The latest “bubble indicator” readings.
As you know, I like to turn my intuition into decision rules (principles) that can be back-tested and automated to create a portfolio of alpha bets. I use one for bubbles. Having seen many bubbles in my 50+ years of investing, I described what makes a bubble and how to identify them in markets—not just stocks.
A bubble market has a high degree of the following:
- High prices compared to traditional values (e.g., by taking the present value of their cash flows for the duration of the asset and comparing it with their interest rates).
- Conditons incompatible with long-term growth (e.g., extrapolating past revenue and earnings growth rates late in the cycle).
- Many new and inexperienced buyers were drawn in by the perceived hot market.
- Broad bullish sentiment.
- Debt financing a large portion of purchases.
- Lots of forward and speculative purchases to profit from price rises (e.g., inventories that are more than needed, contracted forward purchases, etc.).
I use these criteria to assess all markets for bubbles. I have periodically shown you these for stocks and the stock market.
What Was Shown in January Versus Now
I will first describe the picture in words, then show it in charts, and compare it to the last update in January.
As of January, the bubble indicator showed that a) the US equity market was in a moderate bubble, but not an extreme one (ie., 70 percent of way toward the highest bubble, which occurred in the late 1990s and late 1920s), and b) the emerging tech companies (ie. As well, the unprecedented flood of liquidity post-COVID financed other bubbly behavior (e.g. SPACs, IPO boom, big pickup in options activity), making things bubbly. I showed which stocks were in bubbles and created an index of those stocks, which I call “bubble stocks.”
Those bubble stocks have popped. They fell by a third last year, while the S&P 500 remained flat. In light of these and other market developments, it is not necessarily true that now is a good time to buy emerging tech stocks.
The fact that they aren't at a bubble extreme doesn't mean they are safe or that it's a good time to get long. Our metrics still show that US stocks are overvalued. Once popped, bubbles tend to overcorrect to the downside rather than settle at “normal” prices.
The following charts paint the picture. The first shows the US equity market bubble gauge/indicator going back to 1900, currently at the 40% percentile. The charts also zoom in on the gauge in recent years, as well as the late 1920s and late 1990s bubbles (during both of these cases the gauge reached 100 percent ).
The chart below depicts the average bubble gauge for the most bubbly companies in 2020. Those readings are down significantly.
The charts below compare the performance of a basket of emerging tech bubble stocks to the S&P 500. Prices have fallen noticeably, giving up most of their post-COVID gains.
The following charts show the price action of the bubble slice today and in the 1920s and 1990s. These charts show the same market dynamics and two key indicators. These are just two examples of how a lot of debt financing stock ownership coupled with a tightening typically leads to a bubble popping.
Everything driving the bubbles in this market segment is classic—the same drivers that drove the 1920s bubble and the 1990s bubble. For instance, in the last couple months, it was how tightening can act to prick the bubble. Review this case study of the 1920s stock bubble (starting on page 49) from my book Principles for Navigating Big Debt Crises to grasp these dynamics.
The following charts show the components of the US stock market bubble gauge. Since this is a proprietary indicator, I will only show you some of the sub-aggregate readings and some indicators.
Each of these six influences is measured using a number of stats. This is how I approach the stock market. These gauges are combined into aggregate indices by security and then for the market as a whole. The table below shows the current readings of these US equity market indicators. It compares current conditions for US equities to historical conditions. These readings suggest that we’re out of a bubble.
1. How High Are Prices Relatively?
This price gauge for US equities is currently around the 50th percentile.
2. Is price reduction unsustainable?
This measure calculates the earnings growth rate required to outperform bonds. This is calculated by adding up the readings of individual securities. This indicator is currently near the 60th percentile for the overall market, higher than some of our other readings. Profit growth discounted in stocks remains high.
Even more so in the US software sector. Analysts' earnings growth expectations for this sector have slowed, but remain high historically. P/Es have reversed COVID gains but remain high historical.
3. How many new buyers (i.e., non-existing buyers) entered the market?
Expansion of new entrants is often indicative of a bubble. According to historical accounts, this was true in the 1990s equity bubble and the 1929 bubble (though our data for this and other gauges doesn't go back that far). A flood of new retail investors into popular stocks, which by other measures appeared to be in a bubble, pushed this gauge above the 90% mark in 2020. The pace of retail activity in the markets has recently slowed to pre-COVID levels.
4. How Broadly Bullish Is Sentiment?
The more people who have invested, the less resources they have to keep investing, and the more likely they are to sell. Market sentiment is now significantly negative.
5. Are Purchases Being Financed by High Leverage?
Leveraged purchases weaken the buying foundation and expose it to forced selling in a downturn. The leverage gauge, which considers option positions as a form of leverage, is now around the 50% mark.
