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When Wall Street Gets DeFANGed - Look Out Below!
Submitted by David Stockman via Contra Corner blog,
As the stock market labored into Friday’s close, CNBC was apparently tying to help with a crawler saying that the S&P 500 was heading for its “best week of the year”. Then again, the gain of just 1% since New Year’s Day is not a whole lot to write home about.
In fact, there were some fireworks in this week’s gains, but if history is any guide they were exactly the kind of action that always precedes a thundering bust. To wit, the market has narrowed down to essentially four explosively rising stocks—–the FANG quartet of Facebook, Amazon, Netflix and Google—–which are sucking up all the oxygen left in the casino.
At the turn of the year, the FANG stocks had a combined market cap of $740 billion and combined 2014 earnings of $17.5 billion. So a valuation multiple of 42X might not seem outlandish for these race horses, but what has happened since then surely is.
At this week’s close, the FANG stocks were valued at just under $1.2 trillion, meaning they have gained $450 billion of market cap or 60% during the last 11 months - even as their combined earnings for the September LTM period were up by only 13%.
In a word, the gamblers are piling on to the last train out of the station. And that means look out below!
Indeed, the chart of the broad market (S&P 500) should be warning enough. It has been choppin’ to nowhere ever since reaching current levels last November.
After 27 failed attempts to rally, this week’s 3% gain was surely just another spasm of the dying bull. That’s especially the case coming as it did on the heels of no positive domestic economic news, the onset of the fifth recession in 7 years in Japan, more cratering of credit in China, another plunge lower in Brazil and much of the DM and the specter of a Thermidorian Reaction to the Paris terrorism events in Europe.
An old Wall Street adage holds that market tops are a process, not an event. A peak under the hood of the S&P 500 index, in fact, reveals exactly that.
On the day after Christmas last December the total market cap of the S&P 500 excluding the FANG stocks was$17.70 trillion. By contrast, it closed at $17.26 trillion on Friday, reflecting a 2.5% or nearly half trillion dollar loss of value.
And there is growing deterioration down below for good reason. Notwithstanding the FOMC’s stick save at every meeting this year, each near miss on a rate hike reminded even Wall Street’s most inveterate easy money cry babies that the jig is up on rates.
Sooner or later the Fed would just plain run out of excuses for ZIRP, and now, after 83 straight months on the zero bound, it has. So the truth is, the smart money has been lightening the load all year, selling into the mini-rips shown above while climbing on board the FANG momo train with trigger finger at the ready.
Needless to say, this narrowing process is an old story. It famously occurred in the bull market of 1972-1973 when the impending market collapse was obscured by the spectacular gains of the so-called “Nifty Fifty”. And it happened in spades in the spring of 2000 when the Four Horseman of Microsoft, Dell, Cisco and Intel obscured a cratering market under the banner of “this time is different”.
But let’s see. It’s more like the same old delusion that trees grow to the sky. At its peak in late March 2000, for example, Cisco was valued at $540 billion, representing a $340 billion or 170% gain from prior year.
Since it had earned $2.6 billion in the most recent 12 month period, its lofty market cap represented a valuation multiple of 210X. And Cisco was no rocket ship start-up at the point, either, having been public for a decade and posting $15 billion of revenue during the prior year.
Nevertheless, the claim was that Cisco was the monster of the midway when it came to networking gear for the explosively growing internet, and that no one should be troubled by its absurdly high PE multiple.
That is, the absurdly inflated values of the Four Horseman in the spring of 2000 looked exactly like the FANG quartet today. Thus, Facebook reported $2.8 billion of net income in the most recent period, thereby weighing in with a 107X PE multiple.
Likewise, Netflix currently trades at 307X its LTM earnings and Amazon at 950X. Even Google, which has now smacked into the law of large numbers with earnings growth of just 11% in the last year, is valued at 32X.
But here’s the thing. The Four Horseman were great companies that have continued to grow and thrive ever since the dotcom meltdown. But their peak valuations were never remotely justified by any plausible earnings growth scenario.
