
Not a Dot-Com Bubble, Not 2007, but a Nasty Mix of Both - esalazar
https://www.wsj.com/articles/not-a-dot-com-bubble-not-2007-but-a-nasty-mix-of-both-1491500666
======
pembrook
Every retail investor today makes the same exact mistake. They read articles
like this and then they go look at a historical chart of the market. They see
a massive run up to present day...with the wild fluctuations for 2000 and 2007
magnified due to the exponential data. Psychologically, they think _this must
be the pattern of the market, we are obviously due for a fall._

Then, one day years later, after they've lost out on ridiculous gains waiting
for the "big drop," they learn that when looking at a historical market chart
to switch from _linear_ to _logarithmic_ scale.

Suddenly the crazy recent capitulations just look part of a steady climb with
minuscule blips along the way. Go ahead and try it on Google Finance with the
S&P. You'll be amazed.

 _edit_ Changed 'exponential' to avoid confusion

~~~
bt4u
Why is your name green?

~~~
d--b
usernames are green when they've been created recently. here the account is
less than 3 days old

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CriticalSection
Every decade since the 1960s, Real (ie. non-financial) US GDP growth has
slowed (
[https://fred.stlouisfed.org/series/A191RL1Q225SBEA](https://fred.stlouisfed.org/series/A191RL1Q225SBEA)
).

Industrial capacity utilization has been shrinking since the early 1970s. In
the early 1970s, 88% of invested capital was utilized in production. Today
that's less than 76%. So about a quarter of invested capital is sitting idle
currently. (
[https://fraser.stlouisfed.org/scribd/?toc_id=296052&filepath...](https://fraser.stlouisfed.org/scribd/?toc_id=296052&filepath=/files/docs/publications/ERP/2012/2012_erp.pdf&start_page=378)
) (
[https://www.federalreserve.gov/releases/g17/revisions/Curren...](https://www.federalreserve.gov/releases/g17/revisions/Current/table1b_rev.htm)
)

Also in the US we've seen since the 1960s increasing debt percentage across
households, corporations and governments, lower wages against different
backdrops, and decreased capital re-investment as a percentage of GDP.

------
gdubs
Alan Watts talks about how some things in life can be like trying to smooth
the waves in the ocean with a flat iron.

I often think of that when it comes to the Fed. I know next to nothing
compared to the financial wizards, but it does seem like every major financial
crisis started with some marginal movement by the Fed.

I'm not saying there's a better alternative, or necessarily knocking them - I
have respect for them. But at times it seems like nobody really knows how the
economy works, and each crisis is followed by an, "oops, let's not do that
again."

~~~
WalterBright
Milton Friedman wrote in "Monetary History of the United States" that the
money was more stable when interest rates were set by the blind workings of
supply & demand than when the Fed did it, and backed it up with charts and
statistics.

~~~
_jahh
[https://en.m.wikipedia.org/wiki/List_of_recessions_in_the_Un...](https://en.m.wikipedia.org/wiki/List_of_recessions_in_the_United_States)
Just a cursory glance at that will show that isn't correct. Prior to the fed
you had panics every two years.

~~~
lingben
and looking outside the US, Australia hasn't had a recession in more than 25
years

------
Aloha
Sometimes I wonder if we're looking at another 1929 event.

Lets posit 1929 - in 1929 by most accounts the economy was booming, drive by
easy credit and new inventions, a new consumer oriented society was driving
buying on credit and speculation in the stock market. But the economy at its
core was weak, specifically in the agricultural sector.

Lets Posit today - Uneven recovery from last economic crisis, most of the
economy has weak growth, boom of growth in certain markets, weak agricultural
commodity pricing.

I see parallels, enough parallels to be concerned really, but not enough to go
hide in a hole until its all better. I'm concerned the current administration
may not respond full-throatedly enough in the event of a real crisis however.

~~~
krashidov
It feels like the roaring 20's. All this cheap money is subsidizing a
lifestyle of well paying jobs, high rent, and cheap Ubers. People want to live
in cities where all the jobs are and where all the fun new development is
happening so that they can Uber and Lyft to the newest restaurant.

Personally, I love it, and I hope we're just in an era of profound economic
growth. But every time I go out and see cranes in the skyline and I see that I
just paid six dollars to be driven across town, I can't help but think that
none of this is real. It's all just a temporary playground being propped up by
cheap VC cash.

