Except that as soon as this becomes conversational wisdom the market has reacted. The moment for a land grab pitch has passed. Let's be real and make some money.
Kinda makes me want to get a job, and raise money with a really strong team of bubble pop refugees once this bubble is over. Who is it that said the best companies tend to get founded after the bubble, and grow a lot/monetize during them?
I think this bubble is primarily fueled by central banks making money available to primary dealers basically for free. This is unlike the New Economy bubble where the money came from peons who invested in stocks. As soon as the central banks (the Fed in particular) step on the brake, it's over. Thus, lots of truth in what this guy says.
Am I the only one who gets tired of hearing the exact same token Austrian economics complaints about the Fed lowering interest rates every time a story that remotely deals with the economy come up?
No, you're not. But in this case, the parent has a point. Or at least half a point. And you get the other half.
In most countries, governments largely pander to the middle and lower classes, because that's where the votes are. As a result, the election cycles usually involve large government outlays leading up to elections. The media also tends to pander to the middle/lower class.
In the United States, governments largely pander to the top 1% of incomes because
a. the billionaire class has figured out how to craft a message to the middle/lower classes where they think they're being screwed by the government, and the proper response is to reduce the size of government.
b. the government keeps growing, but their focus is entirely on making the tax system more regressive.
c. the billionaire class has more control over the government, and ensures that more dollars go to them, and less to the middle lower class.
d. the media does the exact same thing as the government.
e. because the government is actually screwing the middle class, we can go back to (a) and repeat the cycle.
If you doubt what I'm saying, you really need to read the writings of the most important member of the Austrian school of economics... Grover Norquist:
If you doubt what I'm saying, you really need to read the writings of the most important member of the Austrian school of economics... Grover Norquist:
while remembering that Mr. Norquist is one of the more zealous servants of the billionaire class.
Fascinating theory about why the US is different from the rest of the western world. How does the UK relate, it seems to have some of the same differences?
The media doesn't have such a pro-corporate message in the UK. The Economist, widely considered a conservative paper, is wholly in support of government-run socialized health care. The BBC is also a great source of news that's not as tainted as most US agencies by corporate sponsorship dollars.
We have NPR, but they can't really espouse liberal views, because the Republicans are always at their throats for grant money (I think most elected Democrats are corporate whores too - they're just more subtle about it). Other than that, there's probably a dozen decent newspapers in America, all of which are slowly dying, and as such can't afford to upset their advertisers.
Financial newspapers are an exception to this, but you'll never see the Financial Times or the Wall Street Journal suggesting that people like Lloyd Bankfein or Joe Cassano should tighten their belt buckles. In the US, the hand that feeds the media is biting everybody, but the media is afraid to bite back.
The independence of BBC is probably not perfect, but impressive. I might still trust NY Times and Washington Post more, as long as they don't write about big advertisers. There just seems to be less of organized political pressure on US media than when you have European parties.
For the European media I know enough of to have an opinion (Sweden), they are a sad joke. Let me give two examples.
1. Big advertisers never get bad stories.
2. After 1968, the left tried to take over the journalist occupation and seems to own it today. You can check this, by following one of the subjects where the left really care and compare with international press; Israel is good. (Pallywood has never been mentioned in Swedish mainstream media, neither torture between Hamas/PLO. There is a long, long, long list of examples like this.)
I've read bad things about e.g. Spanish press, but don't really know. There are, like USA, some incredibly good media in Europe -- and like in USA, most are garbage.
That cannot be the whole story because even if they get the money interest-free, investors are not going to invest in start-ups or venture funds unless they believe they can a better return there than they can in other investments.
When the central banks pump money into economies, it has a cascading effect that influences the behavior of investors directly and indirectly.
Take a wealthy individual who is a limited partner in several VC funds. Like most wealthy individuals, he has investments across numerous asset classes. Many of those asset classes (equities, commodities, etc.) are heavily impacted by the Fed's policies. Needless to say, this individual is far more likely to feel comfortable pouring some money into a new VC fund he has been pitched when his other investments are doing well courtesy of Helicopter Ben's printing press.
