The Biggest Stock Bubble In U.S. History

Please note, many will argue that the p/e ratio on the S&P 500 was higher in 1999 than it is now. However, there’s two problems with the comparison. First, when there is no “e,” price does not matter. Many of the tech stocks in the SPX in 1999 did not have any earnings and never had a chance to produce earnings because many of them went out of business. However – and I’ve been saying this for quite some time and I’m finally seeing a few others make the same assertion – if you adjust the current earnings of the companies in SPX using the GAAP accounting standards in force in 1999, the current earnings in aggregate would likely be cut at least in half. And thus, the current p/e ratio expressed in 1999 earnings terms likely would be at least as high as the p/e ratio in 1999, if not higher. (Changes to GAAP have made it easier for companies to create non-cash earnings, reclassify and capitalize expenses, stretch out depreciation and pension funding costs, etc).

We talk about the tech bubble that fomented in the late 1990’s that resulted in an 85% (roughly) decline on the NASDAQ. Currently the five highest valued stocks by market cap are tech stocks: AAPL, GOOG, MSFT, AMZN and FB. Combined, these five stocks make-up nearly 10% of the total value of the entire stock market.

Money from the public poured into ETFs at record pace in February. The majority of it into S&P 500 ETFs which then have to put that money proportionately by market value into each of the S&P 500 stocks.   Thus when cash pours into SPX funds like this, a large rise in the the top five stocks by market cap listed above becomes a self-fulfilling prophecy. The price rise in these stocks has nothing remotely to do with fundamentals. Take Microsoft, for example (MSFT). Last Friday the pom-poms were waving on Fox Business because MSFT hit an all-time high. This is in spite of the fact that MSFT’s revenues dropped 8.8% from 2015 to 2016 and its gross margin plunged 13.2%. So much for fundamentals.

In addition to the onslaught of retail cash moving blindly into stocks, margin debt on the NYSE hit an all-time high in February. Both the cash flow and margin debt statistics are flashing a big red warning signal, as this only occurs when the public becomes blind to risk and and bet that stocks can only go up. As I’ve said before, this is by far the most dangerous stock market in my professional lifetime (32 years, not including my high years spent reading my father’s Wall Street Journal everyday and playing penny stocks).

Perhaps the loudest bell ringing and signaling a top is the market’s valuation of Tesla.  On Monday the market cap of Tesla ($49 billion) surpassed Ford’s market cap  ($45 billion) despite the fact that Tesla deliver 79 thousand cars in 2016 while Ford delivered 2.6 million.    “Electric Jeff” (as a good friend of mine calls Elon Musk, in reference to Jeff Bezos) was on Twitter Monday taunting short sellers.  At best his behavior can be called “gauche.”   Musk, similar to Bezos, is a masterful stock operator.   Jordan Belfort (the “Wolf of Wall Street”) was a small-time dime store thief compared to Musk and Bezos.

Tesla has never made money and never will make money.  Next to Amazon, it’s the biggest Ponzi scheme in U.S. history.  Without the massive tax credits given to the first 200,000 buyers of Tesla vehicles,  the Company would likely be out of business by now.

Once again the public has been seduced into throwing money blindly at anything that moves in the stock market, chasing dreams of risk-free wealth.  99% of them will never take money off the table and will lose everything when this bubble bursts.  And only the biggest stock bubble in history is capable of enabling operators like Musk and Bezos to reap extraordinary wealth at the expense of the public.   The bell is ringing, perhaps Musk unwittingly rang it on Monday with hubris.  The only question that remains pertains to timing…

If you are looking for ideas to take advantage of the inevitable stock market implosion, try out my Short Seller’s Journal.  It’s a weekly subscription newsletter delivered PDF form via email that drills down into the latest economic data and presents short-sell and put option ideas.  You can find out more and subscribe using this link:  Short Seller’s Journal information.

4 thoughts on “The Biggest Stock Bubble In U.S. History

  1. The MSM has been trying to minimize this criminality….

    Notes From Underground: Nothing Focuses the Mind Like a Hanging

    First things first, let’s talk about the gorilla in the room, former Richmond Fed President Jeffrey Lacker leaked confidential information and the entire FED has had its reputation tarnished (stifle your laughter).

    The bigger question is how much is being covered up. Who else was involved in discussing matters of great sensitivity?

    As my readers know I have raised the issue of the G-30 and Davos being convocations for the exchange of very privileged information. Just google the G-30 and look to see its membership. The dissemination of potentially sensitive market-moving information to highly paid analysts raises serious questions of impropriety. In an effort to the level the playing field (and yes, I was most probably harmed by the leaks to Medley), the FED should not release its speeches or market information to any journalists covering the Federal Reserve.

    Journalists do receive all FED communication before its release to the public so they can prepare their stories, but of course the articles are embargoed until the actual release time. There have been instances where news was inadvertently released a few minutes early.

    (Steps on soap box) In today’s algo- and high frequency trade-driven markets the media organizations shouldn’t have a 30-minute lead time in order to CRAFT headlines that are volatility drivers for the word-driven algo traders. This creates volatility that rewards the HFTs while punishing other investors.

    It is time for the FED and SEC to wake up and protect the integrity of the markets.

    Also, Jeffrey Lacker should serve a long prison term and anybody else who is involved in leaking market-moving information.

  2. Dude, I’m sorry I don’t swear much when writing comments….But we’re all SERIOUSLY F’ed in the head now, so that none of these stock valuations or even precious metal prices matter anymore. We’re preparing to start FREAKING WWIII, direct confrontation w/ Russia over lies & false flag in Syria. Donald Trump was against all of this back in 2013 & also during his campaign. But he has now been completely hijacked by the Deep State incl. Goldman Sachs operatives. The end result is as bad as if Hitlery would have won. (As if North Korea & South China Sea by themselves weren’t big enough issues.)

    It’s all over. I see no hope for the world or humanity if we launch military attack on Syria. Everything Paul Craig Roberts & Gerald Celente worked on would be for naught. It’s time to turn out the lights.

    1. My question is what proof is there that the Assad regime launched the chemical attacks? Some might say “of course they did”. That is it is what we are being told. MSM probably won’t tackle the burden of proof at this point…and not seem patriotic.

  3. THIS IS A VERY SAD SAD & DARK DAY, exactly 100 years after US entered WWI on a lie!

    Gold & silver have spiked up, but I’m not at all happy. I didn’t want them to spike for these reasons.

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