
Peter Thiel Says Just About Everything Is Overvalued, Not Just Tech - Jerry2
http://www.bloomberg.com/news/articles/2016-04-12/founders-fund-s-thiel-doesn-t-think-tech-sector-is-in-a-bubble
======
riprowan
In 2009 the USA embarked on a radical strategy of creating base money at a
previously unheard-of rate:

[http://imgur.com/MjdJNbz](http://imgur.com/MjdJNbz)

Basic Econ 101 tells us that inflating the base money supply should eventually
result in higher nominal prices for goods and services.

Meanwhile the basket of goods and services used to measure inflation has
remained mostly flat, meaning "low inflation", ensuring that the Fed can
continue its cheap-money strategy, while also helping the government minimize
its expenditures by keeping cost-of-living adjustments to a minimum.

Meanwhile, as Peter points out, investment and speculative assets have
increased wildly in value. Fortunately for the wealthy, these are not
considered part of the "basket of goods and services" used to calculate
inflation.

It's almost as if the very wealthy have more money than they know what to do
with, and cannot find enough rational places to invest it. It's almost as if
none of this wealth is "trickling down."

It's almost as if there is a disconnect between the economy that the very
wealthy live in, and the economy that the rest of us live in.

~~~
williamscales
Is there a way that wealth could trickle down? Are there investments that the
very wealthy could pursue that would reflect in the broader economy? Or am I
misunderstanding.

When the cost of goods and services eventually rises, will that result in a
rebalancing of where the wealth is flowing?

~~~
scotty79
It's not wealth. It's just money. Trickling it down would just cause
inflation. Just take a look what money trickling down through IT companies did
to SF housing market.

~~~
williamscales
Well, that and anti-development policies that result in a complete undersupply
of housing. Opening up more housing supply would alleviate that inflationary
pressure---so I'm wondering what the analogue is here, from a policy
perspective.

~~~
scotty79
Yes. It would be way easier if large companies like Google could just build
new residential housing next to their offices.

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Muted
Warren Buffett has also talked about this in numerous interviews. He says that
it really depends on what interest rates will do in the future that will
determine whether stock prices are currently high. If they stay the way they
are now for a while (close to zero, and even negative in some countries),
stock prices are not high. The reason for this is that interest rates act like
gravity on stock prices. If interest rates go to zero, P/E ratios can go to
infinity. Mathematically this can be seen by looking at DCF or NPV analysis
where you divide by the discount rate, which is highly correlated with the
interest rate. Take for instance a security that yields $C/year in perpetuity.
The NPV of that security is NPV=C/r. As the interest rate r approaches 0, the
NPV goes to infinity and hence has infinite value. This means that it is ok to
pay a very large amount for the security, since you can't get a better return
anywhere else.

But of course the question is, will interest rates remain low? Basic economics
would tell us the answer is no, because the FED and ECB have pumped billions
and billions of dollars/euros in the economy on a monthly basis meaning the
supply of money has greatly increased and hence the value should drop and lead
to inflation and hence higher interest rates. But this clearly hasn't happened
(yet) and I haven't really found anyone who has a good explanation. Warren
Buffett, Charlie Munger and Bill Gates all expected this would of already
happened a while ago. (TV interview on CNBC)

~~~
lucozade
That's not how PV is calculated. It's C/(1+r) where r is the rate between now
and the time of the cashflow. When rates are zero, it just means that the
cashflow is worth today the same as it'll be when it's paid. As rates
increase, the PV of that cashflow reduces.

Also, although base rates are around zero, long term interest rates are
higher. True they're not high by historic standards but you still get some
discounting for cashflows beyond the short term.

~~~
Muted
NPV = SUM_t Rt/(1+i)^t (wikipedia). This is similar to your formula. If
Rt=constant for all t and t is infinite (hence in perpetuity), the formula
simplifies to what I have. More info can also be found here:
[http://www.investopedia.com/walkthrough/corporate-
finance/3/...](http://www.investopedia.com/walkthrough/corporate-
finance/3/discounted-cash-flow/perpetuities.aspx)

------
ucaetano
He's welcome to put his money where his mouth is.

If he's confident everything is overvalued, a big short on the market would be
easy money.

Or maybe he's just trying to convince everyone that assets are overvalued, so
he can buy them at a lower price.

As usual, follow the money. He's looking to actively invest $1.3Bi in tech
firms, which shows that he doesn't believe his own bullshit.

~~~
stickfigure
"The market can stay irrational longer than you can stay solvent"

~~~
ucaetano
Indeed, that's why you shouldn't put all your eggs on it, but if you have
reliable info that an asset is overvalued, you should not hold back from
placing a risk-weighted bet on it.

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elcapitan
News sites that automatically play videos once I load them are also definitely
overvalued.

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Havoc
Yeah sitting on cash at the moment because I suspect the market will crash the
second I move it into stocks. :(

~~~
kspaans
Market timing is very rarely a winning strategy. If you are investing for the
long term, don't worry about market fluctuations (remember that many stocks
and funds will still pay you a dividend!) . If you don't like seeing a big dip
in your net worth, spread your buying out over many months to dollar-cost-
average it.

