Ugly Day. But I’m more and more amazed how Microsoft’s CEO picked the very peak to dump half his shares last November.
By Wolf Richter for WOLF STREET.
The Nasdaq fell 2.6% today and is now again down over 20% from its peak last November. A lot of stocks got hammered today. But it was the giants that stole the spotlight. They’re now letting go.
Hundreds of stocks have plunged since February 2021, one after the other, the most-hyped stocks taken out the back and shot, down 70%, 80%, and even over 90%, often just months after they started trading as a public company. I’ve document some of them in my Imploded Stocks column.
For much of the time, the giant stocks kept the overall stock-market indices from totally tanking despite the mayhem beneath the surface. But now the giants are letting go too. Meta already fell apart over the past few months. Amazon used a massive bout of financial engineering to stem the fall, and that only worked briefly. And today, Alphabet let go.
Alphabet [GOOG] broke today. It dropped 4.3% today in regular hours trading, and another 0.9% afterhours to $2,390, down by $108, and leaving behind the resistance from which it successfully bounced off three times.
The stock is now back where it had first been on April 29, 2021, and is on the verge of turning negative year-over-year. Alphabet’s shares have now dropped 21.4% from the 52-week high on February 2 this year (data via YCharts):
Meta, the good old Facebook that tried to fix its problems by changing its pooh-poohed name, to no avail, has been the trailblazer among the giants for reasons of its own. Its shares [FB] fell 2.1% today and have now plunged 52% from their peak on September 1, 2021 ($384).
At this pace, I will soon have to add Meta to my Imploded Stocks, just like was I forced to do with former FANGMAN component Netflix, which collapsed by 69% from its peak last November.
Meta edged through the resistance level today that was established in the second week of March and set a new 52-week closing low, having now dropped to levels it first crossed in April 2019. This is a horrible looking chart (data via YCharts):
Microsoft is letting go too. The shares [MSFT] fell 2.4% today to $274.03 and some more afterhours. They edged through the closing low of March 7 and closed at the lowest point since July 1, 2021. Since their peak on November 22, shares have since plunged 21.6%.
What remains an amazing all-time WTF-trade is how CEO Satya Nadella dumped half of his Microsoft shares right at the peak, almost to the minute on November 22 and 23. I mean, not many people are better at picking the very tippy-top to dump half their stake, worth $285 million, right there (data via YCharts).
Amazon tried all the tricks of financial engineering in early March to stem the slide of its shares with its announcement of a 20-for-1 stock split and a huge share buyback program for which it is borrowing tons of money. And it worked, briefly. Shares bounced but have since given up nearly the entire financial-engineering bounce.
Today, Amazon [AMZN] fell 2.7% to $2,887 and fell another $5 in afterhours trading. It’s down 23.5% from the peak in July 2021. But it didn’t fall through the pre-financial-engineering early-March low:
Tesla [TSLA], despite the mayhem in the markets today, barely budged, ticking down 0.4% to $1,005, and losing another $5 in afterhours trading. Since its peak on November 4, the shares have dropped 19.4% but remain well above the March lows.
Tesla is of course not an ordinary company. Its CEO walks on water. And over the past two years, the share price has multiplied by 10, a miracle of its own kind, the most valuable automaker by far in the world, despite its tiny market share. And Tesla P/E ratio of 135 is another miracle for an automaker, but then no other CEO walks on water.
Apple [AAPL] fell 2.8% today to $161.79. But it is still hanging on by its fingernails. Since the high on January 4, shares have dropped “only” 11.5%, the smallest drop among the giants, and Apple in terms of market cap ($2.64 trillion) is the largest of them all.
The share price is still well above its recent low of early March. And given Apple’s huge size, it single-handedly has been slowing the decline of the overall indices. So when Apple lets go too, it will cause some additional, let’s say, ripples.
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Other than Meta they all need another 20% plunge just to be close to reasonable. In Apple’s case 30% plunge. I like many don’t use Facebook anymore but they have watsapp & Instagram for now. Unless their Oculus VR suddenly gets popular os something … I don’t see how they can grow.
If it happens, don’t be afraid to start buying…. I sold all my equities and gold / PM’s stock and went all in for long term treasuries this week.(treasuries had a two standard deviation move which hasn’t happened since the late 70s) If the general markets crash, this will be my best trade ever!
If we get a nice big crash, I’ll be watching ARK, tesla, apple, Google, PayPal and the likes for bargain price fire sale deals.
These are the companies and ETFs that will skyrocket back up when the fed and global central banks unleash QE and intervention just like covid on turbo chargers.
so you are waiting for the repeat of March 2020. Could be fighting the previous war
Tesla will skyrocket back up on inverse logarithmic scale. As soon as tunnel driving takes off.
“tunnel driving takes off” I hope that’s sarcasm
Tesla, at most, has two more years of being the darling EV stock. By then, all the other car manufactures will have 2-4 EV vehicles each to compete against Tesla, who can’t ride the high-end EV market forever. They had better announce a $25K compact EV next year, or their going to get behind the curve pretty quickly.
As I recently commented on the BMW i4 M50, BMW is not using rare earth magnets in their EV.
Are they the new standard for EVs with AC synchronous motors?
Tesla’s ‘Comin’ Atcha Live’:
“I’m a mean machine, I”m the kind you don’t want to meet
My middle name is trouble, I’m danger in the street
My motor’s in overdrive, I got my pedal to the floor
Never get enough, always comin’ back for more — yeah, yeah
Here I come, better step aside
Here I come, I’m comin’ atcha live …”
Yes, I have two Teslas. One is spinning on the turntable right now.
Mechanical Resonance it is …
What’s that saying about catching a falling knife?
Better to sell a month too soon than a day too late.
> Better to sell a month too soon than a day too late.
Always true in my experience.
I needed to hear that…
Other flavors of the same idea:
1) No one ever went broke booking profits.
2) If you don’t take your profits, someone else will.
“If we get a nice big crash, I’ll be watching ARK, tesla, apple, Google, PayPal and the likes for bargain price fire sale deals.”
This is the pervasive BTFD gambler mentality that needs to be crushed into oblivion. We need an epic crash followed by even more crash, and zero FED or .gov intervention, where stocks hit the floor and stay there for 30 years, like Japan. Wipe these speculators out forever.
Harsh, but may well turn out to be true.
Why would the Fed or Gov bite the hands that feed them?
As much I’d like to see that, it won’t happen.
You’re an idiot and capitalism is good. A 30 year crash is bad. Hoping for the demise of others is pure jealousy.
“You’re an idiot and capitalism is good. A 30 year crash is bad. Hoping for the demise of others is pure jealousy.”
Only and idiot would think what we have right now is capitalism. It’s crony capitalism, which has nothing in common. You sound a little frustrated with your losses. Are they piling up? LMAO.
LOL,
Then he will burn in the Lake of Fire for jealousy….no problemo.
And he did badmouth ALL (zero means none) “.gov intervention”, even though by definition it’s rather hard for a government not to. Calvinistic anarchy…..I guess.
Is a two standard deviation move significant when Treasury Yields are rock bottom? Is it comparative?
Two standard deviations based on what historical data?
P.S. Markets don’t follow standard statistics. There is no “standard” deviation – the underlying probability distributions don’t follow traditional bell curves. Extreme “Outlier” events occur far more often than expected based on traditional statistics.
Thanks to wisdom seeker for point out what is apparently NOT obvious or intuitive or other WISE available for younger folks these days.
Clearly, the massive propaganda foisted on WE the PEONs has been very successful for the last 40 or 70 years, convincing US to follow directions,,, directions from headquarters meant to ensure that the oligarchs continue to own us in one way or ‘nother.
Will this current situation, with all the very evident ”challenges” to us, us being everyone except the very riches folks, lead to ”civil” war — as IF there is anything ever civil about war of any kind —
Or, will we have chaos and mayhem in the streets as some on here have suggested, maybe even hoped for?
Stay tuned to this station for more news ”updates”, etc.
“Outlier” events occur far more often than expected based on traditional statistics.”
That’s why there’s stochastics. Actually, the bell-curve distribution seems about right when backtesting.
Mike
“These are the companies and ETFs that will skyrocket back up when the fed and global central banks unleash QE and intervention just like covid on turbo chargers.”
Sorry, Wishful thinking!
May be after drop of 90% all of the indexes!?
The coming secular BEAR mkt will be the BEAR mkt of a life time especially for those 45y or below (JImmy Rogers)
”
The Fed’s “solution”–blowing an even bigger bubble to paper over the catastrophic losses when the previous bubble popped–has finally reached the endgame: three bubbles and you’re out (2000, 2008-09 and 2021-22). Sorry to disappoint the beneficiaries of the three Fed bubbles, but there won’t be a fourth bubble. Bubbles don’t inflate at the bottom of the abyss”
h/t Charles H Smith
Like the Oracle of Omaha has always said “buy when there’s blood in the streets”.
“ I sold all my equities and gold / PM’s stock ”
And with that you are another poster explanation why ‘safe’ value things like PM and energy fell as well for no good other reason
What will your treasuries be worth in real value when the USD and Euro and other fiat drop of the cliff?
Moosy:
Just want to help, so will explain that while trying to be the best neighbor a couple decades ago in the very deepest part of ”flyover”, it was made very very clear to me that PMs, fiat ”money” etc., were literally worth nothing,,, as in NO things were available to trade against the fresh produce OR the stock on the hoof(s)…
While not denigrating the concepts of PMs as a ”store” of value,,, what was working as ”money” then was food and bullets of various kinds.
The stock market crash of 1929 was followed by some massive rallies but eventually bottomed 2 years later with a total market loss of 89%. You may have some time to wait for a bottom
“all in for long term treasuries this week.(treasuries had a two standard deviation move which hasn’t happened since the late 70s) If the general markets crash, this will be my best trade ever!”
Newsflash, the FED is raising rates 9 more times in 2022 (we’ll see FED talk is cheap and they’ve done nothing yet) and if they do your trade will be your worst trade ever.
I think you get to an arithmetic problem when the market cap gets to say $1 Trillion and market has priced in high growth with high PE. Economic pie grows single digits and a company is only going to eat so much of the pie.
Yet BABA was up 🤔. Looks like it might be putting a floor in.
Amen. The “coincidental” share dumping shows why the Davos meetings and Bilderberg meetings are held. Right now, the ultrarich and banksters will seek to avoid any change that forces them to pay a fair share of taxes.
For them, that “right” to avoid taxation (like the French aristocrats’ similar taxation avoidance right before the French Revolution) is at risk. For the rest of us, our economy and the use of the dollar as a reserve currency is at risk if those who earn 99% of US persons’ income are allowed to keep avoiding paying taxes. If the ultra rich win, we will become like the Russian kleptocratic oligarchy even more.
Share buybacks, foreign tax shelter entities and other schemes are ways to hide income from US taxation: e.g., share buybacks allow US company income that would otherwise be taxed as dividend income to be converted into nice, capital gains that the ultra rich only need recognize as income for current US taxation when they feel like selling their shares– sometime in the 2070s, maybe. Too bad ordinary Americans cannot do the same with their meager wages, e.g., as accountants or waitresses.
