Technology Bubble

Time Travel with GM, back to the Year 2000 and the prevalent foolishness

Posted on by Srihari Yamanoor
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Well, for years, GM helped you travel across space. Now, you can travel across time with them. Except, it doesn’t look all that good. Let’s have a look…

The year 2000 was filled with mass stupidity. Many mistakes were made, and we thought people would learn a lesson or two. Then rolled in 2008 with its own crisis and a “bail out” that is STILL the topic of Presidential Debates. Even just taken as averages, that is about one crash a decade, and involves both the players in this story – technology and automakers. And you would think GM would be one of the last companies to engage in such shenanigans as what follows. Yet, they decided to buy “Cruise Automation” with unproven traction for about a whopping $1bn according to reports.

Who needs to do the lesson learning?

Well, you and I are the ones who have to learn a lesson. A publicly traded company means this: “when you run a publicly traded company you are spending other people’s money, so play fast and be loose”. 

I don’t even know how I could criticize Mary T. Barra and the absolute insanity she has unleashed buying and investing in unproven technologies and companies without someone yelling “sexism”, but well, I support Hillary Clinton, so let us leave that behind if you will.

Now on to the topic. While some of the other GM investments such as in Lyft itself are quite questionable, this valuation, at $1bn of a company that has only raised $18mn (and will now give Y Combinator a reason to churn out all kinds of unicornish trash, ugh, and if you will spin-off even more predatory “incubators” – tune in on this later) and is probably not anywhere close to the valuation is absolutely bizarre.

Peer Pressure

This whole notion that instead of doing some ground-up thinking, the big 3 should simply just engage in knee jerk investment trickery seems like good old peer pressure, with all the unwarranted innuendos and snide references.

You may feel certain sympathy towards GM. After all, look at what Ford just did – invest millions of dollars to create some sort of “start up” that will engage, apparently in partnerships, and also its own technological innovations. But, in Palo Alto. Well, while that is very cute, Bosch and BMW beat them to this by decades. And of course, Tesla, Google and Apple are natives here and know what they are doing.  Not only that, with real estate prices in the Bay Area, picking Palo Alto in particular just appears like gold plating on the part of Ford. And yet, what GM has done appears to be the worst of it all.

Now I know that eventually, there will be a stable market for ridesharing, automated travel and all that jazz, but I think the hype cycle is still on an upward trend and investments made now will not equate to their real value.

My Theory

Without the valley’s rose glasses while I still live here, I am like a full grown grizzly bear in a petting zoo. That made it very, very, very, very hard for me to come up with any logical reason behind the valuation, other than the notion that Barra and all her advisors have gone bananas, and they probably have no downside to throw away their investors’ cash.

So, I have theorized this. All Economic Bubbles, are not just cyclic, but they also have repetitive patterns and key inflection points. With all signs of a global economy in disarray, an ailing oil market, and the tech market itself in a very questionable state, this would be the absolute worst time to value a company, what by 10 to a 100X.

And in the year 2000, we were exactly at this point. Investments were being made even as every logical indicator would have stopped companies. Thus, I think if I am not entirely wrong, we have about a year, or even less, before “it” hits the fan. And if I am wrong and it just takes longer for the bubble to burst, the downside is only postponed.

So, mark this point in time. Now let us see what happens…

References:

  1. GM’s “purchase”: http://fortune.com/2016/03/11/gm-buying-self-driving-tech-startup-for-more-than-1-billion/?utm_source=CB+Insights+Newsletter&utm_campaign=9a10fe85ae-FridayNL_03_11_2016&utm_medium=email&utm_term=0_9dc0513989-9a10fe85ae-86415837
  2. Image Credit: https://static.pexels.com/photos/4097/city-cars-traffic-lights.jpeg
  3. Ford’s Investment: http://www.sfgate.com/business/article/Ford-sets-up-Palo-Alto-subsidiary-to-invest-in-6885191.php
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Brief: While we prepare for new tech bubble stories, here are stories on some old ones..

Posted on by Srihari Yamanoor
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Bubbles are not to be celebrated, unless you take pleasure from shorting on others’ misfortunes, or, you are a cat (raspy, grooming tongue-in-cheek reference with the image, if you get the next sentence). In any case, today, our friends at O’Reilly shared a link from “Mattermark” which linked stories such as the erstwhile failure of fame, pets.com and others we have heard but forgotten over the years..

No one can be blamed for fading memories, because after all, we have had our own Bear Stearns and Lehman Brothers in 2008 and are preparing for the next round, this time, not with mere cats or dogs, but UNICORNS!  Someone, I forget to remember who, also went on to create “bicorns” and “centicorns” in reference to the currently growing bubble with really expensive cat photo collectives and DIY Taxi cabs…

However, History can teach us a lot, so here is the link. I sampled a few, great read and needs bookmarking: https://mattermark.com/scenes-from-a-bust/?imm_mid=0e1760&cmp=em-iot-na-na-newsltr_20160310

Thanks O’Reilly and Mattermark!

