Guest Post: "1999"
Submitted by Fidel Sarcastro
It looks like the market will never – ever – learn a lesson. When there is easy money to be had, the market loses its mind, just like the Nasdaq did in 1999 and 2000. Prince wrote the song 1999, where he says “gonna party like its 1999.”
That’s exactly what’s happening today. Like the Nasdaq in 1999 & 2000, when there were plenty of warning signs about the economy and WILDLY overvalued IPOs, Fraud Street partied on as if it would never end. One lyric from the 1999 song that most in the market forgot, however, was “party over, oops, out of time.” Most of the folks who believed in the moronic valuations that Fraud Street sold them ran out of time indeed; they bought the top and lost 90% or more of their speculation, err, pardon, “investments.”
But the market didn’t learn a lesson in 1999/2000 because EZ-Al Greenspan flooded the market with “liquidity” and near-zero interest rates. His reason was, and this was admitted by Al “Bubbles” Greenspan in many interviews, to INTENTIONALLY BLOW A HOUSING BUBBLE so that the bankster pickpockets wouldn’t lose money on those horrible IPO speculations, err, pardon, “investments.”
When Greenspan finally started raising interest rates, it was too late. The baton was handed to Ben “Helicopter” Bernanke who was now in charge of lying to Congress, as well as you and me, about the state of the economy. He said that the rapidly escalating economic problems, especially in Greenspan’s housing bubble, were “largely contained.”
He forgot to tell us that he meant on Mars.
Chairman Bernanke’s “helicopter” moniker came from a speech in which he said the Fed, under his watch, would throw money from a helicopter in order to keep the economy from entering a non-inflationary period. OK, he said deflation but we all know he wants inflation now and forever.
And that brings us to The Ben Bernank’s quantitative easing (QE) policies. http://www.youtube.com/watch?v=PTUY16CkS-k With Comrade Ben Bernank at the helm of the current USSA money-politburo, good times are back. Is the US peso, err, pardon, US dollar plummeting? No problem, Comrade Bernank will cover your losses. Is unemployment high and rising (right now)? No problem, Comrade Bernank will make it all better. Is housing in the toilet and getting worse? NO PROBLEM, the Ben Bernank allowed accounting rules to be changed to make accounting fraud legal (he could have stopped Congress, but cheered rather than jeered the idea). Is inflation rising? No problem, Comrade Bernank will cover your losses (only if you’re a bank)…oh wait, he is causing it. These, and a great deal more, are all consequences of his QE policies.
You see folks, like Alan “Bubbles” Greenspan’s plan to intentionally rig the housing market higher, The Ben Bernank is intentionally rigging US equities to go higher. Like Greenspan, Comrade Bernanke has admitted his QE and POMO policies are being conducted to engineer a higher stock market; a self-imposed third Fed mandate to be sure. And it is working according to his politburo-like plan.
Question: How many of you would sit idly by if the Fed intentionally rigged the price of copper, or milk, or your salary? Why is it OK for the Fed to intentionally price-fix interest rates, or housing prices, or now US equities? Why do people always forget how this manipulation ends?
Thursday morning treated us to four very important economic reports with a bonus: Japanese GDP. ALL OF THEM WERE BAD…some shockingly bad.
I won’t go into much detail but the weekly unemployment claims were once again above 400k for the week, which is nowhere near “recovery” levels. Moreover, the 4-week moving average is bad and getting worse. Thirty minutes after the open we received a trifecta of bad news: existing home sales, LEI, and the Philly Fed Survey. The Philly Fed Survey was the worst of the bunch and its internals are strongly suggesting…recession.
Before we read any of the aforementioned ghastly data, we had the displeasure of reading the Japanese GDP headline. Sure, it was expected to be bad due to the earthquake, mega-tsunami, and nuclear catastrophe…but not this bad. (I’ll bet you forgot all about that lil-nuclear problem, didn’t you? Well, so did everyone else as they chased the bouncing QE ball of Comrade Bernank – just as he planned.) The Japanese GDP nose-dived -5.2% nominally!
No worries though, the BOJ is following the Book of Greenspan & Bernanke to the letter – trillions more Yen will be freshly printed soon. Although this catastrophic Japanese slowdown will be, and has already been, bad for many US companies – it just doesn’t matter. After all, The Ben Bernank bouncing QE ball is still, well, bouncing and all of Fraud Street is mesmerized by it just like in 1999/2000 and up to 2007.
What puts the icing on this cake, however, was today’s LinkedIn IPO.
In the halcyon days of 1999 and 2000, where any joker with an MBA and a website could get a stupid idea underwritten by the pickpockets of Fraud Street due to “search views” or “eyeballs,” profits weren’t needed. Somehow the laws of finance had ended; there was a new paradigm. It was a FRAUD! But it didn’t matter; low interest rates and stock mania pushed rational reasoning aside. (By the way, did anyone from Fraud Street go to jail for pushing that scam? No? Yeah, I didn’t think so either.)
In those days the scam artists raked in tens or hundreds of millions of dollars. Today’s scams bring in $billions. The opening price of today’s LinkedIn IPO was $83 per share. It soon skyrocketed to $122.70 per share but traded to $92.40 in the aftermarket, giving the goofball who top-ticked the market a loss of about 25%.
“So, Mr. Fraud Street salesman, what is the annual net profit of LinkedIn?”
“Mr. Patsy, pardon, Mr. Smith, this is a growing company with great potential.”
“I see you avoided my question. How do they make profits?”
“Mr Sucker, pardon, Mr. Smith, they have a growing membership.”
“Wait a second; is this like that crap IPO you sold me in 1999 that had great search views or whatever the hell it was?”
“Mr. Smith, LinkedIn has a huge membership…with potential to grow its membership.”
(In a hushed voice) “Yeeessssssss….mem-ber-ship.”
At this point the clueless mark of the Fraud Street salesman is sold. He no longer cares about profits - just meaningless BS like “membership growth potential” and another clown follows the QE bouncing ball and acts like it was 1999 allover again. He was the poor sucker that top-ticked LinkedIn today and deserves to lose 25% of his speculation, pardon, “investment” in a matter of hours.
At one point during the IPO, LinkedIn sold with a PE ratio over 1,200! Congratulations Comrade Bernanke, you have successfully reanimated the corpse of the wild-eyed speculator.
Today’s IPO madness and complete disregard for all of the economic news did it for me. Although I trade with the trend and have done nicely on the long side – I’m getting out. This should not be taken as advice for anyone else, after all, Comrade Bernanke may soon announce QE3 and more; however, I suspect he will call them different names to keep the suckers coming into the casino.
This reminds me too much of the Nasdaq and housing bubbles. Now…what was that line in Prince’s 1999 that everyone forgets? Oh yeah, “Party over, oops, out of time.” Like so many millions of suckers learned when the bubble burst, they will again find out they ran out of time.
(And this doesn’t even include the hell that soon comes our way when Greece or Ireland defaults…or Spain’s government falls…or all of them.)
Trade well and follow the trend, not the so-called “experts.”