The figure of 99% percent of US persons’ income is counting their foreign income from foreign investments still held in tax shelter entities in tax havens like the Cayman Islands or Ireland and also counting the corporate income converted from prospective dividends into capital gains by reinvestnemt or share buybacks for DECADES, WITH MOST OF THAT “REINVESTED” IN CHINA. READ about GM, EU and other investments in China to profit from the quasi-slave labor, pervasive CCP corruption/subsidies, and no environmental or labor or pollution protections there. They also rearmed the PLA by such avaricious, US tax avoidance.
Think they have just about got their gilded age back, and most peasants are dumbed down or scared enough to put up with it.
Hope is becoming more difficult.
The stocks covered by this article remain absurdly overpriced. The rationalization for these prices (as growth stocks) is predominantly based upon fake growth from the fake economy.
Add in a slowing or even reversal of globalization, tightening credit conditions and a secular trend change in interest rates.
At market peaks, any initial decline makes prices look “cheap” using inflated fundamentals. That’s what happened in 2008 but the difference then is that it didn’t last long.
When the mania’s end is actually confirmed, it will last for years. Like 2008, stocks will crash, then earnings will tank, and then dividends will be cut, over and over.
There are also going to be a lot of corporate debt defaults and bankruptcies.
I looked up Wolf’s original FANGMANTIS post from 2020, back when those 10 stocks accounted for like 25% of US market cap.
Here’s how the whole list is doing:
FB: down 52% from peak as noted above.
AAPL: -11.5%
NVDA: -41%
GOOG: -21.4%
MSFT: -21.6%
AMZN: -23.5%
NFLX: -68.8%
TSLA: -19.4%
INTC: -30%
CRM: -44%
Ouch! This could be a fun one to track as a historical table of the destruction…
Ha, thanks. Made me go google FANGMANTIS to get that article. That was fun. Just ballparking here: the smaller 7 of these 10 stocks combined have less market cap than Apple. That’s how huge Apple is.
Looking at these losses and the timing, it is hard not to see the influence of indexing and unZIRPing.
Indexing as a whole is beneficial b/c it allows for low cost diversification, but…too many indices use capitalization weighting which can undo a fair amount of that diversification benefit.
The most “successful” stocks get heavier weights, requiring higher purchases from the index funds, making the stocks more successful, and so on.
This creates an amplifier effect on both the upside and downside that seems very contrary to the diversification principle.
As for ZIRP, well it just seems to have created a gigantic, blind “bathtub” effect, where capital sloshes into/out of various investment classes (equities, fixed income, etc) for no more precise/accurate reason than how the G happens to be manipulating the money supply/interest rates in a given month.
Healthy, functioning capital mkts don’t do well in this environment – capital allocation having less to do with specific company performance than political sausage making at a far, far remove.
So, after more or less confiscating 20 yrs of yld from investors, the G reverses course (because its money printing tools have created too much obvious inflation) and the air is predictably let out of overvalued equities – largely in the person of the overweighted index “stalwarts”.
(Although things like the Russell 2000 are seeing plenty of predictable battlefield slaughters as well).
Americans tend to think their economy isn’t centrally managed but ZIRP sure seems to have inserted its tentacles everywhere.
Actually THANKS to Wolf of course, and this time to Cas10, no matter how ya add his numbers:
Very thorough and yet also succinct.
Definitely helps with my education to the current situation in markets, that is definitely needed as I am hoping to invest enough in more liquid than RE markets again going forward.
Here are the PE ratios for these companies (source: Google finance):
Facebook: around 13
Google: around 21
Apple: around 24
S&P 500: 21.5 (source: Multpl.com)
These are not overvalued companies for being tech or growth companies. Facebook is not a value stock, it is still a growth stock. If you want to recall over valuation, then remember back 1998 to 2001 ?
Remember the sock puppet for Pets.com ? Remember garden.com ?
When you are the size of Google or Apple (hundreds of billions per yr in revenue), the prospects for further revenue growth are limited – unless you think we’ll discover a new planet filled with people pining for an iPod.
Their PEs are not completely goofy (there are plenty of candidates with 40+ PEs) but their huge revenue size reflects thorough mkt penetration – to be a growth company, you have to have room to grow.
And saying a SP 500 of 22 isn’t high, well pre-ZIRP PEs of about 15 were normal.
That means that the 500 stocks of the index might need to lose 33% *on average* to be consistent with historical, non ZIRP norms.
ZIRP has hugely distorted everything, by essentially eliminating yield (for 20 yrs) on most fixed income (read safer) invts other than default flirty junk bonds (which themselves yielded a towering 4% at their worst).
The DC G has been printing money (in one form or another) for 20 yrs to paper over the consequences of China’s competitive surge – which had the effect of destroying US interest rates.
Now the inflationary consequences are making themselves visually felt and then some – so the G has had to allow rates to rise a tiny bit.
But that is enough to prompt a mass exit from equities everybody knows are overvalued (some worse than others).
There are always doom and gloom articles like this going back 30 years. In the meantime these stocks have continued to produce massive gains for investors. Buy and hold good companies and buy more if you have the funds when it drops. You can always sell covered calls for income as we all know deep down the Amazons, Googles and Microsofts of the world won’t go bankrupt
Mike,
“…won’t go bankrupt…”
Yes, for a while, for sure.
But as we’re seeing now, and as we have seen during the dotcom bust, any stocks — ridiculously overpriced as they are — can go down 70% or 80%, but hey, no biggie, it’s just your money :-]
Facebook was once one of these indestructible huge stocks that could never get into trouble, and now its very business model looks very fragile. Things change.
Mike,
On second thought, sorry about your losses on your stocks. I didn’t mean to sound glib. I totally understand that it’s stressful to suddenly lose a bunch of money.
“can always sell covered calls for income” ?
That a side hustle I never heard of?
Harry Houndstooth
Apr 23, 2022 at 11:31 pm
Ladies and Gentlemen-
Nothing but the unadulterated truth dispensed daily in a form easily digested by those seeking wisdom.
In this retest of the market lows; is the market going to break down or is there another market rally before the bottom drops out?
Good Question
For my 2 cents, I expect the major market averages to get cut in half. But, I do not allow my bias to affect my trading decisions. It may take 2 years or who knows.
The first dead cat bounce of the bear market we are in is apparent on all the US markets. Those who bought SQQQ and SRTY at the peak of the bounce have a huge gain made in a very short time period. Remember, these trading vehicles are fighting a designed asset decay which favors not holding them while you are waiting to profit. In other words, you want to try to buy them at the peak of the rallies in the bear market we are in (which history shows us are huge rallies on the way down), selling them with the falls.
Personally, I went from nearly entirely in SRTY and SQQQ to nearly entirely in cash in the aftermarket on Friday, April 22, 2022. This could be a huge mistake because the bottom may fall out of the market. If it does I will sell the rest of the SRTY and SQQQ. But, I did lock in a hefty profit and holding less of a declining asset should we be in the absence of a falling market. It is more difficult to increase your brokerage account value in a bear market then in a bull market.
We just saw the Nasdaq 100 breach 15,000 and then retest the 13,000 near term low not getting near the 16500 top – this sure looks like a dead cat bounce. However, if we get one more rally before the bottom falls out, I am ready.
That’s the same thing people said about IBM. And GE. And Exxon. And AT&T. And GM. I could go on. In fact, if you look at the DJIA from 30 years ago and compare to the companies in the index now, most of the earlier companies are no longer in the index and some have ceased to exist.
Bottomline is no company is a sure thing. And the ones that look like sure things are already priced that way, which means they can only go down from there. It doesn’t mean you can’t ever make money owning these stocks, just that it would be wise to never consider a company to be irreplaceable.
Not sure if the Oculus “vindaloop” bug has been solved. Could lead to expensive lawsuits.
Satya Nedella: Good timin’! Twice the dump that Angelo Mozila took, a CEO who got charged with insider trading, dumping a mere $140 million just before Countrywide’s stock went to zero.
He’s almost as good at trading as the senate.
Almost..
George H.W. Bush: “If the people were to ever find out what we have done, we would be chased down the streets and lynched.”
Academic research shows that investment strategies that mimic trades by members of the U.S. Senate and the House of Representatives outperform the market by more than 6 percent per year.
Read 2020 article at The Hill / criminal justice / insider trading by congress?
Financial research repeatedly points out that it is difficult to consistently beat the market . Legitimate outperformance is likely the result of luck or superior financial skill, the latter requiring focused attention to the markets. Trading would anyway distract elected officials from fulfilling the mandate of public office. Unethical or illegal outperformance would be due to access to privileged private information, which is precisely the transactions that should be banned.
“the transactions that should be banned”
Considering that what you’re referring to requires the perps to do the banning, they’ll be banned if there are ways to bypass any ban.
Example: direct bribes to pols for influence peddling illegal? Simple, enrich family members. Both sides of the UniParty do it. Read Peter Schweizer’s book, Secret Empires: How the American Political Class Hides Corruption and Enriches Family and Friends.
“they’ll be banned if there are ways to bypass any ban.”
They’ve already done that. That’s why they’re trades are not banned.
The general public is unaware that members of Congress are specifically allowed to engage in insider trading, but then, most of the general public doesn’t know what insider trading is. Such is the value of agnotology, enforced by law in certain Southern states.
The entire US federal government is shot through with corruption, and it’s much, much worse than most people, including myself, could imagine. What IS known is almost hard to believe, yet they get by with it with the greatest of ease.
When Shrub II was in office – an absolutely pathetic and disastrous 8 years – the Dems turned their base against him like rabid dogs. I had never before seen so many foaming mouths. 9/11 had a lot to do with it, but the subsequent housing bubble and bust also greatly influenced their discontent. It was the bought-and-paid-for media who were able to ratchet up the fervor.
Shrub II left office and essentially disappeared for a time, seemingly in shame for his pathetic record. The opposite of King Midas, anything he touched turned into filthy bull excrement. It seemed he would go down as the worst, most hated President in history.
But along came DJT, both parties went into a seizure, and the veil was lifted as to what was really going on. Suddenly Shrub II was cozy with the Obamas and the Clintons, even seen passing candy with Michelle during a funeral service. No longer hated, it was touching and adorable. Oh, look how united we are against this evil orange thing!
There had been no real discord at all, because both parties had been running a divide and conquer operation to rob the country blind for their own personal enrichment. How else does a guy – Obama – end up with hundreds of millions of dollars and an estate on Martha’s Vineyard when he had a negative net worth when elected?
And here we are are.
why would the study of ignorance be ”enforced by law…” una?
or did you mean ignorance?
deliberate ignorance as is drummed into each and every one of us who ever even watches TV with the sound off, not to mention TV with sound, radio, and who knows what’s really going on with all the tons and tons of constant propaganda on face hook et alia?
You know what Satya will say? “Heard of Rule 10b5-1?”