6. To What Extent Have Buyers Made Exceptionally Extended Forward Purchases?
Looking at future purchases can help assess whether expectations have become overly optimistic. This indicator is particularly useful in commodity and real estate markets, where forward purchases are most obvious. In the equity markets, I look at indicators like capital expenditure, or how much businesses (and governments) invest in infrastructure, factories, etc. It reflects whether businesses are projecting future demand growth. Like other gauges, this one is at the 40th percentile.
What one does with it is a tactical choice. While the reversal has been significant, future earnings discounting remains high historically. In either case, bubbles tend to overcorrect (sell off more than the fundamentals suggest) rather than simply deflate. But I wanted to share these updated readings with you in light of recent market activity.
More on Economics & Investing
Sam Hickmann
2 years ago
Donor-Advised Fund Tax Benefits (DAF)
Giving through a donor-advised fund can be tax-efficient. Using a donor-advised fund can reduce your tax liability while increasing your charitable impact.
Grow Your Donations Tax-Free.
Your DAF's charitable dollars can be invested before being distributed. Your DAF balance can grow with the market. This increases grantmaking funds. The assets of the DAF belong to the charitable sponsor, so you will not be taxed on any growth.
Avoid a Windfall Tax Year.
DAFs can help reduce tax burdens after a windfall like an inheritance, business sale, or strong market returns. Contributions to your DAF are immediately tax deductible, lowering your taxable income. With DAFs, you can effectively pre-fund years of giving with assets from a single high-income event.
Make a contribution to reduce or eliminate capital gains.
One of the most common ways to fund a DAF is by gifting publicly traded securities. Securities held for more than a year can be donated at fair market value and are not subject to capital gains tax. If a donor liquidates assets and then donates the proceeds to their DAF, capital gains tax reduces the amount available for philanthropy. Gifts of appreciated securities, mutual funds, real estate, and other assets are immediately tax deductible up to 30% of Adjusted gross income (AGI), with a five-year carry-forward for gifts that exceed AGI limits.
Using Appreciated Stock as a Gift
Donating appreciated stock directly to a DAF rather than liquidating it and donating the proceeds reduces philanthropists' tax liability by eliminating capital gains tax and lowering marginal income tax.
In the example below, a donor has $100,000 in long-term appreciated stock with a cost basis of $10,000:
Using a DAF would allow this donor to give more to charity while paying less taxes. This strategy often allows donors to give more than 20% more to their favorite causes.
For illustration purposes, this hypothetical example assumes a 35% income tax rate. All realized gains are subject to the federal long-term capital gains tax of 20% and the 3.8% Medicare surtax. No other state taxes are considered.
The information provided here is general and educational in nature. It is not intended to be, nor should it be construed as, legal or tax advice. NPT does not provide legal or tax advice. Furthermore, the content provided here is related to taxation at the federal level only. NPT strongly encourages you to consult with your tax advisor or attorney before making charitable contributions.
Theresa W. Carey
2 years ago
How Payment for Order Flow (PFOF) Works
What is PFOF?
PFOF is a brokerage firm's compensation for directing orders to different parties for trade execution. The brokerage firm receives fractions of a penny per share for directing the order to a market maker.
Each optionable stock could have thousands of contracts, so market makers dominate options trades. Order flow payments average less than $0.50 per option contract.
Order Flow Payments (PFOF) Explained
The proliferation of exchanges and electronic communication networks has complicated equity and options trading (ECNs) Ironically, Bernard Madoff, the Ponzi schemer, pioneered pay-for-order-flow.
In a December 2000 study on PFOF, the SEC said, "Payment for order flow is a method of transferring trading profits from market making to brokers who route customer orders to specialists for execution."
Given the complexity of trading thousands of stocks on multiple exchanges, market making has grown. Market makers are large firms that specialize in a set of stocks and options, maintaining an inventory of shares and contracts for buyers and sellers. Market makers are paid the bid-ask spread. Spreads have narrowed since 2001, when exchanges switched to decimals. A market maker's ability to play both sides of trades is key to profitability.
Benefits, requirements
A broker receives fees from a third party for order flow, sometimes without a client's knowledge. This invites conflicts of interest and criticism. Regulation NMS from 2005 requires brokers to disclose their policies and financial relationships with market makers.
Your broker must tell you if it's paid to send your orders to specific parties. This must be done at account opening and annually. The firm must disclose whether it participates in payment-for-order-flow and, upon request, every paid order. Brokerage clients can request payment data on specific transactions, but the response takes weeks.
Order flow payments save money. Smaller brokerage firms can benefit from routing orders through market makers and getting paid. This allows brokerage firms to send their orders to another firm to be executed with other orders, reducing costs. The market maker or exchange benefits from additional share volume, so it pays brokerage firms to direct traffic.
Retail investors, who lack bargaining power, may benefit from order-filling competition. Arrangements to steer the business in one direction invite wrongdoing, which can erode investor confidence in financial markets and their players.
Pay-for-order-flow criticism
It has always been controversial. Several firms offering zero-commission trades in the late 1990s routed orders to untrustworthy market makers. During the end of fractional pricing, the smallest stock spread was $0.125. Options spreads widened. Traders found that some of their "free" trades cost them a lot because they weren't getting the best price.