Image Source: https://pixabay.com/en/cat-bubbles-animals-play-1198232/

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The Real Estate Bubble and Tech Bubble are in sync again!

Posted on by Srihari Yamanoor
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summer-grass

 

With the economy in a meaningless drift, you would think that commonsense would raise its hand. But no! Per Realtor Mag, 81% of metros saw rises, with 17 of 30, seeing rises in the double digits. Are you kidding me?

Diseased Unicorns and Stock Markets

The irony here is this. The tech bubble is in an amazing swing, with all the Unicorns and their sugar daddies infested from the inside out. The stock markets, across the globe are just meandering in some marshy territories. There is absolutely no reason for this sort of unabated craze.

And when did houses in San Jose, CA started costing $940,000? Falsely advertised as the back yard of Silicon Valley, it is more like the backyard cesspool of the valley. I live there. I know. You simply cannot lie to me.

Who is to blame?

Knowing what is out there, if you paid $940,000 for a house in San Jose, YOU and only YOU are to blame for it. Because, sooner, rather than later, your house is going to become worth less than half of that. I don’t care how many promises Apple, Samsung and Google make of bringing jobs here.

References: 

  1. The Realtor Mag Article: http://realtormag.realtor.org/daily-news/2016/02/12/home-prices-are-accelerating-again
  2. Image Courtesy of: http://pexels.com
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Marissa Mayer and her jokes, a grim reminder of the main agents of any bubble

Posted on by Srihari Yamanoor
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[Thanks to my dear friend Vishnu Prasad Ramachandran, @rvishnuprasad for recommending the article]

city-people-bubble-soap

When Marissa Mayer, an engineer with little to no management experience was first picked to lead Yahoo! following the several rounds of fired CEOs, I questioned why Yahoo! was still around and how she was going to be able to help a listless company. Of course, we know when Steve Ballmer made his foolish attempt to buy Yahoo!, Jerry Yang went on a crazed rampage, joining hands with Google to save the company. Save it for what, no one could tell. The Radioshack of Internet Companies, Yahoo! has no meaningful products or services that anyone can remember. It has just been drifting like flotsam, without any point or purpose, besides of course, the only redeeming factor – Alibaba. Their advertising revenues are on a nice steep slide, so that is really not a factor, at least on the plus side.

Expensive Garbage

Instead of focusing on trying to sell Alibaba and pay taxes like they ought to have, and then sell off and wind down the business, the board brought in Marissa Mayer, who wasted time on nonsense such as redoing the logo, and several other acts that kindly put, amount to garbage. And there I was, scratching my head, as I have done standing in bubbles previous, wondering how this was going to save Yahoo! or increase it’s revenues or do any such thing. By then, at least to some of us, it had become clear, the company had no roadmap, and it was just following an instinctive reaction, trying to keep its neck above water for as long as possible, at any expense.

Tumblr – A billion dollar misadventure

This is of course how bubbles are started. All in the name of increasing the user base, and based on inflated valuations, that ought to have been rejected, Marissa went ahead and bought Tumblr for a billion dollars. Instead of raising red flags, people were excited and celebratory of this. I just watched on with shock and disbelief. And more or less, I think she is the one started this whole unicorn business making it commonplace for companies of far less value including Facebook’s buy of WhatsApp, an idiotic act, which will one day most definitely become a topic of a post here. All this has led to bloated valuations, and worthless companies continue to raise money for a LOT longer than they ought to. That is why, no matter what Peter Thiel would like to conjure up into wet dreams, this IS a bubble and it WILL be worse than the last internet bubble. (Link below.)

city-people-bubble-fun

An Individual Bubble

Of course, nothing really came of the Tumblr purchase, except another 20 something running around the valley, with a bloated ego arising from sheer, dumb luck. Nothing came of several other purchases, some deemed as “acqhires” and others, well whatever Yahoo! spokespersons could conjure up. And yet, just by dangling Alibaba in front of people, this went on and on, the classic way bubbles grow. It is just that it was internal to one company. Then came the “corporate inversions”, where companies went offshore to avoid paying taxes and the eventual panicked response from the Obama Administration that put an end to Yahoo!’s Alibaba shenanigans. And the company was and is still standing!

Staying out-of-touch

And of course, finally, things have started to unravel, much to the pain of the employees. Predictions abound to date, since the ax has not yet fallen, of layoffs, anywhere from 10% to 25% or somewhere in between. Obviously, employees are nervous and worried about their future. Regardless of bravado, no one likes to be laid off. Ask me, I know. And in this atmosphere, per this NY Post article (link below), Marissa Mayer actually joked that “there were no layoffs this week”.

