The real home sales & recession link trend to watch for – Chinese Buyers

Posted on by Srihari Yamanoor
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Of late, the buzz about using home sales as a predictor for the next recession has been turned up. First, there was the hue and cry about home sales slowing in LA. Then, there was a more obscure discussion about yield curves. While both may carry some relevance, I am not fully sold on these trends. These are trends from the past. They may still work. But we live in some truly crazy times. Things that oughtn’t, are indeed topsy-turvy. And, of course, for people who are paid to put down, “I told you so” placeholders, there are no luxuries in waiting to put down the flag, a la General Fremont of California.

For me, there are no such pressures. Plus, given how places like the Bay Area, LA, Seattle and others have such overheated markets, a little slowdown barely makes the mark. Hell, prices are still going up in the Bay Area, because somewhere out there, there are enough people foolishly falling for the real-estate gimmicks. Did you know, there are “homes” looking onto I-880 now? Unlike before, that is. They have even stopped pretending the barriers matter. I have to wonder who wants to insure properties against a runaway fuel truck. More importantly, who the hell wants to live a stone’s throw from the I-880?

So, I was holding out for what I have known is a trend that has cost many of us our dream of a home, including, yours truly. Non-resident, cash-holding Chinese individuals who only match the greed of real-estate firms in their alacrity to buy up homes. I wont repeat all the horror stories of how a house would go into the market,and hours later be sold for twice or more, in all cash transactions. While the US did nothing, at least countries like Australia and Singapore, and territories like Hong Kong tried to do something.

All in all, during the last week, I participated in more than one conversation about people who took one or two articles as dogma, and started salivating at the idea of being able to buy homes again. I have had at least two to three counterpoints, which I will highlight here:

  1. A LOT, and I mean a LOOOOOT of people are sitting on cash, what they consider to be sufficient for the 20% down, when the market slows down, so they can buy homes, especially in the Bay Area. The problem is, should the market slow down even a lot, people will immediately rush to buy up homes, and you will have an up-spiral in weeks, days, hell, even hours! Sorry if that pricked your dream-balloon, but there, you have it.
  2. Even before the news about Seattle trickled in, I wanted to see if there will be a slowdown in the foreign buyers’ trend. Consider the scenario where home prices fall by 50%. You may have 20% to put down and are thinking of putting in an offer. How would it matter, if someone can, as usual, outbid you, and put down 100%?

Now, on to the Seattle, Chinese-buyers thing. Word has it, because the Yuan has cheapened against the USD, the Seattle home market might at least be slowing down. Good news, you say? Well, let’s break it down:

  1. This is a temporary trend, for now. What if the Chinese and US Governments did settle their trade disputes, then what?
  2. Apparently house prices in and around Seattle have “soared” 45% since August 2016 (this is why I am always amused by people imagining they can be the next Silicon Valley). And adjusted for inflation, to the average Chinese rich guy rolling in dough, it now represents a 54% post-soar price increase. Yeah, that 9% is really going to slow them down, you think?

So, what are we looking for?

I say, this temporary slowdown is a notable trend. We need to see if this will become a long term trend. What, if anything could cause this, is hard to tell. You also need to make sure another cohort, or a group of cohorts don’t swoop in and start gaming the market.

Like greedy real-estate builders have been doing.

Then, you need for the inventory to actually hit the market. The ONLY thing that will permit that is a true recession. Yeah. Who really wants that?

Whether we like it or not, I believe that only a recession will turn off speculators of many kinds, at least for a while, and the economics of the recession will force properties to become available again.

But, you see the problem right? A meaningful slow down in speculation by the Chinese and everyone else is directly tied to a recession, not just tariffs and exchange-rate volatility or manipulation.

So, we can sit here and watch home-sales trends and argue about mechanics seven ways to Sunday, but the truth is, we won’t necessarily be able to use home sales rates as much of a predictor. We’ll still have to keep watching and keep probing.

