strategy Is the Global Economy About To Crash? What would it mean for domain investors?

[Whizzbang]

You only have to reflect on the last twelve months to see the impact of debt on the domain market. In an effort to get their money out of China and into more flexible assets many Chinese investors raised margin loans against share positions. They then took these loans off market (you can’t do this in most markets) and bid up the prices on short letter/number domains with the ultimate goal of flipping the assets into US dollars.

Last year, I attended DomainFest.Asia and upon returning home my business partner and I sold every domain we could get our hands on at top dollar rates. This year I attended the same conference and I can now buy the domains I sold last year for around 35% of the price I received for them.

So what happened? Debt combined with key market makers is what happened. This created a rapid downward spiral to the present valuations….it will be interesting to see what will happen to the price of all of the Chinese held domains in the event of a Chinese economic meltdown.

I remember writing about the crazy inflationary domain prices post the New York TRAFFIC conference. At the time key market makers pushed up prices and debt first entered the domain space (eg. companies like Domain Capital). This easy access to debt fuelled the price boom in much the same manner as the one Chinese investors just experienced.

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[MackieMesser]

From a historical point of view, "systems" - economical and political systems - regularly "crash" or collapse though it might take decades. Power shifts, civilizations disappear which does not mean that people disappear. Mostly it becomes obvious in hindsight when future generations analyze the history.

Regarding global economy today, I've read a few times this year that some people say, there are again new bubbles in some countries. For example some say that in Germany is growing a real estate bubble.

In my opinion it is always the question if it is just the "normal economic heartbeat" of the currently prevailing economical-political system or is it a sign of a incurable disease inherent to that system in its specific form as it is now? Don't want to go to deep into this, because this is a huge topic

Anyway - since you brought up the US elections - generally Brexit, Trump and the German populist party AFD are just the peak of an atmosphere which I consider as increasingly populist. Everyone, including politicians, can openly lie and nobody seems to care. No matter what topic: domestic politics, immigration, refugees, war in Syria or Ukraine, Russia, Putin, climate change, renewable energy, in my perception it seems to become increasingly difficult to convince people with simple facts. It seems as if a growing number of people are not interested in objective facts, they want to believe a lie.

This is in my opinion something that will have a significant impact during and in the aftermath of the next global economic crisis if it actually ever was over (maybe it depends for whom).

As today is the 75th anniversary of the massacre of Babi Yar, conducted by German armed forces (Einsatzgruppen, regular police and Wehrmacht) during World War II close to Kiev with over 30,000 Jewish citizens from the Kiev area murdered, I want to highlight a quote from American historian Timothy Snyder published in the German "Der Spiegel" magazine (my translation):

"What we today experience as civilization is more fragile was we think. I don't understand why we should today be more immune to mass murder than the people in the 1903s."

("Was wir heute als Zivilisation erfahren, ist viel fragiler, als wir denken. Mir ist nicht klar, warum wir heute vor Massenmord eher gefeit sein sollten als die Menschen in den Dreißigerjahren.")

This is exactly what I think, too. Of course mass murder is the extreme, but the thing that I want to express, is that there is in my opinion always the possibility that things (for example a political and/or economical system) change in a way that many did not expect and/or want. This can be the result of what we call now the next "global economic crisis" - afterwards in hindsight, people might call it differently.

This is why it is important to consider not only during and after a possibly next global economic crisis what to do with all the people that are and maybe always considered themselves as losers of society/economy or a certain development.

Okay...sorry, this went a bit further than the original topic, so I will stop though I would have things to add. Just came into my mind.

 

[London555]

LOL

You're not the sharpest tool in the shed, are ya?

If Trump wins, Yellen doesn't have a job.
She either gets fired or resigns.

"Own a small private hedge fund", my ass..LOL

Why would some hedge fund manager dabble in hobbyist domaining (you).
If you were making that hedge fund money, it wouldn't be worth your while to dabble in domains
(fending of the $100 offers...tons of SPAM etc)

Does Warren Buffett need to shake the sofa for loose change?

LOL

What an interesting observation on your part. You understand that Trump would win in November and Yellen has a meeting in December before the inauguration-correct? I often wonder why people like you post such a nasty couple of paragraphs that make no sense at all. As a rule I wouldn't even bother to respond but because it's so nasty I felt I would. We "dabble" as you say in domains because we find it interesting. We don't post that often here on NP because of people like you. Perhaps in your next post you could explain to us the Black Scholes model of option pricing and how to exploit its inefficiencies. Have a nice day.

