The growth in tech stocks has been pretty insane imo. It's so easy to be afraid though and call this another 2000, but we really don't know what the future holds.
I wish Europe had it's own set of exciting tech companies. That would be amazing. As a human living on this planet, the more things available to me, the better. Unfortunately, Europe doesn't seem to do much anymore. Google "European growth stocks". I want them back in the game.
The problem is not the lack of exciting tech companies, but the ability - and interest - to retain them in Europe.
Money is cheap in the US, and most of EU countries are quite pleasant to live without obscene amounts of money in the bank (basically thanks to public services), so any good offer it's quite convincing.
Not to mention that EU governments don't see tech companies as strategic assets, unlike the US/China.
Another aspect of the absent tech boom in Europe is the structure of the public markets, they're basically bullshit compared to what happens in the US.
In the case of growth companies, it's definitely not a talent thing, the American financial system has a well developed pipeline for growing ideas and providing endless access to capital. Europe simply doesn't have that. We don't even have consolidated pricing for our stock markets, even after many decades under the EU, something the US has had since 1976. It's a joke, and no surprise all eyes are on and money flows into the US for speculative investment
> In the case of growth companies, it's definitely not a talent thing, the American financial system has a well developed pipeline for growing ideas and providing endless access to capital.
This doesn't just apply to growth companies, or tech. It's a fundamental difference for all companies no matter how you segment Europe.
It is a difference that I don't think Europe will ever get past because changing it will be viewed as an attack on beliefs and ideals which can't trade-off to be similar to those in the US or China.
The obscene amounts of funding in Silicon Valley seem like a reasonable consequence of the obscene amounts of profit funded companies sometimes achieve.
The obscene amounts of funding exist for various reasons. I don't disagree with it being bullshit, but the analysis of why this occurs is relatively straightforward. Implementing a solution to balance the situation is the difficult part.
Definitely agree with you here. It's insane to see one country sell all its energy providers —and communications, and infrastructure— to foreign interests. Some European countries have an unhealthy disdain for state control (and state ownership), which contaminated too many levels of the EU. So they end up playing by the rules when their competitors most definitely aren't.
It's not disdain for state control / ownership, but that officials are easily bribed and bought off. Add the historical reasons why EU was founded and voila.
Well the US only got cozy with big tech after it got big, not actually that different than EU policies you mention being around only existing big industries like automotive.
Only China has taken active steps in fostering those companies from nothing.
Big tech has been around for a long time it’s Big Tech FANG that’s new. Apple and Microsoft are not new companies. IBM is old school big tech that’s been cozy with the US Govt for a very long time. Fairchild was big with the government before they produced their first silicon integrated circuit.
The Fairchild days would be the general military industrial complex at work, and it's emphasis on R&D, not a special affinity for the modern tech company. Europe also has its privileged deference contractor.
I don't see anything happening regarding this. All money is going towards EU projects that are dreamed up by burocrats, and goes to either things that already exists, or flashy non-tech startups with good connections.
I don't know about western europe, but most of the tech startups in eastern europe have a sales/VC representation in the US for a reason.
The "growth" in tech has been entirely driven by monetary policy. Google or Facebook or Apple or Netflix or Amazon have done nothing special than what they've been doing for the last 5 years. I wish we were getting insane tech out of this bull run but the truth is there's no "innovation" behind it and their paper is just being used as a shield by investors which is why their stocks keep going up.
And Microsoft multiplied their profits a few times between 2000 and 2010 while their stock dropped 75%.
Valuations are important. Valuations are affected by the monetary policy/liquidity cycle. And Google's valuation is growing faster than any rational measure of economic value.
What? Any price history you look at is going to be split-adjusted. And okay, you got a $1 of dividends...you only lost $29/share out of the $60 you invested.
If it was established that they'd grow their revenues, then why was it still outperforming other asset classes by this much? Does Wall street have lacking models of how tech businesses grow? Or are people too risk averse to invest into tech?
