Tag Archives: SHOP

A Hopelessly Corrupt Financial System Plus Historic Bubbles – Got Gold?

“At the parabolic top of every financial bubble, thrilled investors lose their tether to
reality, and as the price of the speculative instrument rallies ever higher, investors’
expectations for additional price appreciation inflate ever more. Whether its Cisco Systems at a trillion-dollar market value, Qualcomm at $1000 a share, Oil at $200 a barrel, Bitcoin at a million dollar a piece, or Tesla at $7000 a share, these far fetched price fantasies are the fuel with which bubbles, and their beneficiaries, attempt to sustain themselves.

To the chagrin of the bubble chasers, history is categorical in this regard, the combination of a parabolic price move, a hype narrative, and the proliferation of wild price projections, is highly indicative of a topping bubble and an impending price collapse. Of course, Tesla shareholders will dismiss this article as irrelevant since history count little in the eyes of those who believe their company to be at the forefront of a new transportation and business paradigm.” – Nawar Alsaadi, “Is The Tesla Bubble About To Burst?”“Is The Tesla Bubble About To Burst?”

The Fed has re-inflated the biggest stock and asset bubble in history after the previously biggest stock bubble was punctured in March. Today the Fed will begin buying junk bond/leveraged loan ETFs using Blackrock as its front. There’s two obvious problems with this. First, how does this help the economy?  The money printed and used to purchase the ETF securities will never flow to the companies issuing junk bonds. Ask United Airlines, which had to abandon plans to raise a couple billion in the junk bond market after the market rejected its attempt to issue 11% coupon bonds.  Why didn’t the Fed just buy up that issue? It’s an odd-lot compared to what it’s printed and thrown at the big banks up to this point.

The second problem is Jay Powell’s conflict of interest. Powell has an $11 million equity stake in Blackrock. For its riskless efforts in buying ETFs for the Fed, Blackrock will be paid $15 million.  And guess what? The taxpayers are on the hook for the money the Fed prints and transfers to ETFs and to Blackrock when the trade goes bad – which it will.

“A recurring feature of a bursting investment bubble is the culmination of absurd statements and assertions by an otherwise seemingly reasonable individuals right around the parabolic top of such phenomena.” (ibid)

Shopify (SHOP) closed at an all-time high yesterday. SHOP now sports the largest market cap on the Toronto Stock Exchange.  SHOP didn’t start filing SEC financials until 2015. But going back to at least 2013, SHOP has yet to produce an operating profit.

The clowns on Wall Street and the financial media gushed over SHOP’s Q1 “blow-out earnings.” There’s just one glaring problem with that assertion.  SHOP didn’t even come close to anything that resembles “earnings.”  SHOP’s net loss before taxes more than doubled to $60 million from $24 million in Q1/19.  It’s operating loss also more than doubled to $73 million from $24 million in Q1/19.

EVEN IF you add back the non-cash expense from stock compensation, SHOP’s “adjusted” operating loss increased over 400% to -$20mm from -$4.6mm.  SHOP’s operating expense margin jumped 300 basis points to 70.2% from 67.5%. A lot of that is probably the extension to new customers of the free platform access beyond 90 days. This horrible financial performance is reinforced by the fact that insiders are dumping massive quantities of shares. The time from vest to sale happens so quickly one might think the share certs are infected with coronavirus. In fact, two days after SHOP reported, insiders unloaded another flood of shares.

SHOP now trades at 52x trailing sales and 28x book. Its trailing P/E is infinite (i.e. no earnings to use in the denominator). Wall St./ Bay St. shills are projecting a small net income for 2020. There’s just one problem with this – even the Company has withdrawn guidance. In other words, the “analysts” are merely making shit up.

Eventually the gap between SHOP’s valuation and reality will converge. Those who rented the shares to sell at a higher level will be burned badly. Those holding SHOP shares because “it’s a new economy and it’s different this time” will watch the value of their shares sink well below their cost. Want an “expert’s” view on this?  Ask Bill Miller (@B3_MillerValue) how quickly he ended up losing money for the investors in his Legg Mason Value fund in 2008. His fund, after 15 years in a row of beating the SPX fell below its value at the start of the 15-yr run.

“It’s all so openly corrupt but once again a smashing of gold couldn’t last more than a day.” – Chris Powell, GATA Treasurer

There’s a way to protect yourself from the interminable corruption at the Fed, Wall St and Capitol Hill. Move a large percentage of your investible cash into physical gold (and silver) – not GLD, not a gold investment account – that you safekeep yourself.  Gold has run up 16% since March 19th and 41% since May 22nd.  If the SPX put in a performance like that, they would be doing on naked cartwheels on CNBC, Fox Business and BloombergTV.