Are domains recession proof?

[InternetMoney]

If the economy slows will domains have more, less or about the same value? What are the pros and cons of how the economy will effect domain values?

 

[davnin]

Domains market is still growing!!! :bingo:

From DNJournal:

"A total of $38,029,543 in domain sales were reported in 1Q-2008, a spectacular 78% jump over the $21,253,105 reported in the first quarter of 2007 - before the current dislocations in the general - before the current dislocations in the general economy started appearing. 1Q-2008 was also 12% better than the $34,089,484 registered in the fourth quarter of 2007."

 

[InternetMoney]

Thats good news that the market for domains is growing at $38 million in sales in the first quarter. One stock on the market can easily be 38 million. Thats really a small number and could grow to billions of dollars. The oil market and other commodities trade in the billions of dollars a day.

People may look for other places than the stockmarket and realestate to invest. Domains are a hot market and may be a place investors look at.

The more I think of it, one commercial realestate property can be many times 38 million dollars. That sales number of 38 million sounds like a lot because its growing but that means the domain market is very small still so there is potential upside.

 

[goodkarmaco]

Takin care of business

When the economy goes bad it can take many different turns. We need to know as domainers if we are actually gettng more or less for our names when economies change.

Look at the Canadian dollar and how it jumped from .68 cents to at par in only months as the USA downturns progressed. If you knew these things would create above twenty five percent increases in your currency if you were Canadian, (CDn Compared to U.S. $) then you may be able to adjust your pricing structure when marketing domains.

Lets say a few months into this "recession" the massive amounts of money the American government printed to save us (this is only an illusion as they caused the recession in the first place) starts pushing up prices for everything. Then at that moment in time we are in an "inflationary" period.

Forecasting the worth of money is only revelent when one factors in these scenarios.

If all of a sudden you are paying twice or more for things like gas, bread, etc, (don't disregard these events happening) you may conclude to charge twice for the domain. Are you now making twice as much? No you are back at square one. If you only charge double for what you thought your domain to be worth you are not really growing your business. Remember things are twice as much or more to purchase in an inflationary period. So when buying you too will notice you won't recieve much for your money.

Really important to know what is happening to money to be able to gauge what exactly is a decent profit in your domaining business.

Bachman said it well, "takin care of business".

 

[domainman101]

recessions happen in different regions, and economies of scale. Domains are worldwide, so in time of recession they would actually be seen as a safe haven such as gold.

 

[Rubber Duck]

recessions happen in different regions, and economies of scale. Domains are worldwide, so in time of recession they would actually be seen as a safe haven such as gold.

Domains are generally specific to markets. They are not global assets.

There has certainly been a bubble in dot coms. It is not so much that the top names are over-valued. They are not. But there are millions of names registered as speculative investments that will never ever be worth anything at all.

What people need to understand is that the value of the US market is greatly overstated. It has largely been based on retailers selling to employees of other retailers that are drowning in debt. The industries that were the driving force behind the economy have been down sized or are becoming uncompetitive. Once retailers start laying off it is going to be a downward spiral, one redundancy will feed off another. Reducing interest rates only intensifies the credit squeeze as the risk reward balance becomes even less interesting to potential foriegn investors. Whilst the US economy has been outpacing the European economy over the last decade in terms of growth, none of that mean anything if your currency halves in value. At the start of this crisis the US accounted for about 25% of global GDP. Soon it will be lucky if it accounts for 10%.

To make serious cash in this business in the coming years, you need to be targeting the BRIC countries, and don't start off with the premise that they are all going to be spending their new wealth of Bud and MacDonalds. They won't!

 

[Keith]

Domains will continue to grow in value as time goes on. The question is...can people afford to spend as much in these times on domains? A recession will have most people sitting on their funds trying to weather the storm. Of course some will let nice domains go cheaper than they should because they need the cash. That does not mean the values are decreasing though! There are certainly great buys in times like this

 

[Rubber Duck]

Domains will continue to grow in value as time goes on. The question is...can people afford to spend as much in these times on domains? A recession will have most people sitting on their funds trying to weather the storm. Of course some will let nice domains go cheaper than they should because they need the cash. That does not mean the values are decreasing though! There are certainly great buys in times like this

Maybe, but there is still irrational confidence in many markets.