The SEC then studied the issue, focusing on options trades, and nearly decided to ban PFOF. The proliferation of options exchanges narrowed spreads because there was more competition for executing orders. Options market makers said their services provided liquidity. In its conclusion, the report said, "While increased multiple-listing produced immediate economic benefits to investors in the form of narrower quotes and effective spreads, these improvements have been muted with the spread of payment for order flow and internalization."
The SEC allowed payment for order flow to continue to prevent exchanges from gaining monopoly power. What would happen to trades if the practice was outlawed was also unclear. SEC requires brokers to disclose financial arrangements with market makers. Since then, the SEC has watched closely.
2020 Order Flow Payment
Rule 605 and Rule 606 show execution quality and order flow payment statistics on a broker's website. Despite being required by the SEC, these reports can be hard to find. The SEC mandated these reports in 2005, but the format and reporting requirements have changed over the years, most recently in 2018.
Brokers and market makers formed a working group with the Financial Information Forum (FIF) to standardize order execution quality reporting. Only one retail brokerage (Fidelity) and one market maker remain (Two Sigma Securities). FIF notes that the 605/606 reports "do not provide the level of information that allows a retail investor to gauge how well a broker-dealer fills a retail order compared to the NBBO (national best bid or offer’) at the time the order was received by the executing broker-dealer."
In the first quarter of 2020, Rule 606 reporting changed to require brokers to report net payments from market makers for S&P 500 and non-S&P 500 equity trades and options trades. Brokers must disclose payment rates per 100 shares by order type (market orders, marketable limit orders, non-marketable limit orders, and other orders).
Richard Repetto, Managing Director of New York-based Piper Sandler & Co., publishes a report on Rule 606 broker reports. Repetto focused on Charles Schwab, TD Ameritrade, E-TRADE, and Robinhood in Q2 2020. Repetto reported that payment for order flow was higher in the second quarter than the first due to increased trading activity, and that options paid more than equities.
Repetto says PFOF contributions rose overall. Schwab has the lowest options rates, while TD Ameritrade and Robinhood have the highest. Robinhood had the highest equity rating. Repetto assumes Robinhood's ability to charge higher PFOF reflects their order flow profitability and that they receive a fixed rate per spread (vs. a fixed rate per share by the other brokers).
Robinhood's PFOF in equities and options grew the most quarter-over-quarter of the four brokers Piper Sandler analyzed, as did their implied volumes. All four brokers saw higher PFOF rates.
TD Ameritrade took the biggest income hit when cutting trading commissions in fall 2019, and this report shows they're trying to make up the shortfall by routing orders for additional PFOF. Robinhood refuses to disclose trading statistics using the same metrics as the rest of the industry, offering only a vague explanation on their website.
Summary
Payment for order flow has become a major source of revenue as brokers offer no-commission equity (stock and ETF) orders. For retail investors, payment for order flow poses a problem because the brokerage may route orders to a market maker for its own benefit, not the investor's.
Infrequent or small-volume traders may not notice their broker's PFOF practices. Frequent traders and those who trade larger quantities should learn about their broker's order routing system to ensure they're not losing out on price improvement due to a broker prioritizing payment for order flow.
This post is a summary. Read full article here
Justin Kuepper
2 years ago
Day Trading Introduction
Historically, only large financial institutions, brokerages, and trading houses could actively trade in the stock market. With instant global news dissemination and low commissions, developments such as discount brokerages and online trading have leveled the playing—or should we say trading—field. It's never been easier for retail investors to trade like pros thanks to trading platforms like Robinhood and zero commissions.
Day trading is a lucrative career (as long as you do it properly). But it can be difficult for newbies, especially if they aren't fully prepared with a strategy. Even the most experienced day traders can lose money.
So, how does day trading work?
Day Trading Basics
Day trading is the practice of buying and selling a security on the same trading day. It occurs in all markets, but is most common in forex and stock markets. Day traders are typically well educated and well funded. For small price movements in highly liquid stocks or currencies, they use leverage and short-term trading strategies.
Day traders are tuned into short-term market events. News trading is a popular strategy. Scheduled announcements like economic data, corporate earnings, or interest rates are influenced by market psychology. Markets react when expectations are not met or exceeded, usually with large moves, which can help day traders.
Intraday trading strategies abound. Among these are:
- Scalping: This strategy seeks to profit from minor price changes throughout the day.
- Range trading: To determine buy and sell levels, range traders use support and resistance levels.
- News-based trading exploits the increased volatility around news events.
- High-frequency trading (HFT): The use of sophisticated algorithms to exploit small or short-term market inefficiencies.
A Disputed Practice
Day trading's profit potential is often debated on Wall Street. Scammers have enticed novices by promising huge returns in a short time. Sadly, the notion that trading is a get-rich-quick scheme persists. Some daytrade without knowledge. But some day traders succeed despite—or perhaps because of—the risks.
