
Andreessen: Bubble Believers 'Don't Know What They're Talking About' - sayemm
http://online.wsj.com/news/article_email/SB10001424052702303640604579298330921690014-lMyQjAxMTA0MDAwMzEwNDMyWj
======
001sky
_Mr. Andreessen: In my opinion, there 's nothing broad-based that's happening.
There's no bubble, per se. Bubbles are a very specific phenomenon where you've
got mass psychology and you've got every mom and pop investor and every
cabdriver and every shoe-shine boy buying stock in whatever it is—going all
the way back to the South Sea Bubble all the way through to the dot-com
bubble._

The 1990's were a retail/buy side bubble. The current bubble is a sell-side
one, driven by the Fed. They are completely different. Disproving a retail
bubble does not exist (correctly) does not speak to a liquidity driven bubble
existing / or not. The people funding VC firms...have too much cash. That's
good for VC firms...and the reason you won't seem them point out this fact.

It would be more interesting to hear marc's view on the amount of money
chasing deals. Perhaps he will chime in.

~~~
tedsanders
You say the Fed is driving a bubble. To me, that assertion seems more opinion
than fact. Bubbles are notoriously hard to identify. Can you offer some more
support for the idea that the Fed is creating bubbles? I note that inflation
has been low for years and that interest rates are not a reliable indicator of
monetary policy (since interest rates reflect the low demand for money as much
as its high supply).

~~~
yajoe
This is a good question about the macro US economy. In general I agree with
GP.

Fact: The Fed has injected large amounts of cash into the asset markets using
[http://en.wikipedia.org/wiki/Quantitative_easing](http://en.wikipedia.org/wiki/Quantitative_easing)
. I've never added up the cash as a percentage of GDP or one of the Ms, but it
always seemed significant (i.e. 5-10% of GDP, but this is debatable). I should
caveat by saying that this cash never entered general circulation, which has
meant treating it as part of the monetary supply is tricky.

Now, based on this fact of Fed intervention there are a few opinions:

1\. While the Fed directly isn't buying equities (i.e. stocks, but this is as
far as we know), its presence means that all the other cash holders have to
seek out other investments to get inflation-beating rates of returns. There
isn't hard data to support this, but it is the conventional wisdom of both
people in the game and macro economists.

2\. The magnitude of the impact on the asset markets is up for debate. I've
seen numbers as low as -5% and has high as 60% of last year's stock market
returns can be attributed to the Fed intervention. Some of the difficulty is
that there was large federal fiscal stimulus impacting during this time, and
counter-intuitively there is some argument that the Fed neutralized the fiscal
stimulus to hold inflation rates constant. The important part is that there
was a stock market surge, and it is not a result of retail investors pouring
in money: It is a result of institutions balancing away from bonds to stocks
(this is what the GP means by "supply-side"). It's just not clear if the
institutions did it because they have confidence in the economy or if they
were "forced" by the Fed. The "why" is opinion, and many people believe the
fed is the "why."

3\. On the micro side, seeing 20-something kids get 150k budgets to screw
around for a year is maddening. "It's ok, VCs play the numbers game... we just
need one tulip to pay 100x." There is too much money chasing "talent" right
now, and should the correction to the asset market happen this year (as I
predict from the fed's cessation) then we will see the startup bubble unwind.

~~~
kenster07
"On the micro side, seeing 20-something kids get 150k budgets to screw around
for a year is maddening"

Nonsense. This is but an externality.

What is maddening is the current state of the financial system as a whole.
Though its intellectual underpinnings should have been completely shaken by
the events around 2008 and the subsequent rescue of its champions, vested
interests would prefer to pretend the emperor still has clothing -- and thus
the externalities of QA, of which startup money is actually among the most
palatable.

------
rosser
Well, sure; if you want to define it that narrowly. "Blue is only Pantone™
292. The sky is not Pantone™ 292. Therefore the sky is not blue."

It's awfully self-serving for pmarca to deny the existence of a bubble.
Leaving aside the question of whether or not there _is_ a bubble, how much
does he — personally, nevermind a16z — stand to lose if people were to start
behaving like there's one?

~~~
argonaut
I would go on a limb and argue that a16z stands to gain if people start
behaving like there is a bubble. Much less competition from angels and other
VCs. Much better valuations for them.

