Sunday, May 31, 2015

Like since the time of the ancient Egyptians

This typical sign of a stock market bubble is misleading - MarketWatch: "Martin Kenney is a professor at the University of California, Davis, and an expert on the IPO market. Kenney is also the senior project director at the Berkeley Roundtable on the International Economy at the University of California, Berkeley. In a recent interview he told me that, because of the ease with which private financing is available, the average startup is waiting a lot longer before going public.

How easy is it to get private financing? Take a recent comment from Stewart Butterfield, chief executive of Slack, the corporate-messaging app that last month raised $160 million from a handful of investors and is now valued at $2.8 billion. Butterfield told the New York Times: “It might be the best time for any kind of business, in any industry, to raise money for all of history, like since the time of the ancient Egyptians.”"
And from the comments:
Hulbert has a good point. There certainly isn't the exuberance of past stock market bubbles, but there is a bubble nevertheless. It is a bubble in credit. Many have cited the PE ratios as the reason that this is not a bubble. They fail to realize that the current PE ratios would not even be possible if companies had not leveraged up with debt. In 1980, there were 60 major companies worldwide that possessed the coveted AAA rating. By 2000 that list had dwindled to 15, and today there are only five. When growth slows, revenues decline. If a company is leveraged with debt, even a slight decrease in revenue can result in default on that debt. Governments have also leveraged up with debt. In 2008, the global debt was $147 trillion, and today is $200 trillion. Debt is growing exponentially, like the shape of a hockey stick. We are at the "hockey stick" moment. Tick, tock!
Nothing to see here, move along now...