In this regard, Cisco is the poster child for this disconnect. In the interim, it revenues have more than tripled from $15 billion to nearly $50 billion, and its net income has more than tripled to nearly $10 billion per year.
Yet it’s market cap today at $140 billion is just 25% of its dotcom bubble peak. In short, it was driven to the absurd height recorded in March 2000 by the final spasm of a bull market, when the punters jumped on the last momo trains out of the station.
CSCO Market Cap data by YCharts
This time is surely no different. The FANG quartet may live on to dominate their respective spheres for years or even decades to come. But their absurdly inflated valuations will be defanged.
Then look out below.
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Good thing Nobody was Following Momentum.
The way the markets are working nowadays, all the companies on the Dow could all report losses and it would shoot to an all time high. They are going to play the game, no matter if it destroys the economy or not.......
The economy was destroyed decades ago.
Bitcoin is different this time because there's never been another time we've had a stateless, global digital currency. Bitcoin is impervious to the pangs of a falling FANG. Vous peoples should buh Bitcoin.
https://localbitcoins.com
I'll wait for an EMP resistant bitcoin, thank you. FANG stocks are all based on electrons flowing around so how does one value them? Why stop at 1.2 trillion? Why not double that? Their P/E ratios are absurd already so why not absurder or even absurderest? GO FULL RETARD!
It's different - every - fucking - time.
Tulip bulbs were different.
Railroad stocks were different.
Waterfront Florida real estate was different.
Ponzi schemes were different.
Beany Babies were different.
Pokemon cards were different.
FRN's were different.
Stawks, credit default swaps, derivatives, all different.
Electronic rainbow skittle shitting unicorn fart in a windstorm currency is different, too.
Keep on pimping on, oh great and mighty Coinhead.
Yes that's right you dope... some things really are different this time.
The internal combustion engine was different this time.
The radio and telephone was different this time.
The first powered flight at Kitty Hawk was different this time.
The world wide web was different this time.
The personal computer was different this time.
The transistor was different this time.
Bitcoin is different this time.
(...or maybe you live in a cave hiding out from sabre tooth cats?)
The hilarious thing is, oh mighty Coinhead - wait for it -
all of your listed items with the exception of Shitcoin are -
drum roll - PHYSICAL ASSETS !
Which is why they had real intrinsic value to those who used or invested in those products.
Shitcoin does not exist.
Stable inflation free Fiat currency does not exist.
Paper dreams do not exist.
Unicorn farts do not exist.
It is a promise to pay - whatever value it has screamed down to today.
Maybe you live in a basement jerking off on the pile of FRN's you converted from Shitcoin rip offs of starry eyed investors ?
News flash - either currency - you are still poor, not rich, subject to bankruptcy at the drop of a paper or electronic promise.
Poof, aannnddd - it's gone.
Me, my cave, my saber toothed house guard cats, silver, and gold will still be here long after your sorry ass has shuffled off to Buffalo.
38 years old, living in a van, down by the river. You are a funny guy.
And gold & silver remain no different this time,
same today as they were 6,000 years ago.
I don’t know, there was a time when every other stock was momo’ing. It does matter that we’ve cycled through literally every useless industry on this miserable little planet, sometimes multiple times. Let’s go down memory lane shall we? I’ll get the ball rolling –
Lululemon hit two peaks $77 in april 2012 and then $81 in June 2013. It bounced around the $60’s for much of the past year but clocks in right now at $45. I go to yoga classes and women are wearing just as much lululemon as ever – thank god.
Pandora had a clear peak at $37.42 in February 2014. I guess EVERYONE is using apple radio (/sarc) because the stock is at $13 today.
Amazing.
The only companies still growing have almost no principal asset. Only advertising revenue. I don't even call that a market. Where is the production of goods gone which is the basis of any ecomomy?
For those who count paper as gold; deflation commeth.
Or hyperinflation....or both.
ES 2180 before 1850
Tulips $20 per bulb before $15/bulb.
FANG, the Dracula stocks that will bleed you dry when the light exposes the lies.