What I don't get either is why quarterly reports in the current situation are so important for stock value in the current market climate, as in why did tech stocks soar so much after quarterly reports got announced? These numbers aren't showing anything other than how the companies perform in the current, corona-affected, economy and are not representative of how it's going to look like in a post corona world.
> why was it still outperforming other asset classes by this much?
Because the future is uncertain, and that uncertainty was baked into the price? And there's nothing to say that "baked into the price" has to be accurate... investors could have collectively read the tea leaves wrong.
> These numbers aren't showing anything other than how the companies perform in the current, corona-affected, economy
Which could be considered passing a stress test with flying colors - maybe people are interpreting this as "which businesses are robust or anti-fragile for a once in a century event". Or just as easily - maybe investors are betting there's a chance that some of this current context is the new normal.
I'm a little confused as to what you're trying to ask overall. Markets and investors aren't perfect, the future is uncertain, and random walks are everywhere.
Only some Wall Street firms use models to calculate cash flow and stock prices. A lot of them don't even care about such things. They just buy whatever has the most momentum, or whatever they think others love (Keynesian beauty contest), or whatever fits their thesis of the world.
Monetary policy and the fact that the big tech companies (and a lot of the smaller more "boring" ones) have almost universally resisted the effects of C19. A large part of the world being asked stay indoors means more spending on home entertainment (Netfix), more free time to melt your mind with social media (Facebook), more ad impressions (Google), more online shopping (Amazon), businesses needing a robust WFH infrastructure (Microsoft, Zoom).
This is all while "traditional" businesses have had governments shut them down or tell their customers to stay at home.
If you were an investor paying attention over the last 6 months you would be selling everything else and buying tech.
FB, Google, and Microsoft all lowered their revenue guidance they set pre-COVID. This stay at home situation has clearly benefited some companies (Zoom, Docusign, Amazon), but definitely not most tech companies.
I'm not sure your sample is representative here. Facebook and Google are primarily ad companies, and it's unclear whether the current situation would be a net positive or a net negative over the entire set of businesses that might advertise with them.
Meanwhile, markets like e-commerce, telecommunications and online entertainment are booming thanks to the stay-at-home culture, and no doubt there will also be an entire generation of new and/or rapidly growing products and services aimed at supporting home offices, flexible work patterns and more distributed teams.
I'm not sure we'll ever go all the way back to how things were now, even if someone discovers a perfect cure for the coronavirus problem tomorrow. I think when the dust has settled, we will have learned that it's often useful to have specialised workplaces, but also that working from home is fine for some people doing some jobs at least some of the time if they want to. I suspect we'll see some big, permanent changes in industries like retail as a result, and that this in turn will sustain at least some of the boost that a lot of tech stocks have received recently.
There are many non-ad companies whose revenue has not accelerated at all due to covid such as Salesforce, IBM, Atlassian, and DropBox. Sure most of them have not been terribly impacted as well, but the idea of “digital acceleration” simply has been a buzzword, not a reality.
Even for some companies that have had some boost, the spike in share prices has been over exaggerated. One glance at the price movements and it’s fairly obvious. A company like DataDog or Fastly is NOT 2-4 times as valuable just because more ppl are working from home. This market is 99% fed-induced, and 1% actual fundamental improvement
"Of the $10 billion on offer, the $1 billion five-year tranche was issued at a coupon of 0.45%, the lowest coupon seen on a U.S. corporate bond at that maturity, according to Refinitiv data, which goes back to 1980."
"The SMCCF, initially funded with $25 billion of equity from Treasury, will leverage its equity ten times when acquiring corporate bonds from investment grade issuers and ETFs whose primary investment objective is exposure to investment grade corporate bonds. It will leverage its equity seven times when acquiring corporate bonds from issuers rated at below investment grade, and from three to seven times when acquiring other eligible assets, depending on risk."
