The mayhem that has totally crushed one stock after another for a year breaks through the surface.
By Wolf Richter. This is the transcript of my podcast of last Sunday, THE WOLF STREET REPORT.
This stock market – meaning the stock jockeys, the trading algos, the hedge funds, and what is generally called Wall Street – was just brutal about how it pushed one stock after another to ridiculous highs after the Fed’s money-printing scheme flooded the land with liquidity, and the over-liquified crowd swooped in on any and every meme, no matter how ridiculous, and caused these stocks to spike by 200%, 300%, 1,000% and more, in the shortest amount of time.
And then in February 2021, one after the other, each on its own particular schedule, these stocks were abandoned and came unglued in bits and pieces, and by now their prices have collapsed by 60%, 70%, 80% and over 90%, from their respective spikes. These are well-known names.
What we’re looking at is how the greatest stock market bubble ever is coming unglued stock by stock, rather than all at once.
All these stocks that spiked by 200% or 500% or 1,000% were hyped out the wazoo, often in the social media, and their prices spiked in the shortest time, often multiplying in days. This craze started in March 2020, and peaked in February 2021, and then came unglued.
Nearly all the recent IPOs and all of the companies that merged with SPACs to go public have lost huge amounts of money, even in businesses where everyone else is making tons of money, such as used-car dealers.
Two standout used-car dealers that consider themselves tech companies and went public, Carvana and Vroom, soared to huge valuations despite losing enormous amounts of money – while other dealers made tons of money.
But then the big S hit the fan and the shares of both collapsed: Vroom by 92% from their peak in September, and Carvana by 60% from their peak in August.
The EV startups that went public via IPO or merger with a SPAC – most of them had huge and inexplicable spikes in share prices and then collapsed by 60% to over 90%. Others collapsed right out of the gate.
Then there are the real estate house-flipper stocks, Zillow, Opendoor, Redfin, and real estate broker Compass, which IPO’ed 10 months ago. All of them collapsed by 65% to 78% from their highs. Compass collapsed right out of the gate. Every one of these companies is losing a huge amount of money in one of the hottest industries, real estate, during the hottest housing market ever.
The Renaissance IPO ETF, which tracks the biggest stocks that had their IPOs over the last two years, is down 42%.
Zoom Video is down 72%, Airbnb is down 30%, Peloton is down 83%, Chewy is down 65%, Moderna is down 70%. There are hundreds of these stocks that got hugely hyped from March 2020, and they spiked into the stratosphere, and then they got abandoned, and the bloodletting in these stocks is gigantic.
Then they’re the spikes and collapses in stock prices of mundane companies. We’re talking about rental-car companies, theater chains, mature software makers, chip makers, we’re talking about well-known names.
For example, the shares of Avis, the largest rental-car group in the US, after surging 70% in September and October, suddenly spiked from $170 to $545 a share all at once, bringing the total 10-month spike to 840%. And then the shares collapsed, and on Friday were at $180, down 67% from their spike four months earlier.
This whole Avis story is just insane. It shows how nuts these stock jockeys and trading algos had become, jumping on anything and everything, and driving the price into the stratosphere without rhyme or reason, and then dumping them into the lap of… well whoever ended up with it, probably retail investors, directly and indirectly.
But these same retail investors with their trading apps, and ganging up in the social media, are in part responsible for these ridiculous spikes as they suddenly converge on something like Avis, and then, oops.
This mayhem reminds me of the beginnings of the dotcom bust. But during the dotcom bust, most of the stocks plunged all together nearly in lockstep, and pulled down the overall indices.
What we’ve had for the past 12 months is individual action in bits and pieces, one after the other, while the biggest stocks were still surging, and while some smaller stocks still spiked.
But by the end of November 2021, there were so many of these collapses of individual stocks that even the biggies got the downdraft, and the Nasdaq started heading lower, and the big tech stocks started heading lower. And on the second trading day of 2022, the S&P 500 and the Dow started heading lower, which is when the unwinding of the greatest stock market bubble ever broke the surface for all to see.
The collapse of hundreds of smaller stocks wasn’t enough to break the surface until the biggest stocks fell in line.
Tesla is now down 32% from its November peak. Facebook – I mean, Meta Platforms – is down 45% from its peak in September. Amazon is down 18% from its peak in July. Salesforce.com and Nvidia are both down 33% from November. Netflix is down 44% from November.
Microsoft is down 15% from the November peak. I must admit, the CEO of Microsoft, with absolutely impeccable and admirable timing, sold half his Microsoft shares on November 22, at prices that were right at the peak.
From where he sits, and what he sees, and what he hears, he must have known what’s coming, and he dumped half his Microsoft holdings. Ladies and gentlemen, this is how capitalism is supposed to work. And those who bought them at those prices from the CEO – overenthusiastic retail investors that had swallowed the hype hook, line, and sinker? – are now down 15%.
The whole thing is still propped up by Apple, which is down only 10% from its peak, which occurred on the first trading day in January, which, given Apple’s huge weight in the S&P 500 Index, was also the peak for the S&P 500, which is down 9% now, after the two huge rally days on Thursday and Friday.
All this has played out with breath-taking volatility this year, with whiplash-inducing intraday swings, and dizzying rallies and blistering drops.
Despite the huge rally on Thursday and Friday, the Nasdaq is down nearly 16%. But this is still the relatively calm surface of the stock market. Beneath the surface, there has been absolute mayhem.
These stocks should have never spiked. They should have never surged to these ridiculous highs. And the return to earth is just a return to reality.
Take Tesla. So this is an EV maker that actually makes money, and actually sells a large number of vehicles. But Tesla is an automaker – not some kind of miracle tech. And eventually it will be priced like an automaker. As a fast-growing automaker, it can have a higher PE ratio than some slow-growth legacy automakers, as long as it grows fast.
But it’s ridiculous to assume that Tesla should be worth as much as the 10 most valuable global automakers combined, when it has only 1.5% of the global market. But that’s precisely where it was in November 2021. This was just totally nuts.
But that nuttiness is now unwinding amid a huge bout of volatility and enormous bloodletting in individual stocks, stock by stock.
You can listen and subscribe to THE WOLF STREET REPORT on YouTube or download it wherever you get your podcasts.
Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.
