It's finally here. Gee, thanks, speculators!
In every era, going back centuries, a new technology comes along and people rush to invest in it or get into the business. Prices spike and bubbles form, and eventually it all comes apart - with a few strong players remaining, who buy out the bankrupt holdings of their competitors. It doesn't matter if it is tulips, whale oil, kerosene, railroads, electric lamps, automobiles, telephones, or what. The pattern is about the same every time. Everyone wants to get in on "The Next Big Thing!" incorporated.
And of course, waiting in the wings are the shysters who sell phony stocks and investments, who snare the unwary. But even "legitimate" investments go bust - railroads to nowhere, oil producers who are inefficient, incompatible gauges or formats that have to be abandoned. Eventually, the market rationalizes and a lot of little people lose a lot of money and the lucky (or smart) few make a lot.
And the lucky few can leverage their success by forcing out competition, buying it for pennies on the dollar and also manipulating markets themselves. When you control half the market for cars, oil, electricity or communications, well, you can dictate your own terms - unless that pesky "government" steps in with its "regulations" and whatnot. Boo! Hiss! Gubment Bad!
The pattern has repeated more than once in my lifetime. When I was a teenager, the Personal Computer movement got started. At first, like the "microbrew" movement (same deal, actually) it was home hobbyists assembling computers from parts. There were a lot of incompatible systems and software at first, and the average American wasn't interested in spending thousands of dollars (which today would be tens of thousands) on a home computer that had only speculative uses.
Along came Apple (First to Market is Last in the Marketplace) whose major contribution was to make a low-cost computer that was somewhat affordable (still about what a good used car would cost!) in sufficient quantities that an ecosystem of software and support, albeit primitive, could be established. But still that wasn't enough, and it was the open-architecture IBM-PC that really accelerated the technological trend. Silicon Valley was born.
Back then, it was silicon, too - we made chips, hardware and actual computers. Software took a back seat, at least for a time. Many speculated on the hardware end, and the first "tech crash" occurred when Windows 95 came out and no one bought new computers as expected. The business consolidated and suddenly, you could buy a complete computer system for $500, $99 of which was for a copy of Windows. Software was the real key - hardware became a commodity. And commodity businesses are very competitive and prices are cutthroat and profits are marginal.
It is not that there was no money to be made only that there wasn't enough money to be made to justify the speculative prices paid for stocks in some of these companies. And those were the companies making money, too! Others never made a cent and went bust - their facilities and assets being sold at bankruptcy auction to a new generation of entrepreneurs hawking Internet-related products.
And that's when Silicon Valley became Bullshit Valley. The term "Engineer" was being bandied about and applied to people who never had Engineering degrees. It is one thing to say you are a Software Engineer as maybe there is some mathematics involved in coding (not as much as you'd think, though, in real life), But Social Media Engineer? Just some guy who comes up with ways to get people addicted to a website. That's a technology?
The pattern repeats. People plow money into things, hoping to strike it rich. AOL, MySpace, Second Life, and then Facebook. Facebook, like Microsoft with its DOS, was in the right place at the right time, in this instance, when everyone wanted one single solution to online social networking. And over time, Facebook made money - but it took years. And it took even more years before the share price was at least approaching rational P/E ratios (which, thanks to the recent crash is finally down to 12.5).
But by then, other social media companies appeared. Today, you can social media all you want on a dozen or so platforms. And this spells trouble for some of them. I know people who are addicted to social media and they complain they have to check all their sites every day - their Facebook page, their Twitter, their Tick-Tock, and so on and so forth. It is only a matter of time before one of them is visited less often - or maybe a new social media site becomes popular. Social media sites are just websites (or apps, which is really the same thing). The barriers to entry are pretty slim.
Social media was at least tangentially related to "technology" - even if the actual tech was more about psychology than semiconductors. But in recent years, a new tech-that-is-not-tech has emerged, with companies selling taxi services, food delivery, couponing, money lending, money changing, online retailing, and other things that were well known for decades if not centuries. These companies often grew by breaking the rules - flouting regulations and exploiting both employees and customers. The only thing different about these new companies if they offered these things via an "app" and took a huge cut of the revenue and - oddly enough - many hemorrhaged money. Nevertheless, the little people wanted "in" on the deal and bid up the prices on these often worthless (or worth less) stocks.