So if you're a large corporation capable of selling bonds you can get a loan for far less than even the extreme low end inflation predictions. The big tech companies have the ability to take advantage of the current climate.
One way to juice the economy is just print more money and give it to everyone. Everyone's richer, yay! Except you haven't increased production or necessarily consumption, so prices will just equalize to the new money supply and you get consumer price inflation.
For QE, we got smarter, and just gave all of the money to the bankers, because that's what all the economic experts who work at banks said to do. So all of the inflation happened in assets held by banks and rich people instead -- tradeable securities and real estate in coastal areas.
Got it. I suppose this explains why there wasn’t an increase in the price of consumer goods following the billions of COVID relief pumped into the economy. Correct?
Also, we have an annoying amount of red tape from both the UK itself and, at least for the immediate future, the EU. It gets in the way of starting a business, but worse, it gets in the way of taking significant steps necessary to grow a new business like taking on your first employees.
If you've got months or years of runway from external funding, that's irritating but not a big deal. You hire someone to deal with it and get on with more important things.
However, if you're bootstrapped and at first it's just three friends working out of someone's garage or a family business with an office in the dining room, that red tape can be a significant overhead that holds your business back from taking on staff and dedicated facilities and so on.
Given this culture, it's hardly surprising that a lot of UK start-ups with ambitions of hockey stick curves look to the US for support. The alternative is fighting your way out of being a lifestyle business for some number of years, at the same time as trying to do whatever it is you do that actually has value.
I wouldn't make the argument that regulations get in the way without specifying which one. I would make the argument that, philosophically, Europe is very conservative and risk averse in terms of terms of releasing funding. For the purposes, of this argument, I'd also ignore states and political unions. However, you segment Europe, the result tends to be same.
This is at all levels of banking and financing. In the US, the balance is very different for almost all types of business. Of course, you can find exceptions, but investors will engage without the level of due diligence, or qualification, that is required in Europe.
I don't think it prevents a bootstrapped business from doing well. My own are proof that this is not the case.
I do think it makes growing a business slower and more expensive than it needs to be.
Some examples that come to mind from from recent years are the Consumer Rights Directive (soon to be superseded, but the UK will probably have fully separated from the EU by then), the GDPR and ePrivacy Directive (ditto), and the VAT rules (of which there are so many variations depending on context that I won't even try to list them all here).
To be clear, it's not that I object to things like strong consumer protections or privacy rights. On the contrary, I am a strong advocate of such things, and my own businesses have never done the sort of shady stuff in these areas that tends to attract criticism. I just find the EU's approach to these things unnecessarily onerous and not always effective at achieving its intended goals anyway.
Starting a business is easy. I've personally done it in the early 2000s, and it's easier today. However, it's structured for traditional businesses which produce returns relatively early.
It is not structured to support "startup"-type companies like those in the US. Yes, Silicon Valley is the focus on HN, but the range of options beyond what you find in the UK is available in many more places than just SV.
In the UK and Europe you can potentially find an angel investor. Once you go to the next levels of finance then it gets tougher. In the US, you have access to the next level of VC finance which comes from a relatively large pool. Most financiers in Europe tend to be conservative, although there are efforts to change that. Hence, companies flipping to being US-based.
You want an office? Welcome to the wonderful world of business rates, commercial lettings, site security, ever-changing transportation and infrastructure arrangements that will be largely out of your control, etc.
Hiring your first employee? Welcome to employment contracts, documenting policies for things like grievances and disciplinary actions that you hope you'll never need, arranging pension plans, H&S regulations, statutory leave, benefits rules, and all the other HR fun and games.
Providing a service online, where your customers might come from abroad? Welcome to international tax regulations that you can barely keep up with, never mind properly comply.
Don't want to have users steal back all the revenue you ever took from them based on a legal technicality? Better have a good lawyer to write all your documents.
Don't want an intervention by the data protection regulator? Better make sure all your GDPR compliance processes and documentation are up to standard.
