bubbles - What We're Reading - StockBuz2024-03-29T13:03:23Zhttp://stockbuz.ning.com/articles/feed/tag/bubblesRemembering The Impetus Of Irrational Exuberancehttp://stockbuz.ning.com/articles/remembering-the-impetus-of-irrational-exuberance2016-10-22T18:45:50.000Z2016-10-22T18:45:50.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><p><a href="http://storage.ning.com/topology/rest/1.0/file/get/1291328?profile=original" target="_self"><img src="http://storage.ning.com/topology/rest/1.0/file/get/1291328?profile=original" style="padding: 10px;" class="align-left" width="231" height="179"></a>In December of 1996, Greenspan was clearly beginning to worry about the economic fallout of a bursting asset bubble. Back then he had a front row seat and, in fact, a strong hand in creating the dotcom bubble, whether he admits it or not. He was so worried about the consequences of “irrational exuberance” that he declared these concerns “must be an integral part of the development of monetary policy.” And this was before he had even witnessed any of the actual economic consequences we have now lived with for two decades. Clearly, his worries were well founded but he wasn’t quite worried enough.</p>
<p>The financial well-being of entire generations has been permanently damaged. Think of the Baby Boomers whose retirement dreams turned to nightmares through two stock market crashes in less than a decade. Think of the Generation Xers whose dreams were shattered by the housing bubble and the mortgage crisis. As a group these latter folks, even though they are now entering their peak earnings years, are flat broke almost a decade after it all began. And the major media outlets wonder openly why the average American has next to nothing in savings. He was explicitly encouraged by the single most powerful institution on the planet to put his savings into great peril, time and again.</p>
<p><a href="https://i1.wp.com/www.thefelderreport.com/wp-content/uploads/2016/10/Screen-Shot-2016-10-20-at-1.22.18-PM.png?ssl=1"><img class="alignright wp-image-11095" src="https://i1.wp.com/www.thefelderreport.com/wp-content/uploads/2016/10/Screen-Shot-2016-10-20-at-1.22.18-PM.png?resize=602%2C350&ssl=1" alt="screen-shot-2016-10-20-at-1-22-18-pm" width="602" height="350"></a>Now I should be clear that over the decade following this famous speech, while he remained Fed Chairman, he did nothing to incorporate these prescient concerns into Fed policy. Just the opposite. After the dotcom bubble burst he engineered the housing bubble to try to ameliorate the damage done by the first. It’s one thing to worry about the risks of financial bubbles you have a hand in creating; it’s something else to actually do something about them. So while we can admire his foresight we should not honor it by overlooking his cowardice in failing to do anything about it.</p>
<p>Since then, and with the benefit of witnessing the actual fallout of these epic busts, many at the Fed (and even more outside of it) have openly discussed this dilemma of directly addressing asset bubbles. Eric Rosengren, head of the Fed Bank of Boston, became the latest to openly echo Greenspan’s concerns regarding “irrational exuberance” in the financial markets. Robert Shiller won a Nobel Prize for work in this very area. Still, nothing has been done to actually address these massive economic risks. After 20 years and two bursting bubbles whose effects are still plaguing the economy it’s still nothing more than sporadic public hand wringing by the people with the power to do something about it.</p>
<p>In recent years the Fed has only doubled down on these policies by directly pursuing a “wealth effect.” Rather than give a boost to the broad economy, however, these central bankers have only accomplished an even greater and more pervasive financial asset perversion. Stocks, bonds and real estate have all become as overvalued as we have ever seen any one of them individually in this country. The end result of all of this money printing and interest rate manipulation is the worst economic expansion since the Great Depression and the greatest wealth inequality since that period, as well.</p>
<p>Someday, possibly soon, the public will finally decide it’s had enough of the escalating boom bust cycles the Fed has exacerbated, if not directly engineered, over the past couple of decades. Falling confidence in these technocrats and the resulting rising populism will serve as a clarion call for a new brand of Fed Chairman with the courage to finally address the glaring danger asset bubbles pose to financial stability and the long-term economic health of our nation. She will be the 21st century’s version of Paul Volcker. Rather than breaking the back of inflation in the traditional sense, she will break the cycle of unwarranted asset inflation at the direction of the Fed and all of its deleterious consequences. At least I hope it’s not irrational to believe so.</p>