Once you realize that Caravan formerly DriveTime formerly Ugly Duckling is owned by Ernest Garcia II former felon involved in Charles Keating’s Lincoln Savings & Loan, it makes sense why the company is hemorrhaging money.
Vroom [VRM] collapsed by 46% today to $3.25.
I recorded the podcast on Sunday, based on stock prices as of Friday, when Vroom was about $6.20. This shit changes fast :-]
Vroom is now down 95.5% from its high.
Every time you mention Vroom, I am reminded of Vream, which is a type of shortening often used in doughnuts.
Not the name I would have chosen for the company.
If you have ever read Dr Seuss’ “Cat In The Hat”, I think Voom has been unleashed on Vroom and the rest of these types of stocks.
“Carvana” Horrible name/branding and bizarre concept altogether…
Lying is a way of life for mankind. The only question is how bad or inaccurate is the lie. So it is with popular version of stocks. maybe
or I continue to be wrong and the stock market doubles. and I feel worse with my old guy conservative portfolio that never went down, but unfortunately, didn’t go up, either.
The S&P 500, through its adjustments, has only lost around 10% from its high about a year ago. Will the index’s action of moving winners and losers around help the index from taking a massive loss?
Yes, as far as losers replacing bigger losers helps.
Of course the index will be manipulated! All indexes are adjusted to never show a lost! Markets only ever go up! On Wall Street, only they have yachts! There are no customer yachts!
Just my opinion.
I think there has been migration from stocks that have seen 800%-1000% gains in the last 2 years to stocks that have good management, have a good P/E ratios, and show a profit. The hype of the ARK type stocks and crypto is decreasing.
Anecdotally, I also see some are cashing out their stock gains to bid up and buy overpriced houses. This exiting money is likely causing a leak in the stock bubble and driving up the housing bubble.
Anecdotally, I also know many conservative investors who have cashed out their 1000% gains and are holding a large amount of cash. That is the fear part of the stock market now.
There can’t be any migration, as someone has to own every share all the time until it is extinguished. Someone still owns these bags of hot air.
There has only been a transfer of ownership at lower prices.
This is the most overpriced US stock market in history. The US stock market is also an outlier in deep outer space valuation wise and in it’s price performance versus other markets since 1999 or 2007.
There are no fundamentals that can possibly be used to “justify” anything close to current value, especially since the actual fundamentals are mostly mediocre to awful.
Joking, Why must you ruin the party by spewing the truth. You have forgotten the first rules of the financial love fest: refi
Cash out your equity, buy a Winnebago and a boat and a couple of new cars and make the low payments provided by the emergency Fed policies in place since 199x.
I think you nailed it. I read Hussman’s estimate of the duration of the stock market was 76+ years.
A reduction in the price of the stock market and housing is overdue without a secret change in the game plan.
What would a crash accomplish. Look how much more could be done through deflating the currency and the same time deflating the staggering, outstanding debt. In that scenario, the price of stocks will inflate automatically with inflation as companies increase prices.
I will be surprised if the Fed does much interest rate raising or balance sheet reducing
“There can’t be any migration, as someone has to own every share all the time until it is extinguished. Someone still owns these bags of hot air.”
This is exactly correct. There is a fixed amount of shares on the market at a given time. However over time, the amount of shares on the market can change (Stock splits, IPOs). Are there more shares on the market now compared to 2019?
If the amount of gas (money) in the entire market stays fixed, then there can be migration from one company share to another. The first company share loses value and the second company gains value. The amount of money and the number of shares in the market is fixed.
If the market deflates by losing gas (money) to cash, real estate, BTC, etc, then all stocks can lose value. Well managed profitable companies can even lose.
During 2001 and 2008, the panic as investors pulled money out of stocks caused a massive deflation of the entire stock market. Everyone lost. The riskier and more speculative companies lost much more than profitable well managed companies.
In 2001, I was fairly conservative and lost only 10%. 2008 hurt more since large companies like GM and United Airlines went bankrupt and their stocks went to zero.
Tesla is still 3/4 Trillion dollars. Long long long way down.. Not to mention the car looks like 1998 Dodge Neon.
Interesting. I think they look like Saturn sl2’s.
That too. But Saturn did not have the plastic wheel covers.
What’s so bad about a 1998 Neon, that’s when small cars were built in the US. I distinctly remember when they announced there would be no more Neons. In that moment it was obvious they had ceded the small car market. It was sad.
It’s customary to cede a market to your competitors when they beat the living snot out of you.
In 85 I drove an 83 Cadillac Cimarron small car that was an incredible innovation in both luxury and performance.
It was panned by the bought press and failed. Every foreign small car after that seemed to be a copy. The US automakers misinterpreted their own market and decided to make bic lighter cars.
My interpretation of a shared, lived experience.
Do you have guts to put your money where your mouth is. Do you know how many hedge fund guys got burnt by betting against Elon Musk. It gets tiring to see naysayers losing shirt after shirt shorting Tesla.
TSLA will continue to defy all logic and rules.
Kunal, please.. I bow have several tesla puts, and bought one more yesterday (it was in green from getgo). All are in green. And already bought abd sold few times with profit.
Have 5 puts in Snowflake, it’s down 25-30% in after hours today. Price to sales is like 100, lol
Tesla may defy your logic, but it willnot defy gravity.
Tesla will be the first martyr when the temple crumbles. An edifice built on hype and government money. A made man, like Bezos. An ocean of money and influence, defining an unelected future of authority, Harvard of coarse. Who else but the wedgie targets are deciding our future. I think Elon Musk was a wedgie target, and the Amazon and Apple guys
Oh my gosh! You are so right. Smushed lower body with awkward top. Frog-like
Franz von Holzhausen, B. S. Transportation Design @ Syracuse University.
His influence is on the VW New Beettle, Saturn Sky & Pontiac Solstice, and a Mazda concept car debuted in 2006.
Franz did the Model S, Model 3, Model X & Model Y. Also the Cybertruck, Semi & second generation Tesla Roadster.
I like knowing who designed and engineered the gear that I own & use. Never owned anything Franz designed, but I appreciate his skill set. An EV needs to be as aerodynamic as possible for maximum battery range, eh?
Great post:
And no Charts needed all previously provided
So ? do you think the Savers are screwed then with No rate increase what was it set for 3/16 ish
Or perhaps Ironically with the War on High along with Gas and Food the Fed Pump shall continue not in alignment with the Biden speech not that the fed cares but that’s nothing new
I doubt Evan a Tank going through the Fed meeting would have effect
Looks Like More inflation and Higher prices
I hope I am surprised and dead wrong as carved up savings can have no upside.