------
matt__rose
Oddly enough, that's exactly what people were saying last time there was a
tech bubble. "This isn't a bubble, it's a paradigm shift!" See
[http://www.wired.com/wired/archive/7.09/zeros.html](http://www.wired.com/wired/archive/7.09/zeros.html)
for kk's version of this post from Sept. 99, only months before the bubble
burst. Also about when I stopped reading Wired.

~~~
philosophus
Andresson didn't say anything close to "you'll be a millionaire soon [and] so
will everybody else." He just said the technology market isn't going to
implode again. There's a difference. I think his basic point is valid: that
computer technology provides a real and highly valuable service, unlike, say,
tulip bulbs. Therefore, while it may be overvalued, there is nevertheless
something solid there. Unless you think people are going to stop using the
internet soon.

~~~
matt__rose
That is the _exact_ same argument that KK was making in that Wired piece.
Quote:

    
    
      How many times in the history of mankind have we wired the planet to create a single marketplace? How often have entirely new channels of commerce been created by digital technology? When has money itself been transformed into thousands of instruments of investment? It may be that at this particular moment in our history, the convergence of a demographic peak, a new global marketplace, vast technological opportunities, and financial revolution will unleash two uninterrupted decades of growth.

~~~
philosophus
I don't think it's exactly the same. The tone in the Wired piece is way over
the top, "hyperaffluence" and what have you. Can you see the difference
between saying "Everyone's going to be rich! All our problems are solved!
Utopia is here!" and saying "the technology market will continue to be a
reasonably sound investment" ?

~~~
notastartup
seems like more or less the same message. We are in a new era now, the
fundamentals of economics have shifted because we say so and everyone should
donate their life savings to our cause!

------
aryastark
How does one get from Snapchat to Tencent? Just because Bob down in the van by
the river is making soda pop in his wheelbarrow doesn't mean he's going to be
the next Coca-Cola. Even the mere _suggestion_ takes so much credibility away
from Andreessen. How many thousands of messaging programs have come along
already? ICQ, MSN, AIM, etc. etc. Why weren't any of _them_ the next Tencent?
Perhaps, because China is not the US. Last time I was in Japan, kids were
still shelling out $40 for _CDs_ from their favorite pop singers. Different
markets are different.

Snapchat is a one-trick pony and about as special as a snowflake in an
avalanche.

~~~
argonaut
Venture capital (excluding private-equity-esque VC) is not in the business of
making bets on sure-things. If Snapchat was for sure guaranteed to become
Tencent, then they would be raising at a $100B valuation instead of a $2B
valuation. If investors were even confidently sure they would become the next
Tencent, they would be raising at $10-$20B. But they're not. But if they had a
2% chance of becoming the next Tencent, that $2B valuation is justified.

~~~
aryastark
Of course not. VCs are in the business of inflating bubbles. That's how they
make money. Andreessen has every reason to claim that we are not seeing a
bubble situation here.

But to pull Tencent out of your ass and compare it to Snapchat? There is no
basis on planet Earth for the comparison. None. You're just tossing out random
names at that point. Tencent is literally as old as Google is. They had $7B
USD in revenue last year. They have 21 thousand employees. They run the China
equivalent of PayPal. Their messaging service, QQ, has 798 _million_ accounts
and has seen peak usage of 176 _million_ users at a single time. It is here
that I remind you that the _entire_ population of the US is only 313 million.
Mathematically speaking, Snapchat doesn't stand a chance. No one "plans" to
become Tencent. No one. I don't care how good the prospects are for Snapchat.
You tell me you want to become Tencent and all you have is a sexting app?
That's when I laugh at you. Then I pull up the App Store and flip through all
your competitors. Then I remind you that your entire value is derived from
_fickle teenagers_ , that won't be there a year from today.

$100B my goddamn ass.

~~~
argonaut
_Tone down the snark._

Also, you clearly didn't read my response carefully enough.

I never said Snapchat _had_ a 2% chance of becoming another Tencent. I said
that _if_ Snapchat had a 2% chance, the valuation is justified. Clearly, some
investors think that chance holds. Some investors think that chance does not
hold, and they did not participate in the deal!

I'm also not tossing out random names. Did you even read your own post, which
mentions Tencent? I was addressing _your_ argument in the context of _your_
post.

I would also argue that a16z would benefit if investors thought there was a
bubble. They would get tremendously better valuations and there would be so
much less competition for the best deals.

Also, anyone who says Snapchat is just a sexting app for teenagers clearly
doesn't understand their product, speaking as someone in college who sees
Snapchat used all the time (by lower and upper year college students alike).
It's already moving upstream.

------
mathattack
_The bull case on Snapchat is that there 's a company in China called Tencent
that's worth $100 billion. And Tencent is worth $100 billion because it takes
its messaging services on a smartphone and then wraps them in a wide range of
services—things like gaming and social networking and emojis, and video
chat—and then charges for all these add-on services. And it has been one of
the most successful technology companies of all time and is worth literally
$100 billion on the Hong Kong Stock Exchange. Maybe that's [CEO Evan
Spiegel's] plan. Maybe Evan's plan is to transplant the Tencent business model
into the U.S., which nobody has actually been able to do yet._

This explains why Snapchat walked away from $3 billion dollars. If you have a
VCs mindset and even have a 10% belief in that bull market, then the offer was
too low.

