By now everyone has seen the article this weekend in the Wall Street Journal about gold being in a bubble. The media keeps rolling out these financial “experts” to explain why gold is risky now – yet not one of these experts even remotely understands what he is talking about. Most of these “experts” are so clueless that it’s beyond the proportions of Dickensian absurdity. But how come no one in the financial media is referring to Netflix stock as being in a bubble? Here is a great analysis on gold from Victor Sperandeo, notable for having worked for George Soros, that summarizes the golden truth about gold:
Sperandeo explained that history showed that in 30 examined cases of hyperinflation exactly this amount of capital preceded an uncontrollable inflationary development. The current situation was therefore comparable with these historic cases. The US dollar is very much threatened by this development and will become subject to an enormous devaluation. In this context gold and silver are expected to continue to develop extremely well, since investors are hedging against a bond and US dollar crash by purchasing precious metals. According to Sperandeo, the current development in the precious metals prices was nothing more than a correction in a continuing bull market. As long as policy makers do not find another solution to their dilemma than printing more and more money, things will just stay the same.
As for NFLX, today it is up over 6% and trading at 83x trailing earnings. Someone on Bloomberg TV just jubilantly proclaimed that Wall Street’s new price target for NFLX is $316. Now, without examining NFLX’s earnings, let me just state that the quality of NFLX’s earnings is likely very questionable. GAAP requirements for accounting for fulfillment costs, thanks to Jeff Bezos and Amazon.com, are very “loose.” In brief, the cost-accounting for fulfillment costs are similar to that of a ponzi scheme, and as long as revenues keep growing, a company with heavy fulfillment expenses, like NFLX, can hide the cash flow and earnings from what in effect are hidden cash expenses that don’t run through the income statement. Just ask Bezos why he’s on a program to unload stock every month if he really thinks AMZN stock is cheap. Same deal in terms of the accounting with NFLX.
But the big question for me is how come Wall Street’s anti-christ, gold, is continually labelled a bubble and ponzi stocks like NFLX get more adoration and cult status the more overvalued they become? Yes, this question is strictly rhetorical in nature. But here is a daily price performance chart of NFLX vs. GLD. You tell me which one is in an investment mania/bubble:
[T]he political leadership in the United States will continue to print large amounts of fresh money until foreign investors lose their confidence in the repayment of the outstanding US debts. This would eventually lead to a panic at the bond markets. The incipient bond sales avalanche would then trigger the outbreak of a hyperinflation in the United States.
And hyperinflation precedes systemic collapse.