All Big Tech CEOs have great timing actually. Satya Nadella, Sundar Pichai, Shantanu Narayen, Parag Agrawal, just to name a few. Even IBM’s Arvind Krishna is not so bad. Zuckerberg just stayed CEO way too late, hence 52% drop in shares.
Andy
The smart insiders always know finances of their Companies long before the public learns. They also know when they are outrageously overvalued. It was well known that insider SELLING going on 6-8 months before!
It was conveniently ignored by BTFD crowd!
He skirted jail time and now lives in a posh neighborhood in Santa Barbara. I guess all the “great loans” he gave politicians helped in his defense. Countrywide even paid some of his settlement fine. I wonder how his golf game is these days?
Higher interest rates are obviously bearish on bonds
Higher interest rates also mean that the present value
of future cash flows is worth less .; meaning lower stock prices, especially in high P/e stocks . In a bear market in bonds ,both bonds and stocks will lose .
Portfolio management suggesting a 30/70 or 40/60 mix between stocks and bonds worked during a bull market in bonds . Now that the bond bull market is history almost any mix will lose money
What are the guidelines on 90-cash/10-triple-short portfolio?
Hard-learned lesson: The short funds, especially the 2X and 3X flavors, are built up from options (not actual short sales) and are really only good for short-term trading (days to weeks). They go steadily towards zero over the long term due to slippage, even when the market goes nowhere. Look at any longer term chart of those funds. And even when the market tanks they don’t do as well as you’d think, due to Wolf’s dictum: nothing goes to heck in a straight line. The ups and downs don’t average out to 3X.
The Fed is calling out, as loudly as they can, that their Dollar is still King. Inflation is saying the opposite. But the Fed has all the power it needs to win, so long as it has the political will.
Bill Gates is shorting Tesla
Yes agree. I tried SQQQ but always switched back to out of money puts. Tested my system in covid selloff in 2020; worked beyond my expectations.
Wisdom Seeker
I do use ( leveraged inverse ETFs) but pair them their’ long counter part’ to cut the bite from expected bounce. Used them very effectively during GFC. Also Option trading.
Hard to short when Fed’s PUT operative for nearly 13 yrs, until this February
As of today
YTD
SQQQx3 ….. 52%
TECSx3 ……….49%
QID x2………… 36%
PSQ x1…………..18%
Tech
FNGDx3 ……… 69% ( opposite of FANGS!)
WEBSx3 ………100%
IMHO, the real SELLING is yet to begin! On Friday the ‘trap door’ below just dropped! HOPIUM is strong. Many think that Fed will chicken out like in 4thQ 2028. This time Fed is trapped.So many opportunities to pick PUTs and inverse ETFs if your GUT can take the inherent volatility of these.
It would be a public service if Wolf were to generate a post asking for a crowdsourced effort to identify the best broad-based shorting tools out there.
I have had experiences similar to WisdomSeeker – too many ostensible shorting tools have crippling weaknesses.
But it is a big financial product universe, and there has to be a pony buried in it somewhere…
Andy, You. Made me laugh. I think that was covered in a Dr. Seuss book called “The Things You Will See.”
Just the beginning of the unwinding of this farce of a market.
Maybe… or is it just the market being nervous from J Powell’s recent “Jawboning”?
The Fed created a dystopia..
in cash lose
in stocks lose
in bonds lose
in real estate? Not yet.
They created a false environment and now reality cometh.
Central bankers and their hubris, believing they can counter real market forces, believing they are smarter than free markets, must end. The fundamental and base functions of the Fed must be their guide, not their self authored antics and fine tuning with a sledge hammer we have seen since 2018. How about this..
Promote stable prices
Promote moderate long rates
Increase the money supply only from the pull from an expanding economy.
Then get out of the way.
Let’s give due recognition to the eternal phenomena of the masses, their madness, and crowded trades. This was faith-based investment: the middle class crowding its pensions and trust as if at the miracle site of Lourdes, all into high tech future fantasy.
I am watching so many supposedly smart (STEM-educated) friends find a deep cold sweat, awakening that maybe, at least in this cycle, their god has failed them. They are the ones who scoffed at my gambling-and-probability-based thinking. Their objectivity was so superior. They did not fancy that greed and gullibility should factor into their models, especially of themselves. It is a VERY old and durable story.
An entire generation has been taught to rely on the Fed to save the markets. Imagine a 34 year old stock broker.
With the exception of the COVID drop and two weeks in Dec of 2018, it has been up and up.
The Fed SAVED both those incidents. Now the door swings the other way…..
The Fed is the culprit now….just starting to do their duties, though so late.
And that generation that waits for the Fed to save, that has been taught to NEVER save your money….have some lessons coming. I can hear the whining now.
Are you implying that many (all?) of us STEM graduates are not very intelligent? Or is it something else?
How truly valuable is any of this “tech” stuff? My parents and grandparents lived full, enjoyable lives in a modern world without Google, Facebook, Netflix, etc.
@historicus
So true.
I’m of the generation that witnessed the tech bubble and the 2008 crash. I was a rookie both in the labor market and the stock market. Those two events marked me, for better or for worse, and shaped how I see the world ever since.
I can only imagine how younger people, who’ve only seen exuberance and euphoria in stocks and tech, see the world. It must be very very different from what I see.
historicus
‘An entire generation has been taught to rely on the Fed to save the markets’
I called them ‘Pavlovian ‘ investors who believe in the omnipotency of the Fed. Now they have to think themselves or become a fodder in the secular Bear mkt.
As legendary investor Jimmy Rogers called the coming BEAR as Bear mkt of a life time for those 45y and below. They have to learn the hardway – STOCKS do go down. Higher they go, harder they fall!
Virtual FedWorld. Dystopic theme park. We are trapped in it like bears. Wave at the space tourists from your enclosure.
“…in real estate? Not yet…”
I wish I could short actual houses. Not as a group, but as individual houses. I would become filthy rich.
Short EQ bank and Home Capital on the TSX. Buffett has a stake in Home Capital. In the downturn in real estate the low end of the housing market in Ontario, Canada will get hit the hardest. A lot of these mortgages come from people living in Brampton, Mississauga and Milliken Mills. EQ bank and Home Capital fund Ontario, Canada mortgages almost exclusively. There’s also private mortgage insurers listed on the TSX. If the housing market breaks in Markham, Richmond Hill, Unionville and Stouffville the entire housing market in the Golden Horseshoe will implode. The recent budget did contain measures aimed at the Chinese. A lot of the Chinese are completely leveraged “all in” no matter what their net worth is. At the same time real estate is falling back in China so selling in China won’t cover all the losses in Canada.
Applying discounted cash flow principles to non-dividend paying stocks is nonsensical.
Earnings aren’t money but an accounting number. Supposed “investors” (99%+ of all stock buyers) can’t spend it and have no mechanism to monetize corporate cash flow or assets, since they have zero influence over strategy.
Applying NPV to dividends for the last 25 years never would have resulted in prices anywhere near what does and did exist, even considering the bond market mania and the distorted interest rates that go with it.
Never have supposed “investors” paid so much for so little as they have for the last 20+ years.
Sold all my Google puts today for quadruple. Now that Im out the stock is guarenteed to crash after earnings next week. It’s like a rule or something.
I’m still sitting on my VIX ETF, UP 12.5% Friday, hoping for a bigger sentiment cascade/price pop Monday (or soon). Maybe LePen wins, or Putin does some double-down stunt. Gotta have at least one holding that produces giddiness on a day of disaster. Popcorn ready. Poppa needs a new pair of SHOES!
Yes, those are fun to watch. But I beleive all VIX etfs are broken. Some imploded in the last couple of years and were closed. VXX is definetly broken. Perhaps TVIX still works, have not checked recently. That is a long way of saying there is a chance you will not cash out even when you’re right.
I sold all my gold on Thursday… so that means it is headed for $5000/oz.
I don’t think so. In my opinion, gold and silver are insurance in case of a Venezuela type situation. They seem pretty topped out in this environment of rising rates.
Well, certainly both will have disappointed speculators over the past 12 months at least.
But gold as insurance for that particular Venezuela-like scenario does appeal. It may well lose significant value in the early stages of a recession, but the question would then be, has it lost proportionally more or less than other asst classes?
It’s an insurance gamble in essence, but one with historical evidence of some success over greater timescales than the lifespans of empires.
Silver was indeed a disappointment for 1 year (-5%) but gold did quite well (+10%). Quoting from goldprice website in USD.
Timtim- venezuelans are hungry, there’s serious weight loss from malnutrition. Gold/silver will be in demand, after they get fed today and tomorrow and the next day… I’ve got some bullion, but have no problem selling some for thirty to forty percent profit over the prices I paid, to finance food storage and my coin collection. Plenty of gold out there, and the next time silver spikes, my coin guy will give me his gold at spot if I’m interested to get my ASE’s, themselves bought when they were $400/roll and nobody wanted them. It’s happened twice already. Lining up to overpay. Human nature is predictable at scale.
GOLD is NOT religion for me. I am agnostic
I just TRADE them both (options) ways just like OIL! I do buy and sell various gold ETfs and Gold/Silver/Palladium/Platinum miners!
Nothing goes ‘forever’ up or down.
“But I’m more and more amazed how Microsoft’s CEO picked the very peak to dump half his shares last November.”
MAYBE he reads WolfStreet…
MAYBE he reads WolfStreet… Well we may be certain that the US Department of Justice does not; or again; does not wish to be seen to do so..
Or perhaps someone left stock buyback plans in the printer.
Dumb luck or in the know. I’ll like to believe its the latter.
Maybe Azure or Microsofts ventures into quantum computers actually works better than one would think?
MSFT weekly log uptrend channel :
Jan 29 2018 to Feb 10 2020 to Nov 22 2021 highs. // Parallel from
Mar 23 2020 low.
Can it be breached : yes, a spring.
It is showing greediness of American corporates. Common investors have lost millions or billions but big Corrupted people made billions. This must be stopped.
Unfortunately we living in this insane world with inhuman people.
You can just copy their trades?
No one stopped anyone selling tech when the Fed said they were tightening.
Or selling MS when Satya Nadella did.
The name of the game here is to see it’s a game best played without emotion.
FOMO and BTFD have become so ingrained in people terrified of inflation that they’re incapable of just holding cash.
The people fear monger cash, like inflation will make you a poor person over night.
Where did Satya Nadella put his cash?
Has be bought farms like Bill, just before food prices go through the roof?
All seen well in advance, you just need to act on it.
Are you suggesting an engineered global wheat rice shortage stemming from centralised food ownership over next few years Kenny Logouts?
Monkey see Georgia guide stones monkey do?
I’m merely observing goings on, and saying you can play these same moves if you want.
On the tin foil side of things, well people can subscribe to all manner of things from fantasy lizard people through to actual conspiring between people which is as common as muck.
Personally I think we’ve seen too many supply side ‘issues’ that are policy driven, and are a great cover for falling demand and deflationary pressure.