<p>Courtesy of <a href="https://www.thefelderreport.com/2016/10/20/remembering-the-impetus-of-irrational-exuberance-as-we-approach-its-20th-anniversary/" target="_blank">TheFelderReport</a></p></div>Hedge Funds Storm Into Venture Capitalhttp://stockbuz.ning.com/articles/hedge-funds-storm-into-venture-capital2014-05-03T16:30:02.000Z2014-05-03T16:30:02.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><p><span class="anno-span"><span data-num="1">For those concerned about a bubble in startup land, the number of VC-backed companies attracting valuations north of $1 billion increased sharply this year.  “This clearly is shaping up to be the best year for IPOs in a decade,” said <a href="http://www.ft.com/cms/s/2/b9d7b328-adbe-11e3-bc07-00144feab7de.html" target="_blank">Steve Case</a>, the former head of AOL and now head of his own private investment firm, Revolution.  IPOs are at the core of U.S. and global <a href="http://www.pehub.com/2014/05/hedge-funds-storm-into-venture-vcj-cover-story/#.U2PQgbdlOBM.twitter" target="_blank">economic growth</a> and job creation.  A sustainable IPO market requires valuations based on fundamental performance over the long-term. Today’s markets are focused instead on short-</span></span><a target="_blank" href="http://qzprod.files.wordpress.com/2013/12/screen-shot-2013-12-13-at-10-08-08-am.png?w=640&h=374"><img class="align-right" src="http://qzprod.files.wordpress.com/2013/12/screen-shot-2013-12-13-at-10-08-08-am.png?w=640&h=374&width=320" width="320" /></a><span class="anno-span"><span data-num="1">term trading profit extraction.  A bubble or the beginning of a new, higher trend?  You be the judge.<br /></span></span></p>
<p>You may disagree on whether Dropbox is worth an estimated $9.6 billion, Pinterest, $3.8 billion, or Uber, $3.5 billion.  But you will agree on this: All are rich valuations and a surge of pre-IPO money is fueling them to extraordinary heights.</p>
<p>“This is momentum investing,” said Tim Guleri, managing director at Sierra Ventures. “Overall, too much of this is a dangerous trend.”</p>
<p>The danger will mount with any change in the IPO window, or if public valuations fail to recover from their March selloff. Either could place private company valuations under pressure and chip away at the market value of portfolios priced off them.  (<em>Note:  DropBox announced last week they were postponing their IPO until Summer and EverNote has said they are postponing their IPO stating "they're not ready", as has payments company Square and Credit Karma)</em></p>
<p><a target="_blank" href="http://qzprod.files.wordpress.com/2013/12/screen-shot-2013-12-13-at-10-14-41-am.png?w=640&h=511"><img class="align-left" src="http://qzprod.files.wordpress.com/2013/12/screen-shot-2013-12-13-at-10-14-41-am.png?w=640&h=511" height="226" width="284" /></a>Already some venture investors have begun to show caution and back away from late-stage financings because of the high level of competition.</p>
<p>Anytime there is a bull market, outside money wants to get into late stage financings, said Jules Maltz, general partner at Institutional Venture Partners. “That works as long as the market continues. As soon as the market changes, we often see these funds pull back.”</p>
<p>Whether these funds will retreat is hard to gauge. So far, there are mixed signals. Tiger’s ability to close on a new $1.5 billion venture fund in April suggests access to capital is not likely a restraint. However, Coatue in March said it planned to return $2 billion to investors, suggesting second thoughts are creeping in.</p>
<p>Equally significant is the massive size of the transactions. Hedge and mutual funds have participated in 14, or 60 percent, of this year’s largest two-dozen U.S.-based deals with disclosed investors (<em>and it's only May 2nd)</em>, compared to about 38 percent last year.</p>
<p>“You are seeing some willingness to write large checks for select companies with a winner take all paradigm,” said Timothy Keating, CEO of Keating Capital. “I do believe you are seeing some inflation in those highly publicized companies.”</p>
<p><em>This is a compilliation of stories from <a href="http://privatemarkets.thomsonreuters.com/venture-capital-journal/" target="_blank">Reuters Venture Capital Journal</a>.</em>  <a href="http://www.ft.com/cms/s/2/b9d7b328-adbe-11e3-bc07-00144feab7de.html" target="_blank">ft.com</a> and <a href="http://www.pehub.com/2014/05/hedge-funds-storm-into-venture-vcj-cover-story/" target="_blank">pehub</a>  Charts courtesy of <a href="http://qz.com/157541/the-2013-us-venture-capital-boom-in-charts/" target="_blank">Quartz</a></p>
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