Thursday, September 25, 2014

There is a general asset price bubble in process. If you look at stats like GDP, production, exports, interest rates, bond prices and house prices the developed world's recovery is not based on innovation and production but debt.
Cash is flowing around the economy being printed or virtually created in vast amounts and then passed on at close to zero interest rates. This money is very expensive to get hold of if you are a regular person at credit card APR levels or very, very expensive if you go for payday loans. However money is cheap if you are a bank, billionaire or VC. Hence IPOs have become the casino of the rich.
If you have money at near zero interest rates then you are, in effect, just using other people's money. Mostly taxpayers since they are funding the sovereign debt. So normal calculations of investment and return dont apply. So what if your investment goes up and down because you borrowed the money from a bankrupt bank that got the money from a central bank that printed it.
It's not a bubble in the traditional sense because even if the price collapses the only people who lose are are the taxpayers in different countries funding the debt....
Who allocates long-term state funding for new ventures and enterprises? Name any that have been successful. Bureaucrats are no good at picking winners.  Europe does not have many real venture capitalists, as in Silicon Valley. Most of those who call themselves venture capitalists are really into funding later stage ventures for growth rather than technology start-ups at inception.
Most of the European success stories actually got themselves funded despite these handicaps, because of the sheer market appeal of their offerings. Irrational exuberance is a wider market phenomemon, not just restricted to tech bubbles. It also happens in property, as a glaring example. The reason is always market manipulators - pimp and dump tactics by market gatekeepers, for example investment broker firms who deal in tech stocks and banks who lend for property bubbles.

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