I'm going to withhold my judgment on the matter until after the next market crash.
I think it's impossible to judge the value of anything in this messed up 0%-interest economy.
Crazy money is going around and inflating not just valuations, but revenue, profit margins, etc.
Everyone is looking at Price/Earnings (P/E) ratios (which are currently quite bad, but not horrible) and are completely ignoring the fact that earnings themselves might be inflated by
the low interest environment. Maybe if interest rates were higher, companies wouldn't spend anywhere near as much on Facebook advertising.
With that said, I think the current economic environment is more like 'froth' than a 'bubble'.
A bubble can only get so big before it pops - Froth can keep building up to a considerable volume before it starts to deflate.
Economy is a bit like ecology - If you raise the temperature (interest rates) by 5 degrees (5%), you could end up wiping out many species (companies) because of their complex interdependencies.
I agree with this, but for one thing. What makes you think interest rates will rise?
Governments set interest rates to combat inflation, caused by wage or price increase. However, we've had 0 rates for 7 years, and QE to combat deflation.
If you believe (as I do) that the value of the worker is decreasing with time (due to substitutability with technology), it kind of stands to reason that we're not going to see much wage inflation anymore.. doesn't it?
Or, is there another kind of inflation I haven't considered?
I think the economic value of people overall will decrease (a lot will lose their jobs) but the value of workers (increasingly specialized ones which cannot be replaced by machines) will keep increasing (until they too become replaceable).
I think the value of all physical assets will decrease dramatically (due to constant increases in economic productivity). So in effect, those who manage to hold on to their jobs for the longest will be able to accumulate the most wealth in the end.
...Then in an effort to optimize energy consumption, machines will genetically engineer us to require fewer and fewer resources. Until we become amoeba.
Yeah I think I basically agree. I'm not sure about physical assets though. The way to price those is to PV the future cash flows. However, if interest rates are zero, PVs are infinite.. so we need a different approach. Or, if we continue to use PV, then as rates get lower, physical assets increase in price.
But yeah, I'm pretty sure the amoeba will have zero-rates.
I agree with this. You also have to realize that people attach a massive growth rate to FB - and this is partly what wall street prices in. There are 7bn people on this planet and at least 1/7th of them are "active" FB users. That's unparalleled. And that trend will continue. That is why you can't really apply relative comps/fundamentals to this company.
On a personal note, I have to admit spending a little more time on both FB and FB mobile recently. The experience has really improved tremendously: delivering interesting content, connecting me to the restaurant or bar I am currently sitting, composing my pictures by "Moment". The FB force is undeniable. Another anecdote I like to think about is video views for the same video between YouTube and FB. FB simply crushes it with the number of eyeballs....
Everyone is looking at Price/Earnings (P/E) ratios (which are currently quite bad, but not horrible) and are completely ignoring the fact that earnings themselves might be inflated by the low interest environment. Maybe if interest rates were higher, companies wouldn't spend anywhere near as much on Facebook advertising.
With that said, I think the current economic environment is more like 'froth' than a 'bubble'. A bubble can only get so big before it pops - Froth can keep building up to a considerable volume before it starts to deflate.
Economy is a bit like ecology - If you raise the temperature (interest rates) by 5 degrees (5%), you could end up wiping out many species (companies) because of their complex interdependencies.