References:

  1. The slowdown in the Seattle Market: https://www.cnbc.com/2018/08/02/seattle-housing-market-is-under-pressure-as-chinese-buying-dries-up.html
  2. Australian Taxes to slowdown speculation: https://www.ft.com/content/16859cde-31f7-11e6-8825-ef265530038e
  3. Image, Courtesy, Pexels: https://www.pexels.com/photo/space-needle-656195/
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A possible bubble clue – the quick and serial demise of me-too and also-ran organizations in multiple sectors

Posted on by Srihari Yamanoor
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This evening, I learned of the sudden closure of Chef’d, some run-of-the-mill boxed, meal-kit company via LinkedIn. Always on the look out for such interesting news, I checked it out. It looks like a couple of the companies are doing well, such as HelloFresh and Blue Apron. It appears they use a subscription model, and Chef’d did not.

And relatively cute-sounding start-ups like Sprig and Din apparently went out of business as well.

Of course, there is a lot of competition in this industry and n=3, a trend, may not make.

However, closer to the burst of a bubble, I assume we will such vaporization across multiple industries, first and foremost of the me-too, also-ran variety. So, the meal-kit industry appears to be going through an individual upheaval, truly sorrowful for the employees who work(ed) in it. However, the true signs would appear to be upheavals across the board, especially in industries that ought not to be facing ones, when an economy is perceived as being in good health. Like, retail’s problems may not indicate anything to us. But, a few other staple industries, not being disrupted by some unusual unicorns, might.

If I start seeing this, I will report back here. Do you think you have noticed this problem in the past few months?

References:

  1. Business Insider on Chef’d: http://www.businessinsider.com/chefd-shuts-down-2018-7
  2. Image, Courtesy Pexels: https://www.pexels.com/photo/food-salad-restaurant-person-5317/
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Did the Stock Market Bubble finally get its trigger?

Posted on by Srihari Yamanoor
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November 8th brought the ultimate shock and the futility of depending on masses to the surface. Contrary to folklore, democracy and the “wisdom of crowds” appear oddly contradictory. In case that is not clear, yes, electing trump was very odd, if anything. The stock market indices first fell, and then selectively stocks for large banks, private prison firms, defense and other areas have risen.

There is a general sense of belief that the Republicans will come in with sparkling dust and a magic wand to reduce individual and corporate taxes and boost the economy. Yes, in the short term, this is very feasible. Well, this has been tried during the Bush Administration, and in Wisconsin and Kansas. Not once was the result good.

Furthermore, there is some giddiness surrounding expectations of the riddance of Dodd Frank, the CFPB, and oddly enough the ACA as well. Sure, these are all possible, even with all the legal battles that will ensue. But no one seems even a bit bothered that the absence of Dodd Frank is what in most part caused at least some of the problems leading to the crash in 2008.

Then, Realtor.com is worried that Freddie and Fannie Mae are in the gop cross-hairs. This makes it quite odd, if true. I agree with Realtor in that it directly affects the people who supported trump.

There are also some questions as to whether inflation will rise as is being expected as part of this run up, and as to whether if it did, that would be a good thing.

Trigger Point

Well, where does this leave us all? I think this election result is the trigger point. There is true irrational exuberance at play. Stocks are rising when the status quo is about to change, especially in ways that are not good. They are also not taking into account the instability of the president elect. He says and does things which make as little sense as possible. Plus, as someone who also did not believe he was going to win, he never had plans. For example, it has become apparent that besides vague threats to Amazon.com (and Jeff Bezos deserves it for treating his lower level employees like dirt), trump has no plans for the technology industry at all!

All the republicans want is to be rid of the ACA. However, none of them know what to replace it with. Because they wouldn’t. They never knew how to solve the healthcare problem. So, they will do really stupid things. Yes, they will not regulate as the Democrats have, but that is not enough to keep up the healthcare and insurance industry shored up for long.

So, taken in effect, along with trump’s volatility, the stock market is rising now based on nothing. Take this with the technology and real estate bubbles already underway, I think we will finally see rapid growth and the ultimate crash. It is now just a question of time.