Market is going down anyway so may as well raise rates but convince those in Power ? Good Luck
Inflation is JUST BEGINNING…
and the hand wringing over 1/4 pt raise is absurd to the highest degree.
Inflation just jumped 5% in 9 months….thats TEN 1/2 pt increments….
and a 1/4pt is the discussion? Should be 1pt.
I share a lot of your angst. I don’t agree with the bullshit the Fed says, which seems to be most words including but, and, and the
To me, it feels like capitulation of our shared zeitgiest, the sauce that makes America.
Jackson, Jefferson, Washington, Smith warned us too never let the bankers control the growth of the money supply. At engineered moments of weakness at the kitchen table, they took an unearned cut. The most non-productive of industries, FIRE, now comprise the largest share of our GDP.
I am in cash and precious metals and have been for years, so haven’t been paying attention. But I did know things were extremely overvalued and were bound to come down –just didn’t realize how much and that it’s been happening in stealth mode for months. Wow. I sent this to a friend.
I series savings bonds are sold by the U.S. Treasury to U.S. citizens up to $10,000 per year. The interest is adjusted every six months to the CPI inflation rate. They are currently paying 7% interest.
I worry about hyperinflation and a recession.
The yield curve is flattening.
I can’t believe this! Just checked on some I series my wife bought in 2002. Currently paying 9.19%!
They must be getting a fixed base rate of near 2%, plus the CPI adjustment.
The current fixed base rate is I think 0.1%. Plus the CPI adjustment.
You know, I’m just a working stiff. I don’t have a penny invested in financial markets, not even a 401k. Work – both physical and cerebral – is all I do and compensation is all I receive.
I’m not a fan of any of this. Yet I realize that the shit will hit me – and people like me – more than anyone and anything else.
All my investments are in liquor. I recommend it to anyone. At the retail level. One bottle at a time!
People drink in good times to celebrate.
They drink even more in bad times to cope.
I’ve heard of whiskey investing, but I don’t feel secure enough to store wealth in glass bottles.
Your point is well made indeed.
To which I can humbly suggest:
It’s best to empty the contents, most especially when you’re not feeling secure. Otherwise known as the “wealth effect” in economic terms.
In which case, drink it straight out of the bottle. If you’re going to be nervous, at least cut the amount of glass that you’re handling in half!
a.k.a. steeply discounting the future. Trouble comes, numb out? Good times, same? I abandoned that operating model 25 years ago. Not had a single headache since. Being OK (in the boring old sense of reasonable healthy and fit) is so underrated! And my wealth grew a lot too, funny thing.
I have the OTHER kind of liquidity now.
You can get great buys on Russian Vodka right about now…………
That’s where I come from. Thank goodness.
For me, what has always been a blessed shield, is too
make believe something different than today’s dark clouds.
On the way down, I look to the nasdaq. That top is exceptional to put it politely…
Tech worship (to the degree of lazy magical thinking) is a lagging indicator. Many of my “scientific” friends cling to it like an old Russian icon.
Don’t kid yourself. Plutocrats love inflation. Their physical assets shoot to the moon while their debts go to zero in dollar terms. Powell won’t be raising rates any time soon, with maybe 1% Fed Funds at the peak, while us Venezuelans get buried. It’s a club, and you ain’t in it.
The way hyperinflation will manifest itself, won’t be through money-but stuff.
We could see a tired 1953 2/1 in SF worth $100 million, and so cheap, a flipper bought it to resell!
All this turmoil and the fed hasn’t even started raising rates yet. This is the “jawboning” phase, where they talk tough and hope investors listen and exit calmly. I think the market is in denial and rate hikes ARE NOT priced in. How could they be with home prices barely starting to correct?
Inflation is going to be insane for the next 2 years. Oil/gas is in fertilizer / food production, shipping, chemicals, plastics, cosmetics and drugs.
i agree that rate hikes are not priced in. i’m just not confident that the measly 0.25% raise will even happen.
It has to happen or the dollar is toast. But, who knows? Maybe the rich/bankers are already moving into something else. What ever happens, the rich and powerful will become more rich and powerful. The rest of us are the herd animals that they exploit.
It’s a big club, and we ain’t in it.
Oil is in abundance, it is the Fed’s monetary stimulus covering the bets.
Closed out my QQQ short. Too distracting and risky when I’m in a few insane trades whose margin requirements are changing by the day.
Just wanted to let you all know, since now that I’m out the market is going to absolutely drill. You can laugh at me in a few months.
I have been running conservative portfolio for six years. Up 4% plus YTD which feels good after underperforming market for so long. Took some more risk off, would be OK finishing the year with the 4% gain. World is in more of a mess than usual.
I’m up 6.8% YTD. There are things out there that can be bought from a cheap brokerage account that behave like shorts but do not expire. That’s my secret sauce, at essentially zero transaction cost and it doesn’t decay like an option or typical short.
phleep said: “There are things out there that can be bought from a cheap brokerage account that behave like shorts but do not expire.”
————————————
and those things are?
“Take Tesla. So this is an EV maker that actually makes money, and actually sells a large number of vehicles”
Of note…
A ship with 4000 luxury vehicles caught fire and eventually sank.
It is suspected that electric vehicles may have caused the fire.
Imagine the new complications involved in shipping EVs.
I suspect that these cars have some parts missing, like the ECU’s, because of the “chip shortage” / “trade war with everyone” and this is just another way to ‘sell’ straight-to-the-junkyard cars at market prices?
In the 1980’s it was said by sailors that if one was sailing on the open ocean and came upon a reef in the middle of nothing, there would be a ship sunk on it and it would be registered in Greece!
Those were Volkswagen according to the article headline that I saw
ivan
read the WSJ article today 3/2/2022
“….around 4,000 luxury cars—including models from Porsche,
Bentley, Audi, Lamborghini and
other Volkswagen AG brands—
caught fire in February an..”
“, experts say there
is a danger that batteries in
electric cars can short circuit
and catch fire. That could mean
that precautions not relevant
for conventional vehicles might
have to be taken during transport, regulators said.”