 

[London555]

Excellent post. What many dont understand is that cash is a "position". As one financial advisor after another tells their clients to buy " safe" US bonds it's simply a matter of time before these time fuses explode in the investors face. Not if but when. There's a good reason that China is buying gold hand over fist. As are world class investors such as Stanley Drukenmiller and others like him. We own a small private hedge fund and domains are a secondary interest for us but we're reminded of something one of the very best in our business ,Ray Dalio, has said "as some point in time all assets will lose 50% or more of their value at some point in their life cycle". If China really hits the skids we would guess that "premium" domains will lose 75% of their value from the top of this cycle. When a guy like Rick Schwartz is selling to China at top dollar as he did in late 2015 you want to be a seller not a buyer. Many will say that Chinese domain investors are too smart to get "caught" in a bubble-exactly what was said about the Japanese when they paid $800 million for "premium property" Pebble Beach CC only to sell it five years later to a US group for $400 million. This world economy is headed for a real fall with Janet Yellen leading the charge to the bottom.

 

[Kate]

Global debt is unsustainable. Even after the crash of 2008, even after the near-bankruptcy of Greece, nations are still digging the hole. Obviously it's not going to end well. Personally I think it's a collective suicide. Always repeat of the past.

 

[eyedomainous]

I think its the other way around, and the question is...
When Will 'Domain Investors' Crash The Global Economy?

The Web's 'near zero marginal costs' to conduct e-commerce is rapidly transforming the global economy.
In your China example, keep in mind it was the loss of manufacturing -back to the U.S., because of the rise of information technology, 3D and on-demand manufacturing, coupled with (Amazon) delivery logistics, that drove, and continues to drive, the exodus of investments from China. In this sense, China may well be the 'canary' in the global economy 'coal mine'.

 

[John0]

I dont know about ww3, but as somebody else said ww4 will be fought with sticks and stones.

 

[Kate]

Good brandables will always be in demand, because end users like domains that are somewhat unique, and that can make strong brands. It's not a fad, and they are not new at all.

 

[Whizzbang]

Excellent post. What many dont understand is that cash is a "position". As one financial advisor after another tells their clients to buy " safe" US bonds it's simply a matter of time before these time fuses explode in the investors face. Not if but when. There's a good reason that China is buying gold hand over fist. As are world class investors such as Stanley Drukenmiller and others like him. We own a small private hedge fund and domains are a secondary interest for us but we're reminded of something one of the very best in our business ,Ray Dalio, has said "as some point in time all assets will lose 50% or more of their value at some point in their life cycle". If China really hits the skids we would guess that "premium" domains will lose 75% of their value from the top of this cycle. When a guy like Rick Schwartz is selling to China at top dollar as he did in late 2015 you want to be a seller not a buyer. Many will say that Chinese domain investors are too smart to get "caught" in a bubble-exactly what was said about the Japanese when they paid $800 million for "premium property" Pebble Beach CC only to sell it five years later to a US group for $400 million. This world economy is headed for a real fall with Janet Yellen leading the charge to the bottom.

Couldn't agree with you more. I know we sold a LOT of domains to Chinese investors during the end of 2015. All I know is that something has to give at some time.....there's just too many signals pointing to a sharp downturn. What I wonder about is whether the US presidential election will be the catalyst for the event.

 

[Whizzbang]

Hmmm not sure why but the "read more" link goes to a 404 error

I just clicked on it and it's all good.....not sure why it would 404. Try going to http://whizzbangsblog.com and then click on the article from the front page.

 

[London555]

Sorry 403 error:

403 - I'm sorry but that page seems to be unavailable at this time.
You may not be able to visit this page because of:

1. an out-of-date bookmark/favourite
2. a search engine that has an out-of-date listing for this site
3. a mistyped address
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6. An error has occurred while processing your request.

Please try one of the following pages:

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If difficulties persist, please contact the System Administrator of this site and report the error below..

I was able to reach it no problem just now twice.

 

[Eric Lyon]

Hmmm not sure why but the "read more" link goes to a 404 error

Hmmm thats odd... even ur homepage is on 404 error at the moment

Try this:

• https://web.archive.org/web/2016092...archive/is-the-global-economy-about-too-crash

 

[deez007]

Try this:

• https://web.archive.org/web/2016092...archive/is-the-global-economy-about-too-crash

Lol....good thinking Thanks Eric! It works...