~~~
Havoc
>Market timing is very rarely a winning strategy.

Not really trying time time it per se, but this just feels like a particularly
bad time to move a lump sum into stocks. Quite a few big names seem to think a
crash is due soon:

[http://thesovereigninvestor.com/exclusives/80-stock-
market-c...](http://thesovereigninvestor.com/exclusives/80-stock-market-crash-
to-strike-in-2016/)

I can dollar cost average it I guess...but would prefer if the market just
gets it over with and crashes.

~~~
kspaans
If you really think that, then you are missing out by not investing in a short
strategy! :P Or, more seriously, remember to consider the opportunity costs!
VTI, for example, has a yield of about 2%. Short term bond index funds could
be better or worse than that.

~~~
Havoc
>remember to consider the opportunity costs

Problem is the size of the expected drop. If it does drop then I'd imagine a
good 30-50% much like 2008. So quite aware that I'd be losing out on gains for
a while.

Its all guesswork though - the "right" move requires timing the market as you
say. My gut feeling tells me its dicey though so I'm leaning towards losing
out on gains for a while.

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simo7
The point which everybody seems to be missing (Thiel included) is that
"overvalued" or "undervalued" is never in absolute but should always be
relative to interests rates.

If you have low interests rates like now many crazy valuations are actually
not so crazy (well in tech they are crazy anyway but outside of tech not so
much).

That's because the cost opportunity of employing 1€ in equity is very low
since debt is giving you little. All the future cash flows therefore get just
a small discounting factor.

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justsaysmthng
I'd say we're in a bubble of talking about bubbles.

Financial press is so boring and unreliable. One day there's a deep crisis and
China is collapsing and oil will never come back and the honeymoon is over and
a week later things are back to normal, growth is good and.. what the heck ?

Of course everything is in a bubble, but doesn't that mean that there's no
point in mentioning it, because it's part of normality ?

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eddd
If everything is overvalued, nothing really is. To me, it is not a bubble but
inflation.

~~~
andy_ppp
But there is no inflation, right? Right?

~~~
eddd
There is, but printing money and giving it to investors creates inflation in
assets that can be bought by them. Once money flows throught credit/banks to
the entire market (already happening) you have price raises in pretty much
everything. Stuff you buy on credit (education, housing, cars, consumer goods
etc.) are getting more expensive as well. Does it matter? For people with
savings in currency - yes (middle class?). People without savings can fight
for raises as unions and rich people hedge against dollar already.

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wmil
I think that there is just a huge market for risky but non-crooked
investments.

Overseas markets are excellent for making money. Less regulation, lower
salaries, etc. But the downside to a less overbearing government is that it's
fairly easy for people with government connections to run off with your
investment money if you're not watching.

Western nations are just safer places to passively invest money.

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Havoc
> If the bubble is in cash, illiquid startup investments may be a place to
> hide.”

How can a bubble be "in cash"?

~~~
AnthonyMouse
If people are holding cash because they don't know what to invest it in then
it's like it doesn't exist. It doesn't move through the economy. If something
worth buying came along then the cash would come out of the mattress and into
the economy, which would pop the cash bubble (i.e. cause high inflation).

~~~
leg100
Why would cash being invested "cause high inflation"?

Inflation depends on a number factors, whether it be productivity, supply,
unemployment, etc, or how that cash is being spent. If it's being invested,
who's to say it isn't in capital goods, thereby reducing cost of goods?

~~~
AnthonyMouse
> Why would cash being invested "cause high inflation"?

Because it puts more cash back into the economy. It transfers cash from people
who previously hadn't been spending it to people who might not be so reserved.

> If it's being invested, who's to say it isn't in capital goods, thereby
> reducing cost of goods?

That's just the butterfly effect. It's the equivalent to saying that the fed
printing money can cause deflation because people might use all the money to
pay down debts and then use what would have been interest on the debts to pay
down even more principal. It's theoretically possible, and sometimes it even
happens, but you still don't expect printing money to cause deflation in
general.

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andy_ppp
Maybe the value of property and investments has remained static (has intrinsic
value) and the value of money has plummeted. That would be the expectation
from printing loads of money right?

~~~
collyw
Is that not the same thing viewed from a different angle?

~~~
andy_ppp
I just think it makes more sense to me to see it this way; then you can say
holding onto investments that will be popular for the rich or the price of
Bitcoin should go up in this model. It also implies there is no asset bubble
despite people repeatedly saying it, instead there is too much cash/cash is
worth too little.

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marvinalone
"Maybe we should try to look at places outside Silicon Valley."

Don't be silly, Peter. There are no places outside Silicon Valley.

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TaylorGood
What are vintage Porsche's...

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eulji
This is so true. Especially SW is overvalued and undervalued at the same time.

~~~
c280726
It's almost as if people value different things.