We all know deflation is more terrifying for debt holding governments and the wealthy who feed on debt, than inflation which they thrive on.
Would it be surprising to see policy and positioning to encourage inflation over deflation?
Wait a minute…
Lizard people are fantasy?
I think he was referring to the WEF…
There really are 10ft tall lizard people. I bumped into one getting out of a cab. Of course, I was in NOLA at the time.
Kenny-
Good post.
We are all thinking individuals (more or less), and we can act.
Watch for signposts, and caveat emptor.
Can you move the markets with your own b.s. and then profit from it, like Musk or other billionaires? Money has its own gravity. If you don’t already have it, it’s not attracted to you.
“Money has its own gravity. If you don’t already have it, it’s not attracted to you.”
Nobody commenting on this blog is ever going to be in the billionaire class – that’s such rarefied air that it’s a pointless comparison. But people CAN better their own financial situations. It starts with stopping spending or accumulating debt, and amassing savings then putting it to good use. Get a 2nd job if need be, and bank the proceeds no matter how small. The days of compound interest are coming back after a long hiatus.
Depth Charge
I certainly hope so!
…but I also hope that along the way there are no bank runs leading to either outright bank failures or bail-ins.
“Money has its own gravity” is a great line, and it has at least one other angle to it:
Beyond a certain point, the more money you have, the more it sucks on you, pulls you into its world, devours your soul, eats up your time with worries, corrupts your values, turns you to the dark side. The money-and-power game is as addictive and destructive as any drug or vice… maybe more.
Those who own too much, have too much to lose.
Depth Charge-
“Nobody commenting on this blog is ever going to be in the billionaire class”
Unless the Fed loses its resolve and manufactures money to oblivion!
High tech CEO’s, executives, mid level managers, software engineers… in their trading rooms, on the beach, imitated Satya Nadela and dumped stocks at the top.
Satya Nargila is the cause.
A big stock sale by a CEO creates its own gravity, trend followers dump their stock in imitation and drive down the price. Same with Warren Buffett on the buy side.
Must be painful if you work for one of these companies and get stock options, knowing you are holding the bag as you toil.
Euphoric on the way up, psychologically deflating, fast and hard, on the way down. As in, say, the US middle class right now, eyeing their 401Ks? They bought a call on the whole setup, though diluted, not an outright option. Meanwhile they underpriced risk even though the tools and toys were there cheaply on the shelf. I hope they enjoyed those consumer frolics and feelings of euphoria they bought with their time and labors! So modern but so ancient.
Great article Wolf. You have your reasons for selecting the number of months on the X axis and varying them slightly for each. Additional insight may emerge by presenting all the above on one chart. CEOs go to same gatherings. Curious if figs show collaboration. Either way its an insight.
Wisoot,
It was late and some charts didn’t turn out the way I had planned.
I wanted to, and correctly did, start the GOOG chart on a shorter scale, going back only to Jan 2021, to show the detail of the last few days, since this was the theme chart, and I needed the details. The time labels are “every month.”
I wanted to, and correctly did, show the FB chart back to early 2019 because that’s how far FB has dropped, even though this makes it hard to see the details of the last few days. That was a compromised. And I got that right.
But with the other charts I was inconsistent. I set the time labels to show “every other month,” (…Dec, Feb, Apr…). I needed to start them on Feb 2020 so that the final label would be “April 2022.” But I started them in Jan 2020, and then the final label was “March 2022.” That’s fine, but I don’t like it because it makes the chart harder to read. This is especially true for readers who see this article a few months later (I get lots of search traffic on older articles).
Setting the labels to where the final label is the current month makes it easy to understand the time frame of the chart, even later when we’re no longer in the current time frame. I want my charts, even when people look at them on a smartphone (50%!), to be understandable with one glance, rather than having to try to figure things out.
In addition, I screwed up with the MSFT chart by starting it in Jan 2019, instead of Feb 2020.
I have now made those corrections to where the charts are the way I wanted them to be in the first place.
Wolf, what software tool are you using for these charts? Unless it’s proprietary…
All my data are in Excel, and I use the Excel charting functions.
🤣
Just goes to show you don’t need no fancy stuff to to get your meaning across.
Thanks to media, yes, you Wolf included, Musk-Tesla has gotten trillions $$$ in free advertising! Musk discovered that the media would give him free advertising just for being an ashehole!
There’s some kind of other shoe coming from deep space, in his direction. I’m betting on it. Crowds eventually will turn anything into disaster. The only hard part is timing it. Maybe it will take decades. He can’t be US president under the Constitution (yet). (Sigh of relief.)
While Musk may have some charisma, he’s no Donald Trump. Plus, he would need to better looking wife/girlfriend.
Musk got a little advertising for his car featuring self+driving to where the driver is standing from parking a hundred yards away. A video at a Cirrus Aircraft event shows the unoccupied Tesla drive itself quite slowly into the tail boom of a 3.5 million Cirrus TOTL exec jet, painful to watch
1. If the state of California lost several millions in the netflix burst, does it mean, I have to show how to rotate pdf for several years from now? may be forever?
2. Nobody said buy the dip yet. This time its different.
3. Not just the CEO of Microsoft, two rich founders sold their assets due to divorce settlement and purchased farms.
4. Watch what they do not what they say….
5. Meta is a solid business model to spy on people and even their thoughts.
Meta now trading at 13x earnings
Facebook is looking cheaper and cheaper every day……..
At some point you have to consider whether if $FB is being unfairly punished right now
Meta and other stocks like it are the beneficiaries of another bubble, the advertising bubble.
Some of it is presumably gaining market share from “legacy” media but much of it must be from an expanding ad market supported by fake “growth”.
That should provide a hint of what’s in store later.
One of my stocks reported a Q1 earnings increase of over 25% YOY. I did not dump the shares. Financial stock earnings are down. The S&P 500 stocks are expected to average positive Q1 EPS reports as most are beating earnings estimates. In Venezuela their currency collapsed, but their stock market grew in nominal terms due to hyperinflation. I have more cash than usual. More local homes were listed for sale than sold last week in this tourism and retirement county.
Meta makes Orwell look like a piker. The meter is running on every micro behavior every nano second. And being monetized. If you canbuild a better roach motel, they will come.
Phleep
So….. Buy or sell???
:)
How much private debt is ‘out there?’ Historically, its when private debt collapses and cannot be paid that the worst shows up. Throw in what appears to be rogue weather patterns (Dustbowl redux?) and you’ve arrived at Great Depression #2. The only positive will the the asphyxiation of the libertarian party (in case you’ve not noticed there are no Republicans left).
Bankruptcy resolves the issues of too much private debt. It works, and investors, including bank investors, take the hit, as they should, since they got paid interest or dividends and hopes for stock price gains to take precisely this risk. This is how this works when left alone.
But it won’t be allowed or even *considered* to be left alone, right?..
Earnings due next week on most of the names Wolf discussed. Starting Tuesday with Thursday a big day. If Apple and Google choke……look out.
Since QT and and the Fed hikes will be a long, torturously drawn-out affair, I’m guessing the markets will have a relief rally next week with cherry picking of any positives in the earnings reports as the excuse for the rally.
Friday’s bloodbath was too intense to not expect at least a small bounce before the next leg down later.
JJ
Next coming Friday will be inflation numbers for March coming up!
Watch out . Stocks remain still overvalued ( Been in the mkt since’82 and this surreal BULL is OVER!)
This BEAR has just started! A lot denial out there and here!
sunny129,
I agree the BEAR has just gotten started and stocks are insanely overvalued.
What I was trying to point out was what Wolf often says, “Nothing goes to heck in a straight line.”
It’s impossible for stocks to go down every day as they did Friday, otherwise the entire market would be a ball of compressed tin foil within a month.
The pain will be long, drawn-out with many bear relief rallies along the way.
JJ
‘The pain will be long, drawn-out with many bear relief rallies along the way’
Agreed!
The Bear trap rallies are expected and obivious in a Downtrend mkt but they are recognized ONLY retrospectively
There will be always a bull mkt within the secular BEAR mkt. ( and viceversa) Trick is discover what they are. Yes they do plunge periodically but long term focus and fundamentals, win. The question is what’s one’s investment frame? risk tolerance?++
On Friday, virtually all stocks went down more or less, except inverse ETFs and BEAR MFunds.
Which sectors will keep going down and which are defensive is very difficult in the short term
Long term I favor Energy ( especially Natural gas)although they will fluctuate almost daily. Next sectors are FOOD/Grain/Seed Cos/ETFs, fertilizers, Consumer staples, although virtually ALL stocks have bid up, continuously since ’09. They are almost 3 standard deviation away from the norm by any signals. Will the final numbers peak to trough will be 30-50-60% loss? No one knows. And what’s the time period of this on coming BEAR – months or years. years more likely with fierce bounces along the way ( typical characterstic of SECULAR BEAR mkt!)
Hard to evaluate true value!? Should Buy now or later? I started accumulating my favorites by dipping very slowly, when ever my favor sector stocks/ETFs go down + plus LOTS of CASH on sideline+ PATIENCE!
B/c violent volatility of indexes almost every day, depending upon the rumors from FOMC members, Change of KEY signals, consumer sentiments, inflation numbers, possible bankruptcy of well big institution or companies and of course consumer sentiments. I have ignored and continue to ignore all Financial media and their sychophants out there. It will be challenging for my kind, who has been in the Mkt since ’82!
Jim Cramer will be sh$ting in his pants Monday morning on CNBC. His charitable foundation, which he manages, owns all of these FAANG stocks. They may want to get a new fund manager.
Cramer pays no heed to the effects on his audience of the bad advice he dispenses like clockwork. He jumps to the next pitch seamlessly. His better mousetrap is simply glib fast talk (plus cool razzy sound effect buttons! NOT), not actual prediction, and he knows his customer. His durability shows that. Let’s set up a short Cramer ETF!
Swamp creature
FNGD is opposite of FANG
YTD 69%!
WEBS (similar to FNGD) is 100%!
The BEAR mkt is barely begun!
“I’m more and more amazed how Microsoft’s CEO picked the very peak to dump half his shares last November.”
Insider trading is so lightly enforced that it is barely a crime at all, unless you’re Martha Stewart and your business rivals found out.
It should come as no surprise to anyone that virtually all the property crime in the world is financial crime committed by the 0.01%, particularly banks and their favored clientele. It gives a whole new meaning to the expression ‘bank robbery’.
Yes, nowadays Bank Robbery is when the banks rob you!
No interest.
Fees out the wazoo.
Pump-n-dump schemes.
Harvesting of stop-loss orders that should be strictly private.
Payment “for order flow” i.e. front-running customer trades.
Housing bubbles.
Stock Market Bubbles.
Mismanagement of interest rates.
Corruption of public officials for private benefit.
The porous “Chinese Wall”
Analysts that know darn well a stock is doomed but don’t say anything until it’s too late…
It’s a long, long list, all the ways they parasitically leech off the public…
After the Great Depression, well into the 1940s-1950s, “bankers” got the same justified public disrespect that “politicians”, “lawyers” and “used-car salesmen” get today. Maybe they will again…
Don’t forget Bond Bubbles.
