By Scott Galloway:
Every decade, there's at least one financial crisis somewhere in the world. When asked what a recession was, Jamie Dimon responded, "Something that happens every 5-7 years." It's been 11. One of the many strange things about a crisis is that the country of origin (this time, China) is usually not the one that gets hit the hardest. Similar to when your kid gets his first C. Yeah, it's rough on him, but the household devolves into arguments around parenting, with an older brother who must endure new rules implemented as a function of his delinquent sibling. But I digress.
Financial crises have many causes, but generally they boil down to a few key elements:
- easy money
- poor regulation
- consensual hallucination that the market always goes up
The crisis is preceded by a cocaine-fueled party, where everything and everyone looks and is great. The party creates an asset bubble - a wave of optimism that lifts prices well above levels warranted by fundamentals - ending in a crash. The first documented asset bubble was the Dutch tulip mania in 1636, when speculation drove the value of the rarest tulips to six times the average salary at the time.
Story stocks are the new tulips, and Robinhood is the E*Trade of our age.
Story stocks and Robinhood have more in common than you'd think. If you want to know what Tesla's (TSLA) stock will do tomorrow, just look at how many Robinhood accounts were opened today.
The dot-com bubble of the late 90s was another once-in-a-generation, tulip-type mania. I would know, as I was at ground zero. I remember thinking in 2001, after being run over by the dot-bomb crash, all I need is one more bubble… I'll be so much smarter. So, the music and drugs are different, but things are feeling eerily similar. What to do? It makes for a fascinating original scripted program on Apple TV+. (It. Could. Happen...) Or a decent 12-minute YouTube.
On this episode of The Prof G Show, I provide insights on economic bubbles and the inevitable nature of crises.
- 0:00 The making of a financial crisis
- 3:03 WebVan
- 4:30 SPACs & adjusted EBITDA
- 5:52 Virgin Galactic
- 6:25 Tesla & Robinhood
- 7:30 Nikola Motors
- 7:56 Quibi
- 9:32 Thoughts from the Dawg
- 10:47 PSA
P.S. Spoke to Eric Schmidt, former Google exec chair and CEO. He is bullish on AI for biology.
Original Post
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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