#asset bubbles

[tomorrowusa]

Meteorological winter begins on Monday in North America. So check out some of these slightly fantastical reading selections from artist Brian McFadden. The Nvidia book may not be that far from reality. 😱

If you'd like to read about a 17th century version of Nvidia, check out this real book...

The Tulip: The Story of a Flower That Has Made Men Mad by Anna Pavord

At least the Dutch tulip bubble was about an actual physical object. 🌷

The 1630s Tulip Mania is mentioned in this short vid about asset bubbles.

People don't seem to learn much from history. They think...

That was a long time ago. Things are different now!

But human nature doesn't change and self-delusion is part of that. Perhaps the first thing every kid should learn about economics is: If something sounds too good to be true, it probably is.

[wat3rm370n]

Don’t fall for AI hype

Yahoo Finance - ECB warns of 'bubble' in AI stocks as funds deplete cash buffers - Reuters November 20, 2024 The central bank for the 20 countries that share the euro noted the stock market, particularly in the United States, had become increasingly dependent on a handful of companies perceived as the beneficiaries of the AI boom. "This concentration among a few large firms raises concerns over the possibility of an AI-related asset price bubble," the ECB said. "Also, in a context of deeply integrated global equity markets, it points to the risk of adverse global spillovers, should earnings expectations for these firms be disappointed."

Letter to reps on AI talk:

Please don’t fall for AI hype and corporate propagandists who just slap AI onto everything to make it sound fancy. AI doesn’t really exist, automation is really nothing new, and chatbots are horribly prone to generating errors and misinformation. ECB has warned that the AI boom may be an asset price bubble that’s putting integrated global equity markets at risk.

[thelonguepuree]

This chain of bubbles and busts [in the global economy] began in Latin America in the late 70s. An influx of recycled petro-dollars (stimulated by sub-zero real interest rates on the dollar) generated a whole series of risky financial innovations (including the infamous “adjustable rate loan”), which all collapsed when the Volcker shock brought interest rates back up. It was recycled surplus dollars from Japan that saved the US economy from the subsequent deflation and enabled Reagan’s redoubled Keynesian spending programmes. Yet the US thanked Japan for its kindness by devaluing the dollar relative to the Yen in the Plaza Accords of 1985, sending the Japanese economy into a[n] asset-price bubble of even greater proportions, which finally collapsed in 1991. This in its turn set off a series of bubbles in the East Asian economies, to which Japan had exported its manufacturing capacity (in order to get around an appreciating Yen). These economies, as well as other Latin American economies that had pegged their currencies to the dollar, then imploded as a delayed result of the dollar revaluation in the reverse Plaza Accords of 1995. Yet this merely shifted the bubble back to the US, as the US stock market bonanza created by the appreciating dollar gave way to the dot-com bubble. In 2001 the latter turned over into a housing bubble, when US corporate demand for debt proved to be an insufficient sink for global surplus dollars. If the last two bubbles were largely restricted to the United States (although the housing bubble also extended its reach to Europe), it is because due to its size and seniorage privileges it is now the only economy able to withstand the influx of these surplus dollars for any sustained time period. If we place this phenomenon in the context of the story of deindustrialisation and stagnation described above, it becomes plausible to envisage it as a game of musical chairs in which the spread of productive capacity across the world, compounded by rising productivity, continually aggravates global overcapacity. Excess capacity is then only kept in motion by a continual process that shifts the burden of this excess on to one inflated economy after another. These latter are only able to absorb the surplus by running up debt on the basis of excessively low short term interest rates and the fictitious wealth this generates, and as soon as interest rates begin to rise and the speculative fever abates the bubbles must all inevitably collapse — one after another. Many have called this phenomenon “financialisation”, an ambiguous term suggesting the increasing dominance of financial capital over industrial or commercial capital. But the “rise of finance” stories, in all their forms, obscure both the sources of financial capital, and the reasons for its continued growth as a sector even as finance finds it increasingly difficult to maintain its rate of return. For the former, we must look not only at the pool of surplus dollars, which we have already described, but also the fact that stagnation in non-financial sectors has increasingly shifted investment demand into IPO’s [initial public offerings], mergers and buy-outs, which generate fees and dividends for financial companies. As for the latter, the dearth of productive investment opportunities, combined with an expansive monetary policy, kept both short and long-term interest rates abnormally low, which compelled finance to take on greater and greater risk in order to make the same returns on investment. This rising level of risk (finance’s measure of falling profitability) is in turn masked by more and more complex financial “innovations”, requiring periodic bailouts by state governments when they break down. Unprecedented weakness of growth in the high-GDP countries over the 1997-2009 period, zero-growth in household income and employment over the whole cycle, the almost complete reliance on construction and household debt to maintain GDP — all are testament to the inability of surplus capital in its financial form to recombine with surplus labour and give rise to dynamic patterns of expanded reproduction.40 The bubbles of mid-19th century Europe generated national rail systems. Even the Japanese bubble of the 1980s left behind new productive capacity that has never been fully utilized. By contrast the two US-centred bubbles of the past decades generated only a glut of telecommunication wires in an increasingly wireless world and vast tracts of economically and ecologically unsustainable housing. The “Greenspan put” — the stimulation of “a boom within the bubble” — was a failure. It merely demonstrated the diminishing returns of injecting more debt into an already over-indebted system.