Remember to file your real-time payroll data and VAT returns and confirmation statements and annual financials on time. Don't forget you'll need to use suitable online systems for a lot of this stuff now, since HMRC insist on it, and you'll need to get anything else you're using for financial management integrated with them.
Don't forget your public liability insurance. And employer's liability insurance. And professional indemnity insurance. And property insurance. And...
Now, you can outsource a lot of this work. For some legal and accounting matters, you will have little choice, unless that happens to be your field of expertise. But of course the services offering to do it for you will charge you, and even if it's just a thousand pounds here or 3% of your revenue there, it will soon add up. Until you're big enough to have in-house people for things like HR, facilities management, IT, legal and financial, that's how it goes.
Now, run along and make sure your designated H&S officer has checked that all your employees currently working from home have suitably ergonomic workspaces set up, recent sight tests done and glasses/contacts provided if they're working with computers, and proper reporting in place for all the extra expenses they'll be claiming due to the sudden home-working this year, because you could be on the hook for a big bill if you get any of that wrong.
While I can't tell how you feel about these things, most of it sounds pretty good, from an employee perspective.
Sure, there's stuff that is infuriatingly misguided, but all in all I rather like living in a place that puts the onus on the employer when it comes to all sorts of financial and practical issues that an employee might deal with.
I definitely don't want things to be more like the US, much as it complicates things for myself as an entrepreneur and employer.
It is good from an employee perspective. For example, in a country where a lot of people aren't saving enough for retirement, there is logic in saying that employers must make pensions available to their staff as part of their compensation package.
The problem, as always with these things, is that this only helps you if you're employed in the first place. If the burdens of taking on a new employee, particularly the first one, are too high, then that lifestyle business run by its founders will remain a lifestyle business run by its founders, possibly for years or even forever.
Similarly, if you're a customer shopping for clothes online at the moment, it's great that UK consumer protection law requires vendors to give you 14 days after delivery to change your mind and cancel the purchase, and the vendor must accept the return without charge if you do. You can buy multiple sizes or colours to try things on, or just try a few different styles to see what you like, and then send the rest back, and all it costs you is a bit of postage.
It's less good as a merchant, when the reality is that a significant fraction of your returned items will come back unfit for resale and unless you can prove they didn't reach the customer already in that state you'll still be on the hook for the refund. Even for goods that do come back in as-new condition, you'll still have to go through the whole restocking process and you'll be missing that stock for as much as 28 days. Generous return policies didn't matter quite as much a few years ago when the law was introduced, as most people were still shopping for their clothes in bricks and mortar stores and would try things on in-store before buying. Right now, with fashion retailers going bust all over anyway, this surely isn't helping.
Feels like the big difference is people threw money at tech stocks last time in a bout of speculation, they're throwing money at them this time in a flight to safety.
Unfortunately, Europe doesn't seem to do much anymore. Google "European growth stocks". I want them back in the game.
I don't want to hijack this thread, but why is that? Apropos to the political situation in the US right now (ugh), it's a constant point of the right wingers that you should vote for them because we don't want to become like them.
I honestly don't know the answer. Tech didn't suffer under Obama, but he wasn't particularly liberal. I wonder what the simulation of a left wing POTUS would do for Americans.
"Pour water into your wine to create more wine" sort of scenario. Why nobody is talking about the USD being diluted and the inflation effects are embodied in virtual equity valuations?
If that's the case, one would expect the FX rate changes to equally increase European market valuations, if USD is the unit of account (numerare). If the Euro were being diluted at a rate that kept FX rates in check, then one would expect that to equally buoy European market valuations. So, there may well be something to be said about USD dilution, but I don't see how it affects the relative market capitalizations of the US tech sector vs. the Eurozone markets.
Most world economies keep their reserves in USD or are highly leveraged with USD transactions. The denominator by which everyone has to abide by is the USD and its probably why the relative advantage you are speaking of doesn't present itself.