Yes, we have no bananas.
Greed and fear are always predictable. Always!
It's hard for people to be comfortable with themselves, let alone the world around them.
Over a decade ago I was riding my motorcycle ALONE along the Skyline Drive in Northern VA and pulled over at an overlook/rest area. There I found two dozen other bikers all gathered together. Everyone was riding two up with no solo riders. I struck up a conversation with several in the group. One young lady asked me if I wasn't lonely riding alone. I told her I was good company with myself. She, along with everyone else in the group who had stopped to listen to my responce, were shocked by my answer. The group quickly broke up, mounted their bikes (passengers safely on back and intercoms fired up) and rode away, the heretic safely left behind. And this was well before babies were born already synced to their phones.
Touring Alone... is definitely Awesome
CD alone or with somone else that drive is worth the effort. Sadly the last time I made it, it was pissing down with rain.
She can come along if she brings her own bike. My lady handles her bike on her own, ok ok, now and then I hold something while she wrenches, 100% her otherwise. A keyboard player I worked with remarked, "That's kinda odd." My response, it is required.
This isn't what will break the stock market. Yellen and her POMO desk will continue to roll as many trillions of dollars necessary to keep it afloat. Let's look at the numbers -
The Fed's book is officially $4,5T. Using fractional reserve lending - the common practice of any bank - we multiply that figure ten fold, giving us $45T. That is where all the money creation begins.
Then the Fed uses that $45T to lend to its reserve banks, who then use fractional reserve lending standards to lend that money. That's $450T. Then the money is rehypothicated, and rehypothicated, and rehypothicated....
The function is exponential. Who knows where the numbers will go. So when will the system collapse?
The collapse will happen when there is a loss of faith in the system. That will occur when a large gold buyer - China, the House of Saud, or Russia for example - recieve an IOU instead of a shipment. This is why the "West" are looting gold vaults around the world - Lybia, Syria, Iraq, etc. Through these wars, and financial collapse in the case of Venezuela, they are handing over the gold to the debt buyers so the buyers continue to facilitate the ponzi.
But when a said buyer does not recieve a shipment, then they will dump the paper. We saw China dump 1/5 of their holdings in August, so we assume there was a missed payment then. The next missed payment and subsequent dump is likely around the corner....
The wars are about transferring wealth from the american people to the cronies and because the sociopaths that run things like murdering people and playing a big game of Risk with real countries and lives. They don't need the gold and getting it is just a bonus. If fedgov needed gold it would just have the fed create some more FRNs and buy it or just refuse to sell it. if fedgov needed to prop up the treasury bond market, the fed would just buy the treasuries. The complexity of having wars to have gold to fill contracts is simply not needed. Wars are basically for war's sake. They enjoy and profit from war. It's the racket they like best. They don't need a reason beyond that.
Ok wait, let's start with the fact that there is much less gold in the vaults than reported. This is why it will take the Fed 7 years to repatriate Germany's 5k tonnes. Thus the looting.
You were on the right track - they are destroying the middle class and the lifestyle through inflation and other measures. But they do need the gold. Every empire does. When the system collapses the Bush Clan, for example, will be housed in some bunker and that bunker will have a gold vault to pay a few dozen soldiers to maintain their area.
We are going to be going back to kingdoms. Back 500 years to where a king ruled a few hundred square miles. The oligarchs know they will need gold for that.
Gold plays a huge role in the upcoming paradigm shift.
PS I upmarked you because I like where your head's at. I think we are splitting hairs.
Fight Club and all
:)
You need to look at gold in terms of global (IMF and SDR).
This time is different
And it is......until it isn't. The herd is always right even when it is wrong because it creates, and maintains, its own reality.
Never bet on the same pony, as everyone else
Mr Algo does not care about percentages or head and shoulder shit or death crosses, it's just one button away from all-time highs. terrorist attack or not, it's coming.
wut about the 4 quadrillion in derivatives, i bet it's gone up then dropped back down again. About time for a crash.
Honey Badger don't give a fuck