You may be right to identify this as a bubble. One thing that Tyler Cowen is fond of pointing out is that it's harder than you think to identify actual financial bubbles in history - the late 90s/early 00s internet boom was not wrong to assign a lot of value to tech companies, just a bit early.
Likewise people were calling the 08 house prices a bubble, but in retrospect it doesn't look like a massive deviation from the long term trend: https://fred.stlouisfed.org/series/CSUSHPINSA
So the lesson seems to be that financial markets usually are predictive of long term valuation creation but sometimes overoptimistic about the timing. I think that this matches your own belief - AI will indeed be a game changer, but it's going to take longer than the SF crowd think to show up in earnings & macroeconomic data.
Yes, exactly. One has to be careful about the definition of "bubble" ...
In the case of railroads, internet, AI: huge value eventually created, early investors/hypesters were overly optimistic about the timescale for real impact / ROI.
Re: housing, keep in mind the 08 crisis *caused* ~15 years of ZIRP, which then led to further asset "value" inflation. I think the housing bubble really was a bubble, even if hard to see in the post hoc data.
It's really amazing in what different areas you have your hands in, Steve. I now wonder that one should be grateful that they saved you from hiring staff to Michigan due to forcing you to retreat. Guess now your energy is much better invested in the progress of science, either basic or applied, Chapeau!
Yes, it's hard to believe I wasted my energy on university administration, given the incredible rot in these institutions. I suppose it wasn't so bad when I started at MSU in 2012...
One thing that I find interesting is that there seems to be a big gap between china's technological / industrial power and its financial power. China is ahead of the US in electricity and steel production and is also competitive in high-level tech. Chinese military equipment also seems to have at least parity with US military equipment (type 055 vs. Arleigh Burke class, for example) . At the same time, Chinese firms have much lower valuations and generally have much lower pay. Alibaba and tencent are worth a lot less than Google and Microsoft. Salaries are probably 5x lower.
The Chinese that I know are concerned about this. I'm curious what you think.
The rmb is artificially undervalued. You used to hear about "currency manipulation" by the evil CPC but if it weren't for that, PRC GDP might be higher than US in nominal FX terms. Their PPP GDP is already 1/3 larger than US. Next look into how services GDP is calculated, how US treats "imputed rent" etc. You might reach startling conclusions abt the relative sizes of the two economies!
It's an interesting point, but I feel like the undervaluation may still be a problem for China. For example, a solid ai developer in the US makes 5x-10x what the same person would likely make in china. Bytedance may be the exception. Even if the yuan is a factor, I think a rational person may still be tempted to work in the US if only to accumulate savings.
Many of my colleagues have still gone to China, but I think there's usually some financial sacrifice.
Apologies, Steve, if you were already hinting at this in your response, but shouldn't the cost of living differences be taken into account carefully too? As Russell Clark said when you spoke to him on the podcast not long ago, there are a lot (more) things you have to pay for in the US. The purpose there was more to contrast with Japan and Europe, but then surely the discrepancy will be even more important to consider regarding China.
Really valuable update to stay clued in on what’s happening.
Great to see the DJI pocket in use! :)
You may be right to identify this as a bubble. One thing that Tyler Cowen is fond of pointing out is that it's harder than you think to identify actual financial bubbles in history - the late 90s/early 00s internet boom was not wrong to assign a lot of value to tech companies, just a bit early.
Likewise people were calling the 08 house prices a bubble, but in retrospect it doesn't look like a massive deviation from the long term trend: https://fred.stlouisfed.org/series/CSUSHPINSA
So the lesson seems to be that financial markets usually are predictive of long term valuation creation but sometimes overoptimistic about the timing. I think that this matches your own belief - AI will indeed be a game changer, but it's going to take longer than the SF crowd think to show up in earnings & macroeconomic data.
Yes, exactly. One has to be careful about the definition of "bubble" ...
In the case of railroads, internet, AI: huge value eventually created, early investors/hypesters were overly optimistic about the timescale for real impact / ROI.
Re: housing, keep in mind the 08 crisis *caused* ~15 years of ZIRP, which then led to further asset "value" inflation. I think the housing bubble really was a bubble, even if hard to see in the post hoc data.
It's really amazing in what different areas you have your hands in, Steve. I now wonder that one should be grateful that they saved you from hiring staff to Michigan due to forcing you to retreat. Guess now your energy is much better invested in the progress of science, either basic or applied, Chapeau!
Thanks, Werner.
Yes, it's hard to believe I wasted my energy on university administration, given the incredible rot in these institutions. I suppose it wasn't so bad when I started at MSU in 2012...
One thing that I find interesting is that there seems to be a big gap between china's technological / industrial power and its financial power. China is ahead of the US in electricity and steel production and is also competitive in high-level tech. Chinese military equipment also seems to have at least parity with US military equipment (type 055 vs. Arleigh Burke class, for example) . At the same time, Chinese firms have much lower valuations and generally have much lower pay. Alibaba and tencent are worth a lot less than Google and Microsoft. Salaries are probably 5x lower.
The Chinese that I know are concerned about this. I'm curious what you think.
The rmb is artificially undervalued. You used to hear about "currency manipulation" by the evil CPC but if it weren't for that, PRC GDP might be higher than US in nominal FX terms. Their PPP GDP is already 1/3 larger than US. Next look into how services GDP is calculated, how US treats "imputed rent" etc. You might reach startling conclusions abt the relative sizes of the two economies!
See analysis by Glenn Luk.
You may also enjoy this article:
https://www.globaltimes.cn/page/202406/1314525.shtml
It's an interesting point, but I feel like the undervaluation may still be a problem for China. For example, a solid ai developer in the US makes 5x-10x what the same person would likely make in china. Bytedance may be the exception. Even if the yuan is a factor, I think a rational person may still be tempted to work in the US if only to accumulate savings.
Many of my colleagues have still gone to China, but I think there's usually some financial sacrifice.
Apologies, Steve, if you were already hinting at this in your response, but shouldn't the cost of living differences be taken into account carefully too? As Russell Clark said when you spoke to him on the podcast not long ago, there are a lot (more) things you have to pay for in the US. The purpose there was more to contrast with Japan and Europe, but then surely the discrepancy will be even more important to consider regarding China.
PS your surroundings are beautiful!