Wall Street keeps rallying, but it will crash soon. Where will it go? Well, I would not be surprised if the Dow is not testing 6000 before long!

 

[Keith]

Maybe, but there is still irrational confidence in many markets.

Wall Street keeps rallying, but it will crash soon. Where will it go? Well, I would not be surprised if the Dow is not testing 6000 before long!

Certainly you have to be cautious in any market and pay attention to the trends. I think Wall Street and the domaining market are completly different though. Wall Street or the "stock market" deal with real assets where the buying and selling of those assets directly affect the value. In the world of the internet it is not necessary for people to spend money to use the product. This is why domainers will continue to make profits. I can surf all day, every day for free thus creating a demand for more content. This market is growing bigtime with unlimited potential.

 

[Rubber Duck]

Certainly you have to be cautious in any market and pay attention to the trends. I think Wall Street and the domaining market are completly different though. Wall Street or the "stock market" deal with real assets where the buying and selling of those assets directly affect the value. In the world of the internet it is not necessary for people to spend money to use the product. This is why domainers will continue to make profits. I can surf all day, every day for free thus creating a demand for more content. This market is growing bigtime with unlimited potential.

Now that is what I call a dangerous argument.

Wall Street's error is that because interest rates are low, yields on stocks look good. The problem is that they are looking at last years earnings, whereas next year for many companies there may not be any net earnings. Their profits will be completely wiped out. In that scenario, then you are looking more at break-up asset values which in a difficult economic environment probably bear no resemblance to current valuations.

Domains are not so different. It is about earnings, and those earnings have to be supported by somebodies advertising spend. That spend will depend on the sales that it appears to generate. If that link is not apparent in an adverse environment, then advertising budgets will simply evaporate. People just won't pay indefinitely for armies of window shoppers that are not making purchases. If a domain is not earning then its valuation is very subjective. In a contracting economy domains that don't earn their keep aren't going to fetch much.

 

[Keith]

Domains are not so different. It is about earnings, and those earnings have to be supported by somebodies advertising spend. That spend will depend on the sales that it appears to generate. If that link is not apparent in an adverse environment, then advertising budgets will simply evaporate. People just won't pay indefinitely for armies of window shoppers that are not making purchases. If a domain is not earning then its valuation is very subjective. In a contracting economy domains that don't earn their keep aren't going to fetch much.

Yes it depends on earnings and advertising dollars. That is my point. People will continue to utilize the internet regardless of their financial situation because it is basically free. For that sole reason it will be in advertisers best interest to continue to spend in the domain business. It is the most cost effective way to reach millions if not billions of people. Companies will not stop promoting their products because of a recession. Instead they will find the cheapest way to reach their consumers. That is where the internet comes into play.

Also, there have been no signs of slow downs in internet purchasing. In fact it is just the opposite.

Gotta run Rubber Duck but I would love to continue this conversation tomorrow

 

[accent]

Maybe, but there is still irrational confidence in many markets.

Wall Street keeps rallying, but it will crash soon. Where will it go? Well, I would not be surprised if the Dow is not testing 6000 before long!

I just do not see it.

The Dow dipped below 12000 in mid January and has generally stayed above that since then. GDP is flat to slightly negative. The bail out of Bear Stearns showed the market that the Fed will provide liquidity. Interest rates now are low enough so that adjustable loans won't adjust very much. An election is coming up.

A major market shift is usually heralded by a severe one day price drop - several thousand points in the Dow would do it. There has been nothing like that and the market makers have known about the mortgage problems for a long time now. The sub-prime loans and their side effects are factored into the markets, although there may be more unexpected failures. There are people hurting but overall life goes on.

This is not to say that there are not huge issues of public and private debt that can cause a world wide collapse much larger than the great depression, and I see nothing significant being done to fix them. But I do not think the fiat (worthless paper) money house of cards is going to fall just yet. It would have already done so, if this is the time for it. It is the one you don't see coming that gets you.