Without willing investors, VC firms can't raise new funds and certainly, had there not been a massive pumping of cheap money into the global economy from the central banks, many of the massive VC funds, more than a few of which are being used to buy up shares in companies like Facebook and Zynga, would not exist.
"Take a wealthy individual who is a limited partner in several VC funds. Like most wealthy individuals, he has investments across numerous asset classes. Many of those asset classes (equities, commodities, etc.) are heavily impacted by the Fed's policies. Needless to say, this individual is far more likely to feel comfortable pouring some money into a new VC fund he has been pitched when his other investments are doing well courtesy of Helicopter Ben's printing press."
That's just exactly wrong.
"Helicopter Ben", as you oh-so-blithely put it, is injecting money into the economy (as was Greenspan -- a famous conservative -- who started the process). This tends to lower interest rates across all sorts of different asset classes. It's a big part of the reason that savings accounts are returning <<1%, and why people have been taking their chances on ever-riskier investments for the better part of two decades. They can't get returns in safer asset classes.
People aren't investing in VC funds because they "feel comfortable" -- they're investing in VC funds because they can't match the inflation rate in anything better. Nobody invests in a high-risk asset if they can get great returns in a low-risk asset, no matter how "comfortable" they may feel.
First, you seem to confuse "rate of return", "inflation rates", and "interest rate." They are not the same thing, yet you conflate them.
But let's roll with it. You still make a number of flawed assumptions:
1. That all investors believe inflation is the problem. George Soros, for instance, is more concerned about deflation and up until recently, had significant holdings in gold as protection against deflation. Ironically, others, like John Paulson, are still holding gold as a protection against inflation. Only time will tell who made the right bet for the right reasons.
2. That an individual seeking capital preservation has to take on "ever-riskier investments." High net worth individuals do not have the same investment options as you do. There are numerous ways you can preserve cash (without sitting in cash) without having to bet the farm, even in today's economy.
3. That diversification plays little to no role in investment decisions. Again, if your portfolio has large exposure to equities, commodities and other asset classes that have gained substantially over the past two years, you are far more likely to feel comfortable cashing out some of your gains and/or throwing idle cash into other asset classes.
5. The above brings us to your last flawed assumption: that every investment decision is rational. If every investor made truly rational decisions, the desire to protect against inflation would not lead one to invest in VC. You'd be overweight commodities, FX, etc. Again, there are a whole host of reasons investors throw money (generally a small portion of their total portfolio BTW) at VC. Diversification is one of them, but don't doubt the lure of bragging rights either. If you golf with high net worth individuals, you'll quickly learn that they like to brag about their investments, even if they're not necessarily good ones. After all, nothing says cool like "I have $2 mil in a fund that owns a bunch of Facebook stock."
At the end of the day, my original point stands: when the central banks pump money into economies, it has a cascading effect that influences the behavior of investors directly and indirectly.
If you knew that if you lost more than 10% then it wouldn't matter to you because a bailout would be required you'd probably do a lot of things that don't seem rational from your current perspective.
This analysis is a fairly straightforward Austrian perspective. I would only qualify it to say that this would apply to publicly traded stocks. It's been observed throughout the 19th/20th/21 century versions of the business cycle that stocks tend to rise along with the boom only to seriously correct in the bust.
The funding prior to this latest IPO spree is largely the result of capital not having a lot of good homes in the US economy these days. This is partially the result of low interest rates but also having a heavy regulatory burden on new industry which doesn't exist in IT.
Well I suspect this bubble (if it is indeed a bubble) is somehow related to the recent stimulus efforts, so I suppose it depends what the Fed does after ending QE2 at the end of this month, if they eventually begin a new round of QE (in one form or another), and how long they maintain exceptionally low interest rates.