Day trading is frowned upon by many professional money managers. They claim that the reward rarely outweighs the risk. Those who day trade, however, claim there are profits to be made. Profitable day trading is possible, but it is risky and requires considerable skill. Moreover, economists and financial professionals agree that active trading strategies tend to underperform passive index strategies over time, especially when fees and taxes are factored in.
Day trading is not for everyone and is risky. It also requires a thorough understanding of how markets work and various short-term profit strategies. Though day traders' success stories often get a lot of media attention, keep in mind that most day traders are not wealthy: Many will fail, while others will barely survive. Also, while skill is important, bad luck can sink even the most experienced day trader.
Characteristics of a Day Trader
Experts in the field are typically well-established professional day traders.
They usually have extensive market knowledge. Here are some prerequisites for successful day trading.
Market knowledge and experience
Those who try to day-trade without understanding market fundamentals frequently lose. Day traders should be able to perform technical analysis and read charts. Charts can be misleading if not fully understood. Do your homework and know the ins and outs of the products you trade.
Enough capital
Day traders only use risk capital they can lose. This not only saves them money but also helps them trade without emotion. To profit from intraday price movements, a lot of capital is often required. Most day traders use high levels of leverage in margin accounts, and volatile market swings can trigger large margin calls on short notice.
Strategy
A trader needs a competitive advantage. Swing trading, arbitrage, and trading news are all common day trading strategies. They tweak these strategies until they consistently profit and limit losses.
Strategy Breakdown:
Type | Risk | Reward
Swing Trading | High | High
Arbitrage | Low | Medium
Trading News | Medium | Medium
Mergers/Acquisitions | Medium | High
Discipline
A profitable strategy is useless without discipline. Many day traders lose money because they don't meet their own criteria. “Plan the trade and trade the plan,” they say. Success requires discipline.
Day traders profit from market volatility. For a day trader, a stock's daily movement is appealing. This could be due to an earnings report, investor sentiment, or even general economic or company news.
Day traders also prefer highly liquid stocks because they can change positions without affecting the stock's price. Traders may buy a stock if the price rises. If the price falls, a trader may decide to sell short to profit.
A day trader wants to trade a stock that moves (a lot).
Day Trading for a Living
Professional day traders can be self-employed or employed by a larger institution.
Most day traders work for large firms like hedge funds and banks' proprietary trading desks. These traders benefit from direct counterparty lines, a trading desk, large capital and leverage, and expensive analytical software (among other advantages). By taking advantage of arbitrage and news events, these traders can profit from less risky day trades before individual traders react.
Individual traders often manage other people’s money or simply trade with their own. They rarely have access to a trading desk, but they frequently have strong ties to a brokerage (due to high commissions) and other resources. However, their limited scope prevents them from directly competing with institutional day traders. Not to mention more risks. Individuals typically day trade highly liquid stocks using technical analysis and swing trades, with some leverage.
Day trading necessitates access to some of the most complex financial products and services. Day traders usually need:
Access to a trading desk
Traders who work for large institutions or manage large sums of money usually use this. The trading or dealing desk provides these traders with immediate order execution, which is critical during volatile market conditions. For example, when an acquisition is announced, day traders interested in merger arbitrage can place orders before the rest of the market.
News sources
The majority of day trading opportunities come from news, so being the first to know when something significant happens is critical. It has access to multiple leading newswires, constant news coverage, and software that continuously analyzes news sources for important stories.
Analytical tools
Most day traders rely on expensive trading software. Technical traders and swing traders rely on software more than news. This software's features include:
-
Automatic pattern recognition: It can identify technical indicators like flags and channels, or more complex indicators like Elliott Wave patterns.
-
Genetic and neural applications: These programs use neural networks and genetic algorithms to improve trading systems and make more accurate price predictions.
-
Broker integration: Some of these apps even connect directly to the brokerage, allowing for instant and even automatic trade execution. This reduces trading emotion and improves execution times.
-
Backtesting: This allows traders to look at past performance of a strategy to predict future performance. Remember that past results do not always predict future results.
Together, these tools give traders a competitive advantage. It's easy to see why inexperienced traders lose money without them. A day trader's earnings potential is also affected by the market in which they trade, their capital, and their time commitment.
Day Trading Risks
Day trading can be intimidating for the average investor due to the numerous risks involved. The SEC highlights the following risks of day trading:
Because day traders typically lose money in their first months of trading and many never make profits, they should only risk money they can afford to lose.
Trading is a full-time job that is stressful and costly: Observing dozens of ticker quotes and price fluctuations to spot market trends requires intense concentration. Day traders also spend a lot on commissions, training, and computers.
Day traders heavily rely on borrowing: Day-trading strategies rely on borrowed funds to make profits, which is why many day traders lose everything and end up in debt.
Avoid easy profit promises: Avoid “hot tips” and “expert advice” from day trading newsletters and websites, and be wary of day trading educational seminars and classes.