She hasn’t ventured to apologize for this, even though it has been over a week, and, though people comment about how it is spreading like wildfire through the valley, the true effect is null and Marissa herself has suffered no damage whatsoever. That is very telling. In comparison, just look at the Chipotle CEO and his travails.

Of course, in a long list of out of touch CEOs, she is not alone.

However, what is unusual is this. Marissa still has her very cushy and pointless job, and still has people backing her. Neither she nor anyone in the Yahoo! Board is in danger of losing their own jobs. And when she is eventually sent home, she will leave with a HUGE golden parachute, quite unjustified.

The Teaching Moment

It is becoming clear that a thousand or more former Yahoo! employees looking for jobs are going to put pressure on the tech job market, and this may get the ball rolling on the next bubble’s expiration. Or then again, like it happened with SideCar employees, where GM came and scooped up several of them, for what, god only knows (and by that I mean no one), some portions of Yahoo! will get bought by other companies. But at least, for them, continued employment, inflated salaries, perks and such will continue for a while. Does anyone know why AOL exists, or what Verizon is going to be able to do with it? That is one possible way, Yahoo! could go on for a few more years or decades.

Meanwhile, the CEOs remain the main problem. The CEOs of America are power drunk, inept and plentiful. You can take several examples from The Meg (Whitman) to Marissa Mayer, and several in between. (No, I am not a pig, but these two are great current examples of people just plowing their companies into the ground). To appease everyone, on the other sex, we have such lumiaries as Dov Charney of American Apparel.

What is surprising is, with stockholders such as CALPERS (which, truth be told, at least fought Bank of America’s Moynihan), Yahoo! had several opportunities to go on a path of correction. However, it is apparent that once companies get past a size, the boards first get out of control, the people they bring in become all knowing, quite powerful, and cannot be controlled. These are the people who are the worst agents in a bubble, more so than crazy VCs or greedy investors.

And, given the trend, many a bubble will form and burst, while the likes of Mayer take home millions, after laughing at their employees as well as the rest of us. 

The one thing we can do, is watch the CEOs, their jokes and look for that turning point, where at least that company and everything connected to it will start coming down. That may set off a chain reaction.

References

  1. On Marissa Mayer’s cruel jokes: http://nypost.com/2016/01/18/marissa-mayers-job-safety-joke-doesnt-sit-well-with-workers/
  2. Peter Thiel’s machinations: http://www.bloomberg.com/news/articles/2015-11-03/peter-thiel-says-high-prices-don-t-mean-there-s-a-tech-bubble
  3. Images courtesy of http://pexels.com
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RBS to world: All hands on deck. Let’s panic!

Posted on by Srihari Yamanoor
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So, it appears many analysts in RBS (Royal Bank of Scotland) suffer so much from PTSD since the last financial disaster, they have now decided to express the most extreme negative reaction to everything that happens in the stock market (links referenced below).

So, on January 8th, while we were all wishing each other a much cliched TGIF, Andrew Roberts, whose humble title supposedly, is ” the head of European economics, rates and Central and Eastern Europe, Middle East and Africa research” at RBS decided to scare the living crap out of us all, by telling us to “sell everything or else…”

Great Wall

Yes, understandably, China has fallen by about 10% in about a week and the bottom is unknown. Yes, this has affected the global economy, even if the US economy remains unaffected by this, and in fact had its first rate increases in a decade or thereabouts. And yes, caution is important.

But sell EVERYTHING? Why not recommend something better? Such as a Market Neutral Investment Strategy? Or, a way to decouple or balance your effects on somewhat unrelated or fully unrelated economies?

And, please don’t tell me that you did not expect the very artificial Chinese economy to eventually fall. If you were paying attention last week, China tried to brake its fall with several more of its artificial measures, which only made things worse, so they finally gave up trying that. Maybe, they are just growing up. And if you did put your eggs in the Mandarin’s basket (which usually happens to be a very tough to access hole in the tree), it is time for you to grow up as well. Not call for all out panic!

Index Mania

Of course, all this doesn’t mean, we should not take a look at the possibility of a global slow down seriously. I learned with intrigue of this index called the “Baltic Dry Index” which apparently tracks changes in the prices of materials purchased in bulk, and things are seemingly not looking good. Take a look below:

Well, yes, what would you make of that? In a further explanation, the quoted US News Story (link below), states that, over the past 15 years, the index has fallen, only when the US or one of its major trading partners was in the midst of a recession.