It’s not known what started the fire. Fires happen on ships. But when the fire reached the EVs and they went up in flames, it made the problem worse because an EV fire cannot be doused by water, and that’s why efforts to extinguish the fire early on failed.
thanks once again for the clarity WR,,,
been wondering why the fire(s) on that particular ship were NOT put out;;; had a ton of experiences within Navy training in mid ’60s, but we also had ”foam” products to fall back on, even in those days.
was thinking it all some kind of insurance ”scamola” as has clearly been the case many times past with re: shipping losses.
Having been on a Navy ship that had to fight a major fire at sea… let me tell you… it is VERY difficult. Even under the best of circumstances with hundreds of crewmembers trained in Damage Control. Merchant ships are so undermanned (and the crews so underpaid) that most won’t be able to do much if one gets even remotely out of control.
That being the case it becomes even harder to pinpoint the cause. We SAVED our ship (the battleship USS IOWA) and investigators still couldn’t come up with a definitive answer.
Continuing the OT because it’s interesting …
“Firefighters struggle with burning electric vehicles aboard Felicity Ace”
Wolf,
A theory…it is basically ZIRP that keeps equity money sloshing from one tainted equity bathtub (absurd PE stock) to another.
The individual companies themselves are almost all fundamentally financial nightmares that come nowhere close to justifying their insanely inflated PEs.
So, sooner or later, logic reasserts itself and these companies get taken out to be shot, one by one (like the “Nifty Fifty” in the early 1970’s).
But EquityHeads view ZIRP yields as a fate worse than death…so they refuse to exit equities as a sector…no matter how collectively overvalued it is. They will simply leap on the next loud, speeding, rickety bus (stock) that happens along.
Or, at worst, retreat into the least delusional hype stocks (Apple/Google) who at least have some significant real world success…albeit not enough to justify their own overvaluations.
But it is that steel wall of ZIRP bayonets that keeps the demented equity orgy cycling back unto itself.
But ZIRP can only be perpetuated through Fed money printing (honest interest rates would be much higher for debt doomed America). And money printing means inflation, either hidden (offset by “China price” deflation, whose value has been stolen by DC) or explicit (once the money printing policy achieves out of control “crack whore” level in DC).
So now that the proles can visibly see how much we are being harmed by DC’s habitual monetary expedients (explicit inflation), DC is being forced to raise rates (if only by pathetic amounts).
That starts to lift the steel wall of ZIRP.
And so, just like that, the exit doors start to open at the long superannuated equity orgy.
Whosh goes the hype. Flush go the idiotic PEs.
These mania stocks are usually more overvalued than the “Nifty Fifty” ever were and it’s usually not even close. Tesla is one example and it’s not the worst either.
Agreed…I simply used the Nifty Fifty to illustrate the “one by one” execution model…as it slowly (and repeatedly) dawns on a given stock’s shareholders that “hey, this stock maybe really *is* an overvalued PoS and I should go looking for the next makeup encrusted tramp at the orgy…”.
The key element keeping the idiot orgy going is the ZIRP bayonets…for a certain kind of “investor” *any* roulette wheel gamble is better than low-to-no fixed income returns.
Witness today’s equity spike as the Fed predictably retreated from even its pathetic promised rate hike.
Nobody knows better than the Fed just how vaporous price support is for the ZIRP deranged equity mkts.
The room in the house of representatives seemed almost giddy as Powell lied the sweet lies that reassured the monied interests that the punch bowl will be maintained at overflowing for the forseeable future.
Too me, the moment will occur as soon as Facebook, Google, Amazon, Tesla, etc are vaporware and will, in the course of time, become irrelevant and unable to generate America’s principle product:
advertising
The hiatus in the risk trade includes asset classes other than equities:
“Yesterday’s powerful bullish reversal in stocks didn’t translate across to the junk bond realm, as the Bloomberg U.S. High Yield Index rose 10 basis points to 5.85%, its highest level since September 2020. That left the index poised for its sixth consecutive weekly loss, which would top the early 2020 crucible for the longest such losing streak in six years.”
(from Almost Daily Grant’s, 2/25/22)
After such a bulge in systemic debt, can any asset class avoid its turn at the chopping block (junk bonds, inv. grade bonds, RE, commodities, cryptos, ______ fill-in blank)
Prepare to see your 401k downsized to 201k, though timing is always impossible to predict…
I suspect most stock buyer aren’t familiar with the recent correlation (since at least 2008) between stocks and junk debt.
It’s called a bearish divergence.
Yes. well buyer is a good way of describing a speculator or gambler. A trade between stocks and junk debt is a gamble, which is not appropriate for people unfamiliar with the degree of corruption in the so called market.
The risk is that, like in the 30s America’s industry failed, and again in 2008 when America’s new industry, banking and finance, failed.
The savers have been paying for it ever since. Paying for speculation and a Federal Reserve with a gambling addiction.
The Fed has been a one way bet forever. The problem is that they always change direction, in secret council, with their owners, the richest people in the world, and never announce what they really are doing. Until the trade is crowded, and the ponzi phase begins: buy the dip
“But these same retail investors with their trading apps, and ganging up in the social media, are in part responsible for these ridiculous spikes as they suddenly converge on something like Avis, and then, oops.”
So now they trade puts. Where is the now very old fashioned idea of the rule of the law? This is not any form of normal trading based upon known value metrics; this is all about running scams. Not only that, scams seemingly directed from the top. So is there ANY intent to apply rules anymore? When I first set out to buy shares, I was advised to read the likes of Beginners Please by Investors Chronicle. The whole concept of a stock exchange is built, sorry; was built; upon the concept of safety for the average small investor. Every aspect of those teachings published in 1955 was based upon professionalism and acceptance of responsibility. Now, today, all that has been swept aside . . . now, no rules apply. So that leaves an open question; who is going to take full responsibility for the now desperate need to return to the application of that single word; safety?
Your description is another symptom of social decay, of a declining society headed for much harder times.
The financialization of the economy has made it a lot more profitable to make money off of money instead of actually working or producing anything.
Most “production” in the US now is services, most of which doesn’t generate any actual wealth. Much of it is necessary or “necessary” but still doesn’t change the fact that it’s not actual production.
Your posts are right on the money.
Nail Salons, restaurants, sport venues, concerts, Disney World, cruises, house flipping, 600 cable channels, etc., are not necessary.
