STEVE HENN, HOST:
I live in the San Francisco Bay Area, and I can't go out without talking to someone about the bubble.
ROBERT SMITH, HOST:
The bubble. They don't even have to identify which bubble.
HENN: It's the tech bubble. We are surrounded by technology companies. Within a mile of my house, there are multiple companies worth billions and billions of dollars. Rarely in history have so many people made so much money so fast.
SMITH: It's probably the only place in the country where people regularly in conversation use the word unicorn. A unicorn is a private company that is worth more than a billion dollars. And there are 140 unicorns out there right now.
HENN: It's like a flock of unicorns, a gaggle of unicorns. I don't know. A herd of unicorns? But what really gets people nervous are these crazy stories of how much money is out there. I mean, people worry about their rents, paying their bills. And then you hear something like this.
A company called SalesLoft went to a tech conference in San Francisco just a couple weeks ago, and they built this gun that would just shoot money - real money - up into the air. It was a publicity stunt, and they did it. And the craziest thing was no one noticed. Money was falling on people's shoulders and they were just sort of brushing it off.
SMITH: OK, I will admit that that is crazy. I will admit that that is the sign of a tech boom. But the problem is when you use the word bubble. Now, the whole definition of a bubble is something that is about to pop. And the problem in the San Francisco Bay Area is we don't, in fact, know if this is about to pop.
HENN: Those unicorns may really be unicorns. They could keep growing into mythical beasts. But maybe all these unicorns, maybe they're really just sheep wearing party hats.
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HENN: Hello, and welcome to PLANET MONEY. I'm Steve Henn.
SMITH: And I'm Robert Smith. Today on the show, we are sending Steve Henn on a mission. Sure, you can look at the economics. You can look at company evaluations, the amount of money, the revenues coming in. But we wanted you, Steve, to go look for signs of the bubble, signs of the upcoming apocalypse.
HENN: The kinds of things people will write about after this thing pops.
SMITH: If it pops.
HENN: Just wait, Robert.
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SMITH: Now, we should get this out of the way at the top. There is a school of thought in economics that says that bubbles do not exist. Sure, when you have a company like Snapchat or Uber or Airbnb worth tens of billions of dollars, that's definitely a boom that is definitely an excitement of frothiness in the market. But that is what they're worth because that is what investors are willing to pay for it.
HENN: But there are lots of other people that insist bubbles are real, and they are driven by this kind of mass psychology, a mass delusion, where everyone gets so excited about the new wealth that's being created that they begin to fear missing out on it and they begin to act irrationally.
SMITH: All right, Steven Henn, let's just say you rented a double-decker bus and wanted to give us a tour of the tech bubble right now in San Francisco, if it is indeed a bubble, where would we go?
HENN: Well, I know exactly where I'd want to go, but first, I think we should pick up a guy.
VIKRAM MANSHARAMANI: My name is Vikram Mansharamani, and I am a lecturer at Yale University. The name of my book is "Boombustology: Spotting Financial Bubbles Before They Burst."
SMITH: And can he really spot bubbles before they burst? 'Cause if so, he would be a very rich man.
HENN: I know, but he has a number of theories that I think are helpful, like this one.
MANSHARAMANI: One of the things to look for when trying to spot a bubble are signs of overconfidence and hubris.
SMITH: So where would we find that in San Francisco?
MANSHARAMANI: The biggest hole in the city.
HENN: All right, so where are we now?
MANSHARAMANI: So we're on the corner of Mission and Fremont. We're at the construction site for the Salesforce Tower.
HENN: The future site of the Salesforce Tower. Michael Tymoff at Boston Properties is in charge of building this thing.
SMITH: And, you know, when I was last in San Francisco - it was probably a year ago - like, I saw this massive hole in the ground. It's like five blocks long. It's this huge, staggering trench through the middle of the city.
HENN: That's where the high-speed rail's going to come. They're going to build a park. I mean, there are cranes all over the place.
It's music to the ears of a developer.
MICHAEL TYMOFF: Yeah, sometimes I lay asleep at night with a video track of this playing.
SMITH: Dreams of construction.