Endnotes 2, “Misery and Debt: On the Logic and History of Surplus Populations and Surplus Capital” (April 2010)

[wat3rm370n]

Why do people keep floating the idea of AI bailouts?

Are we being primed to accept the taxpayers funding yet more billionaires? They don't want to pay taxes, but they seem to love taking our taxes. 

My letter to reps: 

No Bailouts to tech tycoons and the tech industry. If they're so smart, and we're constantly told how smart they are, they should pull themselves up and out of trouble, and prove they can manage their businesses without government handouts. They should be aggressively taxed to make sure they measure up. 

Please feel free to copy or repurpose for your own letters to reps.

[rhianna]

Yes, the subscription economy can experience asset bubbles if subscriptions are treated as assets whose values disconnect from their underlying, real consumer value, driven by investor speculation and a "greater fool" dynamic where investors buy overpriced subscriptions hoping to sell them for even more. Factors like customer inertia can prop up unsustainable subscription models, and a lack of focus on genuine, high-quality subscriber retention could lead to a "churn shock" during an economic downturn, bursting the bubble. 

How Bubbles Form in the Subscription Economy

Speculation Over Fundamentals:Investors may buy stakes in subscription-based companies at inflated valuations, focusing on potential future price increases rather than the company's ability to consistently deliver real value to subscribers, according to Stephen Roach. 

"Greater Fool" Theory:Buyers might purchase subscription-based companies or their shares at a high price, not because they believe the price is justified, but because they expect to sell them to another, even less informed investor at an even higher price. 

Customer Inertia:A subscription business model can be propped up by customers' inertia or difficulty in unsubscribing, even if the product or service doesn't offer genuine value. 

Focus on Breadth Over Depth:When companies prioritize sheer subscriber numbers (breadth) over fostering genuine trust, transparency, and tangible value (depth), the model becomes vulnerable. 

Indicators of a Potential Bubble 

Customer Churn Shocks:An economic downturn could lead to a sudden increase in subscribers canceling their subscriptions, exposing an unsustainable model and bursting the bubble. 

Misplaced Valuations:A situation where the premium investors place on subscription-based companies needs to be recalibrated, moving beyond simply counting subscribers to evaluating the quality of retention. 

Lack of Tangible Value:A key question for businesses is whether their model truly reflects real customer value or is merely sustained by habit, with this disconnect potentially fueling a bubble. 

Why This Matters

Economic Damage:Asset bubbles can lead to significant collateral damage in both financial markets and the real economy when they burst, with resources shifting rapidly and sometimes painfully. 

Need for Intrinsic Value:The future success of the subscription economy depends on businesses earning recurring revenue through trust, transparency, and tangible value, rather than relying on unsustainable growth driven by speculation. 

[erebusvincent]

Asset bubbles and loose monetary policy have long history

The run-up in stock prices and real estate has many diagnosing a bubble.

[pavel-nosok]

As Millions Drown in Today’s Poverty Trap, Macro Strategist Raoul Pal Says ‘Bitcoin Is a Life Raft’

As Millions Drown in Today’s Poverty Trap, Macro Strategist Raoul Pal Says ‘Bitcoin Is a Life Raft’

Global Macro Investor CEO, Raoul Pal, discussed the current economy this week and asked his 394,000 followers if people are using the wrong denominator when it comes to certain economic factors. One thing’s for certain, wages have not increased, no matter the common denominator people use to measure today’s salaries. Pal wholeheartedly believes that bitcoin is the only “life raft” he knows of…

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[vkumar05-blog]

Asset bubbles: How do they develop? - Asset bubbles are unsustainable rapid rise in prices of assets which are primarily a result of expectations about the future price rise of assets. The asset bubble 'busts' are an even more rapid fall in prices, which can seriously damage investors and economy and lead to crisis similar to one we are facing at a global scale right now.