Via Investment Research Dynamics
Please note, many will argue that the p/e ratio on the S&P 500 was higher in 1999 than it is now. However, there’s two problems with the comparison. First, when there is no “e,” price does not matter. Many of the tech stocks in the SPX in 1999 did not have any earnings and never had a chance to produce earnings because many of them went out of business. However – and I’ve been saying this for quite some time and I’m finally seeing a few others make the same assertion – if you adjust the current earnings of the companies in SPX using the GAAP accounting standards in force in 1999, the current earnings in aggregate would likely be cut at least in half.
And thus, the current p/e ratio expressed in 1999 earnings terms likely would be at least as high as the p/e ratio in 1999, if not higher. (Changes to GAAP have made it easier for companies to create non-cash earnings, reclassify and capitalize expenses, stretch out depreciation and pension funding costs, etc).
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We talk about the tech bubble that fomented in the late 1990’s that resulted in an 85% (roughly) decline on the NASDAQ. Currently the five highest valued stocks by market cap are tech stocks: AAPL, GOOG, MSFT, AMZN and FB. Combined, these five stocks make-up nearly 10% of the total value of the entire stock market.
Money from the public poured into ETFs at record pace in February. The majority of it into S&P 500 ETFs which then have to put that money proportionately by market value into each of the S&P 500 stocks. Thus when cash pours into SPX funds like this, a large rise in the the top five stocks by market cap listed above becomes a self-fulfilling prophecy. The price rise in these stocks has nothing remotely to do with fundamentals. Take Microsoft, for example (MSFT). Last Friday the pom-poms were waving on Fox Business because MSFT hit an all-time high. This is in spite of the fact that MSFT’s revenues dropped 8.8% from 2015 to 2016 and its gross margin plunged 13.2%. So much for fundamentals.
In addition to the onslaught of retail cash moving blindly into stocks, margin debt on the NYSE hit an all-time high in February. Both the cash flow and margin debt statistics are flashing a big red warning signal, as this only occurs when the public becomes blind to risk and and bet that stocks can only go up. As I’ve said before, this is by far the most dangerous stock market in my professional lifetime (32 years, not including my high years spent reading my father’s Wall Street Journal everyday and playing penny stocks).
Perhaps the loudest bell ringing and signaling a top is the market’s valuation of Tesla. On Monday the market cap of Tesla ($49 billion) surpassed Ford’s market cap ($45 billion) despite the fact that Tesla deliver 79 thousand cars in 2016 while Ford delivered 2.6 million. “Electric Jeff” (as a good friend of mine calls Elon Musk, in reference to Jeff Bezos) was on Twitter Monday taunting short sellers. At best his behavior can be called “gauche.” Musk, similar to Bezos, is a masterful stock operator. Jordan Belfort (the “Wolf of Wall Street”) was a small-time dime store thief compared to Musk and Bezos.
Tesla has never made money and never will make money. Next to Amazon, it’s the biggest Ponzi scheme in U.S. history. Without the massive tax credits given to the first 200,000 buyers of Tesla vehicles, the Company would likely be out of business by now.
Once again the public has been seduced into throwing money blindly at anything that moves in the stock market, chasing dreams of risk-free wealth. 99% of them will never take money off the table and will lose everything when this bubble bursts. And only the biggest stock bubble in history is capable of enabling operators like Musk and Bezos to reap extraordinary wealth at the expense of the public. The bell is ringing, perhaps Musk unwittingly rang it on Monday with hubris. The only question that remains pertains to timing…
If you are looking for ideas to take advantage of the inevitable stock market implosion, try out my Short Seller’s Journal. It’s a weekly subscription newsletter delivered PDF form via email that drills down into the latest economic data and presents short-sell and put option ideas. You can find out more and subscribe using this link: Short Seller’s Journal information.
Was working for a Fortune 500 company in S.F. in the late ’90s. I remember talking with a co-worker who was heavily invested in dot coms. I told him I wasn’t seeing it. He told me “you just don’t get it”. Well he was right. I didn’t “get it”. But he did. Like a Quaker with Mike Tyson as a cell mate.
The stock market has been manipulated for years through the PPT – Plunge Protection Team and the CRPMG – Counteparty Risk Management Policy Group.
All of the dummies that feel their investments in “The Market” are safe, have a rude awakening, in store when the same thieves, robbing the US for a century, at least, pull the rug, out-from-under, with the “Brexit”.
“All of the dummies that feel their investments in “The Market” are safe, have a rude awakening, in store when the same thieves, robbing the US for a century, at least, pull the rug, out-from-under, with the “Brexit”.
When, in your wisdom, will that be ?
Does “soon” work for ya?
“Does “soon” work for ya?”
Not Really.
The prescient amazing genius superior doomers and their charts and graphs have been repeating this mantra for years now, with no defining event, just plenty of missed opportunity.
I guess I’ll work off the tried & true that ‘a stopped watch is right twice a day’ theory.
That’s two more times than the doomer nation.
It’s inevitable, for many varied dynamic and technical reasons, and I’d suggest within ten years.
If you’re in the markets to any extent, situate yourself to get out of them real quick like when you see the imminent signs of it or have a bankruptcy law on retainer if you don’t.
There’s still opportunities to take advantage of in the markets, but you’d better be certain you know what you are doing if you decide to pursue them at this point.
It seems like they pull out the rug every eight years or so. We are overdue.
PE’s are way too high for my comfort now.
How it will play out I don’t know, but since Trump took office manufacturing and employment increases and shrinking trade balance deficits would seem to indicate it won’t be by a crash unless something sudden and unexpected happens that could influence it negatively.
The Stock Market is largely “managed” and controlled by a “Dark Trader Group (DTG)”. Whoever they are will determine a time that best benefits their AGENDA.
While the market is very high and due for a correction this is not unusual. What is unusual is the Fed’s artificial suppression of interest rates and the ease of obtaining credit. The market’s performance is further distorted by the huge stock buy backs of their own stock thanks to this easy credit.
The real threat isn’t an overvalued stock market. Its 21 trillion in debt, a government spending at a rate that makes a drunken sailor look like a Scottish miser. Add to this a huge default rate on student loans and a default rate on subprime car loans only a fool doesn’t see the house of cards getting ready to collapse.
Want a real scare, 8 nations have banks paying negative interest rates. Several European nations have demanded that their gold reserves be physically returned to them, a request that the Federal Reserve has refused to honor in a timely fashion.
Normally this indicates a massive devaluation-but rely on the government to run the printing presses full time. See Wiemar Republic, Hungary 1947, Zimbabwe, Venezuela, Argentina or even Mexico.
But inflation at this level means massive, civilization changing results. Revolution, war, and mad Max type violence on a massive scale. Doubt it, what do you think helped bring on the French Revolution or Hitler.
The wise will profit from the correction, the stupid will cry the end is near. I have made money, huge money during these panics, except for 2000, when I lost money on various high tech stocks. But because I diversified and had healthy cash reserves I still made money. I bought Apple 18 months ago at 79. Sold it recently at a 144. It will go back to 100-110 and then I will repeat the cycle. Google will also get smacked, buy it on the dip.
Amazon is a crazy stock. Facebook is for fools-where are its profits. Want a sound investment look at the stocks which prosper year after year. Philip Morris, Canadian National, Boeing, Pepsi.