Must-Read: Matthew Yglesias: People Worrying About a Technology Bubble Keep Making This Mistake

Must-Read: And another clarification-of-thought exercise from Matthew Yglesias. The displacement that is the rise of asset prices caused by a fall in safe interest rates may trigger a bubble. But the mere displacement itself–and the fact that asset prices will fall should interest rates rise and “normalize” is not a bubble: it is a carry trade, a tradeoff of higher returns now against a risk of capital loss later.

Study the thought of Matthew Yglesias diligently in an effort to attain correct thought and the true knowledge!

Matthew Yglesias: People Worrying About a Technology Bubble Keep Making This Mistake: “We’re… in something… a bubble of bubble calls…

…But here’s a crucial point: this isn’t what a bubble is. Low interest rates are not irrational exuberance. They’re not mass hysteria. They’re not hype. They’re not a search for a greater fool. They’re not overconfidence. They are very real…. If you want a safe financial asset these days, you need to accept a very low nominal rate of return. That genuinely makes other asset classes–everything from houses to ordinary stock shares to zany digital media startups–look more appealing…. And that makes it eminently reasonable for the price of riskier asset classes to be higher than they would be in a world of higher interest rates…. [This] is an example of asset prices being driven by the fundamentals. It’s the opposite of a bubble…. I think Spiegel means… that these conditions won’t last forever. Which is true…. But ‘future valuations will change in response to changing objective conditions’ is a totally different claim from ‘today’s irrational mania will evaporate and prove to have been a mirage.’

Most unicorns look like bubbles. General elevated prices of risky assets–and tech assets are really risky–are not.

June 4, 2015

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