[uhwhat]

Recent trends in economics leads me to believe the accumulation of wealth and capital from gains in productivity and technology is amassing into huge piles of cash that want & need to invest in something, so now the question is what?

There are other more volatile economic "bubbles" out there to be concerned about.

If you're assuming starting a business based on delivering over priced telegrams or selling rolls of quarters at a 180% markup will lead you to your "exit" than okay be afraid of "the tech bubble".

Start a real business that makes sense, and the bubble is irrelevant.

[001sky]

You seem to be denying the concept of leverage and the relevance of zero-cost debt on investment strategies and portfolio allocations.

[dogweather]

Interesting points. Anyone know any counter-examples? Startups delivering real value which were wiped out regardless?

[flyinglizard]

I can't think of any particulars right now, but my feeling is that many of companies the 2000-era bubble would be sound and profitable today, they just got to the market too early. It's very hard to judge an idea in isolation; the key is how that idea is applied to the market under particular circumstances.

If a true bubble burst were to happen, it'd kill startups by percents, not by merit. Some investors will keep money for their portfolio companies, others will sit until the market hits bottom and they can get better deals. It'll kill everything and everyone, not just the bad companies.

[gorbachev]

Right after the 2007-2008 financial crisis credit was incredibly tight. Nobody was getting any. The same would happen after a tech bubble pop.

Companies that are still in the growth phase, and not profitable yet would find themselves in real trouble.

You could argue those startups aren't (yet) delivering real value, and I'm sure in large majority of cases that'd be true. But not in all cases.

[singold]

Well, if you are company that delivers real value to other companies that dont, then you will be in trouble.

[Ologn]

> Recent trends in economics leads me to believe the accumulation of wealth and capital from gains in productivity and technology is amassing into huge piles of cash that want

Yes.

> & need

No.

> to invest in something, so now the question is what?

How about nothing?

Yes, there is a lot of capital out there which wants to be invested in something profitable.

I don't see where the need for investment is. If someone has $10 billion, and has $8 billion invested, and has $2 billion left over but sees no good investments, why do they need to invest that extra $2 billion? They don't need to invest it, so they don't invest it.

What has the capacity utilization rate of total industry in the US been? A postscript at the end of this post tells you how to see for yourself on government websites. From 1967-1969 the rate was over 87% every year. From 2001-2007 it never exceeded 80.4%. And from 2008 to 2012 it never broke into the 80's, even hitting 68.6% in 2009. I can't find data past 2012.

That's just one trend, but if existing capital was being used at an 87% rate at the end of the 1960's, whereas in past few years it has been used at a 68.6%-79.2% utilization rate, why invest in a new capital plant? Companies aren't even using their old capital plant.

The statistics say there's overcapacity. Over the past decade, invested capital has been sitting idle 20%-30% of the time where it could be in use (invested capital, meaning money invested in the stock market, VC firms etc., not money that those with a lot of money are keeping on the sidelines - counting that, the amount would be even higher). In 2009, even more than 30% of industrial capacity was unused - for the whole year.

From the standpoint of profitability, capital is overfunded already. Which means there is a small amount of overproduction - even with 20-30% capital plant non-utilization, sometimes a tiny bit more more commodities are put out then needed (or a lot more in the case of homes paid for by subprime mortgages). If capital plant production went down to 15% underutilization, that would be massive overproduction of commodities - and would still mean 15% underutilization.

People can't afford to buy what is being built with companies running at 70-80% of capacity. So why invest more in companies? People aren't buying what the existing capital plants are capable of putting out.

P.S. Go to https://www.whitehouse.gov/administration/eop/cea/economic-r... which is the 2013 Economic Report of the President . Go to "Appendix B: Statistical Tables Relating to Income, Employment and Production". Look at "Table B–54. Capacity utilization rates, 1965–2012" which is page 75 of the PDF and page 387 of the overall report.