A summary: Do we have a new tech bubble or not?

 Yes! We do have a tech bubble

• The online game company Zynga used to be valued at $15-20 billion - as much as the combined value of the world's two biggest video-game makers Electronic Arts and Activision Blizzard - while having a weak business model.
• 60 percent of the Internet companies that have gone public since 2010 are trading below offer price and buyers of the shares at their opening trade in the public market have lost an average of 32 percent. This could also be a sign that we don't have a tech bubble depending on your view of it.
• Facebook has about 1 billion users and is valued at $100 billion - one user is worth $100. This doesn't have to mean that a smaller company with less users can value their company at $100 per user.
• Smaller companies are getting investments from investors because they are desperately trying to find the next Facebook. The investors also have too much money so they don't know what else to do with it, except investing it in companies with business models they don't really like.
• Investors have begun to prefer companies making no money - because it is easier to sell them to someone else at higher values - compared with companies making some money. It is easier to sell a vision if the company doesn't make any money at all.
• Free is a dangerous business model. A company has to make cash. Many companies have plenty of users - but almost no earnings - and their goal is to sell some kind of user-behavior-information to other companies. For example, Pandora have 100 million users, but no earnings and the plan is to sell information about those users to other companies. But no-one knows how much money that type of information is worth - could it be zero?
• Quotes like: "P/E ratio is a flawed metric to use when talking about what some of these new startups are worth." have started to appear. Isn't that exactly what everyone said during the last tech bubble? "This time is different - we don't need those silly accounting metrics anymore"
• The Swedish newspaper SvD has created a special blog with the name "Silicon Valley" covering only tech companies

No! We don't have a tech bubble

• Zynga and its games are actually becoming consumer brands, and there is a lot of recognition for growth potential.
• Large tech companies are not over-valued: 
• Apple (14 P/E) 
• Google (18 P/E)
• eBay (16 P/E)
• Yahoo (17 P/E)
• Facebook bought Instagram for $1 billion - but Instagram was also Facebook's largest competitor
• While it is easy for smaller companies to find investments, it is harder for larger companies.
• Media are reporting about the "tech bubble 2.0" because they didn't report about the latest tech bubble until after it had exploded.
• The tech bubble 1.0 was more about spend your money fast, hire people as fast as possible, go public - and run! Today, many companies have a high valuation, but they hire more engineers to create a great product and are spending less money on stupid things such as champagne for breakfast.
• People from outside of Wall Street are still remembering the last Tech Bubble and are afraid to do the same mistakes again.
• In an online survey at the Wall Street Journal, 66 percent thought that we are in a new tech bubble. But, if there is a general consensus view that an asset is in a bubble, then it can't be a bubble. A bubble almost always happens quietly while everyone is a believer of that "this time is different".

Updated: 2012-05-15

Source: The Economist, Bloomberg, sfard's posterous, Chris Dixon, Bits, Seeking Alpha, TechCrunch, Seeking Alpha, Hacker News, lundxy, SvD

Are you happy now Peter Thiel? Technological progress is here!

In the earlier post, Peter Thiel has a solution to the global crisis, Peter Thiel was asking the world for more technological progress. He said:

"What's desperately needed in our society is companies that represent genuine progress, not just frantic change from one fashion to another."

Well, here are 3 companies with a mission to do just that:

RYNO motors

No-one has probably missed those Segways that were supposed to revolutionize the way we travel. You might see one or two of them in your city, but the concept as a whole never took off. The problem was that they were too expensive to purchase for the individual, and the way you travel on them is a little bit uncommon. We are not used to stand up when traveling - we prefer to sit down. The company RYNO motors has a better concept - a Segway looking like a motor bike - but with one wheel only.




The RYNO bike should work better compared with the Segway because it's less expensive ($4,500), it's more natural to sit down while going somewhere, and it's also a little bit cooler since it looks like a motor bike while the Segway looks like a hand truck.

Planetary Resources

The goal of the company Planetary Resources is to mine asteroids for commodities. It sounds like a joke from April fools day, but this is the real deal. Some of the members of the company are the movie maker James Cameron, and the Google founder Larry Page. From one asteroid, they could make as much as $20 trillion.

Inscentinel

The mission of Inscentinel is to train bees into fighting terrorism. The bees are going to detect explosives and drugs. I'm not really sure, but hopefully these bees can also be trained to detect landmines.

Is Kevin Rose worth one billion dollars?

A couple of weeks ago, the social network Facebook bought the company Instagram for $1 billion. Instagram was launched in 2010 and is a photo sharing program where you can share your pictures with people through other social networks. Little is known exactly why the CEO of Facebook, Mark Zuckerberg, decided to buy Instagram. Some say Facebook panicked when they saw how many users Instagram got and they thought that Instagram was a threat to Facebook. For example, more than 1 million people downloaded Instagram's new Android app on its first day of availability.

One other threat to Facebook is Google's own social network: Google+. Much has been written about why Facebook bought Instagram - but little has been written about Google's own "purchase" some weeks ago. They didn't buy a company - they acquired a man with the name Kevin Rose.