~~~
tanzam75
Tencent faces a markedly different environment in China than Snapchat faces in
the United States.

First, gaming consoles are illegal in China. Second, Chinese people prefer to
pirate rather than to buy software. Third, Facebook is blocked by the Great
Firewall of China.

This means that Tencent faces no competition from console games, from packaged
PC games, or from Zynga and clones. Thus, Tencent gets to collect a large
percentage of the total gaming dollars (or rather, yuan) spent in China.

What's the likelihood of Snapchat getting game consoles and Facebook banned in
the United States?

Does Snapchat really have a 10% chance of turning into the next Tencent? Or is
it more like 1%? Or 0.1%?

~~~
ghshephard
Gaming consoles are illegal in China? No xbox/nintendo/playstation?
Fascinating - What's the thinking behind that?

~~~
tanzam75
Officially, game consoles are banned in China to protect children from their
pernicious influence.

Unofficially, who knows what the real reason is? It certainly hasn't hurt
Tencent, whose market cap is now greater than that of Sony + Nintendo
combined.

~~~
tanzam75
Speak of the devil -- China just lifted the 14-year ban on videogame consoles
today.

[http://www.reuters.com/article/2014/01/07/us-china-
gamescons...](http://www.reuters.com/article/2014/01/07/us-china-
gamesconsoles-idUSBREA0606C20140107)

------
junto
Somehow I think we overcomplicate stock market analysis. I live by the rule
what goes up must come down. Eventually the market is going to crash. I
absolutely guarantee that fact. I think it is a fairly well proven fact that
economies cycle. It is just a matter of time before it crashes again. Are we
in a bubble? The honest answer is that it doesn't matter.

All you need to know is that in 2008 the stock market crashed. More than
likely within the next few years, before 2015 is out (~7 years later), all the
investors who will the increasingly expect a crash, will get one. Oddly
enough, I think that human greed, expectation and fears of loss drive the
cycle.

All it needs is a trigger to start the mass sell off. Then Facebook shares
won't be worth diddly squat. That's when you buy again.

A tiny minority of investors can read the signs of impending doom. Lucky
investors, including some Wall Street traders get lucky and sell before the
crash. The vast majority of investors miss the boat and lose out big time.

The trick is knowing when to buy and when to sell. I think the whole thing is
smoke and mirrors. 99% of it is probably luck.

[http://www.forbes.com/sites/kenrapoza/2012/05/25/buy-when-
th...](http://www.forbes.com/sites/kenrapoza/2012/05/25/buy-when-theres-blood-
in-the-streets-how-contrarians-get-it-right/)

~~~
scep12
>I live by the rule what goes up must come down.

In the long term, the stock market trends upwards. In other words, what goes
down, almost definitely will go back up again. The ups-and-downs of the short
and medium term are can be mostly ignored by those who aren't day trading.

> The trick is knowing when to buy and when to sell.

A bit understated, don't you think? Finding a peak is hard enough, when you're
in it -- many were crying 'bubble' and moving out of their positions at the
beginning of 2013... what suckers they are! And having the courage to pour
your money into a fear-driven market when you've determined it's in a valley
is even more difficult - if it wasn't, everyone would be doing it.

Smart investors don't try to time the market. They put their savings in
carefully, consistently, and sometimes buy what's on sale.

------
area51org
_Bubbles are a very specific phenomenon where you 've got mass psychology and
you've got every mom and pop investor and every cabdriver and every shoe-shine
boy buying stock in whatever it is...[t]here's nothing like that. We're
talking about a fairly small number of companies. And then, we're talking
almost entirely on the private side. It hasn't really affected the public
market that much._

I could not have come up with a better way to express it. It seems like every
time I look at HN, someone is crying "bubble." If pressed to explain what
constitutes a bubble, and why they're crying it now, the answers usually
involve citing some company (e.g. SnapChat, Twitter) or small number of
companies with an insane valuation or financial transaction. "That's a
bubble!" they cry.

