From San Francisco-based Testosterone Pit:
San Francisco is unique in many ways, and not only because it gets
cold in the summer. Wild boom-and-bust cycles rule the city, and right
now we’re in a boom cycle. Medium-rise and high-rise buildings for
offices and apartments are sprouting like mushrooms. Cranes dot the
skyline. Construction sites are everywhere. Streets are even more
congested than usual, with concrete pumps blocking three of the four
lanes. Tax revenues are flooding city coffers. Money grows on trees.
Rents are soaring. People are getting evicted. And home prices, oh
my....
By February, the median home in San Francisco changed hands at $945,000, according to DataQuick (now a division of CoreLogic). That was up a screaming 35% year over year, and 16% higher than the peak of the prior bubble.
That peak was in November 2007, the craziest time when nothing could
go wrong because stocks were still riding high, though some had already
fallen off a cliff, and San Francisco was immune to the implosion of the
housing bubble that had been ravaging other cities for over a year
because everyone knew that San Francisco was unique and not subject to
gravity, and a month later it all blew up. Afterwards, everyone called
it “the housing bubble,” and everybody knew it had been a crazy time,
that it hadn’t been sustainable.
This time, it’s not a bubble. It’s just a “healthy housing market.”
But in March, distinct screeching sounds emanated from the big money
machine of San Francisco and Silicon Valley. It was still hard to see at
the time, but the machine had started to grind down. The fuel that
feeds the machine? One, publically traded companies whose stocks are
valued at insane or infinite multiples that can buy tiny startups for
billions of dollars in freshly printed shares, and thus transfer
shareholder wealth from around the world to the Bay Area; and two, IPOs
of small companies with big losses that generate billions for the
sellers, and for stock option holders as well, again transferring money
from buyers around the world to the Bay Area.
Nothing works in San Francisco and Silicon Valley without this money
transfer machine. It’s how early investors exit with immense profits.
It’s how engineers become sudden millionaires. It’s how people with
median incomes suddenly don’t mind plunking down a couple of million in
cash for a three-bedroom apartment. It’s how billionaires are created.
And many of them plow part of their windfall back into the startup mill,
convinced that their genius had made them rich, hoping to benefit from
it a few more times, though most of it will simply dissipate in the
local economy.
What they all must have are soaring stock prices – but not
the stocks that are in the Dow or in the S&P 500, which have been
setting new highs but which don’t really matter that much here, except
for Apple, Google, Facebook, and the like, but tech stocks, biotech
stocks, cloud stocks, Big Data stocks, sundry app makers, internet
stocks, or social media stocks – which are mostly about advertising and
personal-data collection technologies, another hot area.... And they
have been getting slaughtered. So the average stock in the Nasdaq is down over 24% from its 52-week high.
San Francisco’s favorite baby, Twitter – so favorite that the city’s
taxpayers were shanghaied into granting it tens of millions of dollars’
worth of payroll tax exemptions so that it would move from one building
to another a few blocks away, rather than move to another city whose
taxpayers might have been shanghaied into an even worse deal. Well,
Twitter is the locally best known among these momentum fiascos, down 56%
from its high in less than five months. Hope has wheezed out of it.
The Bay Area is full of these companies that are part of the big
money transfer machine that is screeching to a halt. Take FireEye, in
Milpitas, next to San Jose. It sells network and cloud security
products, one of those formerly white-hot sectors. These outfits follow
the same pattern: immensely hyped pre-IPO funding rounds with ever
sillier valuations, an even more hyped IPO (last September), a
Wall-Street instigated run-up into the stratosphere, and then a giant
hissing sound. It’s down 72% from its high in March and trades well
below its IPO price. Like Twitter and most of the others, it’s still
way overvalued. In this manner, spread over hundreds of companies, many
billions in fake wealth have evaporated in just a few months....MORE