Kevin Rose is famous for creating the social news website Digg in 2004. Digg is a service similar to Trejdify where you submit links you like and vote on the best links. After leaving Digg, Kevin Rose created the company Milk and they launched an app with the funny name Oink. For some unknown reason, Kevin Rose decided to shut down Milk and join Google+. The question is: Should Facebook be afraid?

If you analyze why Google+ hired Kevin Rose from a psychological point of view, you realize that Facebook should be afraid. Kevin Rose is quite popular on the Internet. He has 1.3 million followers on Twitter (@kevinrose) and his dog Toaster has 4800 followers (@toasterpup). One can say that he is an authority to many Internet users - if Kevin Rose says something, his followers will follow. If Kevin Rose starts wearing a pink rabbit suit, some users are going to follow him.

According to the book Influence, it has been proven that we as humans follow authorities. We are trained from birth to follow authorities and information from a recognized authority can provide us with a valuable shortcut for deciding how to act in a situation. For example:

• A nurse may listen to a doctor even though the nurse knows the doctor is wrong - what would make common sense in this case is irrelevant since the doctor is an authority
• People follow someone in a black suit who walks across the road despite a red light - they didn't follow someone not dressed in a suit

It is hard to put a number on how many people may follow Kevin Rose from Facebook or Twitter to Google+ - but one should expect many of them. And as more people join Google+, more will follow, and in the end maybe Kevin Rose was worth $1 billion dollars.

Update: A link at sources to Kevin Rose's Google+ account

Source: pandodaily, CNN Money, Wikipedia, Wikipedia, Google+    

Peter Thiel has a solution to the global crisis

Peter Thiel is the hedge fund manager who held a lecture at Stanford. Only 6 people showed up to the lecture, and one of those was Max Levchin. After the lecture, they started to talk and the talk ended with the decision to start the company PayPal. In 2002, PayPal was sold to eBay for $1.5 billion. In 2004, Peter Thiel made a $500,000 angel investment in Facebook for 10.2 percent of the company. He is not afraid of the current high valuation of Facebook - or the high valuation of other technology companies. This is probably not another Dot-com bubble since businesses today are being built more slowly and the valuations are still high - but not as high as the valuations were in 2000 during the Dot-com bubble.

The problem today with the world economy is that we are not moving forward in terms of progress - we are almost moving backwards. Technological progress only seems to occur in areas such as the computer industry and the finance industry. Companies are only solving small problems, creating features, and few are addressing the world-changing, hard problems. Examples of past world-changing problems are flying to the moon or inventing the first car.

"What's desperately needed in our society is companies that represent genuine progress, not just frantic change from one fashion to another."

We used to build faster cars, and faster aeroplanes such as the Concorde - but Concorde stopped flying in 2003 without a replacement in near sight. We are currently flying as fast as we did in the 1970s. One another example is alternative energy. The price of oil is higher today compared to the 1970s - but alternative energies are still expensive. Yet another thing is medical drugs - there are only 1/3 of new drugs in the pipeline that there used to be 15 years ago.

Regulations are the big problem. Entrepreneurs can't take the risks they need to create technological progress, and that's also the reason to why we today have an economic crisis. It's much harder to get a new drug through the FDA process since it takes a billion dollar.

"I don't even know if you could get the polio vaccine approved today."  

Another example is the Golden Gate Bridge. It took 3.5 years to build the bridge in the 1930s. They are currently building an access highway on one of the tunnels that feeds into the bridge, and it will take at least 6 years to complete.

Peter Thiel is negative to the governments trying to spend money to get out of the current crisis. It won't work since we have no technological progress. We did have technological progress in the 1930s - which is why we got out of that depression. For example, the movie industry, the aerospace industry and the plastic industry were developed back then.

The question for the US and Europe is how to restart growth? But the real solutions are not being discussed by politicians. Members of the Obama and Bush administrations are not engineers or scientists, so they can't really discuss the solutions anyway. John F. Kennedy could talk about the nuts and bolts of the Apollo space program and all the details of what was needed to make it happen - politicians don't do that today. 

Peter Thiel is a fan of Ron Paul and shares some of the arguments made by the Tea Party movement. The government is inefficient and it can't do anything right and only wastes money. What the US has today is an extremely big government - somewhat a socialist government. The problem is that the current US government doesn't have a five-year plan as the socialist governments had - it has no plan whatsoever!

To restart growth, we need lower energy prices. The US should build more nuclear power plants - they are the best way to get energy without affecting the climate. We need more realism and start to build things that work - and we need less "environmental-minded" people. Peter Thiel prefers things that actually work. Politician tend to get more and more environmental-minded to get re-elected - but that's not the right way to go. The question to ask when finding new energy sources is:

"Can you get it to work at a lower cost than existing technologies?"  

Peter Thiel also thinks that we should be more equal. In terms of inequality, we are back at the levels from 1789. Large inequalities has only been ended through communist revolution, war or deflationary economic collapse.

Source: The American Interest, Idea Overload, Wikipedia, Founders at Work

Can banks manipulate food prices?