Not necessarily. It's all supply/demand driven. Just because there's a sudden increase in money available, doesn't necessarily mean everything is going to inflate in valuations. Only things that are in demand will inflate.
Take it this way: If everyone who received a stimulus check this year went "Awesome I'm going to go buy 30 turkeys with this stimulus money!" - The price of turkeys would skyrocket as the demand for turkey's skyrocketed with all the additional money available, but the supply of turkeys didn't proportionally increase. However, the price of shirts would remain relatively the same as the demand didn't skyrocket for shirts. And this effect applies to foreign currencies/foreign stocks... as they're just another thing you can trade dollars for.
This is also why CPI is a garbage metric for inflation. It only tracks certain things, it doesn't track things like stocks or real estate...
Today people mostly have what they need. With all this additional money they received, most go "where do I put this money? Eh may as well put it into stocks..." And they buy stocks that they think are stable and good investments - and only those stock valuations inflate.
Virtually no one is talking about us moving to "zero reserve banking" in March. It happened under the radar. I'm not an economist, but at the very least this seems like it is a huge deal and at most an indicator of impending catastrophe.
Because most investors don't believe that the USD is being significantly diluted? I know the idea that inflation is just around the corner is big here on HN, but it's not a big concern on financial markets. The inflation implied by TIPS is only 2% (the Fed target). The value of the dollar is down maybe 10% from last year.
> The value of the dollar is down maybe 10% from last year.
Which makes USA tech companies even more valuable as they do a significant amount of business overseas. They report in USD and converting those Euros, etc into USD means more USD. All the while not having to pay more for imported materials, etc.
I'm confused because back when I had a 401(k) I managed it and chose what investments the money went into. So I don't see how that money would magically flow into private equity? Unless they mean mutual funds could start investing in private equity? But this would show up in the prospectus would it not? Or are they just arguing that many Americans are completely ignorant and oblivious to what their 401(k) is invested in and would accept private equity investments because they blindly follow advice?
Look at the mathematical facts: most people live paycheck to paycheck, have no rolling cash savings let alone an emergency fund of months.
You think that is a sign most folks are paying attention there very well?
But what’s that mean if they do anyway?
If everyone has a cool million is that some sign we have enough real supplies to go around in a crisis? To satisfy that potential financial demand of cash for real product?
We weren’t producing enough TP to handle a short run on supplies. All energy spent on big finance is purposeful indirection away from truth.
You're presenting this as if investors have no choice in the matter. As far as I know, there is 401k transparency meaning that investors know what their money is invested in.
On top of that, all companies I've worked for in the USA allowed me to choose exactly how and where my money will be invested.
Nothing described by the article you posted lets me think that this will be no longer the case.
You are aware that’s possible. Not everyone is. Employers at a lot of companies just pick a default and employees forget about it.
It’s not reasonable to expect the masses to babysit ephemeral inventions that they aren’t ever aware of.
Ok, man. Yep we should all just stick in our heads this is of course proper application of agency defined “for us”. Paulo Freire is rolling over in his grave.
This culture is falling apart because it’s looking for financial efficiency above all else, not emotional resiliency. Just gonna ignore whatever immutable aspects of reality get in the way of that.
You can, but if everyone tried that at once then the price would fall, and most people wouldn't get as much money as they think they now have. So in that sense company valuations are not real. We might pretend that Tesla is worth 2100 USD per share until someone shouts: "Emperor is naked"
> And I can use that price to turn my stocks into real, hard cash
you can - but if good fraction of the stockholders were to lose hope and start selling stock the market value would evaporate into thin air very quickly.
OTOH if the value of those stocks was 80% backed by stable assets (production plants, building, land, gold, ...) it would evaporate much less quickly.
That fits the definition of virtual, speculation-based, value.
