the Japanese stock market’s bubble at yearend 1989 has matched today’s tech sector dominance of the global market-capitalization league tables.9 Not only do we have the FANGs, we have FANG+ futures, affording investors a chance to buy the world’s trendiest tech stocks with almost no collateral, and the list is amended quarterly to make sure only the trendiest are on the list.
Can all of the seven tech highfliers [Alphabet, Apple, Microsoft, Facebook, Amazon, Tencent, and Alibaba] collectively succeed to sufficiently justify their $4.3 trillion combined market capitalization at yearend 2017? Nothing is impossible, but this outcome is implausible. Sure, some of the new tech giants are at valuation multiples that are not extravagant, but several sport startling multiples—and all trade at levels that require robust continued growth. These companies are at war—in some cases directly with one another—for market share, competing for the same eyeballs, and are facing a growing risk of regulatory constraints.
Our purpose in this article is not to prove that current conditions represent a bubble. Reasonable people may reach the opposite conclusion. After all, some level of cash flow expectations can justify any price. It’s a matter of subjective judgment as to whether such lofty cash flow expectations are sensible, implausible, or preposterous. Considering all the caveats required to support current prices, we think tech stocks are at the implausible stage in their collective market value, with some individual stocks (and most cryptocurrencies) at the preposterous level. We believe tech stocks are in another bubble, with the potential to impact investable asset classes far beyond the tech sector, albeit not as extreme as the 1999–2000 bubble, labeled by many “the mother of all bubbles.”
Highly recommended if you're interested in the subject.
...Let’s begin by offering a definition of the word “bubble.” We all hear the word thrown around carelessly and often, but it lacks a formal definition. Let’s try. Ockham’s Razor guides us: Keep it simple. We define a bubble as a circumstance in which asset prices 1) offer little chance of any positive risk premium relative to bonds or cash, using any reasonable projection of expected cash flows, and 2) are sustained because investors believe they can sell the asset to someone else for a higher price tomorrow, with little regard for the underlying fundamentals.
At the beginning of 2000, the 10 largest market-cap tech stocks in the United States, collectively representing a 25% share of the S&P 500 Index—Microsoft, Cisco, Intel, IBM, AOL, Oracle, Dell, Sun, Qualcomm, and HP—did not live up to the excessively optimistic expectations. Over the next 18 years, not a single one beat the market: five produced positive returns, averaging 3.2% a year compounded, far lower than the market return, and two failed outright. Of the five that produced negative returns, the average outcome was a loss of 7.2% a year, or 12.6% a year less than the S&P 500.
Reasonable observers can disagree, but we believe we are experiencing a tech bubble, based on our relatively rigorous definition of the term. At the end of January 2018, the seven largest-cap stocks in the world were all tech fliers: Alphabet, Apple, Microsoft, Facebook, Amazon, Tencent, and Alibaba. Never before has any sector so dominated the global roster of largest market-cap companies. At the peak of the tech boom, four of the top seven companies by market cap were in the tech sector, and at the peak of the oil bubble, five of the top seven were in the energy sector. Only the Japanese stock market’s bubble at yearend 1989 has matched today’s tech sector dominance of the global market-capitalization league tables.9 Not only do we have the FANGs, we have FANG+ futures, affording investors a chance to buy the world’s trendiest tech stocks with almost no collateral, and the list is amended quarterly to make sure only the trendiest are on the list.
Can all of the seven tech highfliers [Alphabet, Apple, Microsoft, Facebook, Amazon, Tencent, and Alibaba] collectively succeed to sufficiently justify their $4.3 trillion combined market capitalization at yearend 2017? Nothing is impossible, but this outcome is implausible. Sure, some of the new tech giants are at valuation multiples that are not extravagant, but several sport startling multiples—and all trade at levels that require robust continued growth. These companies are at war—in some cases directly with one another—for market share, competing for the same eyeballs, and are facing a growing risk of regulatory constraints.
Our purpose in this article is not to prove that current conditions represent a bubble. Reasonable people may reach the opposite conclusion. After all, some level of cash flow expectations can justify any price. It’s a matter of subjective judgment as to whether such lofty cash flow expectations are sensible, implausible, or preposterous. Considering all the caveats required to support current prices, we think tech stocks are at the implausible stage in their collective market value, with some individual stocks (and most cryptocurrencies) at the preposterous level. We believe tech stocks are in another bubble, with the potential to impact investable asset classes far beyond the tech sector, albeit not as extreme as the 1999–2000 bubble, labeled by many “the mother of all bubbles.”
Highly recommended if you're interested in the subject.
The market "value" of a company is less tied to physical stuff and tangible property. It's more tied to collective perceptions, and these perceptions can shift like the wind for real or fake reasons (misperceptions), including sheer fads. Too many economic models count physical or tangible property to "value" a company. Instead, the "value" is virtual: in people's heads.
And it's circular: if an AI company convinces investors they are great, investors put more money in, allowing them to do better things than AI co's who can't dazzle the crowd. And that could swap if this year's loser happens upon a better dazzle story.