Should You Day Trade?
As stated previously, day trading as a career can be difficult and demanding.
- First, you must be familiar with the trading world and know your risk tolerance, capital, and goals.
- Day trading also takes a lot of time. You'll need to put in a lot of time if you want to perfect your strategies and make money. Part-time or whenever isn't going to cut it. You must be fully committed.
- If you decide trading is for you, remember to start small. Concentrate on a few stocks rather than jumping into the market blindly. Enlarging your trading strategy can result in big losses.
- Finally, keep your cool and avoid trading emotionally. The more you can do that, the better. Keeping a level head allows you to stay focused and on track.
If you follow these simple rules, you may be on your way to a successful day trading career.
Is Day Trading Illegal?
Day trading is not illegal or unethical, but it is risky. Because most day-trading strategies use margin accounts, day traders risk losing more than they invest and becoming heavily in debt.
How Can Arbitrage Be Used in Day Trading?
Arbitrage is the simultaneous purchase and sale of a security in multiple markets to profit from small price differences. Because arbitrage ensures that any deviation in an asset's price from its fair value is quickly corrected, arbitrage opportunities are rare.
Why Don’t Day Traders Hold Positions Overnight?
Day traders rarely hold overnight positions for several reasons: Overnight trades require more capital because most brokers require higher margin; stocks can gap up or down on overnight news, causing big trading losses; and holding a losing position overnight in the hope of recovering some or all of the losses may be against the trader's core day-trading philosophy.
What Are Day Trader Margin Requirements?
Regulation D requires that a pattern day trader client of a broker-dealer maintain at all times $25,000 in equity in their account.
How Much Buying Power Does Day Trading Have?
Buying power is the total amount of funds an investor has available to trade securities. FINRA rules allow a pattern day trader to trade up to four times their maintenance margin excess as of the previous day's close.
The Verdict
Although controversial, day trading can be a profitable strategy. Day traders, both institutional and retail, keep the markets efficient and liquid. Though day trading is still popular among novice traders, it should be left to those with the necessary skills and resources.
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Alex Carter
2 years ago
Metaverse, Web 3, and NFTs are BS
Most crypto is probably too.
The goals of Web 3 and the metaverse are admirable and attractive. Who doesn't want an internet owned by users? Who wouldn't want a digital realm where anything is possible? A better way to collaborate and visit pals.
Companies pursue profits endlessly. Infinite growth and revenue are expected, and if a corporation needs to sacrifice profits to safeguard users, the CEO, board of directors, and any executives will lose to the system of incentives that (1) retains workers with shares and (2) makes a company answerable to all of its shareholders. Only the government can guarantee user protections, but we know how successful that is. This is nothing new, just a problem with modern capitalism and tech platforms that a user-owned internet might remedy. Moxie, the founder of Signal, has a good articulation of some of these current Web 2 tech platform problems (but I forget the timestamp); thoughts on JRE aside, this episode is worth listening to (it’s about a bunch of other stuff too).
Moxie Marlinspike, founder of Signal, on the Joe Rogan Experience podcast.
Source: https://open.spotify.com/episode/2uVHiMqqJxy8iR2YB63aeP?si=4962b5ecb1854288
Web 3 champions are premature. There was so much spectacular growth during Web 2 that the next wave of founders want to make an even bigger impact, while investors old and new want a chance to get a piece of the moonshot action. Worse, crypto enthusiasts believe — and financially need — the fact of its success to be true, whether or not it is.
I’m doubtful that it will play out like current proponents say. Crypto has been the white-hot focus of SV’s best and brightest for a long time yet still struggles to come up any mainstream use case other than ‘buy, HODL, and believe’: a store of value for your financial goals and wishes. Some kind of the metaverse is likely, but will it be decentralized, mostly in VR, or will Meta (previously FB) play a big role? Unlikely.
METAVERSE
The metaverse exists already. Our digital lives span apps, platforms, and games. I can design a 3D house, invite people, use Discord, and hang around in an artificial environment. Millions of gamers do this in Rust, Minecraft, Valheim, and Animal Crossing, among other games. Discord's voice chat and Slack-like servers/channels are the present social anchor, but the interface, integrations, and data portability will improve. Soon you can stream YouTube videos on digital house walls. You can doodle, create art, play Jackbox, and walk through a door to play Apex Legends, Fortnite, etc. Not just gaming. Digital whiteboards and screen sharing enable real-time collaboration. They’ll review code and operate enterprises. Music is played and made. In digital living rooms, they'll watch movies, sports, comedy, and Twitch. They'll tweet, laugh, learn, and shittalk.
The metaverse is the evolution of our digital life at home, the third place. The closest analog would be Discord and the integration of Facebook, Slack, YouTube, etc. into a single, 3D, customizable hangout space.