Wisdom Seeker
This list sounds like my bank Wells Fargo. They are based in Wolf’s hometown of SFO. I wonder if they are closing branches there like they are doing here. One branch here just announced drive in banking only.
I am not saying you are wrong. But did he sell at the top because he knew something (well he knew something for sure) or did he cause the top by selling half of his shares? A CEO sells half his shares and that doesn’t rattle investors confidence in the company?
Yesterday was Earth Day.
The funeral was well-attended.
I declined to give the eulogy.
I remember the first Earth Day. I was a student at UCONN. There was a speaker’s platform down by Mirror Lake, to address the crowds. I wish I had taken a photo of the banners on the platform warning about “The Coming Ice Age”, all caused by the same things that are now blamed for Global Warming. Fool me once, etc.
Disinformation.
The promoters of this BS don’t want anyone to remember that.
Well, it did get very cold in south Texas in 2020. Maybe that’s what was left of the ice age?
When I was in college in Connecticut in the early 1970’s everyone, including the profs, were smoking weed. I don’t think global warming/cooling was invented yet.
“I wish I had taken a photo of the banners on the platform warning about “The Coming Ice Age”, all caused by the same things that are now blamed for Global Warming. Fool me once, etc.”
If they were claiming a coming ice age now… I would be promoting climate change. This would help lengthen the ski season. :-)
The hubris of bought and paid for “scientists” is almost unmatched. The earth is in no danger from mankind, but certain species and mankind itself are in danger from our own folly. We could deploy every nuclear bomb we have, burn every single combustible material and do as much damage as humanly possible and we’d certainly leave a scar, but it’d be as temporary as every life on this planet.
The life of a human being is but a mere fraction of a second in the life of the earth itself. Once mankind is gone, the earth will heal and look exactly like it did before mankind. All the forests will return and everything mankind did will be reversed.
The earth eats houses and buildings for breakfast, as many such as I have seen first hand. I have witnessed unkempt vegetation take whole houses down after many years, and abandoned highways with trees growing right up through the middle of the asphalt. We could pave over the entire globe and it would all go back to nature in the end.
The idea that mankind can actually permanently alter the earth’s climate is, again, excessively arrogant and laughable.
So when the evidence is incontrovertible issue logical fallacies.
“So when the evidence is incontrovertible issue logical fallacies.”
This is called a strawman argument. Nice job.
I’m with DC on that one. If it was so “incontrovertible”, all the so called scientists would all be scientists. And, of the group that really are scientists, it wouldn’t be just a subset that financially depends on the political narrative. “Settled science” my azz.
@Depth Charge….You aren’t smarter than the climate scientists and it is a joke to think all of them are on the take..planet-wide. You are right though, the Earth will be fine eventually. But we won’t be. Why you would think that is alright is a mystery. You are a fine example of Dunning Krueger though. The arrogance lies in someone who apparently hasn’t done the math and really looked at the data and still declares the fact that mankind really can’t affect the climate permanently. As if the permanent part of that really matters.
My Newtonian Dynamics professor told our class in 1981 that Planet Earth was quite good at returning to equilibrium after forces act upon it. Krakatoa, the asteroid 65 million years ago, that sort of thing.
The caveat being that Earth’s timeline is told in millions of years. Humans’ timeline is a bit shorter.
“The idea that mankind can actually permanently alter the earth’s climate is, again, excessively arrogant and laughable.”
Well not permanently since the planet is 4 billion years old, and has undergone a number of mass extinctions, but we can certainly alter the climate for a very long time.
Humans have extracted and burned hundreds of billions of tons of ancient fossilized carbon that was previously sequestered for millions of years, and so far destroyed about 50% of natural ecosystems that acted as carbon sinks, drastically altering the chemistry of the atmosphere. Current levels of greenhouse gases precede the existence of the Homo genus and are increasingly trapping heat in Earth’s energy system.
It is theorized that the largest previous mass extinction the end Permian 252 mya may have been caused by a similar mechanism – extreme volcanic activity that ignited coal seams in the Siberian traps, putting excessive CO2 into the atmosphere.
It takes millions of years for the planet to rebound from a mass extinction which isn’t very long in planetary years, but is very long in human years.
250 million years ago, the Great Dying happened. Also known as the end-Permian Mass Extinction (EPME). The earth survived that million year lava burp (estimated one million cubic mile lava release) by only killing off 90% of all life forms on the planet. Heck, it only took another million years for the earth to flourish with life again once the smoke cleared.
Our suspected global warming/cooling situation is like a piss hole in the snow compared to that EPME event.
I too remember the “coming ice age” alarms.
We know that JP will raise interest rates by 0.50% in May, 0.75% in June, 0.75% again in…but RRP is down this week, providing liquidity.
China SSEC today higher low, at the bottom of the neutral zone, might be a test of Mar 16 low at 3,023.30.
Two months ago we “knew” that JP would raise rates by 0.25% every meeting until the “Whip Inflation Now” goal is met.
A month ago we “knew” that JP had raised rates 0.25% but would then raise by 0.5% at every meeting until the goal is met.
Yesterday we “knew” that JP had raised rates 0.25%, is about to raise rates 0.5%, and will then raise by 0.75% at every meeting.
Imagine what we will “know” in a month!!
They are boiling the frog.
WS-
The Fed, like most committees, is always at least one step behind, it seems.
Your depiction of today rhymes with ‘60’s – ‘70’s inflation, which started on low, then started to grow (apologies to How the Grinch Stole Christmas). This quote is taken from Grant’s Interest Rate Observer 6/11/21:
“The low inflation rate in the early years of the long expansion that started in February 1961 lulled the Fed into complacency, so that when the inflation rate did rise and got set on an accelerating course the Fed was slow to realize it. When it finally did step on the brake, the resulting 1969-70 recession came close to setting off a financial panic, which may have made the Fed afraid to become sharply restrictive again. Then came the unprecedented supply shocks of 1972-4…. When a sharply restrictive policy produced much pain [that policy] was replaced by an expansionary policy before it had succeeded in preventing the sharp price increases of 1972-4 from being incorporated to a substantial extent in inflationary expectation, and hence in baseline inflation. Partly as a result of this and of the accompanying continual loss of the Fed’s credibility…. the inflation rate for the rest of the 1970’s was not only high but continued to accelerate, until it was broken with much pain by the Volcker disinflation.”
– excerpted by Grant from Monetary Policy and the
Great Inflation in the United States, Thomas Mayer
Could the mopping up of redundant money take 2 decades?
John H
The FED has never been PROACTIVE, just REACTIVE! Read history
The same gang who brought us 2 boom-bust cycles in this century, who created the current ‘Everything’ Bubble think they can SOFT landing!
LOL!
Their hubris has no limits!
Wolf,
As a CPA for 30 years, I agree with you regarding the obscene overvaluation of technology companies over the last few years. Most of the tech darlings are unprofitable and trade at sales multiples that guarantee that shareholders will eventually lose a lot of money.
Having said that, I have to disagree regarding GOOGL. If I had to buy one stock and not look at it for 10 years, GOOGL would be it. This company is basically a monopoly in some very profitable areas. For a company that has grown earnings at 30-40% annual clip (89% in 2021), I don’t believe 20 times earnings is high, especially when you consider their dominance.
It has 9 services that have over a billion users each – Android, Chrome, Gmail, Google Drive, Google Maps, Google Search, the Google Play Store, YouTube, and Google Photos. Google makes life easier for consumers, and for the most part for “free” – no one has to use Google’s services.
They also invest billions of dollars a year in other areas such as autonomous driving (Waymo), artificial intelligence, new healthcare technologies, FinTech, metaverse and quantum computing technologies.
All this with probably the best balance sheet in the market….essentially debt free…..a net cash position of approximately $130 billion. With tens of billions of dollars in free cash flow every year, and rising.
So if you believe that people will keep using their phones (Android has a 71% worldwide market share of mobile operating systems), keep searching the internet (91% worldwide search market share and 65% of the worldwide browser market share), data will keep moving to the cloud, people will continue using apps, etc., etc., then paying 20 times earnings is not high.
While the stock has moved down with the market, GOOGL is much cheaper the MSFT or AAPL, with even more dominance in its markets. Ironically, the biggest risk GOOGL has is regulation/anti-trust issues, which would actually be a positive for stockholders, since the parts are worth more than the sum.
While I am a value investor and seldom like to pay more than 15 times earnings for any stock, GOOGL seems to be a very safe bet long-term.
Very well said. Quite the case to own GOOG. As much as many dislikes them for a variety of reasons they are in the driver’s seat for many products. At least it’s not Meta 🤪🤪
But Google pays no dividends, so what do you get for holding it for a decade?
I note that they have 723 million shares outstanding. And the stock is now about $2400. So to pay a 5% dividend they would need to pay out $86.8 billion a year. But their 2021 operating income was only $78.7 billion.
And according to finance.google.com their cash and equivalents total only $21 billion (whence your $130 billion figure?), change in cash was in fact negative at -$5.5 billion, and has never when positive gotten even to $10 billion in any year.
So if they were to pay a 5% dividend, which you can get now from some stocks likely to pay you that or nearly that every year for the next 10 years, why hold Google?
Advocates of stocks like this usually argue that the company is wisest to invest its earnings back into the business, but so what? Is the expectation that in 10 years they are going to start paying dividends so high as to justify having held it getting no dividends for a decade? For tech companies, continuous high investment is vital just to staying in business. So in essence that means the only way they can stay in business is to never pay anything out to the stockholders. So why buy and hold such a stock when you can own the stocks of other companies that can actually stay in business while paying out a dividend?
I use all the nine Google services that are mentioned in mmc1968’s great post but I don’t pay one cent to Google. I guess they get all their revenue from advertising? If that diminishes, what then?
Will not happen any time soon. The closest competitor in the ad space is M$ and it is light years behind. Speaking from experience. Google just works, M$ ads is waste of money.
They’re getting part of their revenues by screwing publishers, like me. And they own much of the infrastructure that online advertising runs on, and even my two ad agencies that don’t have anything to do with Google and get their ads from advertisers directly, use the Google infrastructure to place those ads on my site, handle the billing and traffic tracking, etc. Google needs to be broken up into a gazillion pieces.
“I guess they get all their revenue from advertising?”
Google owns Youtube. Popular Youtubers run livestreams where subscribers donate to the channel. Google takes a massive cut from those donations. It’s somewhere over 50% I think.
JM, in that case, why own anything that doesn’t pay a cash yield?
Indeed. It’s very hard to foresee when a liquidity-fueled bubble is going to pop, and the stocks of companies that pay nothing to their owners are going to plunge.
You should actually look at their financial statements, not get your info from incorrect third party sites.
Btw, I was replying to jm above.
Interesting that, if you’re right, Google’s own finance data pages have incorrect data about Google’s finances.
Very safe long-term bet?
If Google paid out 100% of their 2021 free cash flow as a dividend, it would be only 4%.