 

[John0]

As far as Im concerned war can still happen anywhere,
can we see stuff that happened like in ww1 or ww2 repeated in europe?
Yes we can, the only thing that changes is time. People are still people.
Added to the fact that war is a great money spinner. It involves destruction and construction.

 

[deez007]

I know this might seem off topic but I do believe they are somewhat intertwined....

What do you guys think would be the likely hood of WW3 taking place should the global economy collapse? - Especially considering Trump has a chance of being in the reigns (not that I think Hillary much better)

 

[Whizzbang]

I met a hedge fund manager at The Domain Conference. He has been a long-time domain investor on the side and was seeking more information at the conference to increase his position. We also manage domains for private equity firms that have invested heavily in the industry.....so it's not unusual for large or small corporate investment firms to look at the domain industry.

 

[Whizzbang]

A good indication of the "start" of trouble is the current state of the $VIX index vs $VIX futures contracts-seldom is it this wide without a correction being on the near horizon to put the "fear" back into equity holders and make them pay attention. Will this be the start of a major pullback? Who knows but we're net short this market (S@P) right here.

I agree about those two indicators.....nothing like a good dose of fear to pull things back.

 

[nvdomains]

good post and good discussion.

Because of "caution" we may lose some opportunities but never lose in a big way.

Thank you.

 

[mnjkr]

Problem is not with the goods and services produced in the world but the problem is with the money supply and amount of debts that we have in the world economy that is creating all the problems. There seem to be too much of money supply chasing fewer goods and services. Also, the amount of debts that the countries around the world hold which they are not able to back them up with real assets or goods/services. Government is continuing to print money just to keep the currency intact. At some point of time, this debt balloon has to burst. It can happen only two ways - 1) By mutual consensus where debts are waived off or 2) the currency loses it value which leads to economic collapse. To have the former, the people, entity and government have to shed off their outlook of money and use it more as a vehicle rather than a tool to amass and hoard billions/trillions of money in the bank.

 

[Whizzbang]

I think its the other way around, and the question is...
When Will 'Domain Investors' Crash The Global Economy?

The Web's 'near zero marginal costs' to conduct e-commerce is rapidly transforming the global economy.
In your China example, keep in mind it was the loss of manufacturing -back to the U.S., because of the rise of information technology, 3D and on-demand manufacturing, coupled with (Amazon) delivery logistics, that drove, and continues to drive, the exodus of investments from China. In this sense, China may well be the 'canary' in the global economy 'coal mine'.

What a fantastic video....it was rivetting!

 

[Jon B]

This world economy is headed for a real fall with Janet Yellen leading the charge to the bottom.

Hit the nail on the head right here. The Fed is being manipulated by the current administration to keep interest rates low. The US is already in an economic crisis and it's simply being covered up. Startups are nearing a 40 year low. Banks are running amok. Companies that were bailed out only 7 years ago are already speculating on other unstable businesses with huge sums of money ie. $500MM GM invested in Lyft. Google, FB, Amazon etc are gobbling up all emerging competition like The Blob. This is bad for the value of domains which relies on a robust economy and healthy competition among many different businesses. Thankfully, there are populous countries like India that are well positioned for sustained growth.

 

[deez007]

Hmmm not sure why but the "read more" link goes to a 404 error

 

[London555]

Couldn't agree with you more. I know we sold a LOT of domains to Chinese investors during the end of 2015. All I know is that something has to give at some time.....there's just too many signals pointing to a sharp downturn. What I wonder about is whether the US presidential election will be the catalyst for the event.

Here's my take on the election and obviously just a guess. If Trump wins Yellen raises rates in December as a "payback" for the new President and that will hurt if not "crash" the market and Trump will be blamed even though he's warning of a major pullback already. If Clinton wins-no raise of rates in Dec. so time will tell if im correct or not.

 

[deez007]

Hmmm thats odd... even ur homepage is on 404 error at the moment

 

[deez007]

Sorry 403 error:

403 - I'm sorry but that page seems to be unavailable at this time.
You may not be able to visit this page because of:

1. an out-of-date bookmark/favourite
2. a search engine that has an out-of-date listing for this site
3. a mistyped address
4. you have no access to this page
5. The requested resource was not found.
6. An error has occurred while processing your request.

Please try one of the following pages:

• Home Page

If difficulties persist, please contact the System Administrator of this site and report the error below..