Manufacturing made England rich and great in the 1800’s.
Manufacturing made America rich and great in the 1900’s
Manufacturing is making China rich and great right now.
MA,
Most guys have no idea how much of their hard earned money goes to the nail salon.
Having recently read, “The Rise and Fall of the British Empire” by Lawrence James, it certainly seems that British Military might, especially their globally dominant navy, was the main factor in enforcing extensive monopolies of manufacturing and merchandising.
Ditto the military might of USA, especially after both ”world wars” made other candidates wrecked, weary, and weakened enough to let USA be the bully for a while.
That current hegemony certainly appears to be at least nearing some degree of reduction, possibly it’s effective demise.
It was cheap fossil fuels and cheap labor that enabled the manufacturing that made these places rich and great.
Well perhaps Walmart and their friend of the United States Camber of Commies, communist China’s dictator, Xi, had a little bit more to do with the exploitation of America than liberals or red necks. It is a class war
Where is the government agencies protecting us from foreign enemies.
A statement about future values is generally not fraud. It is a statement of opinion, not of “fact” in the fraud sense. A reasonable person should know conjecture on future prices is opinion, thus not in itself a good factual basis for decisions. The non-reasonable person cannot make this someone else’s problem legally. This promotes logical consistency in the legal system, not the contrary.
Choosing to copy one’s (stupid) neighbor in general is not a breach of the rule of law. It is the very backbone of consumer society and “civilization,” such as it is.
Where did the rules go? They are honored about as much as they always were.
Making everything safe for the least savvy person is contrary to the spirit of capitalism and liberty. Having a consistent system that a reasonable person can learn, transact in, and not be fleeced by, is what we more or less have. That takes effort and homework up front, something many lazy people expect Uncle Sugar to take care of for them. Our system is well-evolved and world-class. If you don’t want to lose, don’t pour money into risk assets. The punters would have kept any upside, but they cry when there is a downside, and expect someone to fix things. Their problem.
phleep said: “Our system is well-evolved and world-class”
——————————————
I am not sure if you are making a joke or are a joke. Or perhaps you are just addressing the situation, considering our FED and government actions to digitize money out of nothing, that our system is evolved to protect one class at the expense of another.
no doubt, you will now privilege us to self important libertarian claptrap ………………
I think you captured the outrage about stupid losers that lose money in financial markets and expect uncle sugar to bail them out as if they were banks in 2008.
I love that I can trade in my brokerage account without anyone (other than the frequent little warning blurbs, easily dismissed) interfering. Being young is about taking a certain class of elevated risks (hence testosterone surge, doing evolution’s work) and, if one survives the lessons, middle and old age are the reward. Doing an option trade on an app is more pleasant for a young man than bleeding one’s guts out in Stalingrad or Khe Sanh. Progress?
The rockets red glare, the buying opportunities in the air?
Phleep-
You make good points.
ChrisColes statement that:
“The whole concept of a stock exchange is built… upon the concept of safety for the average small investor,” is wrong, IMO.
The real purpose of investment markets:
– Individuals with savings but few ideas,
– Partner-up with other individuals who have ideas but little savings.
– Together they experiment with risky schemes that they hope lead to revenues.
– Then they share the profits, OR the losses.
Success looks like this:
– idea person builds a business he couldn’t do on his own
– Investor earns a return he could not expect on his own
– Wage earners are employed by the business
– Consumer benefits from a new product/service choice
When (invariably) failures happen, the investors share in the pain through loss of investment, according to terms known ahead of time.
It’s all voluntary, but as you imply, it’s a “caveat emptor” system.
Downside of current system is it results in too much trading and too many financial products with friction costs. I would like to see very capital gain tax for stocks held less than a month and a lower cap gains tax for stocks held more than 3 years to get the system focused on real capital investment and less on stock trading.
Old School,
Get the system focused on treating all sources if income equally for the IRS’s tax extraction.
Wages, long-term & short-term capital gains, dividends and carried interest are not taxed at equal rates. That is an unjust system IMO.
Let the market handle “real capital investment” vs “stock trading.” Keep the USA government’s reach out of influencing where my portfolio is allocated; that’s my decision to make not Uncle Sam’s decision to make for me.
middle and old age are the reward.
That assertion is artistic in it’s simplicity and ignorance.
The box that the market knows now….
The fed cannot raise rates due to inflation destroying consumer disposable income and their buddies demanding more thefts from grandma to support the flimsy balance sheets of their paper tiger corps.
The fed should raise rates due to run away inflation.
So…..down she goes and in this modern time……forget the women and children. Just remember….we are all equal.
Yes, that is why Churchill only vacationed on Italian cruise ships!
Vada a bordo cazzo!
grand ma and pa have been paying for this IVY league economics experiment gone wrong like so many ideas that the smartest don’t understand but are adamant that they do
Most of the stocks mentioned in this commentary call themselves “tech” and many comments do too.
Practically none of these stocks are actually “tech”, as using technology in the product of service doesn’t make it so. It’s your revenue source; what you sell. Virtually none of these companies (no, not just those listed in the article) sell tech and where they do, I’ve yet to come across even one actual “disruptor” which is just more marketing BS.
Most named stocks are still ridiculously overpriced, even after recent declines or crashing.
A few have “reasonable” P/E ratios but that’s due to the fake economy. Besides, earnings aren’t real money. It’s an accounting number. You can’t spend it, it’s buried in the balance sheet substantially wasted on stock buybacks and overpaying for acquisitions since 2008, and 99%+ of shareholders can never monetize it.
Avis is an example. It now has a market cap of $9B+, a price to revenue ratio of 1 (low during the mania since 2000 but not historically for such a mature company) and made good money in 2021.
It also has slightly negative equity, $15B in long term debt, and its annual interest expense of about $500MM is entirely due to the bond mania. It also pays no dividend. Without a bond mania, it’s interest expense soars and earnings are much lower or collapse, even ignoring any impact of higher rates on its revenues in fake economy.
The self proclaimed disruptors are frequently just people who have written apps which have allowed them to become the new middlemen, displacing the old, in transactions which were already occuring. They have added nothing of value beyond convenience. But, convenience is everything to people who can’t even be bothered to make their own coffee.
I’ve yet to come across even one actual “disruptor” which is just more marketing BS
A hurricane can only disrupt the surface if the pond is deep enough.
Tech is a relative term.
