How/when will the insanity end?
We are all in a giant game of musical chairs and unfortunately must keep playing. Many will be left without chairs. It is unbelievable that it only takes 20 years for people to forget what a bubble stock market looks like. Today the justification is interest rates are so low that there is no alternative - TINA baby! Every crazy market has justification from very smart individuals but the music always stops eventually. The only question is how long can zero percent interest rates and FED reserve buying keep these insanely expensive stocks elevated. The chart below by TheFelderReport shows there are more companies today trading above 10 times revenue (also known as sales) than there were in the crazy bubble years of 2000.
You will not find an honest CEO today breaking down the insanity of paying 10 times revenue but here is a quote from back in 2000 provided by Scott McNeely CEO Sun Microsystems,
"At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are? You don’t need any transparency. You don’t need any footnotes. What were you thinking?"
Stay safe out there, manage your risk and have a predefined exit strategy such as a trailing stop loss.
Disclosure: I wrote this article myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in this article. The information provided should NOT be considered advice. The topics discussed are risky and have the potential to lose a substantial amount. I am not an investment professional and therefore do not offer individual financial advice. Please do your own research before investing.
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Considering that money is coming out of Europe since that zone is about to implode and money is being forced out of bonds, equities could run a while.
The capital flow is into equities since there are few options for a return.
I expect one more leg down, perhaps retesting/surpassing the lows of March and then it is off to the races for a number of years. The incoming Sovereign Debt crisis is going to force money from public to private.
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Thanks for the engagement.
I agree the market will rally until it doesn't however I am still trying to think about potential catalysts and watching for warnings signs.
As long as the Fed is going brrrrrr, equity prices can be disconnected from fundamentals. When the music stops, look out below.
The 1% may be able to weather that storm when it hits, but a lot of Average Joes and Janes will be brutalized. Especially if they don’t have quality cryptos, precious metals, productive land, or other asset classes outside of the banking system.
This has not been the case for the rest of the world. Japan has done it for 30 years. Europe is not receiving any benwfits and they have negative rates.
The bubble will become bigger, until the Feds run out of hot air.
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