 

[Rubber Duck]

Yes it depends on earnings and advertising dollars. That is my point. People will continue to utilize the internet regardless of their financial situation because it is basically free. For that sole reason it will be in advertisers best interest to continue to spend in the domain business. It is the most cost effective way to reach millions if not billions of people. Companies will not stop promoting their products because of a recession. Instead they will find the cheapest way to reach their consumers. That is where the internet comes into play.

Also, there have been no signs of slow downs in internet purchasing. In fact it is just the opposite.

Gotta run Rubber Duck but I would love to continue this conversation tomorrow

I cannot disagree with that, but nevertheless most of the name registered in the last 12 months will prove to be worthless, as indeed most of those in the 12 months before that were. There are really only a relative small pond of inherently valuable domains. The rest are just dross. There is going to be a big shake out. That is not the beginning of the end, but it is likely to prove the end of the beginning.

I just do not see it.

The Dow dipped below 12000 in mid January and has generally stayed above that since then. GDP is flat to slightly negative. The bail out of Bear Stearns showed the market that the Fed will provide liquidity. Interest rates now are low enough so that adjustable loans won't adjust very much. An election is coming up.

A major market shift is usually heralded by a severe one day price drop - several thousand points in the Dow would do it. There has been nothing like that and the market makers have known about the mortgage problems for a long time now. The sub-prime loans and their side effects are factored into the markets, although there may be more unexpected failures. There are people hurting but overall life goes on.

This is not to say that there are not huge issues of public and private debt that can cause a world wide collapse much larger than the great depression, and I see nothing significant being done to fix them. But I do not think the fiat (worthless paper) money house of cards is going to fall just yet. It would have already done so, if this is the time for it. It is the one you don't see coming that gets you.

The problem is that the entire US Economy is a bubble, and the Government and the Fed are keeping that economy pumped up in the vain hope that they can tough it out until November.

It is all about confidence, which is why nobody is mentioning the Recession word. The economy is almost entirely based on selling imported goods to one another and financing it all with credit. The credit has dried up and frankly the Feds intervention is only exaccerbating the problem. The lending just isn't happening. Once unemployment starts to kick in big time, which it is clear now that it will, then it is a one way ticket.

You are right. When the Dow goes it will crash several thousand points in one go. No, it has not happened yet, and that can only be explained by the gullibility of American people when they are addressed by their political masters. And of course nobody on Wall Street has a vested interest in seeing the whole thing collapse. I am not even convinced that the US Government is not also intervening in ways that are being kept secret from us.

What people also don't seem to understand, is that Wall Street has caused billions of dollars of equity to be wiped out around the globe. Many large foreign banks will be looking for redress over the coming months, and there will almost certainly be legal action if not criminal actions. Confidence in America has been shattered. Even the Sovereign funds that came to the rescue have been badly burnt. Don't expect these victims to be queueing up to effect a rescue anytime soon.

 

[Sleepys]

The Dow Jones Industrial Average will not drop to 6000 points. Every time there is any type of downturn in stocks, a few people come out of the wood work and predict disaster. A fall to 6000 would a drop of over 60% from the high, which is not just unlikely, but is simply not going to happen. If you think that the whole US Economy is in a bubble, then you need to study the markets closer. Commodities may be in a bubble, but that is really the only market that can be described as such, and it is in a worldwide bubble, not a US one. The housing market was in a bubble, but it has burst, and a bubble that has burst is no longer a bubble. You can argue that the stock market is in a bubble too, but the fact that it is trading close to where is was in 2000 and most of the companies are making much more than they were than, even with inflation, they should be worth more. The whole market is cheaper on an earnings/sales basis, meaning if we were in a stock bubble (which we are not), then it would have less to fall than it did in 2001 (it fell to 7286, meaning you expect it to drop another 20% lower than back than on much stronger earnings).