I mean, in a lot of cases, it's backed by cash flow. I get what you're saying, but FAANG stocks aren't these pie in the sky high P/E kind of stocks: they are delivering insane revenue and gross profits.
It is worth understanding that the European stock market, bar the UK and possibly Sweden, isn't like the US. Most companies finance themselves through banks. Whilst Europe as an economic unit is larger than the US, capital markets are still basically non-existent (bar the efforts of the ECB to throw cash at anyone who raises money from capital markets).
Also, the rise of tech stocks is significant not only relative to other economies but relative to other large stocks in the US. The S&P500 is more concentrated than it has ever been and is pretty close to what you see in emerging markets (where the top 5 or so stocks make up a huge chunk of the total index).
Yeah, a lot of people don't realize how market cap weighted actually gets you a not very diversified portfolio. For example, if you hold the S&P 500, about 8% of that is Apple, 6% is Amazon, 6% Microsoft, and 4% Google.
So 25% of your capital is going to 4 names, all in the same sector. Meanwhile, the smallest holdings will be under 1%.
Though market cap weighted is good for avoiding trading fees (you don't have to rebalance when the price of a stock changes), it's bad for investors. Not only do you miss out on some diversification, you end up with undue exposure to only a few sectors and you miss out on Fama and French's size factor by only investing in large companies.
The size factor has lost money pretty consistently. It is also a very suspicious factor generally because there are very obvious non-risk factor explanations (i.e. liquidity). Just generally, FF do very irrational things with their models (i.e. not including momentum)...they are credible but the way they do things is obviously not quite correct (Fama spent decades saying this kind of thing was totally impossible).
Market cap weighting is fine, if you actually end up with something reasonable...which you don't anymore. I wouldn't really recommend equal weighting either...so...
Maybe I have it wrong, but I would replace "are now worth" with "are now valued", I always feel like "worth" to be more suitable to something more tangible than stock values, which are often crazy on both sides of the pond.
Europe growth in the past 12 years has be pretty anemic for the past 10 years. Look at the GDP per capita growth of lets say germany and you get a real good idea of how mismanage their economy has been for the past decade so this doesn't surprise me.
You can google german gpd per capita and get the information from the world bank with a interactive chart.
The German gdp per capita in 2008 was 45k in 2018 47k. The US in same time 48k to 62k. If your country growth rate is number is that slow of course you are going to lag behind
I would argue tech isn't high because of the value of it but instead it is a combination of being seen as a safer investment while also having potential for growth that outstrips inflation.
If there is a company that is only growing slightly year over year, then due to the loose money policies of the fed, they won't be able to make your real money adjusted for inflation.
Bit another issue may be that as Matt Levine likes to point out private equity markets are the new public markets. So the question is what will be the next step in financial engineering?
What's the benefit of lumping all these companies into a single bucket and calling it "tech?" Looking at it as an investor, it's a distracting term. When the pandemic hit, did Uber start making more money like Amazon? If more countries pass laws like the GDPR, will that hurt SalesForce as much as Facebook?
The pandemic is a great test for how we look at the market. If two companies fare wildly differently in an extreme event, were they every really in the same category? If you own a department store, don't "diversify" by investing a lot in Amazon. You'll just get a double whammy whenever disposable income is hurting.
In addition to information technology, because a lot of them also offer cloud computing or other kind of developer-targeted services:
Apple: Consumer discretionary (electronics)
Alphabet: Communication services (advertising and fiber networks), health care (mostly research), financials (investing), whatever urban planning is classified under,
Microsoft: Industrials (office services), communication services
Facebook: Communication services (chat apps and advertising)
I could be totally off base, and investors do ignore the "tech" label. But from what I've heard in the news and seen in discussions, it doesn't seem so.
I wish Europe had it's own set of exciting tech companies. That would be amazing. As a human living on this planet, the more things available to me, the better. Unfortunately, Europe doesn't seem to do much anymore. Google "European growth stocks". I want them back in the game.