Think Bigger. Aim Higher. Go Further.

Tag: bubble

Why This Bubble Is Completely Different

I had a discussion with one of my partners that we need 2.5 million users and Social Flights will manage itself.  The partner said, “You mean 2.5 million dollars”.

No, I said, “I need 2.5 million users”.

The partner said tersely, “No, I really think that you need dollars.”

Again, I replied, “I need users…. “

This went on for a while until we both got it: The value of Social Flights is contained within the users, not within the dollars. After that, the conversation could progress in a meaningful way, priorities found their place, and the teams found their roles – including the investors.

Nothing economic can happen until people get together to build something

Financial analysts are aghast at the magnificent valuations that social media applications are delivering; P/E ratios of 1000, valuations of 100 dollars per member, billions of dollars per billion time hours in game play – these are not the ratios that they teach in B-school.  Is this crazy or does it make perfect sense?

The Great Rapture

While highly unlikely, suppose the Almighty Father called upon all good and pious dollars to ascend unto heaven in a glorious rapture of currency – on a single day, all money disappears from the face of the Earth.  What would be left?  What happens next?

At least for a little while, I’ll still be sitting in this café typing a blog post.  The value of the education and social network of the person who I will be meeting for lunch will still be intact.  The value of the roads, bridges, schools, and highways would remain intact.  The value to teachers, firefighters, and doctors will remain.  The sun will shine and gravity will continue to act on matter.  The money may go, but a LOT of value remains.

No Such Thing As Free Lunch

Of course, things will quickly devolve when I tell the café owner that I can’t pay for lunch because my money has been raptured. Of course that would seem like a relatively minor problem given the fact that their money has been raptured too.  In fact, so has their supplier’s money, and their Bank’s money.  Obviously, there can’t be a bail out because the government has no money either.

Each of us would probably stare at each other for a few minutes until somebody asks the other, “well, then, what do you have that I can use?”  Once that conversation is exhausted, we’ll move on to  “Who do you know that has something that I can use?” Etc.

The mother of all hedge funds

If this were a game, the person that knows lots of people who do useful things would stand a greater chance of being served lunch than someone who is isolated and disliked – no matter how much money they once had before the rapture.  Likewise, if you have a lot of money, what “Bank” would you put it in?  What “Stock” would you buy?

This bubble is different.

It may be that the dollar is in a bubble and the true value of our economy is stored and exchanged in communities of people enabled by social media.  Those magnificent valuations in social media companies may actually reflect true value and act like a huge hedge fund on currency in the absence of any other plausible financial instrument.

As our noble politicians continue to play their game of chicken with the productivity of honest, educated, and productive Americans, they fail to see the polarity shifting away from money and into “true value”.

The value is in the people, not in the dollars. now we can have a different conversation about how to manage ourselves.

Fattest Cat Bets Against Dollar (and what we can do about it)

In 2006 John Paulson (of no relation to Treasury Secretary Henry Paulson ) bet that the sub-prime mortgage market would tank and housing prices would fall on a national scale, according to a new book The Greatest Trade Ever by Greg Zuckerman. He cleaned up with 4 billion dollars in personal gains, 20 Billion for his firm.

Wonder where your money went?

“John Paulson took it,” wrote Peter Cohen of BloggingStocks. Want to know what Paulson is buying this year? Gold. Betting against the dollar is his latest ploy and so far seems to be working. Ummmm…this means that the rest of us are basically screwed, again.

Paulson’s investing lessons:

1. Don’t Rely on Experts
2. Bubble Trouble
3. Focus on Debt Markets
4. Master New investments
5. Insurance Pays
6. Experience Counts
7. Don’t Fall In Love
8. Luck Helps

Hey Kids, let’s learn from the master:

1. Don’t rely on Experts: They are the crooks. The Mexican Peso crisis was not caused by foreigners; it was caused by Mexican elite running away from their own currency and sparking a wider run. See Johnny Run….

2. Bubble Trouble: Further evidence is seen in speculative bubbles appearing in mundane fixed assets like land, minerals, and alternate currencies around the world.

3. Focus on Debt: If you have cash, you’ll lose it to inflation. But if you have debt, you’ll lose that too. If you have too much debt and you’ll go bankrupt. If you have too much cash and you’ll become equally broke. The trick is to hold just as much cash as you hold debt and when it’s all over, you’ll be no better or no worse off.

4. Master new investments: In the old system, if I trade a dollar for an apple, I lose the dollar but gain an apple. In the next economic paradigm, I share an idea but I still retain the idea; and currency multiplies – master the new investment!

5. Insurance Pays if you know how to play; if you can identify the peril, you know the probability that it will get you, and you know the consequences of the loss – you can “play” insurance. People must reorganize around an “insurance system” enabled by social networks that can influence these factors.

6. Experience Counts; While corporations are laying off older people, social media is capturing them in a knowledge inventory. We must develop, produce, and access this knowledge inventory.

7. Don’t Fall in Love: This means diversify and don’t be afraid to try new things. Innovation is the art of putting many different ideas, concepts or objects together and yielding new wealth creation. What better mechanism than social media.

8. Luck helps: Social media is like a cloud. Nobody can control and the only way to engage with it is to talk to the cloud. After a while the cloud will deliver rain, and your garden will grow. John Paulson calls this luck, we call it inevitable.

We, the people, need to introduce a new economic paradigm – nobody will do it for us. We may lose the dollar as a currency but we must not lose our personal ability to produce and trade our ideas, plans, and actions for the things that our families need to grow. Wealth is created by sharing. The Next Economic Paradigm shows us how we, as a society, can reorganize ourselves around an economy built upon social media. Sounds far out but it can be done today if we move quickly to understand the power – near absolute – that people can have in social media. If John Paulson were really smart, he would bet on us not against us.

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