I will say that to expect a drop of a few thousand points in a day is a little ridiculous also. That has actually never happenned before, ever. There is a reason for that. After the crash of 1929, the SEC was set up and certain rules were put in place to prevent that from happenning again. These rules were strengthened further after 1987. If the market was on course to drop thousands of points in a day, trading curbs would go up and slow the drop. If it continued dropping, the markets would close before it could get to be thousands (the largest 1 day point drop is 684 points). I will also point out that while it is true that bear markets are usually preceeded by increased volatility, it is normally a large point increase (or a few) that signals a drop is looming, not a decrease, at least according to John Kenneth Galbraith in A Short History of Financial Euphoria (highly recommended). Finally, once the stock market has dropped by 10% it is an official correction, once it has dropped 20% it is officially a bear market, however short lived. Since the stock market has already dropped by 20% we are in a bear market, until it recovers. To predict a bear market is pointless.

Also, it was not just US banks that got caught up in the financial euphoria, but international banks as well. The list of International banks at just as much fault as US banks, includes Germany's IKB, France's Société Générale, Switzerland's UBS, and many banks from Japan. What makes them deserve financial redress when they are guilty of the same things as Citibank and Wachovia. If these international banks can sue, then so can US banks. But they can't, they can however be sued by shareholders, which is starting to happen already.

I know that I am probably not going to convince anyone who is sure that the market has another 50% to fall, that it won't. I am also not saying that the market can not fall farther. I am just saying that there is no way it is falling to 6000, and you guys will not convince me of that.

 

[Rubber Duck]

If it is also cosy, why won't Bernanke or Bush or indeed Paulson even mutter the Recessioin word?

They won't do it, because they know that as soon as they do, the game is up. Of course it is up anyway. It is just a question as to how long it will take the market to wake up and smell the coffee.

Yes, there are all sorts of safe guards built in. But once every realises that been consistently lied to with deliberate intent, there will be no way you can regulate confidence back into the markets. At the end of the day, the striking price is what somebody will stump up.

Comparisons with the Dot Com Bubble are pointless. That was a walk in the park.

Speculating where it will drop to is equally pointless. Meaningful valuations are impossible as these will depend on knowing future earnings. Those are unknowable and so is the degree of hysteria that will ensue when it become apparent that the Fed has lost control.

 

[Sleepys]

Comparisons with the Dot Com Bubble are pointless. That was a walk in the park.

Speculating where it will drop to is equally pointless. Meaningful valuations are impossible as these will depend on knowing future earnings. Those are unknowable and so is the degree of hysteria that will ensue when it become apparent that the Fed has lost control.

Well said. I do agree with you here and where we see earnings next year is a big factor in our difference of opinion.

I also believe that Bernanke is now mentioning the possibility of recession. We have to understand, that this is how the Fed normally acts. They keep the public in the dark and make decisions on their own, because if they tell people that there is reason to panic, then everyone will panic, and it will make matters worse. I have actually heard this Fed critisized on TV for being too open and honest with the public. For saying thing like "we don't know if we are in a recession", and what not. Normally the Fed doesn't know, but they tell people a more straightforward answer of yes or no, whether it is true or not. Anyway, it is my opinion that when Bernanke, Paulson, Bush, and whoever else's opinion is important, says that we are officially in a recession, that we will be finishing up the recession and on our way out. That is how it normally is. The government is always too late and too slow, but the US economy has faced equally trying times, and always recovers and reaches new heights. That is how markets work, we have ups and then downs, and when everyone thinks the market can only go up, it is going to go down. When everyone thinks the market is going down, I tend to think it is about to go up.

I see a lot of potential in BRIC, but I hear everyone spouting the desirability of those countries, and nothing negative about any of them. That spells disaster to me. Also, with so much inflation in commodities, many of the most important commodities (Wheat, Corn, Oil, Gold, Meat), are becoming more and more expensive, not just in the US, but worldwide. I know that India and China are growing fast, but I also think that the higher these basic commodities go, the more it is going to squeeze the impoverished of these countries (which still make up a huge majority). I never hear anyone talking about this, only that they are growing fast and have a lot of upside, which spells danger to me.

Just my opinion, and I certainly can appreciate other views. :kickass:

 

[Rubber Duck]

I don't see this as a two quarter recession. That is just the next admission in a series of admissions. What Bernanke is scared of is a Japanese style lost decade. He thinks he can manage things better than they did. Actually I believe he is wrong. He is exaccerbating the credit crunch.

