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This year I mean it -- it's a bubble (2007) (firstround.com)
71 points by pg on Dec 6, 2010 | hide | past | web | favorite | 32 comments

"The Noah principle: predicting rain doesn’t count, building arks does."

-Warren E. Buffett

And even then, it only counts once the rain starts.

> "The Noah principle: predicting rain doesn’t count, building arks does."

>-Warren E. Buffett

He sure got that right :) http://www.nytimes.com/2010/11/17/opinion/17buffett.html?_r=...

Reminded me of pg's article about the PR industry. From the article:

"Suits make a corporate comeback," says the New York Times. Why does this sound familiar? Maybe because the suit was also back in February, September 2004, June 2004, March 2004, September 2003, November 2002, April 2002, and February 2002.


In five years it seems that bloggers have about caught up to traditional media in reporting at the whims of PR firms.

Would anyone say there's a higher proportion of PR-resistant bloggers than newspapers or magazines?

Just because you can identify a bubble doesn't mean you are any good at knowing when it will pop, in fact it's much easier to do the former than the latter. And obviously, just because it hasn't popped yet doesn't mean it's not a bubble.

I sold all my yhoo into a strong rally in 1999 because I thought it had an outlandish price. It went on to trade for more than double what I sold it for, but hasn't ever reached that level post crash. Good call or bad call? Hard to say really but it sure seemed dumb at the time even though I ended up being right.

Balanced against the constant, nearly-infinite, breathless hype that is pumped out by the bucket-load by the tech blogs, a little healthy skepticism is a good thing in my opinion.

Surely the solution to nonsense is not more nonsense with the sign bit flipped?

I think Eliezer says it best: http://lesswrong.com/lw/lw/reversed_stupidity_is_not_intelli...

What counts is calibrated predictive power.

I agree that there's a lot of paranoia and FUD going around out there about this. But I don't think this is fair. Some people have valid concerns about a tech bubble emerging. For instance Fred Wilson doesn't strike me as someone who is running around screaming about the sky falling.

Seems to me that the industry is basically bimodal. Either you get a hugely successful outcome, or you end up owning Bebo (I realize that YC is probably a large counterexample). So why shouldn't commentary match that bimodalism, to coin a word.

One might call it "digital emotion."

when did skepticism become nonsense?

Skepticism is only healthy when it is borne out in truth. Pointless skepticism is not healthy. So if you constantly believe there is going to be a bubble, and there isn't one, that is an example of unhealthy skepticism.

Well, actual skepticism is perfectly right and proper, as it's entirely based on the demand that things really be "borne out in truth" before they're accepted as true.

Certain political movements aside, "skepticism" does not mean "adamant denial of some claim no matter what evidence is presented".

That's not the problem with predicting there's a bubble. The problem is that any such prediction automatically carries an implication of, "The bubble will pop soon." Unfortunately, timing bubbles is a tricky thing, and the market has a way of staying irrational longer than you can stay solvent.

Numerous commentators correctly identified the tech. bubble of the '90s and the housing bubble of the 2000s. However, very few of those commentators were able to successfully time the popping of these two bubbles (and the ones that did make correct predictions may have got lucky).

For my part, I don't think another tech bubble has inflated. In the '90s there were numerous companies whose entire strategy revolved around making an unprofitable business model profitable with internet magic. I don't see as much of that today. But who knows? If advertising revenue declines sufficiently, even Google could be in trouble.

Which was the defense of those who said "there's no web bubble" in 2000, "no housing bubble" in 2005, "no tulip bubble" in 1636, the East India company would make everyone rich in 1670. A bubble by definition isn't evident until after the fact.

But I'll still advance Bebo as the exemplar of an emerging bubble. Acquired for $850 million, sold 2 years later for < $10 million. And there's other similar cases.

In your recent essay, you wrote: "..And barring financial catastrophe, I think in the coming year it will become the norm." (emphasis mine)

You appear to be skeptical of doomsday predictions, why the caveat?

The problem is that because Wall St focuses on making money via financial smoke and mirrors that whenever they see something steadily rise in value they always assume it's a bubble rather than people working their asses off.

The two aren't mutually exclusive. I'm sure the coders at Pets.com were working their asses off too. It didn't make the business model any more sustainable.

In fact, that's actually the problem with the labor theory of value. It ignores the fact that all the work in the world is of no value if there isn't someone willing to pay for it. That, in a nutshell was the crux of the dot-com bubble. A lot of people put a lot of work into making cool things, but totally ignored how much people were willing to pay. Raw enthusiasm gained them followers and investors, but enthusiasm cannot mask the lack of profit forever.

If we were, in fact, in a bubble of sufficient size, wouldn't these predictions be at least somewhat correct? That is to ask, when do you actually know if these statements are true or false? Couldn't you conceivably be in a bubble that develops over a decade which suddenly comes crashing down to pre-bubble-assessment levels in the early half of that growth?

Depending on how it's hedged, that's like predicting, "It will probably rain in the next quarter of a year"; a prediction over a scale that large approaches a probability of 1 under most circumstances.

That would be really interesting though; if the probability of a bubble approaches 1 given enough time. Is that an accepted law of economics?

The probability that there will be a bubble in some sector at some time in the future approaches 1.0

The probability that it has already started to inflate is supposed to be a lot less, but in the last decade and a half, it seems there have been a lot of bubbles in various parts of the economy.

"Bubbles" are complicated and regularly conflated with other things entirely. What is more certain and established is that the economy has a boom and bust cycle.

To be fair, it is possible to say "it's a bubble" and have to wait a few years to be proved right. It takes nerve to hang on until you're proved right. See The Big Short http://en.wikipedia.org/wiki/The_Big_Short for good examples of this during the recent sub-prime housing bubble.

Why do people insist on putting enormous, annoying floating crap bars over their websites?

Good perspectives. John Cassidy's 2002 book "dot.con, How America Lost Its Mind and Money in the Internet Era" is also good reading from a time when bubble predictions proved to be very accurate.

This is how a lot of financial commentary goes. There were people predicting a bubble and a downturn Real Soon Now for internet-related companies by 1994.

It's actually part of the cycle. The boy-cries-wolf effect is part of what helps the bubble grow bigger by making it easier to ignore those who continuously breathlessly pronounce that the wolf is here. Even otherwise-rational people start wondering if maybe this time really is different.

Then it isn't.

That said, I don't think we're anywhere near "bubble" territory. If it looks like a bubble it's only because it's a less sick sector of the economy against a backdrop of a dreadfully sick economy; in the land of the insolvent the $1 profit is king.

The economy is "dreadfully sick" mostly from the point of view of lower and middle income people. It's "so-so" for the wealthy. It's fairly good for larger companies. Public company profits are very strong for 2010 and balance sheets tend to be very solid.

Public companies have been sitting on their huge cash hoards (estimated at around $1 tril) but have recently been doing stock buybacks and increasing dividends.

More importantly, profitability is strongly up across almost every sector. Much of that is from cost cutting rather than increased sales, but companies that do a lot of business overseas have been seeing a better top line as well.

Sadly, none of this has helped the unemployment picture. Companies simply do not want to hire more people in the US for a variety of reasons. Debt loads for consumers is still very high and because the real estate market is still weak, people's most valuable asset is often a chain around their necks.

A rather mixed picture, IMO.

Agreed - and even further, in the midst of a downturn, there's a huge bias against believing that any business could be making a real profit. After the sky falls, everyone turns into Chicken Little.

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