Conclusion

I am only opposed to RBS’s manic reaction to the threat they see. I think the threat is real. Portions of the economy are riding through bubbles or hype cycles, globally and locally. In the US we have a tech bubble, which is yet to show any signs of slow down. We also have the 3D Printing industry (a write up is coming) which is finally coming off the high on its hype cycle, as other hapless souls across the planet climb on to that wagon pulled by a dying horse.

The threat is not a slowdown in the Chinese economy alone. The seemingly good Indian economy (something I question, given the real estate bust cycle they are riding over there, among other things) is sitting on a very lopsided 66:1 ratio against the US Dollar. The Indian and US economies are tied together. The bursting of the tech bubble here will have a direct impact on India, whose economy is quite unbalanced towards exports. Then there are large and small cycles, such as with either Oil on the large end (billions in profits have been wiped out recently in fluctuating oil prices which is still ongoing)  or with 3D Printers, where large (3D Systems and Stratasys) and small hype cycle riders are taking hits.

The question now is, will these crashes meld into a positive feedback system, or will we see a cascading effect, where the hits will come one after the other.

References: 

  1. The US News Article: http://www.usnews.com/news/articles/2016-01-12/sell-everything-at-beginning-of-cataclysmic-year-ahead-royal-bank-of-scotland-warns
  2. The WSJ Article: http://www.wsj.com/articles/oil-plunge-sparks-bankruptcy-concerns-1452560335
  3. Images courtesy of: https://www.pexels.com/

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Down Exits – they make the bubbles sticky

Posted on by Srihari Yamanoor
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ExitThat bubbles would be sticky is unscientific on its face, but I am speaking metaphorically here. When several companies “down exit”, that is sell for less than what they raise, it becomes harder to predict when the bubble will burst. Plus, it keeps the technology bubble going for a while longer, and thus my metaphor.

Just today, I saw a write up by CB Insights (link below) on two interesting pieces of information, one, of the exit of “Good Technology”, a company I came to know of just today (and I live in the Valley, making their rise and fall that much more interesting), and two, of the increasing trend towards “down exits”, or in plain English, companies that sell for less than they raised, resulting in a loss for the sellers, though curiously enough, some parties lose less than the rest.

Can Down Exits be predicted?

The downfall of anything can be a bit hard to predict. Apple and Facebook stock prices continue to perplex me. However, if you are diligent enough, you can never be 100% wrong, though the opposite is also true. I mean, Apple and Facebook prices will have to go down some day, with the latter being more or less worthless, no matter what stories of advertising revenues you try to feed me till sun down.

GazellesGazelle

In effect though, when I looked at some of the quaint examples from the approximate 214 VC backed firms with down-exits that CB Insights put together, “Gazelle” makes total sense to me. As I watched a very bubbly “young person” looking idiot, tell me on the TV, as to how I could get $200, $300 or $400 for my old iPhone by simply mailing it back to them, my brain struggled to inculcate commonsense into that business model of repurchasing old phones at such high prices when practically no one wants them.

Well, there is your example. You know you are in a bubble when a company like Gazelle raises $61.9M based on a business plan less useful than what a bull standing in the field could give you.

You can confirm that you are in a bubble, when some genius pays $18M for Gazelle. Apparently it is a company called “Outerwall”, another one never heard from or cared for.  Similar examples including LifeScribe, are available in the link below.

Conclusion

It would appear that for timing the bursting of the bubble, one would have to look closer at these so called “down exits”. See, what it is, as the greedy stockholders of Good are finding out about the equally greedy investors of Good,  the investors are not letting the lessons from 2001 die easy. Instead of going from $500M to 0 in 60 seconds, they are now selling off worthless companies to more worthless companies (what kind of a future is it when you are sold to BlackBerry?). This is a new type of game, and it looks like the investors will first make away with the goods for as much as they can, before plunging us all in the dark. So, the next bubble wont pop and whoosh, but slowly die away.

By the way, two things:

  1. “Unicorn companies”, the broader farce, I am saving for another day, and,
  2. Apple just reduced its orders for iPhones, as I scribe this post on 5 January, 2016.

Exciting times for all of us ahead!

References:

  1. The CB Insights Story: https://www.cbinsights.com/blog/poor-exits-startup-trends/?utm_source=CB+Insights+Newsletter&utm_campaign=c7eac2bc9b-TravelTech_01_05_2016&utm_medium=email&utm_term=0_9dc0513989-c7eac2bc9b-86415837
  2. The Good Technology Story: http://www.nytimes.com/2015/12/27/technology/when-a-unicorn-start-up-stumbles-its-employees-get-hurt.html?_r=1
  3. Exit Sign: Courtesy of https://www.pexels.com/photo/red-exit-sign-5371/
  4. Gazelle Artwork: Courtesy of http://www.freevector.com/gazelle/
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