The creation of the IRA and 401(k) in 1978 forced many Americans to become investors. Up until that point, you made money, put it in the bank, and maybe bought some "blue chip" stocks if you had any left over. Your major investment was your home and you relied on Social Security and your company's pension plan for retirement. I know a few of these dinosaurs today, and they are pretty comfortable and well-off in that they have enough money to get by and they don't have to worry so much about where the money is coming from, particularly if they have government pensions.
That was then, this is now. Few have pensions anymore. The rest of us have to invest, and as such, we are forced investors. And when the little people invest, it gets ugly in a hurry. People want staggering rates of return and thus are willing to take obscene risks to get ahead. Others are just compulsive gamblers and will throw money at any long-shot bet. Still others want to be "winners" and think they can outsmart the markets (I thought so, too, at one time - I was quickly schooled). And of course, there is the FOMO crowd who is scared of "missing out" on "The Next Big Thing!" incorporated - as everyone else is making money, why not them?
So we have a perfect storm for overpriced "tech-that-is-not-tech" stocks, as well as "investments" that are pure speculation, such as "crypto". And lately, they have all been tanking. And as the article cited above notes, maybe this is a good thing overall. You have to prune the tree to encourage hearty growth. And sky-high stocks eventually have to come back to earth - the longer and bigger the bubble, the worse the collapse will be.
A reader writes, asking me to write something about crypto. Another says I should address the tech crash. They are, of course related events, if not a single one. I have written about both before - extensively - and finally gave up, because I was just repeating myself. If you can't see the folly in "cryptocurrencies" I can't help you. They aren't "currencies" at all, just a mythical "virtual investment" in an unregulated community that has a notorious habit of stealing money from the poor saps who throw a few bucks at it. Crypto exchanges crashing and taking investor's money is nothing new - it is a defining characteristic of crypto.
Lying is another. Every crypto-hyping site (and there are many out there) repeats the same falsehoods - that you can "spend" crypto at thousands of stores (I tried this today at Walmart - no sale!), that "crypto" is like "virtual gold" (which it could be, as gold is often a shitty "investment" as well) and that is safe and secure because it is unregulated (and every time an exchange crashes, the victims cry for government intervention!). The hype and lies about "crypto" echo the same hype and lies about "stonks" and whatnot. So yea, a crash is a good thing as it teaches people to stop being rabid true believers. It is like the events of January 6th, which forced a lot of people to wake up.
But some prefer the snooze alarm - like the boring man who lost it all in crypto and stonk options and then blamed the banks, having learned nothing from the experience.
A recent comment online is telling: "I threw $40 at Bitcoin a few months back, thinking that maybe I was wrong about the whole thing. I should have bought a pizza instead!"
First of all, this guy is way over-paying for pizza. But his comment illustrates the folly of the typical "crypto" (or "tech") investor - these are small investors throwing tens or hundreds of dollars at crypto, using crypto ATMs or PayPal Bitcoin - which were created explicitly for the purpose of allowing small investors in. Like with Tesla stock, the price isn't a reflection of actual value, but the ratio of supply versus demand. The stock price is what "the last sucker in" was willing to pay - and the last sucker is buying on emotional needs (greed, fear) not on some mathematical analysis of market value. That is why "Market cap" is crap - and why we are seeing "Billions lost" today - billions that never existed except in the minds of financial journalists.
So Joe Blatz buys $40 of Bitcoin, which drives up the price, because most of the "coins" are held by a small cadre of people (like most tech stocks as well) who aren't selling. This drives the price up because of supply and demand. And they hype the crap out of these "investments" online and young 20- and 30-somethings figure, "why not throw a few bucks at it? I might get rich!"
It is like the Facebook IPO I wrote about years ago. One person commented, "I bought $500 of the stock. I can afford to lose that much, so why not gamble?" Parse that comment, and note the word "gamble" being used. Investing isn't about how much you can afford to lose, it is about making money. And yes, if he held on to his Facebook stock for about a decade, well, it would be worth more than he paid for it. Well, that is, until last week.
But some good will come of this. The stronger companies will survive and force out the weak (and feast on their remains). The overall market will be better for it, even as the tech slide brings down prices of other, more reasonable, investments, at least for a time. The downside is that a lot of small investors in these things will be stung and stung badly. And if we learned anything from the 2008 crash, it is these small investors often learn nothing from the experience, but instead become "Tea Partiers" or "Wall Street Occupiers" (remember those two groups of crazy?) and externalize all their woes onto society at large.
Yes, that is the danger, and in the age of Qanon, it could set off quite a conflagration.
Gee, maybe those onerous government regulations we used to have weren't so bad after all?