Timing the timing

I don’t think we will need to wait long to figure out a way to judge things.

  1. I believe we will see the stocks rise, then plateau and then rise.
  2. When the interest rates are finally increased in December, we should see more activity.
  3. The various crazy laws that the gop plans to implement should start popping up as soon as Congress opens shop in January.
  4. Then will come the various executive orders in third week of January.
  5. Add to that the changes to immigration they want. I don’t know when they want to start doing this, but it should be pretty early on and will be very disruptive to the workforce. Several experiments have been attempted to replace immigrants with natives in hard labor jobs and they have never succeeded.
  6. Finally, given the incredibly crazy territory we are swimming into, there will be other unexpected signs. We just have to wait and watch.

The challenge is simply not in knowing there will be or that we are in a bubble. The challenge is in the timing. This is what I am going to try and track as closely as I can. Keep an eye out.

Reference: 

  1. http://www.realtor.com/news/trends/donald-trump-mean-for-housing/?identityID=552ba5c6edb284622b00002c&MID=2016_1111_WeeklyNL&RID=2925787362&cid=eml-2016-1111-WeeklyNL-blog_1_trumpandhousing-blogs_trends
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Can anything hurt the Bay Area RE Bubble? We are about to find out: The Cisco Edition

Posted on by Srihari Yamanoor
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Foreword: It is NEVER good when employees lose their jobs. I am never happy when this happens to anyone.

Cisco, which hasn’t been doing well for the longest time, has decided to layoff 14,000 employees or more, globally. Since they are local, one can assume at least a small, yet significant number of those layoffs will happen here.

So, not all jobs will be lost near Milpitas (or Smellpitas as it is usually called, a quaint local “cultural” fact), where you can bid (not buy, mind you) a dumpster sitting on a lot for about 1 Mil and upwards. Of course, this new level of madness is brought to you with the notion that along with Cisco, Google, Samsung and Apple  and sundry’s employees will be endowed with never ending wealth and therefore should be the only ones able to afford living (if you can call it that) in the area. Throw in a BART station and the dumpster’s asking price went up to 1.5 Mil. If you think, I am joking, go to Realtor.com and search for houses around 95035. Of course, as with all things evil, the real estate bubble just grew from Smelpitas to San Jose, Fremont, Tracy and Stockton, and she hasn’t really stopped yet.

For months now, people have been hoping that this craziness will quiet down eventually. Let’s see…

  1. Well, Yahoo! went boom-boom, and nothing.
  2. As also mentioned before, Twitter, GoPro and a few others have not been doing well, and still nothing.
  3. Dropbox’s supposed 2017 IPO has been met with the loudest snores..
  4. Apple’s stock and outlook are really terrible right now, with vague promises of better crap..

All this, and yet, Real Estate prices have only gone up, up and away. For example, in Hayward, somebody wants $399,000 for this (there’s more, if still on sale, go have a look-see at some of the other pictures). It is so bad, they didn’t even bother taking good photos!

2016-08-17_1308

 

Absolutely nothing has slowed down the madness so far, which begs the question:

What WILL it take for Bay Area Real Estate to meet Reality?

We know, that from greedy developers, to mindnumbingly greedy Santa Clara City Officials and beyond, there is just an absolute sense that reality is for suckers. Unabated construction, most times, absolutely meaningless in terms of actual, future growth (and adjustments, that will come) is rampant. Communist style, ugly, matchbox dwellings go up everywhere with enough idiots who want to buy them, preyed upon on by new and increasingly bizarre lending practices (if you work at Google or Facebook or some of the other cat and ephemeral p0rn sharing sites, you can get a loan for up to to $2mn or so, with zero down, I kid you not!).

This has left out the “rest of us” who have still the desire to work in a world that doesn’t believe in “sharing economies” where we all serve as each others’ taxi drivers du jour. AND it leaves out the rest of us, who have to do real jobs of designing, cooking, delivering and you know, things that are not glamorous enough for Silicon Valley to even recognize, without a heavy priced, newly minted, monthly billing “start up” that does the same thing telling investors there are billions in feeding and fattening software engineers catered lunches.