That doesn’t sound safe to me. Google having a near monopoly is more of a disadvantage than an advantage, because it means there is little opportunity to achieve growth through market share.
At 25x free cash flow, they need growth to support the current stock price.
It’s a good company, but the price isn’t right yet. I’d wait to buy 30-50% lower, and it might be a short wait based on the chart.
I will agree as soon as I spend $1 with Google. Hasn’t happened yet. And Brave browser blocks all their ads.
How is the company profitable when it’s giving all product away for free? Simple, their product is the user, and they sell their users to the ad companies. This business is entirely dependent on others for survival. Without those other real businesses ads, GOOG is nothing.
Replying to mmc1968:
Being today at a computer and so able to get Google’s latest SEC 10-k filing and an IEX exchange dump of its extracts of their SEC filings since 2009, I see that in fact the finance.google.com number for cash and equivalents is misleading, though technically correct. In Google’s 10-k for 2021 the Consolidated Balance Sheets section shows “Total cash, cash equivalents, and marketable securities” as $139.6 billion, while the Consolidated Statements of Cash Flows section shows “Cash and cash equivalents at end of period” as $20.9 billion, with a net decrease of $5.5 billion year-over-year. It’s the latter two numbers you see at finance.google.com.
But that $139.6 billion is there exactly because they’ve never paid a penny of profit out to stockholders. It’s the accumulation since they were founded. I stand by my main statement, namely:
“I note that they have 723 million shares outstanding. And the stock is now about $2400. So to pay a 5% dividend they would need to pay out $86.8 billion a year. But their 2021 operating income was only $78.7 billion.”
And I note that their net increase in “Total cash, cash equivalents, and marketable securities” from 2020 was only $3 billion, and that their hoard of $139.6 billion would be sufficient to pay only a 4% dividend for two years if they were to pay it all out to shareholders.
How is this stock worth anything like $2400 a share?
EXACTLY jm:
And to at least try to be clear for folks on here, ”this kind of thing” e.g. the very obviously ”crooking” of the books, formerly known as ”cooking the books” was exactly why I got OUT of the SM in mid 1980s when I realized very clearly that I had NO,,, absolutely NO control of my ”investments” in SM.
Trying to learn enough to ”invest” in the SMs again, but, so far, NOT going to happen.
SO, now, trying to learn enough to ”invest” in the bond markets…
@VintageVNvet:
They’re not cooking the books. They really do have $140 billion dollars worth of cash and securities as good as cash, and very little debt (not like some companies that have lots of cash and equivalents, but have borrowed it).
The numbers shown on the finance.google.com page apparently don’t include the very marketable securities included in the balance sheet numbers, and show a number much lower than the effective reality, not a phony higher number.
But the reason they have so much dough on their balance sheet is they haven’t been paying it out to their stockholders.
And their income is not high enough to pay a dividend that would make their stock attractive at its current price.
Stock options are awarded in the future. You cannot exercise until they vest years down the road and your options are only worth something if the stock has gone up since the options were granted. This aligns your interests with the company’s interests.
Once vested, if you are an executive, you only have a short window right after earnings each quarter to exercise your options or you are subject to insider trading claims. Or, you can establish a long-term plan that automatically exercises your options.
Now, exercising half of your vested options at the very peak would be a very fortunate “coincidence”.
No he won’t – no way they will raise rates that quickly
It probably isn’t insider trading in Nadella’s case- any fool could have looked at these prices for stocks and understood that getting out was a good idea in November. The problem is that retail stockholders are even more foolish than Nadella.
I agree Nadella’s case was legit knowing how terrible the extent of illegal insider trading can be. I, myself, was urging all my relatives last November & December to get out of equities overall since the future interest rate and QT headwinds were too strong.
There was some resistance to my urgent advice because they wanted dividend yield, so I only finished off my advice saying, “You can always sell now and buy back cheaper later for an even better yield, anyway.”
I washed my hands of advising anymore after that.
I think we will find that the bloodbaths underneath the big stocks were greatly ameliorated by the big stocks holding up so long. When the FANGS/whatever break, that bloodbath underneath will get worse.
I couldn’t keep thinking… when it eventually breaks to the downside, if somebody wanted to, there probably would be no better time to stage a credible looking story on the breakthrough in the nuclear fusion… if it even holds for a day, this will generate a huge volatility in the oil market and all the hell will probably break loose…
Yancey Ward
FNGDx3 opposite of FANGS YTD 69%
WEBSx3 (similar to FNGD) YTD is 100%
Beware these are very volatile. will get whiplash unless tempered by their long counter part. IMHO the trend is down!
Reminds me of this vascular surgeon when I was entering professional life.
Had 18M portfolio. All tech. 1999.
That’s all these guys were talking about. Tech. Money.
I had no money then to invest. I was just buying (still do) gold coins with spare cash.
Then the bubble burst. He sold 2 apartments in Trump Tower for a few mil and reinvested it on buying the (giant) dip: the train was about to leave the station he said.
1 year later he was nearing bankruptcy. Depressed and beat, suddenly (relatively as his income stayed the same) poor. His Doctor wife left him.
He started back from where I was.
So many doctors went thru the same thing in those days.
Numbers are just an illusion on a computer screen.
The really funny thing is that those shares never belonged to them: it’s all in the DTCC/street/Water name: they’re only the beneficiaries. DTCC owns them all.
And a (unknown) number of them are just FTD (non deliverable/existent).
Wall street is the cavern of Lucifer. Watch out.
Well related, cresus.
On losing “important money”-
“Like all life’s rich emotional experiences, the full flavor of losing important money cannot be conveyed by literature. There are certain things that cannot be adequately explained to a virgin either by words or pictures. Nor can any description that I might offer here even approximate what it feels like to lose a real chunk of money that you used to own.”
– Fred Schwed Jr., Where Are the Customers’ Yachts?
Sad story, but a great cautionary tale!
I wonder whether there could be problems with these street names/brokerages when there is a lot of turmoil. Most of what I have I bought through the transfer agents.
Did a financial investor for the oligarchs tell the surgeon that “muh INflATION is eating away your savings!”, while knowing that the US$18M investment will go the way of Enron—to ZERO?
You don’t need inside information to know that Microsoft was and continues to be overpriced. Law of large numbers in play, big time.
People are kidding themselves if they think Microsoft can continue to grow revenues 10% per year in a tough economy.
Linux and open source is nipping the heals of Microsoft. If they decide to go full subscription model, they will lose the geeks – and the rest will follow.
Thinking about getting linux laptop. Microsoft is just unbearable lately.
I just installed Linux Mint on my old Win 10 laptop (free OS of course). Beautiful, faster and quite simple to use.
andy,
before you buy a new laptop try installing Ubuntu on your old Windows laptop. I have done that a few times. A computer that seems bogged down when running Windows will run much faster on just Linux.
and will boot up 10 times faster :)
whoops! just noticed Anthony A. said the same thing. I feel like “Maxwell Smart agent 86”
Thanks for advice, guys. Will try it.
I want to do something like this but the problem is the case of my old HP laptop is broken and they don’t make them anymore. The used ones typically have the same problems mine has, and even if they don’t they soon will.
If only there were such solutions for Macbooks. The latest o/s “upgrade” is murder on the battery. And downgrading to a previous o/s is a huge pain.
Getting back on topic, some really solid SP500 names are down considerably more than those listed above. ADBE for example, from ATH of nearly 700 and now just about to break through 400.
This. If you have an old laptop that won’t run the latest Windows anymore (insufficient CPU or RAM), a Linux flavor like Mint or Ubuntu will run just fine. If all you’re doing is basic stuff like internet, email and documents, it’s fairly easy to setup and to use.
I installed Debian on Samsung Chromebook 2 and it worked reasonably well :)
I couldn’t stand MS rebooting my machine almost every night (to “install updates”) and hours of work trying various methods both simple and complex would not stop it from happening.
I moved to Ubuntu and haven’t looked back. I like it a lot, there are only a few things that I cannot do without Windows.
That said, if you are not a techie type Linux might be a challenge.
Don’t let windows decide when to update! I always postpone the updates for the maximum allowed time (~5 weeks). 10 times a year is reasonable tradeoff
MS Office is one of the things that keeps me from ditching windows completely. But double boot (Linux+Windows) is a good option
LibreOffice is a free option (open source) to replace Microsoft Office and runs on Windows or Linux.
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@Wolf
I don’t comment often but read the articles and comments on a regular basis. I would have a question, something probably trivial for you but puzzling for me…If we assume that the companies are doing business as always (stock buyback, rigging reports, lobbying…) what is it that changed and is pushing the stocks lower since November? I am sure the answer is not a trivial question nor answer, but it is worth asking.
Thanks
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My conception of stock ownership is that you are buying a piece of a company, and are going to receive a share of the profits of that company, paid out as dividends. For a company that’s young and growing, it makes sense to tolerate some period of zero dividends in the expectation of future dividends high enough to make the wait worthwhile. But for quite a few years now, people have been bidding prices up to levels where even high-growth companies with solid business prospects will never be able to pay dividends high enough to justify the prices paid. And they’ve been willing to pay for growth in companies that are quite likely never even to get to the point of having any free cash flow to pay any dividends at all — “the more they sell, the more they lose” companies which can grow only by selling their products and services for less than they cost.
This is substantially enabled by people buying stocks with borrowed money, either directly through broker margin loans, or indirectly by, e.g., doing a cash-out refi on a home, or buying stocks instead of paying down credit card balances or paying more cash for a car, or in the case of the wealthy, by myriad other ways. The Fed has supported this leveraged buying by flooding the financial system with liquidity.
It’s often said that since for every buyer there’s a seller, money only flows through the stock market, never into or out of it, and that the money gotten by sellers is always somehow “on the sidelines” ready to be “re-invested”. But I think that when much of the money is borrowed, in our financial system with fractional-reserve banking, this ain’t necessarily so. If the seller had borrowed the money, and pays off the loan, does not the money disappear from the system unless the banks make new loans in the same amount?
On the way up, this was all fueled by the Fed’s helicopter money flowing through into borrowings for stock purchases. But the Fed is now starting to sop all that fuel it poured out, and as stocks fall and margin loans and other loans used to buy stock get paid off, that money is winking out of existence, and not available “on the sidelines” to goose the market up again.
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@jm
I like your observation of a non-dividendd market where the only profit is in share price increase. This in conjunction with margin debt will create instabilities, where one to avoid loses needs to sell fast. Hence at the end of the day it does not matter what triggred the spiral downwards, it will happen due to the altered trade dynamics. The current info and data are supported by the fact that the decision making CEOs are dumping their stocks, which could trigger a spiral of sales that…Well, let’s see…Thanks for the comment reply.
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@Wolf
“I don’t know” is a good start, and an honest answer…Thanks
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The “why” — why stocks are selling off now instead of a year earlier or three years earlier, or why they went up to these ridiculous levels in the first place — is usually tough to pin down with hard facts. However, everyone has their own theories, and many of them make a lot of sense. So it seems I just have you a perfect non-answer :-]
I have an even harder time understanding how all of this crypto garbage has remained levitated. There is zero intrinsic value. I’d rather be in these horrible stocks than that garbage, yet it continues getting bids during this Wall St. crater.
