When the superbubble bursts
Photo: John Thomas/Unsplash

When the superbubble bursts

Source Code

Good morning! This Monday, what do you do when the superbubble inevitably pops? Better get your mop ready. I’m Owen Thomas, and I write parody song lyrics to relieve the stress of coming up with Source Code ideas.

It’s not a tech bubble. It’s tech foam.

Are we in a bubble? Are we in a superbubble? And what happens when it bursts?

Bubble goo, probably. Or at least that’s how we thought about bubbles in the dotcom era: They end in a big, sticky mess that takes forever to clean up. But things have gotten a lot more complicated since then. A singular bubble that pops all at once isn’t the right mental model anymore.

Cash inflates bubbles. And the global pool of money just keeps swelling.

  • By 2020, gross savings in the U.S. and China combined had grown to more than $10 trillion, according to World Bank data. The pandemic only spiked the savings rate higher as households cautiously guarded cash. And those are just savings, not investments; the global stock and bond markets were worth nearly $230 trillion that year, according to SIFMA.
  • Some of those savings flooded into Big Tech: Even with recent market pullbacks, Apple and Microsoft are worth more than $2 trillion, and Alphabet and Amazon are also in the $1 trillion-plus club.
  • Then there’s crypto; The five most valuable coins are collectively worth roughly $1.1x trillion according to CoinMarketCap, and that’s after the #BitcoinCrash over the last few days that saw bitcoin, ether and other cryptocurrencies drop 20% or more.

So what do we call what we have now? Economist Jeremy Grantham says it’s a “superbubble,” which he defined as “simultaneous bubbles across all major asset classes” in a report his investment firm, GMO, issued Thursday.

  • Investors could lose $35 trillion if valuations retreated to historic norms, Grantham calculated.
  • You’ve heard from Protocol’s Biz Carson about the startup bubble. Axios’ Dan Primack thinks we’ve seen the peak in private-market valuations: “We know we're on the other side of the valuation hill because when we turn around, we're looking up.” And GV’s M.G. Siegler expects us to hit a “Great Deflate.”
  • SPACs and IPOs have had a rough year, and some work-from-home stocks like Zoom and Peloton have seen their prices slashed as hopes grow that the pandemic will ease.
  • But Ark’s Cathie Wood thinks the bubble is in the overall stock market, not tech stocks per se.

Another way to look at these multiple bubbles forming, inflating and popping is just the reality of late, very late, Apple’s-new-Focus-mode-blocked-your-alarm-notification capitalism. Call it tech foam. And you’re swimming in it.

  • Markets reallocate capital as investors react to new information. The pace of change is accelerating. There’s more new than ever, and more money chasing the new new.
  • Inflation is a looming threat. But inflation erodes the value of static savings. That only increases the desire for higher returns. But all that money has to go somewhere, so if one sector pops, another is waiting to soak up that cash. And if need be, creative types will invent entirely new kinds of assets (that NFT in your Twitter avatar is ever so fetch).
  • Don’t forget: In tech, capital markets and labor markets are more tightly tied than ever. Oh, so your employees’ options are underwater? When golden handcuffs get tarnished, valuable workers reallocate their human capital by signing out of Slack and mailing their laptop back.

By all means, panic. Panic is fun! The future is rarely invented by the understressed. Even if there is a superbubble, there’s more money on the sidelines. A16z is reportedly raising another $4.5 billion to invest in crypto. One founder’s bubble pop is another entrepreneur’s treasure, freeing up cash and people to chase a different dream. And the goo on your Allbirds? Just wipe it off. No one’s going to notice when we’re all racing forward.

— Owen Thomas (email | twitter)

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Thoughts, questions, tips? Send them to sourcecode@protocol.com, or our tips line, tips@protocol.com. Enjoy your day, see you tomorrow.

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