I'm not certain this experience can be hugely decentralized and smoothly choreographed, managed, and run, or that VR — a luxury, cumbersome, and questionably relevant technology — must be part of it. Eventually, VR will be pragmatic, achievable, and superior to real life in many ways. A total sensory experience like the Matrix or Sword Art Online, where we're physically hooked into the Internet yet in our imaginations we're jumping, flying, and achieving athletic feats we never could in reality; exploring realms far grander than our own (as grand as it is). That VR is different from today's.
Ben Thompson released an episode of Exponent after Facebook changed its name to Meta. Ben was suspicious about many metaverse champion claims, but he made a good analogy between Oculus and the PC. The PC was initially far too pricey for the ordinary family to afford. It began as a business tool. It got so powerful and pervasive that it affected our personal life. Price continues to plummet and so much consumer software was produced that it's impossible to envision life without a home computer (or in our pockets). If Facebook shows product market fit with VR in business, through use cases like remote work and collaboration, maybe VR will become practical in our personal lives at home.
Before PCs, we relied on Blockbuster, the Yellow Pages, cabs to get to the airport, handwritten taxes, landline phones to schedule social events, and other archaic methods. It is impossible for me to conceive what VR, in the form of headsets and hand controllers, stands to give both professional and especially personal digital experiences that is an order of magnitude better than what we have today. Is looking around better than using a mouse to examine a 3D landscape? Do the hand controls make x10 or x100 work or gaming more fun or efficient? Will VR replace scalable Web 2 methods and applications like Web 1 and Web 2 did for analog? I don't know.
My guess is that the metaverse will arrive slowly, initially on displays we presently use, with more app interoperability. I doubt that it will be controlled by the people or by Facebook, a corporation that struggles to properly innovate internally, as practically every large digital company does. Large tech organizations are lousy at hiring product-savvy employees, and if they do, they rarely let them explore new things.
These companies act like business schools when they seek founders' results, with bureaucracy and dependency. Which company launched the last popular consumer software product that wasn't a clone or acquisition? Recent examples are scarce.
Web 3
Investors and entrepreneurs of Web 3 firms are declaring victory: 'Web 3 is here!' Web 3 is the future! Many profitable Web 2 enterprises existed when Web 2 was defined. The word was created to explain user behavior shifts, not a personal pipe dream.
Origins of Web 2: http://www.oreilly.com/pub/a/web2/archive/what-is-web-20.html
One of these Web 3 startups may provide the connecting tissue to link all these experiences or become one of the major new digital locations. Even so, successful players will likely use centralized power arrangements, as Web 2 businesses do now. Some Web 2 startups integrated our digital lives. Rockmelt (2010–2013) was a customizable browser with bespoke connectors to every program a user wanted; imagine seeing Facebook, Twitter, Discord, Netflix, YouTube, etc. all in one location. Failure. Who knows what Opera's doing?
Silicon Valley and tech Twitter in general have a history of jumping on dumb bandwagons that go nowhere. Dot-com crash in 2000? The huge deployment of capital into bad ideas and businesses is well-documented. And live video. It was the future until it became a niche sector for gamers. Live audio will play out a similar reality as CEOs with little comprehension of audio and no awareness of lasting new user behavior deceive each other into making more and bigger investments on fool's gold. Twitter trying to buy Clubhouse for $4B, Spotify buying Greenroom, Facebook exploring live audio and 'Tiktok for audio,' and now Amazon developing a live audio platform. This live audio frenzy won't be worth their time or energy. Blind guides blind. Instead of learning from prior failures like Twitter buying Periscope for $100M pre-launch and pre-product market fit, they're betting on unproven and uncompelling experiences.
NFTs
NFTs are also nonsense. Take Loot, a time-limited bag drop of "things" (text on the blockchain) for a game that didn't exist, bought by rich techies too busy to play video games and foolish enough to think they're getting in early on something with a big reward. What gaming studio is incentivized to use these items? Who's encouraged to join? No one cares besides Loot owners who don't have NFTs. Skill, merit, and effort should be rewarded with rare things for gamers. Even if a small minority of gamers can make a living playing, the average game's major appeal has never been to make actual money - that's a profession.
No game stays popular forever, so how is this objective sustainable? Once popularity and usage drop, exclusive crypto or NFTs will fall. And if NFTs are designed to have cross-game appeal, incentives apart, 30 years from now any new game will need millions of pre-existing objects to build around before they start. It doesn’t work.
Many games already feature item economies based on real in-game scarcity, generally for cosmetic things to avoid pay-to-win, which undermines scaled gaming incentives for huge player bases. Counter-Strike, Rust, etc. may be bought and sold on Steam with real money. Since the 1990s, unofficial cross-game marketplaces have sold in-game objects and currencies. NFTs aren't needed. Making a popular, enjoyable, durable game is already difficult.
With NFTs, certain JPEGs on the internet went from useless to selling for $69 million. Why? Crypto, Web 3, early Internet collectibles. NFTs are digital Beanie Babies (unlike NFTs, Beanie Babies were a popular children's toy; their destinies are the same). NFTs are worthless and scarce. They appeal to crypto enthusiasts seeking for a practical use case to support their theory and boost their own fortune. They also attract to SV insiders desperate not to miss the next big thing, not knowing what it will be. NFTs aren't about paying artists and creators who don't get credit for their work.
