The markets are eerily quiet. With so many trends and facts to titillate us all, you’d expect a little more excitement. As it is, the big sell-off at the start of the year seems incomplete – a kind of financial foreplay without the climactic battering of a real bear market. What to make of it?
One thing is sure: There is still no recovery. First, earnings-per-share estimates for the first quarter are dropping faster than ever in history. On the S&P 500, they’re already down by 8% from the previous year. What kind of “recovery” makes businesses less profitable? Well, there is one possibility. But this isn’t it…
A genuine recovery increases the demand for labor… which results in higher wages. This leaves businesses with more sales but smaller margins. But that is not happening today. Sales are not rising. They are weak or falling. So are wages.
As you know, Washington’s jobs data are largely fraudulent; the feds make seasonal and other adjustments to add jobs that don’t exist. Wage data are more reliable. They are based on tax withholdings. And they measure the money that workers take home in their paychecks. Reports Bloomberg:
“Employers added more workers in February than projected, but wages unexpectedly declined, dashing hopes that reduced slack in the labor market was starting to benefit all Americans. The 242,000 gain followed a 172,000 rise in January that was larger than previously estimated, a Labor Department report showed Friday. The jobless rate held at 4.9 percent as people entered the labor force and found work. Average hourly earnings dropped, the first monthly decline in more than a year, and workers put in fewer hours.”
We’re becoming more like India or China and less like Sweden or Germany: more people working (at least according to the official statistics) but earning less money! Pretty soon, the job stats will include new professions appropriate to the new economy – “hewers of wood” and “carriers of water.”
Nevertheless, the Dow rose 67 points – or about half a percentage point – on Monday. This sets up investors for what is either going to be one of the biggest (and most anticipated) busts of all time… or yet another surprise for us poor, long-suffering doom-and-gloomers.
We still believe you can’t build real wealth on a foundation of phony money. And now, with corporate profits falling and recession looming… surely the Day of Judgment must be close at hand. Finally, we will be able to hold our heads up and say, “See, we were right!”
And when that happens – it’s bound to sooner or later (at least that’s what we keep telling ourselves… hoping it happens while we are still compos mentis) – there will be hell to pay. Because some of the most popular stocks in the U.S. are trading at some of the loopiest, nuttiest, most crackpottiest valuations in market history.
Remember, our goal at the Diary is not to be smarter than other investors. It is – modestly – just not to be quite as dumb. We don’t have to find the best investments at the best time. We just aim to avoid the worst investments at the worst time.
Online movie- and TV-streaming service Netflix must be one of the latter. It trades at a price-to-earnings (P/E) ratio of 317. In other words, investors pay $317 for every lousy dollar of annual earnings. Online retail giant Amazon – which we long ago dubbed the “River of No Returns” – is even worse.
Go ahead. Buy a share. If things were to continue as they are going now and the company were to pay out 100% of its income in dividends, you would get your money back 450 years from now.
Put another way, Amazon’s earnings would have to soar to over $26 billion (back of the envelope calculation) to justify the current share price. More likely, you’ll lose 95% to 100% of your money as prices go down to more reasonable levels.
Flirting With Lunacy
This is hardly the stock market’s first flirtation with lunacy. In the 1960s and 1970s, there was the so-called Nifty Fifty era, when stocks such as Xerox and Avon were the favorites.
The broad market was not doing so well. But investors believed they could just buy a handful of the 50 largest stocks listed on the New York Stock Exchange and sit back and let the profits roll in.
Never mind that many of the Nifty Fifty traded at nosebleed P/E ratios. These “one decision” stocks were expected to dominate the economy for decades to come. What happened to Avon and Xerox?
Xerox sold for $25 a share in 1972. Now, it’s a $10 stock. Avon traded in the $9 range in 1972. Now, it’s at $4. How’s that for something to look forward to? Amazon at $280 in 2060!
Charts by: Factset, St.Louis Federal Reserve Research, StockCharts, Fidelity
Chart and image captions by PT
The above article originally appeared as “These Trendy Stocks Have Reached Crackpot Valuations“ at the Diary of a Rogue Economist, written for Bonner & Partners. Bill Bonner founded Agora, Inc in 1978. It has since grown into one of the largest independent newsletter publishing companies in the world. He has also written three New York Times bestselling books, Financial Reckoning Day, Empire of Debt and Mobs, Messiahs and Markets.
Dear Readers! We are happy to report that we have reached our turn-of-the-year funding goal and want to extend a special thank you to all of you who have chipped in. We are very grateful for your support! As a general remark, according to usually well informed circles, exercising the donation button in between funding drives is definitely legal and highly appreciated as well.
Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke
3 Responses to “Crackpot Valuations”
Most read in the last 20 days:
- Reality is a Formidable Enemy
Political Correctness Comedy We have recently come across a video that is simply too funny not be shared. It also happens to dovetail nicely with our friend Claudio's recent essay on political correctness and cultural Marxism. Since this is generally a rather depressing topic, we have concluded that having a good laugh at it might not be the worst idea. How to most effectively create a “safe space” on campus Cartoon by Nate Beeler It is especially funny (or...