HENN: Tymoff says the Salesforce Tower, this building, is going to be the tallest building west of the Mississippi. He's pretty proud of that.
SMITH: Now, I have heard the name Salesforce before, but is it bad that I don't know exactly what they do?
HENN: Yes, it's very, very bad.
SMITH: (Laughter) OK.
HENN: They sell enterprise software as a service. They're worth $60 billion.
HENN: Although, you know, to be fair, they've never had a full year's profit.
SMITH: So they've never made a full year's profit and yet their name's going on the tallest building on the West Coast?
HENN: Exactly. And I tried to bring that up with Michael Tymoff and he kind of got grumpy with me.
Are you familiar with the skyscraper theory of bubbles?
TYMOFF: I am familiar with it.
HENN: He doesn't like to talk about it very much. But Vikram does.
MANSHARAMANI: One of the indicators I have found that has worked particularly well in identifying bubbles, usually before they burst, are the world's tallest skyscrapers.
HENN: Vikram says skyscrapers are a great indicator of bubbles because it's a sign that people are really ambitious, especially if they're trying to build the tallest. It's also a sign there is easy money in the economy. Most of these towers aren't built with cash on the barrel. People go to banks and they get loans, so banks are lending.
SMITH: And, you know, we have this story from New York City, in fact. It was the 1920s. Everything was booming in the stock market. And there were these three tall buildings all racing against each other - 40 Wall Street, the Chrysler Building. Eventually, the Empire State Building became the tallest building in the world. And, of course, by the time they were finished - boom - Great Depression.
HENN: In 1997, the Petronas Towers in Kuala Lumpur claimed the title of the world's tallest building. And a few months later, the Asian financial crisis hit. In 2008, the tallest building was opened in Dubai within months of the global financial crisis.
SMITH: It's like a curse.
MANSHARAMANI: It's hubris and overconfidence embodied in this chest-thumping behavior of wanting to have the world's tallest or the region's tallest or the city's tallest because at this point, it's not particularly rational.
SMITH: The developer, of course, thinks he's rational, right?
HENN: Yeah, of course. These buildings are a long-term investment. You're not looking at this business cycle. You're looking at 30 years, 80 years. But, you know, he told me that he's still looking for tenets. Half the floors in this giant, new building haven't been leased.
SMITH: OK, Steve Henn, what is the next stop on the bubble tour?
HENN: The next stop is the Hyperloop.
SMITH: The Hyperloop. Now, this is not a place.
SMITH: It's a concept.
HENN: This is an idea that Elon Musk, the guy who built Tesla, came up with. And he started name-dropping Hyperloop at conferences and tech events around 2013.
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ELON MUSK: The Hyperloop.
SARAH LACY: The Hyperloop?
MUSK: Hyperloop, yeah.
LACY: Is that, like, a "Jetsons" tunnel?
MUSK: It's something like that, yeah.
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KARA SWISHER: Is it a train? A plane? An automobile?
MUSK: It's a...
SWISHER: Transporter machine?
MUSK: It's a cross between a Concorde and a railgun.
WALT MOSSBERG: A Concorde and a railgun? OK.
SMITH: I love the nervous laughter there because nobody knows what he's talking about.
HENN: You can just picture people thinking like, am I crazy? Am I stupid? Is he crazy?
SMITH: So explain the Hyperloop.
HENN: Well, basically it's a high-speed train. The idea is that this thing would get you from LA to San Francisco in something like a half an hour. And the way Musk says it would work is it would be a long tube and people would shoot through it in these little pods.
SMITH: You know, I picture sort of, like, those old pneumatic tubes they had in office buildings. They used to send letters and checks through these tubes.
HENN: Yeah, it's a lot like that but with people inside. The tube would have no air pressure, and the pods would float on air, sort of like an air hockey puck. And they go super-crazy fast.
SMITH: OK, so a billionaire has a wild idea. They have these all the time. This is not necessarily a bubble.
HENN: No. You know, the bubble part is what happened next. Almost immediately, two separate companies were founded to build this thing - Hyperloop Technologies and Hyperloop Transportation Technologies.