I really hope I'm wrong.

~~~
pembrook
VC cash only seems like it's having a large effect on the world because you
read Hacker News and work in Tech.

The total value of VC investment in 2015 (the most recent data I could find)
was around 60 billion. The US GDP in 2015 was 18,036 Billion. I can assure you
its influence on our economy as a whole is miniscule.

You're not wrong about the temporary "propped up" nature of our economy
however. Except the cause is not VC money, it's low interest rates courtesy of
the Fed.

------
lxcid
I'm not well verse in economy but I believe much of what US is today is built
on being the global dependency. It's like the JQuery of everyone's economy:
too big to fail.

After Trump inarguration, the world got a shock at what a hell of a dependency
they got themselves into (bigger shock than 2008). It's like the leftpad
fiasco all over again. Any sane politician would by now understand the need to
reduce dependency on America. Everyone else are planning a Dodd Frank fix for
their economy.

US will really suffer a crisis if the world stop depending on it, if they can
afford to ignore America. After TPP was canned, and Trump protectionism
approach, that dependency is surely weaken.

If you think about it, China is not even trying to complain about US anymore.
That's because they got what they wanted.

But US had a nuclear arsenal, its better for the world if we had this
dependency. Trade and economy have kept peace for so long, I hope I don't see
an end to this peace.

~~~
joering2
I don't understand the ending of your story...

So basically if the world stops depending on USA, their will start launching
nukes?

~~~
williamscales
If the world doesn't have to depend on the US as a cornerstone of the global
economy then the US would be totally irrelevant but for its nuclear capacity.

------
good_vibes
In my gut, I feel like the same mindset that caused 2000 and 2007 has come
together into one that will cause a bubble greater than both. Why do I think
that?

1.) After watching 'Big Short', it made me realize that a lot of what causes a
bubble is no one asking difficult questions because nobody wants to be 'that
guy' who ruins the party. 2.) If Facebook, Uber, or the Pepsi ad is any
indication, there are a lot of talented 'yes men' going along with business-
as-usual because of self-interest. 3.) Snap is more alarming to me than Tesla.
Tesla succeeding with their long-term vision is a much safer bet than Snap is.
I know a 'social media influencer' and he recently told me that a lot of his
network is leaving Snap for 'more stable platforms with broader demographics'.
4.) The recovery will be very different from the last 2 because AI, robots,
and other forms of disruption will swallow up thousands, if not millions, of
jobs. Why would executives and shareholders decrease margins for PR? Uber was
affected a little by their recent issues but they are already 'back on track'
it seems.

All in all, I am 27 and graduated high school when 2007 happened. I was 10
when the 2000 happened. This is the only world I know, one that works in 8
year cycles. 1992 Bill Clinton was elected with 'it's the economy, stupid'.

We are in for quite a ride because fanaticism, corruption, and climate change
are all showing up in unexpected ways too. It will all be okay though,
suffering builds character.

~~~
bmer
26, and feeling kind of the same as you. I don't really remember 1999/2000 too
well (was too young), but I remember 2007/2008 quite well---my dad got fired
from a very well paying job (he was a civil engineer).

All of a sudden, I went from being a reasonably rich high school kid (with a
straight path into uni), to someone whose parents had to move homes (we were
renting, and had to cut down on expenses, especially since I was off to uni)
and whose dad was struggling with depression (even though he didn't know what
to call it at the time).

I am still not quite sure how my dad's depression played into the surfacing of
my own, smack back in 2010, right in the middle of my first degree (also in
civil engineering), but I know the results: I quit civil engineering, and I
have been on and off in school ever since, basically thriving on "passion" and
my parent's money...

I am not sure if suffering builds character.

~~~
Gibbon1
I remember my dad managing a jump from a downsizing TRW in 1971 to a
government gig. Which meant the family rode out the double dip recession of
1979/1982 unscathed. However I couldn't find a job myself at all 1982-1983.

Remember being at a small company in 1990-1993 and watching the orders fall
and fall. Survived because the owners didn't take a pay check for 2 years. I
didn't take a paycheck for 6 months.

Company I worked for in 1997 went under due to the Asian Financial Crisis.

Division I worked for got tossed over board during the 2001-2002 dot bomb.
Even though there was nothing dot bomb about what we did.

Somehow managed to come through the 2008 down turn myself, but my GF got laid
off, hired, then laid off.

> I am not sure if suffering builds character.

Look at the above to see; suffering is bullshit.

What bothers me is (perhaps I was naive 40 years ago and less so today) but it
seems that the political system and the people that control it are committed
less and less to having the backs of the general public. Notice that 2009-2011
large banks and insurance companies, private high wealth individuals were
bailed out but millions of schmucks lost their homes and small fortunes[1].
And that was a matter of policy.

[1] To avoid moral hazard someone needs to suffer. Just not us seems to the
way it works now.

~~~
good_vibes
I understand what you mean but also perception is big thing with what I said
about suffering. Also, I used that word from a Buddhist/Stoic context and from
my life experience testing out those schools of thought.