In all this, of course, we have been trying to see WHAT can actually make a difference. And, I have to wonder if individual failures and downturns like that of Yahoo! or Cisco are enough to even make a measurable dent. It also appears that these occurrences are happening out of sync with each other, that the bubble is still able to grow and feed on itself. For instance, right in Milpitas is a “storage solutions” company whose acquisition completed in May. One has to only wonder if that will also result in “cost savings” and other measures, which could potentially have a cascading effect. However, even that will just be another blip, and people will move on, just tacking another $100,000 or more to their insane bid.

It is becoming nearly impossible to predict the kind of business/finance related disaster that it will take to cause this bubble to burst. It appears that multiple events need to trigger right next to each other on the time scale for a true dent to appear in Bay Area’s housing madness. One of these surely could be the election, leading to an indecisive or absent lead for Democrats in the Senate, or worse, a Donald Trump Presidency.

Thus, I have to conclude that even Cisco’s seemingly massive layoffs  are not enough for Bay Area RE to start its slow descent towards normalcy.

And, that, is just scary.

Reference: 

  1. http://finance.yahoo.com/news/cisco-systems-lay-off-14-012523261.html?utm_content=bufferfe449&utm_medium=social&utm_source=facebook.com&utm_campaign=buffer 
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Palo Alto – an example of just how bad housing is in the Bay Area

Posted on by Srihari Yamanoor
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Image, courtesy: picjumbo

I am passing along this Medium Blog Post, recommended, once again, by my friend Vishnu Prasad Ramachandran, , @rvishnuprasad  .

It is not like I haven’t laid out of the case for a never ending tech and real estate bubble that is insanely disconnected from reality. It is not like I haven’t pointed out to hopeful trigger points, only to see them do nothing. Yahoo! went kaput (just look at the site archives for more) and sold for practically nothing – no effect. Twitter is in the sh*tter and, still, nothing (well, rents in SF did drop just ever so little).

I have also now started worrying about the number of people like me waiting for the housing market to cool down, that; should it cool down, everyone will get in again, and it might just heat right back up. I cannot base this on anything but a gut feeling. I would like for this to not happen, but no one can predict anything for sure.

In effect, frustration is high, and things are just going from bad to worse. You should read the blog post for yourself, but I have to tell you, over the past few months, my own desire and determination to leave the Bay Area have gone from distant hypothesizing to reality. I guess we will see.

Meanwhile, here is the interesting, vivid story of someone leaving Palo Alto and the Planning and Transport Commission behind, unable to stomach the idea of paying $6,200 a month in rent:

https://medium.com/@katevershovdowning/letter-of-resignation-from-the-palo-alto-planning-and-transportation-commission-f7b6facd94f5#.jg567alg1

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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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Silicon Valley is apparently bleeding talent, mainly due to real estate and cost of living

Posted on by Srihari Yamanoor
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The blog post I am about to quote, from WSJ, along with a video from NBC, only talks about US-born talent, but anecdotal evidence that I have shows that even foreign born talent is not going to stay in the area much longer, assuming the trend continues. I mean, I am one. I swore to myself I would never live outside the Bay Area in the US, and after shifting my gaze from a house in the Peninsula to one in San Jose and then Hayward all the while watching prices meaninglessly appreciate, I decided I might just abandon the whole idea and see if there are other places across the country.

The message here is deeper than either the article or the video. I seriously doubt if the traffic or housing prices are the only reason for the move. With Yahoo! going through a meltdown and many VCs developing less warm feet, if not cold feet altogether, the madness may be coming to some sort of a head here and at least few people must have realized it is time to move on.

Egress

Well, we all know this is just another bubble and it is going to burst, just that, none of us knows when. However you dissect the type and number of people who are leaving or the reasons for why they are leaving, there is a long term problem here. The “hotness” of the Real Estate market here, the cost of living and the fact that 5AM and 8PM are slowly creeping into the “rush hour” category means only bad news.