On commodities, we are not all as dependent on Oil as the US. You burn half the World's production, and actually produce very little other than CO2. We are also not buying it with Fed IOUs which have and will continue to become increasingly worthless. China will let the Yuan appreciate to offset the increasing cost of commodities. India likely will do the same. Russia and Brazil have few worries and they are primarily suppliers rather than consumers.

The problem is that your increases are illusions. The value of your currency is falling and in real terms so is the value of your economy.

http://www.elliottwave.com/freeupda...t-the-Crash-That-No-One-Else-Talks-About.aspx

What needs to happen is that a higher percentage of your workforce need to be employed in wealth generating industries, and I don't mean shops. Real productivity rather than the bullshit productivity figures that come out of your government need to be achieved. More World Class products need to be brought on stream. All this will require massive investment which can now only really come from abroad. To capture this investment you will need to offer attractive returns, which means tightening your belts and stabilising your currency. But in order for any of this to happen, there needs to be an understanding and acceptance among the wider populus as to what has gone wrong. Only then can you start to turn things around, and from where I am standing, I think getting that political resolve could take another decade!

 

[Sleepys]

I don't know anyone who considers "real money" to be gold. And comparing the dow to any commodity over the past few years will look the same. The problem is that most stock markets look like that compared to Gold since 2000. That chart shows two things in my mind. One, that Gold was in a bubble (which is now correcting itself). Two, that the US stock market is undervalued. It is a common falacy of today's market to believe that a market that is going down will continue, simply because it is going down, and that one that is rising will continue, because it is rising. That may be true within very short term fluctuations, but over the long term, the opposite holds true. That chart makes the dow look cheap in my opinion.

I do not think that any of the developing countries are as dependent on oil as us and would never make that claim. I do think that as some of these countries become more and more developed that some of them will need more and more oil, but that is not the most important commodity I was talking about in these nations, just one of them. What will happen to the 80% or whatever it is of people in India living under the poverty line, when their milk is 100% more expensive, their corn is 200% more expensive, their wheat and rice is 200% more expensive. Not to mention, that many of these developing countries are more dependant on certain commodities, like the supply of steel and concrete. No one is pricing in that these are continuing to rise, and that the rise is exacerbated by the developing economies urgent need for so much of each.

Time will tell, but I know that each time the US economy falters, people talke about this country or that overtaking the US and being dominant in a certain amount of years. It was Japan in the 80's, we all know how that turned out. Brazil has been mentioned every single time their economy is on fire (it is never just good, it is either on fire or in the dumps). People seem to think that Brazil will take over every few years, and than give up on that assumption when times get hard there, only to regain it again later.

I think that people's talk of the demise of the US economy is a little ridiculous. Then again, I am a contrarian and am often times early (sometiems very early) in my calls. While the US is certainly dependent on foreign nations, those countries are also dependant on us. I hear talk that because India and China each have a billion people, that they will overtake the US in X amount of years. While it may be true that total GDP of these countries may surpass the US, I don't foresee the benefits being distributed evenly. In each country, some individuals are taking advantage and becoming super rich. Some people are better off than before, but I still hear about 800 or 900 million people in India struggling. Simply because a factory that does not employ them is shipping more stuff to the US, I don't see that making those 800 million people that much better off. The fact that so many workers in China and India still make less than $100 a month, yes a month, is horrible. But, the fact that everyone talks about how great things are for everyone there is even more sad, because I see the inequality rising and the only way I see for these countries to really overtake the US is by not concerning itself with the mass public, but by focusing on how they can grow their companies to best take advantage of the low cost labor and huge number of people.

Offshoring of US customer is not going to fix the wealth problem for the masses, because it is already seeing lots of backlash and is being scaled back at many US companies. Finally, people have to realize that even though the production of some things has moved to cheaper locations, the US is still on top in technology and certain intangibles like Intellectual Property (that hopefully can be defended).

 

[Alan Glennon]

Domains are not recession proof.

If the economy slows will domains have more, less or about the same value? What are the pros and cons of how the economy will effect domain values?

Other posters repped for long discussion points.

 

[Sleepys]

Other posters repped for long discussion points.

Good Point. +Rep to Rubber Duck for providing a good spirited debate.