- Fresh Mainstream Nonsense on Gold Demand
They Will Never Get It... We and many others have made a valiant effort over the years to explain what actually moves the gold market (as examples see e.g. our article “Misconceptions About Gold”, or Robert Blumen's excellent essay “Misunderstanding Gold Demand”). Sometimes it is a bit frustrating when we realize it has probably all been for naught. Gold wants to know what it has done now... Photo credit: Ajay Verma / Reuters This was brought home to...
- Drowning the Fir
Presidential Duties Our editor recently stumbled upon an image in one of the more obscure corners of the intertubes which we felt we had to share with our readers. It provides us with a nice metaphor for the meaningfulness of government activity. First, here is a look at the picture – just quietly contemplate it for while and let it work its magic on you: Yes, these two gentlemen are actually watering a tree in the middle of a downpour... Photo via...
- Switzerland About to Vote on “Free Lunch” for Everyone
Will the Swiss Guarantee CHF 75,000 for Every Family? In early June the Swiss will be called upon to make a historic decision. Switzerland is the first country worldwide to put the idea of an Unconditional Basic Income to a vote and the outcome of this referendum will set a strong precedent and establish a landmark in the evolution of this debate. The Swiss Basic Income Initiative in a demonstration in front of parliament. As we have previously reported (see “Swiss...
- The Wonder Years Are Over
Everybody Is Unhappy PARIS – “France?” We were in a cab on the way from Charles de Gaulle Airport yesterday. We had innocently asked our cab driver how things were going in the country. He had some thoughts... French president Francois Hollande: against all odds, he managed to attain the most powerful position in French society. And yet, even he is unhappy. Photo credit: Patrick Kovarik / AFP “France is a mess. We have 5 million people unemployed. And...
- Gold – The Commitments of Traders
Commercial and Non-Commercial Market Participants The commitments of traders in gold futures are beginning to look a bit concerning these days – we will explain further below why this is so. Some readers may well be wondering why an explanation is even needed. Isn't it obvious? Superficially, it sure looks that way. As the following chart of the net position of commercial hedgers illustrates, their position is currently at quite an extended...
- Heretical Thoughts and Doing the Unthinkable
Heresy! NORMANDY, France – The Dow rose 222 points on Tuesday – or just over 1%. But we agree with hedge-fund manager Stanley Druckenmiller: This is not a good time to be a U.S. stock market bull. Legendary former hedge fund manager Stanley Druckenmiller at the Ira Sohn conference – not an optimist at present, to put it mildly. Photo credit: David A. Grogan / CNBC Speaking at an investment conference in New York last week, George Soros’ former partner...
- Staying Home on Election Day
Pretenses and Conceits The markets are eerily quiet… like an angry man with something on his mind and a shotgun in his hand. We will leave them to brood… and return to the spectacle of the U.S. presidential primaries. On display are all the pretenses, conceits, and absurdities of modern government. And now, the race narrows to the two most widely distrusted and loathed candidates. US election circus: Deep State Rep vs. Rage Channeller The first, a loose...
- How the Deep State’s Cronies Steal From You
Expanding in Ireland DUNMORE EAST, Ireland – We came down the coast from Dublin to check on our new office building. For this visit, we wanted to stay somewhere different than we normally do. So we chose a small hotel on the coast, called the Strand Inn. Irish landscape with alien landing pads. Even the guys from Rigel II have heard about Ireland's corporate tax rate. Photo credit: Tourism Ireland It is an excellent place for seafood and soda bread on a...
- The World's 100 Most Influential Hacks, Yahoos and Monkey Shiners
Hacks and Has-Beens NORMANDY, France – What has happened to TIME magazine? Henry Luce, who started TIME – the first weekly news magazine in the U.S. – would be appalled to see what it has become. Time cover featuring the sunburned mummy heading the globalist IMF bureaucracy (which inter alia advocates that governments should confiscate a portion of the wealth of their citizens overnight, even while its own employees don't have to pay a single cent in taxes). Once you...
- The Japanese Popsicle Affair
Policy-Induced Contrition in Japan As we keep saying, there really is no point in trying to make people richer by making them poorer – which is what Shinzo Abe and Haruhiko Kuroda have been trying to do for the past several years. Not surprisingly, they have so to speak only succeeded in achieving the second part of the equation: they have certainly managed to impoverish their fellow Japanese citizens. Shinzo Abe and Haruhiko Kuroda, professional yen assassins Photo credit:...
- Kuroda-San in the Mouth of Madness
Deluded Central Planners Zerohedge recently reported on an interview given by Lithuanian ECB council member Vitas Vasiliauskas, which demonstrates how utterly deluded the central planners in the so-called “capitalist” economies of the West have become. His statements are nothing short of bizarre (“we are magic guys!”) – although he is of course correct when he states that a central bank can never “run out of ammunition”. BoJ governor Haruhiko Kuroda Photo credit:...