------
dmoy
Can't read the article (even with the 'web' link above via Google), anyone
have a summary?

~~~
cvg
[https://archive.is/qJXjT](https://archive.is/qJXjT)

~~~
dmoy
Awesome thanks :)

------
dbg31415
I don't really know what to do with this news... I mean... do I cancel my
401k, do I sell my house, do I dig a bunker? Recessions come and go, right?
What can you do to prepare for the future except keep your debts cleared, keep
a certain amount of cash on hand (I like about 6 month's worth), invest the
rest as wisely as you can... and y'know... cross your fingers.

There will be ups and downs. Life is long. And this is a depressing topic. (=

~~~
thatwebdude
Do what's best for you. Only you can answer those questions. If you're not
living foolishly then you're 80% through the clear.

The U.S. dollar isn't going to disappear. It runs the world. (sorry, not
sorry)

------
tuna-piano
Maybe I don't have a full understanding- but economywide, the amount of debt
and savings has to be equal, right?

So if the debt of these large companies has increased, who is doing the extra
savings (and loaning the money to these companies)?

And if interest rates double, we will likely see these companies unwind some
of their debt positions. What will be the effects of that?

~~~
ww520
The economy's "balance sheet" isn't accounted for the same as the balance
sheet of a company or personal finance. Fractional reserve allows a bank to
lend out N times more than what it has in saving deposit. With re-deposit of
the lent out money, the bank can lend out more, with (N-1)/N times, and so on.

Interest rate acts as a lever to limit the amount of loans people are willing
to take. Higher interest rates will force companies to not take on more debt;
however, the long term debt they got before with a lower rate is cheaper now
compared to new debt so they would keep those.

~~~
IIIIIIIIIIII
> _allows a bank to lend out N times more than what it has in saving deposit._

That is not quite how it works according to the Bank of England:

[http://www.bankofengland.co.uk/publications/Documents/quarte...](http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf)

A few summary excerpts

> Money creation in practice differs from some popular misconceptions — banks
> do not act simply as intermediaries, lending out deposits that savers place
> with them, and nor do they ‘multiply up’ central bank money to create new
> loans and deposits.

> The reality of how money is created today differs from the description found
> in some economics textbooks:

> • Rather than banks receiving deposits when households save and then lending
> them out, bank lending creates deposits.

> • In normal times, the central bank does not fix the amount of money in
> circulation, nor is central bank money ‘multiplied up’ into more loans and
> deposits.

> In fact, when households choose to save more money in bank accounts, those
> deposits come simply at the expense of deposits that would have otherwise
> gone to companies in payment for goods and services. Saving does not by
> itself increase the deposits or ‘funds available’ for banks to lend. Indeed,
> viewing banks simply as intermediaries ignores the fact that, in reality in
> the modern economy, commercial banks are the creators of deposit money

> Another common misconception is that the central bank determines the
> quantity of loans and deposits in the economy by controlling the quantity of
> central bank money — the so-called ‘money multiplier’ approach.

> ...

> While the money multiplier theory can be a useful way of introducing money
> and banking in economic textbooks, it is not an accurate description of how
> money is created in reality

> In reality, neither are reserves a binding constraint on lending, nor does
> the central bank fix the amount of reserves that are available.

~~~
ww520
I was mainly talking about the U.S. reserve system. While U.K. has no reserve
requirement, it has the capital requirement [1], which serves the same purpose
to limit the maximum theoretical amount of money in the system. Of course
interest rate is used to further control the amount of money below the maximum
theoretical limit since interest rate is an easier tool to use than the
reserve/capital requirement.

[1]
[https://en.wikipedia.org/wiki/Reserve_requirement#Countries_...](https://en.wikipedia.org/wiki/Reserve_requirement#Countries_without_reserve_requirements)

------
carsongross
The Shiller PE has been higher than it is today exactly twice, in 1929 and in
1999:

[http://www.multpl.com/shiller-pe/](http://www.multpl.com/shiller-pe/)

However, in 1999 it went _much_ higher, so I'm not sure I'd be loading up on
those shorts.

~~~
snarf21
I understand the basics of the Shiller PE but what effect does the fact that
so many companies are keeping their earnings overseas in Ireland, etc. have on
this?

This article says that the top 50 companies have $1.4TT overseas right now.
[[http://money.cnn.com/2016/04/14/news/tax-us-companies-
offsho...](http://money.cnn.com/2016/04/14/news/tax-us-companies-offshore-
cash/)]

~~~
carsongross
I'm not sure how overseas earnings are treated. Would be interested to know.

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nocoder
The real blow-up will happen when we stop seeing mainstream articles about a
upcoming blow-up.

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true_tuna
Stop posting paywalled articles. If we ignore them they fail and go away.

