It’s a pretty standard complaint about financial markets that they get overexcited about the New Big Thing. Everyone piles into the fashionable and this means that capital is misallocated and we’d do ever so much better if it was all rationally planned.
Well, yes, except this really does apply to New Big Things. Like, say, turning the energy supply and transport system green to deal with climate change:
Whether investors one day regret paying so much for Tesla Inc. stock, they have done the planet a favor. Their enthusiasm enabled the company to raise enough money to stay afloat until it could profitably mass produce electric cars while accelerating other manufacturers’ rollouts.
Tesla, trading at more than 1,000 times trailing earnings, is only the most extreme example of a euphoria that has swept green energy. From the end of 2019 through Tuesday, a fund that tracks a Nasdaq clean energy index had risen 191% compared with the broad market’s 15%. It trades at 52 times trailing earnings, nearly double the overall market’s already-historically high multiple. More than a third of its 44 constituents are losing money.
It’s really rather difficult to justify Tesla being worth more than every other car company on the planet put together. But we are where we are. One of the things about where we are being that a week or two back Tesla raised $5 billion in new capital without even blinking. Febrile markets do have their point when capital needs to be raised.
Further, that nonsense about Tesla’s valuation means that Fisker, Nio, Nikola and the rest have also been able to raise significant amounts of capital. I tend to think that most of that’s going to be pissed away but so what? We’re in one of those turns in technology and we really don’t know which one, nor which deployment of which one, is going to win. Fund ’em all and see what sticks. This being exactly what stock market bubbles do in fact do.
Sure, we also get South Sea Bubble effects like secret plans no one to know what they are. Just as with dotcom we got Pets.com – and also that bookseller in Seattle gaining funding.
And here’s the thing. there are economists out there who insist that the bubble is the essential part of getting the technological change funded. On a rational and risk assessed basis pretty much none of the Tesla followers would be gaining funding. Tesla certainly wouldn’t be getting what it is on the terms it is. But it is that ease of capital – also known as investors pissing it up against the wall – that makes the whole getting the new tech over the hump possible.
In fact, there’s a subset of such economists who insist that without the investing bubbles we never will have technological revolutions.
All of which is really rather fun. It’s precisely the irrationality of financial markets that drives lefties up the wall. Yet it’s that irrationality that is funding their wet dreams. Which is fun, isn’t it?