I'll point out that this is nothing, _nothing_ like the actual bubble of the
late '90s/early-2000s, where the _public_ was buying large amounts of stock in
brand new, unproven (but public!) companies. Few or none of these companies
had turned a profit. Many were disasters of execution (witness WebVan, which
has become Steve Blank's prime example of how _not_ to run a startup). VC
investment was at a peak. Founders actually expected that their business plans
could be executed without modification.

The mindset has completely changed since the crash. Yes, sometimes you have to
wonder what the heck the VCs are thinking, or why the SnapChat guy would turn
down a multi-billion-dollar buyout offer. Twitter's stock price seems
unjustified, and Facebook's did, too, at least at first.

None of that constitutes a "bubble." As MA points out, "bubble" was short for
_stock market bubble_. This is all private stuff, for the most part; few
companies dare to IPO these days, compared to the '90s.

The cost of infrastructure has dropped massively, as well; no longer are you
required to buy scores of servers just to host your website. One might even be
able to host the whole thing on Wordpress. Servers are virtualized and
therefore far more cost-effective. You don't need to own the physical
hardware. Bandwidth is far cheaper. There are free CDNs.

So: VCs have learned lessons from their '90s mistakes. So have founders. The
price of entry has dropped dramatically, requiring far little investment;
meanwhile, business model development has learned from software development so
that companies learn to grow and change in order to find their audiences.

That is why there is no "bubble."

~~~
rosser
_...Facebook 's did, too, at least at first._

Facebook's stock price still seems unjustified. They're losing momentum, and
not picking up the new generation of kids, which severely mitigates the
relevance of their platform going forward. How, exactly does that justify
their price being > 200% of what it was six months ago?

"Markets can remain irrational longer than you can remain solvent."

~~~
encoderer
They have over a billion users. Growth tends to slow once you've approached
20% of the entire human population.

But to answer your question: The stock was undervalued in June.

FWIW, I bought FB stock at $28 and recently sold once I doubled my money. I
sold because I think FB has found its value and I don't personally think it
will see much growth. This $50-60 range feels right to me. So I took profit.

~~~
bunderbunder
But still, Facebook is priced for growth. Which is problematic for a company
that's starting to see its userbase decline.

That, and it's easy to look good playing tech stocks in a year when the NASDAQ
goes up by 34%. In another few years, I'm not so certain that a P/E of 140 for
a company that seems to have hit its plateau will still look like such a fair
valuation.

~~~
encoderer
It's priced for revenue growth yes. Which just means they need to increase
ARPU.

~~~
bunderbunder
Yep. . . _by a lot_.

~~~
encoderer
I get it, you're bearish on FB. But your comments suggest that you think the
stock market should work like an algorithm. You input growth and users and
past stock price and out comes the perfect number. Momentum investing isn't
anymore BS than value investing. You act like there needs to be some
verifiable reason FB is worth "over 200% more" than it was 6 months ago. Well,
there is: There's a lot more people today that have faith in Facebook's
ability to grow and create wealth than there was 6 months ago.

Like I mentioned elsewhere, I sold FB. I'm not a true believer who thinks this
will be the first $1 Trillion company. But I think objectively, you're bearish
on FB and I think it clouds your judgment.

This is a company with a reputation for high quality engineering. They have
20% of humanity as users. It's grown to staggering proportions. I'm reminded
of the people who called it a house of cards when it hit 100 Million. And it's
grown from that insanely amazing number _by a magnitude_.

Over the last 4 quarters, Facebook has increased revenue and profit by nearly
30%. Net income? Up over 600%. It made a billion dollars in 2013 and should
double that in 2014.

I'm not trying to sell you. I'm just suggesting that _possibly_ you are
letting preconceptions cloud your judgment. It's growing slower? It has some
issues with teenagers? Facebook's history gives me no reason to believe their
future growth depends on hooking users at a young age. I'm not sure how you
reach that conclusion.

Anyway, feel free to have the last word, I'm not one for internet debates.

------
praptak
I think that the argument about lack of participation of general public is a
red herring. Quote Wikipedia:

 _' An economic bubble is "trade in high volumes at prices that are
considerably at variance with intrinsic values". It could also be described as
a situation in which asset prices appear to be based on implausible or
inconsistent views about the future.'_

Make a solid argument about whether this is or is not the case but "no cab
drivers on the buying side" is a crappy argument.