SMITH: Oh, I can smell a lawsuit waiting to happen.
HENN: (Laughter) Right, so I talked to the CEO of one of them, Hyperloop Transportation Technologies, and this guy, Dirk Ahlborn, is out there right now trying to raise $150 million. And I asked him, that's got to be hard, right? This technology doesn't even exist yet. No one has ever seen this thing.
DIRK AHLBORN: (Laughter) So the funny thing is actually it's much easier to raise a lot of money than a little. I mean, first of all, 150 million is nothing, if you compare to the upside of the company.
SMITH: When the phrase $150 million is nothing comes out of a CEO's mouth, then you might very well be inside a bubble.
HENN: But that's one of the things that's both kind of frightening and thrilling about this moment. You know, you can't go back in time and have a chance to investment in Snapchat, and all of the venture capitalists know this. So the money is getting pushed to these bigger and bolder ideas, and that might not be a bad thing.
SMITH: If they succeed, man, they are famous. And if they don't succeed in 10 years, we'll be starting jokes like this - oh, I was going to take the Hyperloop to the Salesforce Tower, and then the stock market crashed.
HENN: It's like pets.com or Cosmo.
SMITH: From 2001, yeah, yeah, yeah.
HENN: Are you ready for the last stop on the tour of Bay Area craziness?
SMITH: I am ready.
HENN: OK, the last stop is an auction - an auction of rare cars.
UNIDENTIFIED MAN: 375 (unintelligible).
HENN: We recently had the Monterey car auctions. And there, what was really telling is the cars from the 80s and 90s were finding a lot of interest and being bid up at high levels.
SMITH: Collectors spend half a billion dollars at Monterey in just that one weekend. Vikram says Porsche's the Lamborghini Countach, Ferraris from those years, are worth four or five times as much as they were just a few years ago. And rare ones can sell for tens of millions of dollars.
SMITH: There used to be people who said you could always spot a bubble by seeing prices in the art market, that, you know, once people had far too much money to spend, they would buy Picassos or Jeff Koons or some big, garish thing they could put over their sofa.
HENN: But it looks like tech entrepreneurs are different. Techies love machines, and it seems like that's where a lot of them are spending their money. David Swig is an automotive specialist at Sotheby's. And he tells me the best way to predict the value of an old sports car coming on the block is to ask yourself, was this car on a poster when tech entrepreneurs were 12-year-old kids?
DAVID SWIG: There are more and more wealthy millionaires every single day. But there's only a finite number of really important sports and GT cars.
HENN: And this December, Sotheby's is planning another car auction aimed at techies. They're calling it Driven By Disruption. One car on the block - Janis Joplin's old Porsche.
SMITH: You know, Steve, I feel like there's almost the makings of an equation in here. You know, if somehow you were smart enough, you could take the opening bid on Janis Joplin's Porsche and subtract the unoccupied square footage of the Salesforce Tower and somehow factor in the speed of a Hyperloop.
And you would come out with this number, but I still feel like you wouldn't fully know if this is a bubble until it's over. There may be a time five years, 10 years, 20 years down the line, when people will say whatever they paid for Janis Joplin's Porsche was cheap because this boom has gone on for decades.
HENN: The weird psychology is that they're public. And they give you an insight into how the people in this little corner of the economy are feeling. And right now they're feeling awesome. They're feeling so confident. If this December, when Janis Joplin's Porsche goes on the auction block, it doesn't attract any bids, if the price plummets, I think that actually is going to be a really important sign that those people are getting scared. And maybe it's time for us to all run for the hills. This bubble will pop.
SMITH: Or not.
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SMITH: We are still clearly undecided on this bubble thing. If you have more signs of the bubble, make sure you email us - email@example.com - or you can tweet us - @planetmoney.
HENN: Our episode today was produced by Frances Harlow. And if you're looking for another show to try, check out NPR's Fresh Air with Terry Gross. It's my wife's favorite podcast, which kind of hurts. But Terry is a genius at interviewing. You can find Fresh Air's podcast at npr.org/podcasts or on the NPR One app. I'm Steve Henn.
SMITH: And I'm Robert Smith. Thanks for listening.
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