The dot com crash was tied to federal reserve interest rate increases that resulted in a sell off as investors moved towards less speculative investments.
I was working in the industry during the dotcom boom. And I can say with confidence that by the start of 2000, the startups had gotten very, very dumb. In many cases, they were dumber than the also-ran crypto and AI startups we’ve seen recently. A couple of them back in 2000 were my clients, though I tried to get rid of the dumb ones quickly.
There’s a critical moment in every bubble where you start hearing investment advice from normies at cocktail parties, and people start publishing books insisting, “This time is different and the market will go up forever!” When your non-technical grand-uncle starts button-holing you about obscure cryptocurrencies, then the market has run out of suckers. And a crash is coming.
The Fed will generally cut interest rates around this point, on the theory that if people have enough money to invest in ideas that dumb, it’s time to “take the punchbowl away.” There’s a bunch of economic modeling behind this, of course. But a good intuition is that if there’s enough money in the system to invest in thousands of extremely dumb companies, we probably have too much liquidity.
I suppose the AI bubble could genuinely be different, in that we might build SkyNet before the bubble collapses on its own. That would, I guess, represent the popping of the 10,000-year Homo sapiens bubble. But I’d prefer to avoid that.
I was working in the industry during the dotcom boom. And I can say with confidence that by the start of 2000, the startups had gotten very, very dumb. In many cases, they were dumber than the also-ran crypto and AI startups we’ve seen recently. A couple of them back in 2000 were my clients, though I tried to get rid of the dumb ones quickly.
There’s a critical moment in every bubble where you start hearing investment advice from normies at cocktail parties, and people start publishing books insisting, “This time is different and the market will go up forever!” When your non-technical grand-uncle starts button-holing you about obscure cryptocurrencies, then the market has run out of suckers. And a crash is coming.
The Fed will generally cut interest rates around this point, on the theory that if people have enough money to invest in ideas that dumb, it’s time to “take the punchbowl away.” There’s a bunch of economic modeling behind this, of course. But a good intuition is that if there’s enough money in the system to invest in thousands of extremely dumb companies, we probably have too much liquidity.
I suppose the AI bubble could genuinely be different, in that we might build SkyNet before the bubble collapses on its own. That would, I guess, represent the popping of the 10,000-year Homo sapiens bubble. But I’d prefer to avoid that.
I like the idea of cocktail party investment advice as an economic bellwether. That’s a good observation.