Inflation will burst this tech bubble and good riddance to its New Age cranks – Telegraph.co.uk

With so many old and rum ideas, we might conclude that Son is besotted more by the wrapping paper than the gift.

Whilst these are touted as transformational companies, no problem is being solved, no neglected asset is being utilised, and in truth, theres almost no technology involved either. And what novelty exists does so in a form where the ideas are very easily copied.

Sons latest market mover Klarna uncannily follows this pattern. The Swedish company enables buy-now-pay-later (BNPL) transactions (at zero interest, so long as punters pay up in time), earning revenue from the retailer and from interest on late payers. Extraordinarily, the Vision Funds backing has resulted in a $46bn valuation for Klarna. But its a service offering that can be easily cloned, and dozens are doing just that, including ClearPay and PayPal. In addition, people hate low cost credit (for others, not themselves), so regulators loom.

Now its emerged that Credit Suisse, once one of SoftBanks biggest lenders, has stopped lending to Son and has reviewed its relationship with Softbank, after regretting its exposure to Greensill and Katerra.

So far Softbank has emerged largely unscathed - but trouble looms. Bipartisan support for antitrust regulation is united by the suspicion that windfall profits for one of Sons unicorns may mean extorting other businesses.

But the greatest fear of all for his disciples is inflation.

This is one of the greatest valuation bubbles ever, says fund manager Ralph Jainz. Bubble tech valuations are built on DCF (Discounted Cash Flow) models, and rising levels of inflation are poisonous for them. What this means is that the promised transformation becomes more distant reaching to infinity.

Its pure mathematics, Jainz explains. Rising interest rates reduce the long-term value of high-growth companies when youre projecting out twenty or thirty years. Two Nobel Laureates, Robert Schiller and James Tobin, each point out how the market is wildly inflated; Tobins Q Ratio, a measure of how overvalued shares are with a mean average of 1, is touching 3 for the first time. Schillers PE ratio, another yardstick of froth, is higher than it was on Black Tuesday in 1929.

You will not see who is wearing trunks until the tide goes out says Jainz. Mr Son remains unrepentant, but the choice may be out of his hands.Son faced a grilling from unimpressed Softbank shareholders on Wednesday, who have seen a 21pc fall in the share price since March. With rate rises on the horizon, the moment of reckoning for Mr Singularity beckons.

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Inflation will burst this tech bubble and good riddance to its New Age cranks - Telegraph.co.uk