> Bubbles can be directly beneficial, or at least lead to positive spillover effects: The telecom bubble in the ’90s created cheap fiber, and when the world was ready for YouTube, that fiber made it more viable. Even the housing bubble had some upside: It created more housing inventory, and since the new houses were quite standardized, that made it great training data for “iBuying” algorithms — the rare case where the bubble is low-tech but the consequences are higher-tech.
The housing bubble led to a short term increase in housing inventory, but it also dampened housing development (arguably forever). I'm guessing the net affect to housing supply was economically inefficient.
Certainly a sign of the times when VC firms hype the positive externalities of bubbles as US companies climb to insanely high price to earnings ratios, interest rates are at record lows, and cheap money and debt abound.
People have been warning of this since 2014 when Facebook bought out WhatsApp.Even 2012 when Facbeook bought out Instagram. Maybe it will end well and surpass everyone's expectations. Why don't people ever predict that?
I'm personally not sure what's gonna happen. I don't foresee US economic growth rates of the past 40 years sustained for the next 40.
We kicked the can down the road in 2008, 2012, 2014, sure. Anytime the S&P500 suffers we lower interest rates, open swap lines, buy corporate debt, and now we're talking about a 10T infrastructure program. Just take a sober look at US federal spending and entitlement programs. At what point is the US itself a bubble? Burry's answer: "When the degree to which we can tax our population eclipses the interest on our debt" [1].
It's not pessimism to tell someone they're standing under a massive, precariously placed boulder. Just because you like them, just because it's inconvenient, just because it's very rare people get hit by boulders -- it doesn't make the boulder go away. The boulder is current debt levels and it's just gotten bigger over the past 10 years.
What are examples of companies that have maintained an extremely high price to earnings ratio for decades and never crashed down to Earth? I don't ask this to sarcastically imply it doesn't happen. I generally would like examples if people have them.
There is a more timeless valuation metric that looks at asset valuations in reference to treasury yields.
And it is helpful to look at treasury yields as a reference to how much money is in the system that needs to be placed. The entire incentive is to find an investment that earns money faster than the value of your money drops due to treasury & central bank activity.
(The actions of issuing governments and central banks are the primary way more money gets into the economy than before, and this pushes down interest rates.)
TINA - "There is no alternative" has been used over the last decade to suggest a problem: that there is no where else for investors to park money so they stretch valuations poorly.
But "TINA" has always been the case, to a degree which has only been limited by geopolitics and fragmented economies in the past.
Valuations have always been tied to how much money is in the system.
So - yes - the capital formation and placement process is messy and there is wild short lived inefficiencies in some parts of the market such as a single collectibles market attracting too much capital or a single stock becoming a crowded trade. But across the entire asset classes bubbles might not necessarily be bubbles.
I havent checked how close/far to the correlations we are right now, but the main point is that its not useful to use some P/E ratio* from the 1980s to decide if a particular company or sector is overvalued or not. It would basically be P/E/Money Supply instead
We have and are still struggling to get back to the same level of housing development we had around 2000 [1]. If we adjusted for housing starts per capita this would look even worse.
Why? I don't know, but I'll hazard two guesses:
- Financing requirements around development became much stricter after 2008.
- Housing was once seen as a risk free, stable investment.
when you see an asset plummet are you really going to invest in more of it? people thought it was a toxic asset and many home builders went out of business
People still prefer to live inside. I wouldn’t expect landlords to walk away from housing the same way that owner occupants (especially zero or first-time buyers) might get uneasy.
To me, this doesn't feel like a bubble so much as fiat currencies like the dollar losing lots of value. Using gold price as a reference, gold has gone from ~$300 in 2000 to ~$1850 today. As the dollar loses value, things denominated in dollars but with real value like land go up. IMO, it doesn't seem like a bubble so much as the dollar is only worth about 15% of what it was 20 years ago.
The housing bubble led to a short term increase in housing inventory, but it also dampened housing development (arguably forever). I'm guessing the net affect to housing supply was economically inefficient.
Certainly a sign of the times when VC firms hype the positive externalities of bubbles as US companies climb to insanely high price to earnings ratios, interest rates are at record lows, and cheap money and debt abound.
I have a feeling this ain't gonna age well.