I don’t dispute any of your rant other than a different take on a few concepts that are important.
Does anybody have any suggestions on what one does with their savings today?
I’ve been intensively saving for a decade now in order to try and buy my first home but prices have just kept souring over the years and were fuelled by continuing ‘free’ money. I never thought it would last this long and now sitting on a lot of cash ( but only roughly 15% of savings in the market). I know sitting on a lot of cash is stupid and costing me dearly as inflation eats away at it but I’m single and a 1 bed apartment would set be back 350k in my area (which seems like a horrible idea in your 30s).
However now that the party finally is starting to look like it is up in terms of continuing to the moon evaluations, I’m now getting a little concerned about trusting banks and FIAT currencies. I’m not a millionaire looking to preserve my wealth. Just someone who wants to buy a home without incurring huge debt.
I should also note that I live in europe and all the banks are part of a scheme that insures depositors accounts up to 100k per person per institution. But then again that doesn’t fill me with a lot of confidence when the currency itself seems to be in worse shape than the actual banking system (Italy/France etc debt burden + increase rates).
Does anyone have any suggestions or is everyone correct in telling me that I’m overreacting and a complete pessimist?
LonelyPessimist,
Most readers/commenters here probably have a US perspective on housing (which is typically discussed), so it’s possible that some of the advice you are going to get here might be a little different than what you would face in Europe.
The most sound advice I can give regarding housing is that I frequently see people obsess over the money aspect of housing. Questions like, is it a good time to buy? Is it a bad time to buy? Will it continue to appreciate? What if I lose money on housing?
Remember that housing is different than other investments because it is not purely financial/monetary. Remember that you as a human being NEED SHELTER and you LIVE in the house (any house) that you buy. Remember that there is real world, functional, non-monetary value associated with having a physical house as a home.
When you do your calculus on whether to buy or not, just remember that the most important thing you gain when buying a home is the functional, real world, non-monetary benefits of being in a home that you like, is comfortable, and meets your needs.
You shouldn’t treat housing like an investment (even though it is to a certain extent, and shouldn’t be past a certain point). Buy what you can afford, live in it, and be happy with it!
If you can afford to buy a property, plan to stay in it long enough to make the math work, and do not mind a “paper” loss after you buy it, then go ahead and buy it. Only you can answer it.
Just make sure you buy one you actually want to live in and aren’t buying it due to Fear Of Missing Out (FOMO). If you buy one you do not like, you will almost certainly
regret it.
I’m older than you but renting for personal reasons now. It’s a horrible time to buy now (worst ever as far as I am concerned) but if my personal circumstances allow it, might buy anyway.
I’ll just have to treat any likely loss as a consumption expense. If I buy, it will be a quality of life decision.
History in the making. I wonder which company will be the poster child? (lehman was the last winner)
Are you planning on getting married and have babies?
My advice is to not be too much of a pessimist… or too lonely. They feed off of one another.
As to your financial concerns… sitting on cash is never the solution when inflation takes hold… and inflation is a difficult thing to get rid of. The rich preserve their wealth across generations by buying and holding three things… gold/jewels, real estate, and art. All three are considered hedges against inflation because of their limited growth compared to population growth. ADDED ADVANTAGES: If you have to run for your life, gold and jewels can be taken with you and converted for cash wherever you land. Real Estate and Art have title and history to back up your claim to them and thus you can contest them legally over time.
Bottom Line: BUY THE APARTMENT. Its value will probably rise with inflation (to a large extent). It is “safe” (to a large extent) and as an added advantage provides you a place to live. If you are already renting then you are already paying for a roof over your head (to an extent). Plus you can always sell it and trade up (or down) as necessities in the future dictate.
PS: Keep saving. At some point you won’t be satisfied with a small apartment and will want a larger one or a house. Selling the apartment you have will only take you so far towards buying something bigger in the future.
I invested in TUR last week.
A Turkey stock ETF.
Completely out of favor.
Should be a winner in a year.
Invested in RSX today
A Russia stock ETF
Beyond out of favor if that’s possible.
Don’t tell anyone.
Should be a winner in a year.
Both too risky for just about everyone.
However I will recommend that you send all your money to me. I will spend it — that’s what money is for — and send you letters every week to tell you what I bought and how happy that made me and the wife.
I promise I will not waste your money on alcohol. illegal drugs, strippers or hookers.
Thank you all.
Really appreciate you taken the time to reply with your own thoughts and opinions. I am starting to lean towards buying if I find the right place but as many of you alluded too, I’d be doing so knowing that it will likely be in negative equity before long which sucks. But sitting on cash in todays world is far from desirable too and as hard as I look, I don’t see any ‘safe’ place to put cash today.
To answer Marcus question, I don’t have any immediate plans to marry and start a family but I also know life is spontaneous and can throw these events on you. That’s why I would not even consider a one bedroom apartment at this stage of my life. I’m at least old enough to remember the amount of poor souls who got trapped in them in 2008 and had to make do with raising a family there until their situations improved. If I buy, it will be at least somewhere I can raise a small family and I won’t be in pressure to sell anytime soon.
I think your comments here are full of wisdom.
Returning to my own previous experience, buy a run down property that needs restoration that you can live in while you “do it up”. That ensures an increase in value from repairs, and allows you to chose when and how to increase value, by only spending on upgrade when it suits you. if all you do is to buy a property that has all the work already done; you pass the increase in value to the previous owner. Buy small and build better is surely a better route to long term stability, that paying through the nose for someone else’s effort?
OK LP, lots of good ideas already, but I’ll add my two cents:
If cash is not a good place for your wealth, consider buying anything of which no more can be made, ”dirt” being one of those things.
Years ago in SW FL we were told ”waterfront property,” fine art, and fine jewelry were the only things that kept up with inflation.
Seeing various FL RE properties lose as much as 75% of their ”value” in the last crash made me realize that anything can lose value at least temporarily, as was the case then.
OTOH, the best waterfront RE from Sarasota to Naples came above their previous highs in less than 2 years, and are now waay higher — ( ”valued” or priced in USD.)
Stop spending. If everyone else did it would send the correct message to the so called producers that are gouging us now.
If the American people would get together and start boycotting businesses that are harshing our world. We could change it tomorrow.
Coming UnGlue ?!
The moment Wolf speak that, Reckless-Powell already starting to speak about GROWTH. See SPX shot up 70 points today.
