JCL Blog

Walks Like a Bubble, Talks Like a Bubble

Just weeks ago there was a steady stream of posts and articles saying we are not in another bubble. Since the Facebook/Instagram deal those voices are much harder to hear. Sure there have been those defending the deal as rational, but really. Instagram worth more than the NY Times? News momentum needs a trigger event, and the Instagram moment may be just the thing to reverse the news momentum and change the story.  Now we are in another tech bubble. So, when will the bubble burst? My guess is 2014 and here are my reasons:

  1. Too much money looking for a home: The fundamental problem that caused the mortgage bubble still exists. The world is awash with cash because central banks have been trying to stimulate growth and there is no inflation in sight. The excess cash problem did not get solved with the mortgage crash. In fact it got worse because all of the money that came out of the mortgage market is still looking for a home, and it has been flowing into tech. At the same time, the cost to start up a tech company has dropped. So when Facebook goes public, the market will willingly value it at over $100 billion -- even though the CEO can operate without any board oversight.
  2. Not much "whole new world" talk yet: The end of each bubble cycle is marked by some desperate arguments that we are in a new world (this time because of the rise of mobile) and that the people that say gravity still exists just don't "get it". I bet these arguments will become central to the news coverage of the bubble this year. 
  3. It always takes longer than we think: The smart people that knew the mortgage market was a bubble, knew it in 2004. The end did not come for four more years. This one will probably seem like it is inflating forever.

It is true that smartphones are a revolution in tech. It is also true that it will accelerate the pace that new users can be brought into the market. But hey, it was also cool when the Americas were discovered or electricity was invented. Those bubbles burst and this one will too.