I posted before that every investment you make now will go south as the coming inflationary depression gathers steam. I forgot to mention Crypto. That will be the first casualty.
You may ask, what is the proper course of action given this scenario. I say, if you can stay in the workforce that’s still working for some lucky people, including myself. We just got a 20% fee increase for all appraisals and inspections, without any increase in overhead or expenses. Just filled up my tank which was 1/2 full. Total cost $25. No big deal.
> There is zero intrinsic value.
Criminals like it. Though volatile, it is easier to trade and move than crates of grimy cash. They will pay the risk premium. Then it trades back into cash.
But it is becoming a roach motel for them, as law enforcement learns to triangulate. Exchanges are learning to play ball with the legal side to stay in business. many exchanges are still a rat trap — which is fitting for that sort of user.
MBA Student: “Professor Brealey, do you invest in the stock market?”
Prof Brealey (of Brealey and Myers fame): “I don’t. The stock market is a ‘random walk’ “.
Wolf
FED is/was the mkt since March of ’09.
Not any more. Mr. Powell has become openly ‘hawkish’ than any time before (IMF meeting on Friday). His credibility is at stake
Bottomline: NO more ‘easy-peasy’ money!
Let the market breath on it’s own for a change! I welcome it!
LDLS-
jm makes valid points above.
Another partial reason for the pullback might be the rise in yield for “safe” interest rate paying investments that have been repressed for so long. The investor finally is seeing a slightly more reasonable alternative to stocks, in general.
This happened in spades back in 1987, when treasuries dipped to 6% earlier in the year, and then corrected to close to 10% by October. A magic switch seemed to flick causing the S&P to nosedive 30% IN A WEEK. Hard to imagine if you didn’t live through it.
I’m sure there were a dozen other reasons for that 1987 pullback, but I’m convinced investors, in their herd-ish way, collectively pounced on the higher yields available by liquidating stocks and moving to quality bonds.
And it reversed the following year, for what that’s worth.
One man’s opinion.
Interest rates hikes, and the bond market are inverse to stocks. Bonds rise, overpriced stocks fall.
Remember to buy Doggy coin at 77 cents and you too can become a dog coin millionaire like that fella on TV who keeps on smiling like a con artist.
Combined Market Value of 7 stocks; Apple, Microsoft, Alphabet, Amazon, Tesla, Nvidia, Facebook increased 2000 billions in span of four days; from 9438 Billion on March 15, 2022 dip to 11400 on March 18, 2022. It was a giant short squeeze and it is not possible without some sort of “central command” type co-ordination.
This alone contributed to 200 point increase in SP500.
Today on April 22, 2022 they are sitting at 9772 billions with further to fall. They are still way above their 2019 all time highs.
SP500 along with these 7 is giant corner (scam). Believe it or not, these were short squeezes.
I guess these people enter into some kind of lock up agreement for a time during which all parties agree not to sell and then they raise the price to the moon. As soon as lock expires and some party is able to sell the price crashes. That’s what probably happened in case of Satya. It’s his selling that caused the prices to drop.
If you want to know how a “Corner” works, read “once in a golconda” describing events surrounding 1929 crash by john brooks. Highly recommended author by Warren Buffett.
Watch DE and GS in the Dow…
those are the thinly traded … worked to make the most impact on the indexes…
APPLE being both in DOW and SP500 is still being proped to manipulate index, and thus will be the last one to fall.
Exxon(XOM) was removed from Dow to make room for Salesforce(CRM). Can’t figure out what it is saleforce does and why it’s relavant, and what makes it bigger and safer than XOM.
Look at what happened to XOM vs CRM stock prices.
Index membership is for sale, an article in financial times says.
The cable talking heads do not believe America is going on sale at bottom basement prices. They are in denial and that’s a good thing for me. These talking heads may well influence a new crop of suckers to rush in because they will declare a bottom about 2 standard deviations below the last “bottom ” because they are all looking at the same trading “tools” that Wall Street sold them. Real Fear has not come to Main Street yet. They will religiously follow their Cramer GPS off the un-digitized Cliff called The Liquidity Abyss. I liquidated all my SQQQ inverse shorts at $50 close to the Vlad the Mad invasion “bottom”. I got a feeling the next bounce after the outcome of this most recent bottom “test” could be be a doozy. A WS Whoosh of a bear market face ripper rally then they will follow the Cramer GPS into the abyss. I will be back in SQQQ with a much bigger position. If the face ripper bounce does not happen and the Abyss does I will wait for The USA Liquidation Sale. The Empire must sell debt to keep the MIC/SS roaring and its grift flowing to the political class and the connected. It ain’t me baby I am pond scum to them because that class has been F’ing savers like me for a decade+ with financial repression to keep their good times rolling. The Fed will throw housing,stocks and the balance sheet under the bus because the Empire runs on new fiat debt not old debt. They gotta jack up interest rates to sell that putrid pile of worthless debt. Big time Inflation is the wild card that suprised them. Ooops…..didn’t see that coming. Old fiat debt with 0% interest is like spent brass. It has to be reloaded or there is no more bang. WS will be melting the key board to keep up with it all.
DR DOOM,
Well said, and can relate to the savings part, and all those “screwball” financial talking heads, 60/40 advisors, BTFD and WallStreetBets morons, Fed policies, has made the markets a cauldron of insane valuations, and I say this with experience from ’87 crash forward – BTW I was at a brokerage office at the time, talk about panic, I saw it 1st hand.
I also like the inverse ETN’s too, and options on them, but this “screwball” market could rally even after the Fed announcement of a .50 basis pt raise in interest rates, – “irrational exuberance” could continue until the wheels fall off, and businesses can’t raise capital, and it spirals into a slow-moving train wreck, and “screwball” crypto markets of “Monopoly Board Game Money” throws a monkey wrench in there too, and I haven’t even mentioned these catalysts like war, supply chain jams, commodities sky rocketing, embargoes, covid rebounces, and late to the party the Fed with QT – if they just raise rates by .25 – then they are more insane than I thought, and the markets will rally.
I have concluded that there are just plain stupid investors out there driven by hypsters like Cramer, et al
So I’m cautious with placing inverse puts, because we are dealing with irrationality across the board.
I may do like you mentioned and wait for the inevitable “Liquidation Sale” – that is a for sure, but timing it is a unknown factor, at least for me – I say this because I was in a top rated SA group for awhile and with all their fancy indicators and rational talk, they didn’t beat the market.
i know some of those stupid investors. They never sell and buy more on the dips. Most are going to retire early in mid 50s after their 401ks tripled the past 12 years.
I thought the after effects if the HB1 was going to be bad. Had some puts on bank of america because of their countrywide purchase and also morgan stanley because of their high leverage. Go figure. Fed bailed them both out. you were only lucky if you had shorted Bear Sterns or lehman. Everyone else was pretty much was bailed out.
Same with covid. Same going forward. Don’t he too pessimistic.
i read global governments will increase debt 10 trillion this year. Who has 10 trillion to buy this debt? Central banks do.
In the long run, all these debt graphs are going up exponentially. Ray Dalio talks about a debt cycle. When does it end? Name one Government who is not increasing debt yoy.
Average Housing prices will be 1/2 million within 10 years
I watch Bloomberg, usually with the sound off.
I cant believe how many Heads of Equity Strategy are working in the basement, with the baby crying and the dog barking.
It’s a joke. These talking heads are just paid to be bullish…period.
Let me hear what a successful trader, using his own money, is thinking and doing…if he will tell. These are the guys you want to hear from.
Anybody know much about of “securities based lending?”
My understanding is that these loans through broker dealers use securities as collateral, but that they must be “non-purpose loans” (cannot be used to buy more securities). Is that accurate?
I’m interested in whether these loans are reported anywhere, or if they are possibly included in margin loan numbers. It would be interesting to see recent and historical trends…
But if a wealthy person borrows $50 million against their stockholdings to buy a yacht, and the people who built the yacht put some significant fraction of that money into the market, there is a multiplicative effect. If the yacht is bought from another wealthy person who has tired of yacht ownership, the whole amount might end up being used to buy securities.
read up on
Rehypothication….its real similar to cross collateralization…
We’re fast approaching an enigma wrapped in a riddle and cloaked by a computer, but why is there always a buyer for somebody that wishes to sell a stock?
Xavier Caveat,
“but why is there always a buyer for somebody that wishes to sell a stock?”
If the price is low enough…
You see the answer here in the comments. Something drops low enough, and someone thinks it’s a deal and buys it. A lower price always draws buyers. That’s what makes a market.
However, during the dotcom bust, I ended up with a couple of stocks where the companies collapsed and vanished. The last trade was at something like $0.01. And then no one wanted to buy at all. And selling it would have cost more in fees than the proceeds of the sale. The company was gone. And the shares stayed on my screen for years until I asked the broker to remove them.
If you have shares that go to zero (historically, all stocks go to zero, it seems, though that may not be in your lifetime), and the company is gone, you will become the end-user of those shares because you won’t be able to sell them. But that’s the exception at the end of the lifecycle of shares.
I’ve been cutting my own hair and performing dentistry on myself, but catching falling knives seems dangerous.
20 years ago is a lifetime in terms of scruples on Wall St, and what’s the disclaimer on the end of every prospectus say?
‘Past performance isn’t necessarily indicative of future performance’
“I’ve been cutting my own hair and performing dentistry on myself, but catching falling knives seems dangerous.”
Report back when you do your own appendectomy
It’s the damn mirror that messes with your mind and actions…
“but why is there always a buyer for somebody that wishes to sell a stock?”
It is important to a free market to have short sellers who will step into a big drop to take a profit.
And we are likely on the verge of hearing how short sellers are evil…again…like in 2009.
Actually, sometimes there is no bid at all.
Famously as the ’87 crash unfolded on October 19, there were no bids for Dow Jones futures, normally a very active and liquid market, as everyone stood shellshocked by the speed of the collapse. The DJI stood at 1700-something but futures plunged to the index-equivalent of 1300s before someone stepped up to make a sizeable bid, which emboldened the other traders to start bidding on futures and stocks and marked the bottom for the day.
Mike..
If you talk to those who were in the SP pit at the Merc back then….they said the Fed was in there buying…and as I recall it was through Shearson Hamill…
But there was a huge unbreakable bid….as I was told.
The blood bath is just beginning. We’re in the 3rd wave down. But the real news says we’ve just hit a high that will last for decades. And that makes sense because economists are running the economic engine in reverse.
Banks don’t lend deposits. Deposits are the result of lending. Ergo, all bank-held savings are frozen, lost to both consumption and investment (and that’s most of M2, which is mud pie).
See: “Should Commercial banks accept savings deposits?” Conference on Savings and Residential Financing 1961 Proceedings, United States Savings and loan league, Chicago, 1961, 42, 43.