Hence, Reckless-Powell suggest 0.25 hike, in the face of 7.8% Inflation for months.
Wolf need to start End The Fed Campaign.
Sean…get your END THE FED bumper sticker and coffee mug for a start.
No one seems to realized if inflation flattens out….the price increases STAY BAKED IN……
Up 7%….then up 5%……then up 2% (the Fed’s illegal goal)…
Thats 2% on top of 5% on top of the current 7%….accumulated, then COMPOUNDED…
And with the sharp rallies in Wheat, Corn, Soybeans, Lumber, ….where exactly is the decline ….or the potential for decline? Fertilizer, rent, etc….
this inflation has yet to get started IMO.
That’s right. In spite of the big talk, the FED still has their working and middle class ruinous 2% inflation goal.
As long as the FED maintains their stated goal of 2% inflation, and they maintain the power to print money and suppress interest rates, anything they do to “taper” current inflation will be little more than short term blips.
You can’t have a goal of 2% inflation and not be at odds with “tame inflation” rhetoric.
It looks like more of the same: continued lip service, continued nothingness or de minimis action, continued inflation.
These people never show up when stocks tank, only when they rise for a day, after two days of tanking. Funny, isn’t it?
I’m with you. The Fed is a corrupt banking lobby that has been given the Congressional power to print money, regulate commerce, etc all the while owned by a secret cartel of the richest people in the world.
We can afford guns but we cannot afford equality.
Powell pulls the 0.5%. “Inflation well above 2%”. Yeah no kidding.
Like I said a while back Wolf:
> I’ll believe it when I see it
georgist
What I said on Feb 10 about the 50-basis point hike was this:
“I’m going to do a U-turn here. Over the past couple of months, I pooh-poohed the possibility the Fed might do a 50 basis point hike on March 16. I figured the Fed wouldn’t want to surprise the markets, and would stick to a 25 basis point hike.
“But Fed heads have been mentioning it recently, and now we got this “serious-ass” problem with inflation, and Bullard is out there urging a 50 basis point hike, and the March rate-hike expectations are betting on a 50 basis point hike, and so it wouldn’t be a surprise.
“I now think we might actually get a 50 basis point hike.”
So Powell said today that he is leaning toward a 25-basis-point hike. Other governors are open to a 50-basis-point hike. The decision will be made and voted on at the FOMC meeting.
One thing that Powell confirmed today is that THERE WILL BE A RATE HIKE on March 16, despite all the rate-hike deniers on this board. Let’s keep a little bit of perspective here.
Is a .25% rate hike in the face of 7% inflation really a rate hike at all?
uh, no
they are the most pathetic of actors
This website is one big pity party. Instead, I figure we should be partying like they did in 1927. I hear it was a great year!
Pity?
Identifying something wrong or out of whack and commenting on it.
For 70 years, Fed Funds EQUALED OR EXCEEDED inflation…then suddenly …..nothing. All decided back in 2009.
WOW, did something happen around 2009? 😁
Tomorrow may not be as good as today. I’m with you party like the very productive year of 1927, the year television was invented
because the next few years could be more of a drunken Fed frat party.
Who knows ! What ! I’m supposed to know these twists in the plot of life.
I’m just glad that the very people who made all the bad decisions like Iraq, the banking bailout, the 1 trillion dollar military budget, etc are still in charge, making decisions.
It is the republicans turn again. More tax cuts for the wealthy and cops to protect their stuff.
They should be raising 50bps in March at a minimum. The idea that Ukraine changes that is ridiculous.
i’ll be floored if even the .25% happens.
The market is already laughing its a– off at the fed.
The half point increase is off the table…….the one quarter point increase is more than enough to address 7 percent inflation with oil at 110 a barrel.
Lets be nimble and wait another six months for the next increase.
So we’ve already had our bear market, and I suggest after having seen this movie before, that the market will take that as cause to buy. Only instead of buying beaten up issues with no earnings and too much debt, we’ll buy passively and trust in the index. (Let other people do the real work of buying up those beaten up companies and sorting through the wreckage). There is a squaring up of accounts when we get back to new highs, by then the war will be ended and inflation will be back in its cage. The market looks ahead and the spending bill is apparently alive in Congress.
Oh Contrare, mon Capitain
Inflation will derail the script that you have elucidated, which was useful last year.
Like the current stock market in which an abundance of stocks have declined significantly while the indices have scarcely declined, American society has undergone a similar decline.
Only the wealthy, are doing well. Everyone else is struggling under their enormous girth.
Since the stock market is under the control of the corrupt Federal Reserve who can say what they will decide to do with it. Financial assets are like currencies.
If unglued means almost 700pts up in the market with now nuclear threat on the table..that sounds about right then. Yeah I know he is sabre rattling rattling…yada yada but still the optics is pretty insane nevertheless.
Yeah… there is no rhyme or reason to this market. I just checked and the US and European markets are up while Asian markets are down today. Considering what is going on in Ukraine, shouldn’t that be reversed? At first I thought maybe the trades are all in lower volumes… so the price is going up because of a limited number of shares for sale. NOPE… volumes are relatively normal.
What on Earth are stock market investors thinking that would make them want to stage a rally right now?
It’s psychological, not based upon the supposed fundamentals. No fundamental event ever bought or sold a single share. There is also no absolute value.
Look at the trading action on February 24th which was only last week. A big decline in the morning followed by a big rally in the afternoon.
What changed during the day? Nothing except sentiment. News reports stated it accurately (for once) as a “reassessment” of the situation.
No “investors” have a clue what is actually going on over there and even if anyone did, no possibility of how it translates into what any stock “should be” worth. There is no “discounting” going on, as that’s academic nonsense from the Efficient Market Hypothesis.
Efficient Market Hypothesis is about as creditable as trickle down economy or flat earth hypothesis.
It’s interesting that you think that the market rose on sentiment while I tend to feel it rose on corruption. The basis of capitalism.
And your implied, naive belief that it is somehow random rather than an orchestrated criminal charade.
I think it has become the latter
I’m beginning to think it’s possible the stock market is also a money laundering vehicle. No way of knowing. I have no idea how it would work. But I would imagine Russian money outside of the country is frantically moving around right now in an attempt to layer itself.
