I read this analysis that before the Dotcom bubble burst, unicorns cashed out in a similar fashion. The authors were proposing to watch for the next wave as an indicator, as VCs would be trying to cash at the best time (or at all) before a recession.
This hopefully shouldn't be a surprise for those looking to invest in the public stock market, given the ample amount of caution many participants have been expressing over the last 12+ months regarding our current status of being in the late stages of economic expansion.
This will be known as the everything bubble, everyone saw coming. I don't think anyone's going to be surprised when this melt down arrives. Though the length of recovery needed to bounce back will surprise people who haven't been watching the public/private US/Global deficits over the last 20 years.
Not really; there isn't the irrational exuberance that the dot com, housing, or bitcoin bubbles had. There aren't stories about people getting rich quick, new normals, etc.
> ...deficits over the last 20 years.
You're onto something here. There's definitely been an increase in government spending. The other thing going on is that there was a lot of quantitative easing following 2000 and 2008. There's another word for everything going up: inflation. Maybe that's what we're seeing, but government inflation metrics are missing it for some reason.
Citing shadowstats is not really a good sign in any argument. Even if they might have a point, the whole site is not about that point.
The changes in CPI calculation (continuous consumer basket adjustment, etc.) are well documented, well known in econometrics, and is considered a sane thing. (After all you can't really equivocate a TV from the 50s and a TV now.)
And while it's always possible to make better adjustments, shadowstats does not argue for this, it just argues against a strawman conspiracy.
"For example, a can of tomato sauce that cost $.25 at Piggly Wiggly in 1982 cost $.79 at my local market in early 2015. Starting from the 1982 price, the CPI predicts that it should cost $.61 in 2015 while ShadowStats predicts that it should cost $2.64. Starting from the 2015 price and working backwards, the CPI predicts that it should have cost $.32 in 1982 while ShadowStats predicts that is should have cost $.08. Based on these calculations, we see that the CPI underestimates inflation, as measured by the Tomato Sauce Index: The ratio of the 2015 predicted price of $.61 to the 2015 actual price, $.79, is .77, an underestimate of 23 percent. The ratio of the ShadowStats prediction to the actual price is 3.32, an overstatement of 223 percent. For tuna, both indexes overestimate inflation, the CPI by 34 percent and ShadowStats by 478 percent, and so on."
And to address the "they miss it part". Well, probably most people don't buy stocks, and most people don't buy private equity limited partnership chunks, so ... CPI-U does not measure "asset bubbles".
I'd like to think that the US government changed the what it's measured because of changes to how the economy works (this is especially important for GDP calculations) and improved understanding of inflation. Doesn't mean that's the case, but I don't buy that because a metric is what we used in the past it's inherently better.
The changes increased government revenue by pushing people into higher tax brackets and decreased government spending by reducing COLA adjustments on social security and government pensions. It's politically a lot easier to obfuscate inflation than explicitly raise taxes and/or cut spending.
> there isn't the irrational exuberance that the dot com, housing, or bitcoin bubbles had.
I would counter that by saying that throwing money at companies that literally say they may never be profitable (Lyft, Uber), and valuing them at insanely high amounts is pretty irrational.
Depends on how likely that is. Uber and Lyft choose not to be profitable. Unless demand is so elastic that cutting R&D and raising fares to cover costs never breaks even (the pets.com scenario), there are some big levers for making those companies profitable.
Granted, they could still be profitable and overvalued.
CPI does not contain investment vehicles (stocks, equity, bonds).
The problems we are seeing are very much socially driven (emptying of middle income jobs -> lower pressure in low income jobs -> increasing poverty -> no money for education and healthcare spending -> low income stressed disabled people turn to high-risk high-yield activities drugs & crime). Coupled with the current populist politics, it's no wonder the "economic outlook" is a bit gloomy.
> Not really; there isn't the irrational exuberance that the dot com, housing, or bitcoin bubbles had
> There's definitely been an increase in government spending.
Perhaps the government spending is the irrational exuberance this time.
Who says there has to be a meltdown? We could just have stagnation for a long time. The policies may allow for poor allocations of resources to persist, leading to a stagnation in total productivity and in the median standard of living. See, e.g., USSR 1964-1987, or Japan recently.
> Though the length of recovery needed to bounce back will surprise people who haven't been watching the public/private US/Global deficits over the last 20 years.
The US gov has had large deficit spending equivalent to 3-4% of GDP per year for the last 20 years, and yet GDP per capita has only increased 1% per year. That's pretty darn bad. That's like driving your car petal to the meddle and only managing 21mph.
It might not be so bad if it was just the US. But, most of all the major countries in the world all have a similar problem with deficits: France, England, Japan, and even China. All of their debts (public + private) are about 200% of GDP and over. But, what's most striking is the difference between 1980 and today. That massive increase shows that the level of spending we're accustomed to is not sustainable.