South Park's Underpants Gnomes
NFTs are a benign, foolish plan to earn money on par with South Park's underpants gnomes. At worst, they're the world of hucksterism and poor performers. Or those with money and enormous followings who, like everyone, don't completely grasp cryptocurrencies but are motivated by greed and status and believe Gary Vee's claim that CryptoPunks are the next Facebook. Gary's watertight logic: if NFT prices dip, they're on the same path as the most successful corporation in human history; buy the dip! NFTs aren't businesses or museum-worthy art. They're bs.
Gary Vee compares NFTs to Amazon.com. vm.tiktok.com/TTPdA9TyH2
We grew up collecting: Magic: The Gathering (MTG) cards printed in the 90s are now worth over $30,000. Imagine buying a digital Magic card with no underlying foundation. No one plays the game because it doesn't exist. An NFT is a contextless image someone conned you into buying a certificate for, but anyone may copy, paste, and use. Replace MTG with Pokemon for younger readers.
When Gary Vee strongarms 30 tech billionaires and YouTube influencers into buying CryptoPunks, they'll talk about it on Twitch, YouTube, podcasts, Twitter, etc. That will convince average folks that the product has value. These guys are smart and/or rich, so I'll get in early like them. Cryptography is similar. No solid, scaled, mainstream use case exists, and no one knows where it's headed, but since the global crypto financial bubble hasn't burst and many people have made insane fortunes, regular people are putting real money into something that is highly speculative and could be nothing because they want a piece of the action. Who doesn’t want free money? Rich techies and influencers won't be affected; normal folks will.
Imagine removing every $1 invested in Bitcoin instantly. What would happen? How far would Bitcoin fall? Over 90%, maybe even 95%, and Bitcoin would be dead. Bitcoin as an investment is the only scalable widespread use case: it's confidence that a better use case will arise and that being early pays handsomely. It's like pouring a trillion dollars into a company with no business strategy or users and a CEO who makes vague future references.
New tech and efforts may provoke a 'get off my lawn' mentality as you approach 40, but I've always prided myself on having a decent bullshit detector, and it's flying off the handle at this foolishness. If we can accomplish a functional, responsible, equitable, and ethical user-owned internet, I'm for it.
Postscript:
I wanted to summarize my opinions because I've been angry about this for a while but just sporadically tweeted about it. A friend handed me a Dan Olson YouTube video just before publication. He's more knowledgeable, articulate, and convincing about crypto. It's worth seeing:
This post is a summary. See the original one here.
Stephen Moore
2 years ago
A Meta-Reversal: Zuckerberg's $71 Billion Loss
The company's epidemic gains are gone.
Mark Zuckerberg was in line behind Jeff Bezos and Bill Gates less than two years ago. His wealth soared to $142 billion. Facebook's shares reached $382 in September 2021.
What comes next is either the start of something truly innovative or the beginning of an epic rise and fall story.
In order to start over (and avoid Facebook's PR issues), he renamed the firm Meta. Along with the new logo, he announced a turn into unexplored territory, the Metaverse, as the next chapter for the internet after mobile. Or, Zuckerberg believed Facebook's death was near, so he decided to build a bigger, better, cooler ship. Then we saw his vision (read: dystopian nightmare) in a polished demo that showed Zuckerberg in a luxury home and on a spaceship with aliens. Initially, it looked entertaining. A problem was obvious, though. He might claim this was the future and show us using the Metaverse for business, play, and more, but when I took off my headset, I'd realize none of it was genuine.
The stock price is almost as low as January 2019, when Facebook was dealing with the aftermath of the Cambridge Analytica crisis.
Irony surrounded the technology's aim. Zuckerberg says the Metaverse connects people. Despite some potential uses, this is another step away from physical touch with people. Metaverse worlds can cause melancholy, addiction, and mental illness. But forget all the cool stuff you can't afford. (It may be too expensive online, too.)
Metaverse activity slowed for a while. In early February 2022, we got an earnings call update. Not good. Reality Labs lost $10 billion on Oculus and Zuckerberg's Metaverse. Zuckerberg expects losses to rise. Meta's value dropped 20% in 11 minutes after markets closed.
It was a sign of things to come.
The corporation has failed to create interest in Metaverse, and there is evidence the public has lost interest. Meta still relies on Facebook's ad revenue machine, which is also struggling. In July, the company announced a decrease in revenue and missed practically all its forecasts, ending a decade of exceptional growth and relentless revenue. They blamed a dismal advertising demand climate, and Apple's monitoring changes smashed Meta's ad model. Throw in whistleblowers, leaked data revealing the firm knows Instagram negatively affects teens' mental health, the current Capital Hill probe, and the fact TikTok is eating its breakfast, lunch, and dinner, and 2022 might be the corporation's worst year ever.