The nuclear threat never actually disappeared with the end of the Cold War in 1991. The nuclear arsenal has been around the entire time and there is no basis to believe it’s going away. The only thing that will change is perception on whether it will be used and how.
When the mania ends and the bear market has been in progress for some undetermined time, all kinds of “reasons” will be put forth to “explain” price action.
There is no money in a Nuclear War.
Nuclear war is so 1960 s now wil be cyber war ,or space war but all assets vaporize = great reset
Starting from the fact that over 79 pct of trading is conducted by machine algorithms, how can trading be considered a reliable statistic much less the result of an auction system of price discovery
Again, all markets are under the control of the Federal Reserve. The so called free markets have been suspended these past 20 years so that those that know better can implement their plans to make our lives better without the nuisance of dissent.
Many are thinking Capitalism is in control of the USA Markets and Government. No longer a need for the Fed just wasted space.
Just imagine if they do away with the Stock market and Businesses simply relied upon existence from their earnings simple as that.
No need to worry about failure if you don’t earn you close up
No Need for Loans , Credit, Stocks,Bonds, just think of all the free time
and office space.
The 80,000 Car becomes a non affordable Liability remember the peoples car the VW
The World may have lost the element of what life is all about.
Have you given thought if you really need such things ? Power mad country’s ,bigger and better huge houses ?
How many times a year do you take a walk in the park a stroll on the beach . 365 days in a year do you stroll 10 times a year,
Do they still have Maps to the Park or did they give that up.
Government the Stock Market the Fed the Credit unions, Banks on and on a huge list simply is not needed .
Look at how the world is doing with them and no end in sight >BAD
To enjoy life simply put is not going to happen the way things are currently .Do you think that the world tension is normal ?
“Just imagine if they do away with the Stock market and Businesses simply relied upon existence from their earnings simple as that.!”
Looking back, I think I did my best investing when I looked at a company’s financials and asked myself if I would rely on it for a living if it was my own private business (scaled down to a single family). If not, pass.
However, sometimes you do need a loan, especially for acquisitions or expansion of services. Yes, debt pulls future income into the present, but it also pulls the expansion of the business into the present. Imagine waiting 10 years to save up enough in your piggy bank in order to add onto your office building.
To extend the comparison, would you rather borrow to add a pool to your home now or save for years?
Or you could finance with equity, which doesn’t thrill me but that’s how many startups get their money. I think you can start a new restaurant with a loan, but if you want to make a new type of solar panel you’ll need VC.
The distinction is between productive and non-productive debt. Too much debt during this mania (going back to the late 90′) is unproductive. It’s financialization (housing) and financial engineering (stock buybacks, LBOs).
Yes it is. A redefinition of ownership from productive to non-productive. I think you have put your finger on the turn of the screw.
The method of exploitation. Which begs the question about capitalism: Is it a system of exploitation or efficiency.
Personally, I feel that capitalism is a big tent that encompasses a range between both extremes, probably shaped like a normal distribution curve, which the current inequality does not conform too. Which may be part of what you are talking about.
The current inequality curve shows an extreme concentration of wealth while most people are poor
I remember the Internet Bust differently. There were plenty of companies that blew up one-by-one… and then (like now) people made excuses as to why those companies were different from “the new norm.” That didn’t stop the whole market from crashing eventually.
PS: I would love to see one of Wolf’s famous charts with the PE ratios of these firms mapped out over time as compared to the market as a whole.
ROFL… this headline just hit on CNBC:
“Snowflake plunges almost 30% on slowing revenue growth”
I have no idea what “Snowflake” is but I am guessing it has nothing to do with the weather.
I just looked it up. Some kind of “data-analytics software company” that has a “multi-cloud strategy, including a cross-cloud approach to mix and match clouds.”
In addition to announcing that they lost $132 million last quarter, they are also announcing that they are acquiring another firm.
In keeping with Wolf’s post… it peaked at $405 in (you guessed it) the middle of November 2021. Now it is at $188… a 55% drop (so far).
I sold some calls on it. I wished I bought puts but they were so expensive.
I took advantage of the high price and sold the calls. But the profit is limited
Have a look:
https://wolfstreet.com/2022/03/02/here-goes-another-highflyer-buffett-darling-snowflake-crashes/
This was an excellent article — the best financial article I read in the past week.
The only thoughts I could add, since I am a professional nitpicker, is some additional comments on Tesla:
Their primary source of earnings is not a net profit from cars they sell, it is from regulatory credits.
They may have also made a big profit on a bitcoin investments last year, if one believes Musk, which I don’t. While my Finance MBA doesn’t mean I’m right, that does not sound like a solid long term business plan to me.
Musk sold a HUGE amount of hos own Tesla stock — no one needs a business degree to know that was a bad omen for the Tesla stock price.
Richard Greene
Professional Nitpickers of America
Executive Washroom Attendant
Bingham Farms, Michigan USA
It does feel like the dot-com. I remember thinking the market is too strong to ever go down. That was a mistake.
How do the indexes keep going up or at least not going down much while some big stocks are down 60%-80% from the peak? Wouldn’t they drag down the indexes/averages at some point? It’s a little perplexing.
All indices are off their highs. The high for the DOW and the S&P 500 was Jan 3. The high for the Nasdaq was in November.
Some of the hugest stocks, such as Apple and MSFT, haven’t moved much, as I pointed out.
Nextdoor, KIND, is down 45% from it’s offering price in November and down 68% from its high. Looks like no one (Facebook or Google) wants to buy this steaming pile of data harvesting, users do the work, facial recognition scalping junk. The number of users is plummeting and there are only so many lost dogs to report on.
To hell with them. Half it’s users have been suspended or banned by their A.I.
Strange and out of whack is an understatement.
These (mostly) tech companies have high value and little profit vs valuation.
Compare with those now cratering Russian companies who now have low value but still high profit (e.g. gazprom still earning boatloads of money from gas pipes to Europe, India or China)
Both are at the opposite of price stock pricing and both have stock prices not representative of the true value.
And some day in the future, both stock prices will go to the real value and not too high because of speculation greed —or— too low because of manipulation and fear.
The Fed is on the verge of making another mistake, in favour of wealthy gamblers and against the best kind of gamblers, the ones that have kids and go to work and pay taxes and coach little league baseball teams and win our wars.
The USG has become a fraternity of the wealthy rather than the pride of the men and woman who won it.