Ingress

You need to think of everything in unison here. It is not just that a handful of tech workers are going to Seattle, which is also relatively bad in terms of real estate, or to a desert location like San Diego. The exodus is causing us to lose professionals from various fields. The ingress is becoming increasingly unpalatable as well. Ask yourself where your kids’ schools will find good teachers? Or any other non-tech related professional services?

Unsustainable mash-up solution: Soviet Style Housing

San Jose for example thinks it has “solved” the low cost housing problem. For every 20 or 25 meaninglessly expensive housing projects, there is one, just announced, like the “Donner Lofts” with just a 102 units that will remind people of the Soviet Union with its ugly, boxy, industrial look and drab colors that some architect is going to try to fool you into believing is “modern”. Also, I am yet to hear what “affordable” means, and how long it will last, and what 102 units are going to do. The problem is not that Ed Lee and Sam Liccardo summarily lack vision, they also just don’t care.

Sooner rather than later, these types of unsustainable band-aid solutions will also fail. Of course, then comes the crash. If it takes another year or two till the bubble bursts, things will only get worse till then. After that of course, real estate will, I predict, going into a rapid, downward spiral. All those “multi-family, high density” adjective-soup units will either have to go empty, or drop rents, forcing this to become a whole another nasty ball game.

Gaming Housing

Almost everyone who lives here or talks about the problem here knows that foreign buyers, and by that I mean, wealthy Chinese individuals, and institutional buyers are deliberately gaming the market in all cash deals, never making housing competitive enough. Imagine housing having gone up 13% in just a year?

I used to track the housing prices when I was “in the market” and I started getting quickly disappointed. Every now and then, for s*s and giggles, I look up housing, only to find a bunch of run down shacks in a high-crime area in San Jose displayed as selling for, wait for it, $600,000 asking prices. Of course, usually people cough up “more” not less than the asking price.

I don’t know what you can do in a market economy to stop this sort of unfair price gouging, but if this trend continues, it spells disaster for the Bay Area. All one can hope for is that these greedy people gaming the prices also take at least some of the hit.

All problems and no solutions?

This is mainly the problem with the Bay Area. From bubble to bubble, we never achieve balance. I don’t know that a solution can be achieved here. The venture capital industry doesn’t care. The “entrepreneurs” want to sell you garbage just so they can become billionaires. What with accommodating lunatics like Marissa Meyer (and the people who thought a 37 year old engineer can save an me-too-also-ran media company) who bought Tumblr, you can’t really blame them.

Silicon Valley doesn’t have good political leadership. The people who get elected here, mostly want to use this as a launchpad for their political agendas. A great example? Chuck Reed, former mayor of San Jose, who not only screwed the city beyond recovery, but also channeled a very ineffective and directionless successor, Sam Liccardo and moved on to weaken unions and pension funds by siding with Republicans. Because, an insecure retirement is a great attraction when hunting for talent I assume?

In a very ironic way, it might take another round or two of bubbles and actual loss of competitiveness to other areas before something changes. Till then, all we can do is, see if we can guess when the next one is coming down and try to duck for cover soon enough.

For more

This particular post was dedicated to real estate, traffic and talent exodus. Here is another WSJ piece on the valley’s slowdown:

http://www.wsj.com/articles/for-silicon-valley-the-hangover-begins-1455930769

References:

  1. The WSJ blog post: http://blogs.wsj.com/digits/2016/03/03/silicon-valley-residents-leave-for-greener-grass-cheaper-housing/
  2. The NBC Bay Area Video: http://www.nbcbayarea.com/news/local/Housing_-Traffic-Spur-People-to-Leave-Silicon-Valley_-Study_Bay-Area-371126301.html
  3. Donner Lofts Announcement: http://www.bizjournals.com/sanjose/news/2015/01/08/midpen-housing-breaks-ground-on-102-unit-donner.html
  4. Image Credit: https://www.pexels.com/photo/city-cars-traffic-lights-6732/
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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.)

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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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