After a rocky start, tech saw unprecedented growth during the pandemic. It was a tech bubble and then some.
The gains reversed after the dust settled and stock markets adjusted. Meta's year-to-date decline is 60%. Apple Inc is down 14%, Amazon is down 26%, and Alphabet Inc is down 29%. At the time of writing, Facebook's stock price is almost as low as January 2019, when the Cambridge Analytica scandal broke. Zuckerberg owns 350 million Meta shares. This drop costs him $71 billion.
The company's problems are growing, and solutions won't be easy.
Facebook's period of unabated expansion and exorbitant ad revenue is ended, and the company's impact is dwindling as it continues to be the program that only your parents use. Because of the decreased ad spending and stagnant user growth, Zuckerberg will have less time to create his vision for the Metaverse because of the declining stock value and decreasing ad spending.
Instagram is progressively dying in its attempt to resemble TikTok, alienating its user base and further driving users away from Meta-products.
And now that the corporation has shifted its focus to the Metaverse, it is clear that, in its eagerness to improve its image, it fired the launch gun too early. You're fighting a lost battle when you announce an idea and then claim it won't happen for 10-15 years. When the idea is still years away from becoming a reality, the public is already starting to lose interest.
So, as I questioned earlier, is it the beginning of a technological revolution that will take this firm to stratospheric growth and success, or are we witnessing the end of Meta and Zuckerberg himself?
Jari Roomer
2 years ago
Successful people have this one skill.
Without self-control, you'll waste time chasing dopamine fixes.
I found a powerful quote in Tony Robbins' Awaken The Giant Within:
“Most of the challenges that we have in our personal lives come from a short-term focus” — Tony Robbins
Most people are short-term oriented, but highly successful people are long-term oriented.
Successful people act in line with their long-term goals and values, while the rest are distracted by short-term pleasures and dopamine fixes.
Instant gratification wrecks lives
Instant pleasure is fleeting. Quickly fading effects leave you craving more stimulation.
Before you know it, you're in a cycle of quick fixes. This explains binging on food, social media, and Netflix.
These things cause a dopamine spike, which is entertaining. This dopamine spike crashes quickly, leaving you craving more stimulation.
It's fine to watch TV or play video games occasionally. Problems arise when brain impulses aren't controlled. You waste hours chasing dopamine fixes.
Instant gratification becomes problematic when it interferes with long-term goals, happiness, and life fulfillment.
Most rewarding things require delay
Life's greatest rewards require patience and delayed gratification. They must be earned through patience, consistency, and effort.
Ex:
A fit, healthy body
A deep connection with your spouse
A thriving career/business
A healthy financial situation
These are some of life's most rewarding things, but they take work and patience. They all require the ability to delay gratification.
To have a healthy bank account, you must save (and invest) a large portion of your monthly income. This means no new tech or clothes.
If you want a fit, healthy body, you must eat better and exercise three times a week. So no fast food and Netflix.
It's a battle between what you want now and what you want most.
Successful people choose what they want most over what they want now. It's a major difference.
Instant vs. delayed gratification
Most people subconsciously prefer instant rewards over future rewards, even if the future rewards are more significant.
We humans aren't logical. Emotions and instincts drive us. So we act against our goals and values.
Fortunately, instant gratification bias can be overridden. This is a modern superpower. Effective methods include:
#1: Train your brain to handle overstimulation
Training your brain to function without constant stimulation is a powerful change. Boredom can lead to long-term rewards.
Unlike impulsive shopping, saving money is boring. Having lots of cash is amazing.
Compared to video games, deep work is boring. A successful online business is rewarding.
Reading books is boring compared to scrolling through funny videos on social media. Knowledge is invaluable.
You can't do these things if your brain is overstimulated. Your impulses will control you. To reduce overstimulation addiction, try:
Daily meditation (10 minutes is enough)
Daily study/work for 90 minutes (no distractions allowed)
First hour of the day without phone, social media, and Netflix
Nature walks, journaling, reading, sports, etc.
#2: Make Important Activities Less Intimidating
Instant gratification helps us cope with stress. Starting a book or business can be intimidating. Video games and social media offer a quick escape in such situations.
Make intimidating tasks less so. Break them down into small tasks. Start a new business/side-hustle by:
Get domain name
Design website
Write out a business plan
Research competition/peers
Approach first potential client
Instead of one big mountain, divide it into smaller sub-tasks. This makes a task easier and less intimidating.
#3: Plan ahead for important activities
Distractions will invade unplanned time. Your time is dictated by your impulses, which are usually Netflix, social media, fast food, and video games. It wants quick rewards and dopamine fixes.
Plan your days and be proactive with your time. Studies show that scheduling activities makes you 3x more likely to do them.
To achieve big goals, you must plan. Don't gamble.
Want to get fit? Schedule next week's workouts. Want a side-job? Schedule your work time.