“Where’s the kaboom? There was supposed to be an earth-shattering kaboom!” -Martin The Martian (Warner Bros.)
In his Twitter bio Marc Andreessen used to use the above quote from Martin The Martian (one of my personal all time favorite cartoon characters I’ll add) for shrugging off, or deflecting any talk about another tech bubble bursting. At the time it was an easily defendable position, because the facts appeared (and I use “appeared” for a reason) to allow it. This was circa 2015.
(Note: This isn’t a hit piece on Marc, for I respect him and his viewpoints. This is about mindset and how everyone became enamored, then ensnared – again.)
On February 5, 2016 the once unthinkable happened: One of “The Valley’s” most coveted touchstones as to prove the reasoning, as well as proof “It’s different this time” share price fell – and not gently.
The once darling of Wall Street, LinkedIn™ saw its share price collapse 40% in one day after slashing its guidance to fall below its $45 IPO price. At the time, a near unthinkable (let alone believed) event for such a tech stalwart.
Here’s what I said about the event from the article, “Dot Com 2.0 – The Sequel Unfolds” To wit:
“The real issue was, it had nothing to do with “getting it.” It’s all been about Silicon Valley itself acting and arguing as if the past were irrelevant. Now many are coming to a very stark realization that the Valley may in fact once again have repeated all the same mistakes.”
“Far too many believed all their own press; and acted, spent, and mal-invested in ways that may eclipse the prior folly. Yes, welcome to Dot-Com 2.0. Where unicorns and more are bursting into spontaneous combustion in ways far more spectacular than previous. For it can all be viewed and commented on via the very creation that fueled it: Social media. I garner the news of this unravel will overtake these platforms with a speed, viewership, and voracity that could make the Kardashians jealous.”
“The kaboom now has a name, place, and can be seen and heard by anyone brave enough to not avert their eyes or ears.
It’s called LinkedIn™.”
Since that time the-cult-of “The-Valley”, along with many across the media, have done nothing more than give some lame reasoning as to why it happened, then tried to spin the event as actually a “fantastic opportunity!” Or said differently – since nobody else seemed to want to buy the stock, but now Microsft™ would/did? “Party on dude!”
I said at the time that showed as de facto proof that if there was real value at those higher prices – why wasn’t anyone buying in at such a “great discount?” (insert crickets here)
It took a little over a year for the effects of the Federal Reserve’s cutting off the quantitative easing (QE) spigot for the cracks to begin in earnest. But begin they had – have – and continue. LinkedIn was just the first true “kaboom” event. But they were everywhere – if – one bothered to look in the first place.
Another has been the once IPO stable of the “indestructible unicorns” which had/has been reduced to more of a barnyard resembling a collection of, “old grey mares that ain’t what they used to be.” (i.e., Does Uber™, or any other for that matter and its narrative today look anything like the Uber of 2016? 2015? 2014? 20??)
I made note of this phenom in May of 2016 when the still “happy talk” was being laid on so thick via the next-in-rotation fund managers across the entire financial/business media landscape it would make a snake oil salesman envious. Again, to wit:
Now, well over a year later, we no longer need to speculate: They’ve basically turned into what their “unicorn” moniker implied all along. A thing of lore, built on myth, for when one of the few that actually did get dressed up, lipstick applied, and hit the big stage and lights? Everyone could see even from the back-row – it was nothing more than a “pig in lipstick.” Hint: Snapchat™
So here we are today in June of 2017 and the question that begs to be asked and answered is this: Has it gotten any better? Answer: Not only has it not, it’s gone from bad to worse, and maybe heading towards catastrophic as in hints of: “Dot-com”
For some further clues here’s what it currently looks like in the investing landscape known as “V.C. world” (i.e., venture capital deal making.) Below are some of the types of headlines contained within a report about the current outlook of V.C. from PitchBook™dated April 25, 2017. To wit:
“Activity and deal value have started the year off slow”, “Angel & seed deals have seen the deepest drop”, “First financing activity has fallen for seventh consecutive quarters”, “Growth equity deals have declined in count and value during recent quarters”, and last but certainly not least there’s this one – “More than 50% of 1Q deal value was in West Coast-headquartered companies.”
Why is the last one so important you ask? I only point it out for its significance if an actual turn is at hand and takes hold, once again, it will be “The Valley” hit the hardest and quickest. (i.e., By “turn” I mean a precipitous drop or sustained sell off.)
I also believe that process has already begun. In other words: The rarefied air has indeed turned to exhaust fumes and the sputtering sounds reverberating everywhere are the warning sign they may be about to enter the “seized engine phase.” The above article tends to validate (in my opinion) what I’ve been suggesting all along. (another hint: look at just how “innovation” stagnant Apple’s WWDC appeared. And they’re supposedly “the” leaders!)
On Friday the sell-off in the coveted FANG, FAANG, FAAMG, (or whatever acronym and symbols one wants to use or add in) exposed for all to see a troubling new realization, and was this: The cue now – is to sell first, question later.
This is eerily reminiscent of the type of market behavior during the beginning stages of the dot-com calamity signaling strong indications that there was much more going on beneath the surface than just some generic sell off.
This also in-turn revived that old phrase from Hemingway, “Gradually, then suddenly” to be the only true description of what transpired later as to describe it. It caught the entire “Valley” devotee off guard because no one thought (let alone believed) such was possible. And then – it happened.
I believe (and argued) we’ve been on the “gradual” slide since late 2014 with the ending of QE. We may have just entered the “suddenly” phase. No one knows for sure – but the clues are everywhere for anyone paying attention. And Friday was a big one.
On Wednesday the Federal Reserve has all but assured the “market” it will again raise interest rates. What the “market” does afterward is of course unknown, for they may, or could, (but I highly doubt it) decide to pass this time and bring on the “data dependent” excuse as to try to stave off any underlying panic styled rotational forces or correlated forced trades.
Again, remember the backdrop of Friday’s sell-off: out-of-the-blue, all the so-called “teflon” coated tickers.
If Friday was any clue, it may be this one: It may be setting the entire “market” for its own LinkedIn moment.
© 2017 Mark St.Cyr