- Chinese equities are still below their 2007 peak.
- Even within the US, you can point to clean tech in 2006-2011 as being a bubble. Even though we've seen an increase in renewables 10 years later, i don't think that makes this not a bubble (bubbles can be when prices get ahead of reality).
2) I agree that Bitcoin is not bubble, but 95% of the shitcoins that went up to stupid levels were bubbles that people called out at the time and were right (ex: Dentacoin). I think it can be true that people were wrong about bitcoin but largely right about the rest (and honestly, the jury is still out about non-bitcoin crypto).
Thanks, these are good points. The Japanese real estate bubble is a compelling counterexample, though I'll note that there was nontrivial lending fraud that drove it even higher. Chinese equities are in a weird situation of their own due to the heavy level of governmental involvement; Beijing's policy directives have an outsize impact on market movements. Clean tech I don't have a good answer to.
In addition to Charles's counterexamples, I would also point to a smaller subsector that could be labeled a bubble - Direct to Consumer companies. I think the largest of those companies that went public like Allbirds (-95% from peak), Warby Parker (-70% from peak), and Peloton (-98% from peak) have for the most part fared pretty horrifically after telling a story about how they deserved technology company valuations that did not pan out.
As far as I know none of those companies committed any traditional fraud, they merely overpromised and underdelivered on the basis that whatever internet technology would somehow unlock tech company level of growth for them to sell shoes / glasses / exercise bikes. I think this is more or less where I stand on generative AI as a technology. It's still too early to tell whether or not the tech will ever get mature enough to generate the returns implied by the investments. I can see the potential for it to be an infrastructure level investment akin to telecoms or going the way of Juicero - an over engineered, expensive system that you could have just had a person do more cheaply.
One market based data point to update my beliefs with regards to the usefulness of AI - Chegg has lost something like 90% of its market value, ~$1B in market cap, since LLM based chat products have come onto market. LLMs being a pretty clear 1:1 substitute to what is effectively a Q&A site for homework answers and that playing out in the market is certainly a bullish sign.
Agree with a lot of this but:
1) I think it takes a very US-centric view of bubbles. Expanding outside of the US makes it clear that bubbles do happen and not just for fraud.
- For example, Japanese real estate was obviously a bubble and is still well down from it's peak 30 years ago. https://awealthofcommonsense.com/2021/02/the-defining-trait-of-all-bubbles-the-willful-suspension-of-disbelief/
- Chinese equities are still below their 2007 peak.
- Even within the US, you can point to clean tech in 2006-2011 as being a bubble. Even though we've seen an increase in renewables 10 years later, i don't think that makes this not a bubble (bubbles can be when prices get ahead of reality).
https://www.bvp.com/atlas/eight-lessons-from-the-first-climate-tech-boom-and-bust
2) I agree that Bitcoin is not bubble, but 95% of the shitcoins that went up to stupid levels were bubbles that people called out at the time and were right (ex: Dentacoin). I think it can be true that people were wrong about bitcoin but largely right about the rest (and honestly, the jury is still out about non-bitcoin crypto).
3) It's not out yet but I'm guessing a lot of the themes you discuss will be in this book by Byrne Hobart, so I'd check it out https://www.amazon.com/Boom-Bubbles-Stagnation-Byrne-Hobart/dp/1953953476
Thanks, these are good points. The Japanese real estate bubble is a compelling counterexample, though I'll note that there was nontrivial lending fraud that drove it even higher. Chinese equities are in a weird situation of their own due to the heavy level of governmental involvement; Beijing's policy directives have an outsize impact on market movements. Clean tech I don't have a good answer to.
I'm looking forward to Byrne's book!
In addition to Charles's counterexamples, I would also point to a smaller subsector that could be labeled a bubble - Direct to Consumer companies. I think the largest of those companies that went public like Allbirds (-95% from peak), Warby Parker (-70% from peak), and Peloton (-98% from peak) have for the most part fared pretty horrifically after telling a story about how they deserved technology company valuations that did not pan out.
As far as I know none of those companies committed any traditional fraud, they merely overpromised and underdelivered on the basis that whatever internet technology would somehow unlock tech company level of growth for them to sell shoes / glasses / exercise bikes. I think this is more or less where I stand on generative AI as a technology. It's still too early to tell whether or not the tech will ever get mature enough to generate the returns implied by the investments. I can see the potential for it to be an infrastructure level investment akin to telecoms or going the way of Juicero - an over engineered, expensive system that you could have just had a person do more cheaply.
One market based data point to update my beliefs with regards to the usefulness of AI - Chegg has lost something like 90% of its market value, ~$1B in market cap, since LLM based chat products have come onto market. LLMs being a pretty clear 1:1 substitute to what is effectively a Q&A site for homework answers and that playing out in the market is certainly a bullish sign.