------
larrys
"There are the ones where everybody thinks they don't know how they're going
to make money but they actually know. There's this kind of Kabuki dance that
sometimes these companies put on where we're just a bunch of kids and we're
just farting around and I don't know how we're going to make money. It's an
act. They do it because they can. They don't let anyone else realize they have
it figured out because that would just draw more competition."

In addition to the other example that Mark gave ("they don't know how they
will make money") another way to keep the competition at bay is by the use of
red herrings and by spreading disinformation that is believable.

~~~
notahacker
It's an interesting point, but you have to set that in the context of all the
startups that Kabuki-dance themselves towards acqui-hires and product shutdown
without ever revealing their secret money-generating sauce.

There are also investors who don't know how a consumer startup is ever going
to make _significant_ revenue from it's impressive user base that have to do
the "this is an Adwords-type revolution away from being the next Google"
speeches whilst gearing up to offload their stock in a pre-significant revenue
IPO.

------
sliverstorm
I've never understood why people debate this so much. It seems to me, if you
think we are in a bubble and everyone else is bullish, you would bet against
the market and keep quiet about it.

My only theory so far is people like Andreessen are taking the game even
further- i.e. he believes we are in a bubble, bets accordingly, and publicly
says we are _not_ in a bubble to help increase his profits in some fashion.

Basically I assume some commentators don't know what they are talking about,
and the rest (the ones who know what they are talking about) actively give bad
advice on purpose, so I do my best to ignore all this stuff. If we know the
speaker is either stupid or malicious, best not to listen.

~~~
sirmarksalot
The old adage remains true, that the market can remain irrational longer than
you can remain solvent. If I took out a short position on Facebook, what's the
likelihood that it would pay out before I'd burned through my life savings?

We're all thinking about it because right now it's a very good time to be a
coder, and pretty much every time that's been true, something awful has
happened pretty quickly. We're all just invested enough to get burned by it,
but not well-heeled enough to put our money where our mouths are.

Maybe there's an advertising bubble (I still see a lot of ads for ad-supported
services), maybe it's something else, or maybe these toys we've made actually
do create a trillion dollars of value to society. Either way, we're along for
the ride, and there's little we can do to hedge against it besides being
better than the people around us, and hoping to survive the next round of
layoffs.

------
sroerick
What if there was a paradigm shift in the way people treated their personal
data. Wouldn't most of these companies today be hugely affected?

Before you say consumers are lazy and this could never happen, consider the
following hypotheticals.

1\. Snapchat gets hacked again, and this time sexting photos are leaked.

2\. Credit card fraud increases dramatically

3\. Google+ starts offering a percent of revenue gathered from people's
personal data

4\. Someone starts a Lulu for guys (chickopedia) and hundreds are sued for
stalking

I think any one of these events could dramatically adjust customer perception
of the "stalker economy", as Al Gore so succinctly put it.

------
teddyh
This is yet another version of “This time it’s different!”, again proving
nothing.

------
3am
Random observation - that article has a highly entertaining reader comment
section, particularly that equity risk premium discussion thread.

------
vikas5678
While we may or may not be a bubble, its hard to pay much credence to
statements like "there is no bubble!" by someone heavily invested in the
potential bubble.

~~~
chatmasta
Really? I would argue that somebody who has put millions of dollars behind his
views has more authority than somebody who has put zero dollars behind them.
He has a lot of money on the line. I'm pretty sure he's thought this through
thoroughly.

~~~
vikas5678
No, he's an investor, who understands the concept of risk. He's made a bet
that the value of companies he's invested in will increase, and it may or may
not come to pass. His opinions on his investment however, maybe largely
biased.

------
gelutu
This time really is different. :)

------
notastartup
This is coming from a man who says Snapchat is worth a $100 billion dollars...

Irrational exuberance causes bubbles guys, it doesn't have to be mom or pops,
it can be the naive exuberance from those that make up the market, as for as I
know most of the market players share the same exuberance.

Once the notion of value from future profitability is crushed for the second
time around, the entire models for valuing startups will fail. We saw the
exact irrational exuberance during the dot com era, that we are now in a new
economic landscape, the old companies have no future, it's basically people
with a large equity in such companies spreading garbage. Supply and demand
never changes. Inflation never goes away. Cash flow today is more than
potential cash flow years from now. It's a giant ponzi scheme, pump and dump,
whatever you wanna call it.

If Warren Buffet calls you out on something, I listen, the man knows what he's
doing.

------
Filecloud
The real value of software based business comes from scale. The marginal cost
to serve one more customer is close to zero. That is the main reason for big
bets and valuation.

