I am not suggesting that monetary policy is everything. Secular trends, like the tendency for software and hardware to get cheaper, can't be ignored. But to ignore the direct and indirect impacts of monetary policy altogether doesn't make sense either.
Silicon Valley-specific example: Facebook goes public during what many believe is a Fed-supported bull market. Insiders sell stock at close to a $100 billion valuation; it's estimated that more than 1,000 employees get to sell stock worth at least $1 million a few months later. Some of the gains realized by insiders and employees will be funneled back into startup investments as those insiders and employees become limited partners in venture funds or angel investors themselves.
Now consider this dynamic across the entire tech industry. Numerous companies have taken advantage of the IPO window of the past several years, and have been able to go public at rich valuations. Many employees with equity compensation at established publicly traded tech companies have done very well too, and ironically some of the most exorbitant valuations are at large companies lacking earnings.
It would be foolish to believe that none of this has impacted the amount of money being thrown at VC firms, super angel funds and startups through direct angel investment, which in turn impacts valuations, deal terms, etc.
The big question: when the great experiment of the central banks ends, how will this affect the landscape for investments in startups? I have some ideas which may or may not be right, but it's simply not credible to believe that there will be no change. The fact that few investors in Silicon Valley seem to be talking about this, however, suggests that they believe they live in a vacuum completely disconnected from the rest of the economy and global financial system. The last time this happened, it didn't end well.
IPO pyramids can be funded without central bank profligacy. Consider the first tech bubble: inflationary policy followed from the wreck, it did not lead it at all. The current bubble is actually remarkable for the relative rarity of IPOs; probably connected to lower founding costs and substitution of acquisition exits.
The word "profligacy" has taken on new meaning in the past several years, but keep in mind that many people believe the first .com bubble was in part a result of Alan Greenspan not raising rates quickly enough in response to a stock market that was overheating. In other words, even though rates can't get much lower than they have been the past several years doesn't mean that they weren't too low in the late 1990s too.
As for IPOs, I'm not sure that what we saw in the first boom should be used as a baseline for anything. The IPO window has most certainly been open and Facebook's IPO was an historic one.
In any case, I'm not sure I understand the point you're making. Even if you believe that bubbles can be created without extraordinary central bank action, which is true, the injection of trillions of dollars into the financial system in a few short years and what happens when it has to come out should be top of mind for any investor in any asset class, particularly now that it appears we are closer to the end of this phase of the experiment.
Listen to people in just about every corner of the financial markets, from equities to credit, and this is the topic. But it's striking that instead, Silicon Valley startup investors seem more interested in how they can get in on the hottest deals, convince founders they're friendly, etc. That should be of concern to everybody in Silicon Valley, including the entrepreneurs who will likely find themselves in a much different world sooner than they expect.
My point is that overreliance on monetary inflation as the single systemic driver is simplistic. Is it a cause? I think so. Is it the only cause? Not even close. There are so many other confounding factors at work that it is insensible to sheet it home purely to monetary factors.
Stuff like "large capital institutions in the USA are comfortable with venture investing", "shares have underperformed for most of the past 6 years", "it has never been cheaper or easier to launch a web startup" and "there are now billions of people connected to the internet" deserve billing alongside "the money supply is expanding", especially since monetary expansion has such lumpy and unpredictable effects on different asset classes at different times.
>My point is that overreliance on monetary inflation as the single systemic driver is simplistic.
Oh, but of course. I mean, it's crazy non linear system and we don't even know all the variables. Any cause in particular will be insufficient to account for the whole.
So, yeah, startups are doing so well because software is eating the world, but amidst all of the narratives most people go with rarely to people seem to consider the role that the economy is having on the industry. Of course it's non the single systemic driver, but it's certainly a catalyst if not a multiplier - and it's rarely discussed.
Rarely discussed? I disagree. There is a strong contingent of mises.org followers hereabouts; every time anything vaguely related to economics or the SV bubble is discussed someone bursts in to breathlessly update us on Bernanke's dastardly doings.
I didn't suggest that easy money was the single driver, or even the primary driver.
But the financial system rarely rewards those who choose to be ignorant. Individuals and institutions investing large sums of money in any asset class today who are not thinking about the unprecedented experiment that is taking place and considering how their investments could be affected by changes in policy are more than likely to end up losing money, perhaps far more of it than they ever could have anticipated. And in some cases, far more of it than they actually have.
Quite. You'll find relatively few accidental millionaires and billionaires in the financial markets. And the markets are very efficient at taking back gains from the small number of wilfully ignorant fools who get lucky.
Yes, hello, I am interested in this topic and I've been saying something like this for a little while now. Negative real interest rates have had to have an impact in how we've been allocating money.
Do we have a way for measuring how much money has been funneled into the funds? What about the whole, firms now stockpiling cash?
Silicon Valley-specific example: Facebook goes public during what many believe is a Fed-supported bull market. Insiders sell stock at close to a $100 billion valuation; it's estimated that more than 1,000 employees get to sell stock worth at least $1 million a few months later. Some of the gains realized by insiders and employees will be funneled back into startup investments as those insiders and employees become limited partners in venture funds or angel investors themselves.
Now consider this dynamic across the entire tech industry. Numerous companies have taken advantage of the IPO window of the past several years, and have been able to go public at rich valuations. Many employees with equity compensation at established publicly traded tech companies have done very well too, and ironically some of the most exorbitant valuations are at large companies lacking earnings.
It would be foolish to believe that none of this has impacted the amount of money being thrown at VC firms, super angel funds and startups through direct angel investment, which in turn impacts valuations, deal terms, etc.
The big question: when the great experiment of the central banks ends, how will this affect the landscape for investments in startups? I have some ideas which may or may not be right, but it's simply not credible to believe that there will be no change. The fact that few investors in Silicon Valley seem to be talking about this, however, suggests that they believe they live in a vacuum completely disconnected from the rest of the economy and global financial system. The last time this happened, it didn't end well.