Speculations in food commodities, such as wheat and corn, by banks and hedge funds have risen from $65 billion to $126 billion in the past five years. The problem seems to be that the banks are not interested in the physical commodity - they just want to make money. One example is the wheat-market where 61 percent of the buying or selling are made by banks. This could create a fake price which is higher (or lower) compared to if banks were not allowed to speculate in wheat.

If the price of wheat increases, poor people may not afford to buy enough wheat to feed themselves. The country of Armenia has been affected by these higher food prices. The poor in Armenia did reduce their food consumption with 14 percent and the middle income group reduced their food consumption with 5 percent.

In theory since we are living in a market economy, a higher price should result in a larger supply of wheat. Farmers are more motivated to supply the market since they get a higher price and new farmers should start growing wheat. This may however not always be the case.

Food prices reached a 30-year high in 2008 and the result was that "food riots" occurred in various countries. After the crash of 2008 where food prices fell, they have now recovered. This has resulted in a "silent tsunami of hunger", according to the UN World Food Programme. High prices combined with the global economic crisis has increased the number of poor people with 115 million, to a total of 925 million.

The experts disagree whether speculation actually increases food prices. Other factors that may affect food prices are:

• Climate shocks such as the large forest fire in Russia a couple of years ago and the great flooding in Australia. Post-election violence and drought affected food prices in Kenya
• The world population increases each year and a higher demand for food results in higher prices
• High oil prices are resulting in higher costs of supplying food. Some farmers are using their crops to create bio-fuels and not food for people to eat
• When speculating in food prices, you can actually sell something short that you think is overvalued and make money if the price is moving lower. The article from The Independent says "investment" in food commodities when a better word is speculation - or trading. If a bank thinks the price is overvalued, it may sell the commodity short, and the price may move lower again. It is hard to manipulate a price long-term since we are living in a market economy where a higher price results in a higher supply
• Goldman Sachs made a profit of about $950 million from food speculation in 2009. But who lost $950 million - was it individual farmers or other banks?  

Conclusion: It is still hard to determine whether banks are actually affecting the price of food commodities. They may affect it short-term, but when the price is overvalued, the banks may sell the commodities short which will drive the price lower again.

The big question here is if banks should be allowed to speculate in commodities when they are not interested in the physical commodity? The main point of being able to speculate in commodities used to be a way for farmers to decrease their risk of future price changes - not a way for banks to make money.

If you would like to learn more about the commodities market, please watch this video:

Source: The Independent     

Can governments really create jobs?

Lower the current high unemployment rates around the world is not an easy thing to do. Some argues that unemployed people should create a job - and some argues that it is up to the government or the "rich" to create jobs. Like the famous quote by Larry Summers from the movie The Social Network:

"Everyone at Harvard's inventing something. Harvard undergraduates believe that inventing a job is better than finding a job. So, I'll suggest again that the two of you come up with a new new project."

In a recent survey on what should be done about the unemployment in the US, 16 out of 24 economists believed that stimulating the economy is the right thing to do. The problem is that they couldn't unite in exactly what should be done.

Bill Clinton - the former US president - has a couple of points he thinks that the US should do to create jobs:

1. There's a $2 trillion pile of private capital not being invested in anything. The capital is currently being hold in banks and this money could be used as a cash reserve so that banks can lend more money. US corporations also have $2 trillion not being used - this pile is supposed to be used for future compensation to employees and future dividend payments to shareholders. The money could today be used to create more jobs
2. End the current US mortgage crisis as quickly as possible by writing of bad debt - it's ugly and maybe not fair to everyone - but it will speed up the recovery
3. Find areas where the economy is growing - for example manufacturing. The current crisis has made it possible to manufacture more in the US 
4. Make it easier for highly educated people to move to the US. For example, the young CEO Amit Aharoni created the company Cruisewise - but he got kicked out of the US and had to move to Canada and run his company from there. This issue was however solved and Amit Aharoni could move back to the US again

Barack Obama once asked Steve Jobs what it would take to make iPhones in the US. Steve Jobs replied:

"Those jobs aren't coming back"

One big problem with moving back factories from countries like China is that the US doesn't have the infrastructure around the factories needed to create a proper supply chain:

“The entire supply chain is in China now. You need a thousand rubber gaskets? That’s the factory next door. You need a million screws? That factory is a block away. You need that screw made a little bit different? It will take three hours.”

If you want to create a modern competitive supply chain, everything has to be closely connected because of the delays happening when moving products around the world. It is easier to move finished products from China to the US compared with products not yet assembled. To simulate this supply chain, you can play the "Beergame" and find out the difficulties involved when moving unfinished products.

Related:

• What should Obama do? 
• Starbucks wants to see more people working

Source: Business Insider, CNN Money, mark[sweep]

Hans Rosling: When will Asia become a global player?

Hans Rosling is a Swedish professor of International Health. He became quite famous on the Internet after a lecture where he compared students with monkeys and came to the conclusion that the monkeys were actually smarter because they didn't have any preconceived conceptions. You can watch that lecture here: No more boring data.