We got stagflation – as predicted
We got secular strangulation – as predicted
Wrong. Banks do lend out from customer deposits, but they are never allowed to speculate on anything on their own accounts using customer deposits. Deposits are not the result of lending at all.
Spencer Bradley Hall,
“Banks don’t lend deposits.”
I’m so tired of this BS. When you put $100 in the bank, the bank does two things – repeat after me:
1. it creates a liability it calls “deposit,” namely the amount of money it owes you;
2. it creates an asset, called “cash,” namely the cash it got from you and that it can lend out.
Obviously it doesn’t lend out the liability (impossible), but it lends out the asset that it got, namely the cash.
They’ll all go the way of GE AOL and Sears, former giants because of greed and crooks at the helm. The formula never works long term. Mark Zuckerberg stole Facebook originally ConnectU and had to settle paltry $65 million with the Winklevoss twins. He’s the epitome of the crooks at the “top”
Its a simple explanation regarding Nadella, you see, his future self came back and warned him. Whereas Zuckerberg tried to closed his loop for some gold NFTs.
Remember to buy stocks now so that the wealthy 1%ers can offload the hot potato to you, the middle class American & Canadian!
MSFT weekly linear 3Y chart :
1) Draw an uptrend channel from Feb 10 2020 high to Nov 22 2021 high
and a parallel from Mar 23 2020 low.
2) Jan 18 & 24 2022 breached the channel for the first time in two years.
3) There was a failed attempt to get back in in Mar 28 and Apr 4.
Options
4) There will be a second attempt to test the channel from below. It will
last at least for several months.
5) A trading range.
6) A plunge.
The American industrial might, advertising sales, appears to be faltering, as the the last financial liquor is poured, and the band begins to take their instruments down.
Inflationary policy has been wildly successful and created wild inflation, which surprised the sponsors like parents hosting a high school keggar.
In market exposure, like sports, Hope is the winners heaven and the losers hell.
The nominal interest rate of treasury bonds will rise above inflation, over the next three years because the level of central bank created liquidity will require that much mopping up before the competitive market dynamics are restored. Asset prices will fall significantly and nominal interest rates will rise until the components of credit risk are restored,
Perhaps
I feel the warm winds of a more egalitarian society blowing. The thing about hope is that it comes up with the morning sun no matter about yesterday which is gone.
I think that anyone that has money in the current financial markets, and especially mutual funds, should consider going to cash equivalents, and especially if you can’t afford a capital loss of 30 to 50 %.
Remember, I have been wrong for so long, like a stopped clock.
I don’t think there is a lack of talented employees in America. I tend to feel, innately, that corporate American philosophy excluded hugely talented citizens from the opportunities.
And they’re still trying to do it.
Communist labor, shipping finished goods for sale in the United States, duty free, has been the dream come true for the merchant class.
Adam Smith warned against relinquishing policy decisions to the merchant class. Read the words and you will probably hear the modern interpretation, “they would sell their own mother”.
Each one of the featured stocks share one common attribute, they are old and tired, about to be gobbled up by the new darlings of pop culture.
I’m betting a quarter that it’s open source.
The buzzword has become recession and how the Fed taking away the kickapu punch was going to create a hang over and joe lunch bucket was going to be decimated with unemployment.
Like the last 60 years or so.
I can feel the angst of the billionaires at the very thought of the stock indexes declining in a manner not fitting of a super power, Masters of the Universe.
Apparently, their pet dog, the Fed, has had a glimpse of responsibility over the irreffutable evidence indicating a system in disequilibrium.
The problem is bigger than the billionaires concerns is an indication of the extent of the chasm between price and value.
The paradox of life is capturing me, as surely as the morning when I get up, hopeful, I’m a day older.
That’s the beauty, so they tell me.
Next week should be interesting, during the quite time of the Federal Reserve huddle, as if they, the billionaires didn’t know the theatrical outcome of the drama of the Fed,
“after careful consideration, has decided to increase the FFR (federal funds rate) by 0.5 pct and begin to reduce the balance sheet of the Federal Reserve by 95 B per month until the inflation subsides”
I think that American citizens should continue to exfoliate and pretend that all is well. The last thing a citizen wants to do is watch the corporate news.
In my opinion, the corporate news is profit motivated that requires lying about the things they are seeing.
I guess I bought into the annunciation by Thomas Paine revealing the criminal custom of succession by the crown.
That every man has an equal right to the future, like Christ said. As did Mohammad and other holy men
who lived during weird circumstances like now. I can’t buy gas at a reasonable price.
Dang-
“I think that anyone that has money in the current financial markets, and especially mutual funds, should consider going to cash equivalents, and especially if you can’t afford a capital loss of 30 to 50 %.” [from the 2nd of your 9 consecutive posts]
Going 100% cash seems like an over-confident call. (In the French inflation from 1914 to 1958, stocks did better than cash, especially 1935 to 1945 or so. Commodities, of course did best at preserving some purchasing power, in that unique episode.)
Going 100% cash leaves you open to the possibility (very real IMO) that stocks are the “least bad” publicly available investment choice for principal preservation, and possibly in the horrifying position of needing to buy in at even higher prices in a few years.
It sounds funny, but I’m too conservative an investor to go 100% cash…
TIAA (formerly TIAA-CREF), is the leading provider of financial services (insurance, retirement) in the academic, research, medical, cultural and governmental fields. Serves 5 million active and retired employees (15,000 institutions) and has $1.3 trillion in combined assets under management.
In late 2020, I got pissed off at them for telling me I’d lose significantly if I parked my small stash (15K) of retirement savings in a non-investment account. I put my stash in their growth account (QCGRRX) for a while to ride the foamy market frenzy, and cashed out at 358 in March last year. It went on up to 408 last November, but now down to 317 from high (22% drop).
July 2021: New York Attorney General Letitia James and the Securities and Exchange Commission (SEC) announced a settlement with TIAA based on allegations that TIAA advisers encouraged its clients to transfer retirement funds from lower-cost employer-sponsored plans to higher-cost, independently managed accounts (leech people). The settlement gave restitution to thousands of affected customers and included a $9 million SEC civil penalty.
“In 2014, TIAA settled another class-action lawsuit accusing retirement funds of profiteering off the savings of college professors by delaying trades in violation of the Employee Retirement Income Security Act.”
Global assets are now around $550 trillion, and the global population is around 8 billion people. The US owns the largest share of global assets which is around $140 trillion. The US economy is the largest single country economy in the world and is around $22 trillion.
US debt outstanding is now around $120 trillion, based on US federal government debt being around $30 trillion, US state and corporate debt bering around $60 trillion, and US real estate debt being around $15 trillion, plus miscellaneous US debt including consumer debt being around $5 trilion dollar.
Central bank assets, including the US Federal Reserve with only $9 trillion in assets, are miniscule relative to the total assets in the US.
Financial assets such as stocks can plunge around 90%, real estate can fall around 40%, commodities can fall more than 50%, and in facts those percentages were seen in the financial collapses of 2000 and 2008.
All stock equity is always subordinate to corporate debt which has been made vastly worse by stock buybacks purchased using corporate debt. That debt must always be satified before equites have any value at all when corporations become insolvent in which case equity will be wiped out entirely and the value of insolvent companies becomes worthless.
The US is playing a very dangerous game in 2022 which has been building by leaps and bound over the past 50 years during which these core concepts of finance have been pushed aside and largely forgotten.
The day of reckoning is rapidly approaching in the US and globally, and it behooves investors so learn about the core principles of finance.
Prior to 1995 the value of financial assets including real estate in the US was 3.2 times GDP. At that percentage, financial assets in the US should now be worth around $70 trillion at most, and not around $140 trillion. An adjustment back to that range would result in a decline in financial assets of around $70 trillion for a loss of around $80 trillion.
The most critical chart in the US to watch is the yield (interest rate) on 10 year US Treasuries which are the benchmark interest rate which establish the relative interest rate for all other classes of interest rates.
We are now seeing the yields on 10 year US Treasuries near 3.00% and going higher which is slamming asset values in the theoretically safe 10 year 30 year US Treasuries. This will spell disaster for equities and real estate in the days ahead.
You forgot to mention that the US central bank owns $9T which completely dwarfs the monetary base.
There’s the real world, and then there’s what you think it should be.
The Fed has total control over asset prices with its money printer. Anybody would be crazy to short stocks when the money printer is running hot. And this will prevent an asset price collapse from running too deep, at least for several years.
A 30% asset price drop from the top seems about right to control inflation and take the heat off monetary policy for a few years. The Fed wants to return everything to pre-COVID levels (i.e., 2019 levels). QT plan should end after a quick or extended 30% asset price drop, although the Fed would also prefer to keep somewhat higher interest rates in place.
I very clearly stated that the $9 trillion of assets owned by the US Federal Reserve is MINISCULE in relationship to total assets in the US which are around $140 trillion. Moreover, I clearly stated that the US GDP is now $22 trillion. The M2 money supply in the US as accounted for on the FRED charts is now only around $22 trillion also matching the total size of US GDP and is MICROSCOPIC in relationship to the around $140 trillion of assets in the US based on present valuation of which only about 15% could be converted at those value to cash.
I agree there is a huge problem, but unlike you, I don’t think it will be resolved with a 70-90% asset price drop.
When the Fed willing and able to print money in coordindated fashion with other major governments, assets won’t be allowed to fall that much. That said, I think they will let stocks and RE fall 20-30% to curb inflation.
All these companies have revenue, products or services, and a customer base. So far this thing is just a two day event, based on some hawkish comments from the Fed (misdirection I know). The Fed makes a priority of real yield, and inflation expectations are notoriously inaccurate. Most of these companies have a stake in the metaverse, Amazon is in the middle of the supply chain, and makes it most vulnerable probably. Apple may have the least upside. As a group the selling may only be about halfway done.
Monday and a huge earnings week ahead! MSFT, all the big 4 tent-poles of S&P 500 report. But I suspect a moment of euphoria, if that’s what happens, can’t override a deeper dynamic this time.
Popcorn up! With Netflix-level nervousness, who may find themselves dancing on a fault line?
The Powers That Be will let AAPL and MSFT fall 3% Monday to reduce carnage on earnings day and slow release some anxiety from the markets. They’ve been massaging the market like a 60 year-old brothel queen. Next week, they’ll be bombarding the public with shallow articles saying Big Tech is a bargain, there’s blood in the streets, and it’s time to buy.
The Federal Reserve has nothing whatsoever to do with stocks.
Bobber didn’t say anything about the Fed, as far as I could tell.
But Wolf, how is it that Musk is able to “walk on water?” Why does his Tesla, despite an insignificant market share, worth so much more than the many corporations that do sell cars?
There has to be some other explanation desides Musk’s alleged supernatural powers. Please explore this baffling question for us.
Eventually, Tesla will trade like an automaker. I just don’t know when.
When Elon Musk is arrested. Which is like never.
April 26, 2022 after hrs, microsoft left the 2 trillion club.