Ever Seen A Bubble Slowly Hiss Away?
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2018-03-28 09:54 by Karl Denninger
in Market Musings , 404 references Ignore this thread
Ever Seen A Bubble Slowly Hiss Away?
[Comments enabled]

Neither have I.

There is an extremely-dangerous pattern setting up right now in the markets, which I remind you have been led higher by the gross over-extension of a handful of names.  This isn't either an error or accident; it's how market indices are designed with market-cap weighted indices.

Here's the real problem: None of the so-called "growth" in those stocks has been real.  Tesla, for example, has never turned a profit, even on paper.  Amazon has never turned a material profit and only exists due to what looks like blatantly-illegal (under anti-trust law) cross-subsidization.  Netflix has negative free cash flow, which means that while on a GAAP basis they have made a "profit" they do so by assuming their "shows" have recurring residual value post-release, which anyone who has ever sold anything on a royalty basis knows is total and complete crap; nearly all of your money is made in the first cycle (for a book in the months after release, for a TV series the first showing of same, etc.)  And finally, Facebook and other "social media" companies only "make money" by radically invading your privacy including in places you cannot give consent such as every single web page anywhere that has one of their "like" or "sign-on" buttons.  Without such data their so-called "enterprise" is worth zero as the cost of operating it exceeds the ad revenue they can gain from doing so.

So what we have is an outrageous bubble -- exactly as we did in 1999.  The market callers all say it's different this time because these firms that lead have "real earnings" or can "crank up earnings any time they want (Amazon)."  This is a damnable lie; not only are the earnings not real in that they're taken through gross deception and accounting tricks Amazon, in particular, has been said to be "able" to crank those earnings "at any time" and yet over the last decade it never has -- not even once.  Why not?  Because it can't, that's why.  The day it does is the day its pricing is no longer supported by acts that anti-trust explicitly banned over 100 years ago and what remains makes a loss on every product sold net-net and thus the company collapses.

Note that I'm not saying these firms have "less value" should they cut that crap out, either voluntarily or by government force.

I'm saying they're all functionally bankrupt immediately and soon will be factually as they cannot make an actual profit from operations without the schemes that no law-abiding society should permit and no matter how much cash you start with if you spend more than you make eventually you run out of said cash.

That is, the NPV of these enterprises under any rational accounting basis is negative and thus the equity is worth zero.

But just like in 1999 when a bunch of firms IPO'd with claims of (in aggregate) multiples of the world's GDP we have the same crap going on now -- alleged "equity valuations" that have zero factual support but plenty of hype and love driven by so-called "media" and worse, the President of the United States himself who tweets "MAGA" when the market goes up but is strangely silent when it's down 700 points.

Well, Mr. Trump, if you live by the stock market indices politically then you will die by it *******, and every single bubble like this through history has not gently and slightly deflated.

It has popped with dramatic impact and skull****ed everyone who believed in it for just one day too long.

Is that day today?  Probably not, but the warnings are clear, they're obvious, they're "in your face" and if you're not paying attention you deserve what is to come.

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Aztrader
Posts: 7963
Incept: 2007-09-10

Scottsdale, AZ
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Non- GAAP accounting, No MARK TO MARKET Valuations and stock buybacks completely skew reality.
Click
Posts: 168
Incept: 2017-06-26

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I'm still happily sitting on the sidelines...

It's kinda nice watching the rumors swirl about how Trump wants to go after AMZN...

I hope so, because it'll be another good ****show to watch from the sidelines...

Amazon is going to be forced into buying more brick and mortar companies. Best Buy and/or Target might be something AMZN gobbles up next.. AMZN, of course, can then claim they are creating jobs in their new phycial locations and paying taxes.... On the other hand, Walmart is scheming to inlarge its online business... And they have some big plans in the works.

This should be a good fight to watch between AMZN, WAL and TRUMP. Of course, the stock market might dive into a major correction ( perhaps they'll call it, "The Trump Bear Market") but ultimately the Dow either goes to 30,000 or we all get to experience something worse than what happened in the 1930s... and Oprah will be our next president of the USSA...

Personally, I don't want to ever have to crack open my prepping stockpile and listen to a remake of the song, "Brother, can you spare a dime"? So, I hope we get a market correction and then back to new highs... or just new highs without a correction.

Party on would be better sound than a Great Bubble Pop....
Chaparral
Posts: 338
Incept: 2007-09-11

Los Angeles
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My thoughts exactly. I need to sleep at night so I exited my positions yesterday with enough profit to load up on some Freedom Fuel from Black Rifle Coffee.

For a god-emperor that supposedly plays 4D underwater chess, taking responsibility for the market indices sure is a stupid move.
Ktrosper
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ft collins co
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Click wrote..
I'm still happily sitting on the sidelines...
Amen.. I'm smart enough to know I'm not smart enough. The moment I'd "get in" is the moment we'd hear that POP! and I'd get butt*****d!

re: Trump taking ownership of this casino. I'm still SMH.. The guy must believe the "Teflon Don" headlines. He's wrong. He's gonna own this bitch all the way down.

before:
 


after:
 

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The unexamined life is not worth living.-Socrates
The only stable state is the one in which all men are equal before the law.-Aristotle
Liberty exists now in the spaces government has not yet chosen to occupy.-Doc Zero
I anticipate that 10 Dallas Cowboys Cheerleaders will blow me this evening.-K.D
Chicago11
Posts: 3
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Chicago, Illinois, USA
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Soooo... Trump reportedly wants to "go after" Amazon, reportedly for anti-trust violations.

https://www.axios.com/trump-regulation-a....

But, as Tickerguy points out, Trump is probably unwilling to really do that because the end result would the popping of the stock market bubble.
Aquapura
Posts: 718
Incept: 2012-04-19

South of Canada
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Quote:
Amazon is going to be forced into buying more brick and mortar companies. Best Buy and/or Target might be something AMZN gobbles up next.


I sure hope not. Reminds me of AOL. The only way Amazon can buy anyone is due to their stock valuation based on unicorn farts. I don't want what will come with a market implosion but I hold particular disdain for people like Bezos, Zucker****er and Musk to name a few. Wouldn't mind seeing their collective ranking in Forbes take a kick to the balls.
Tickerguy
Posts: 152486
Incept: 2007-06-26
A True American Patriot!
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Spamazon will not be buying anything; someone is smoking some really good crack.


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Winding it down.
Tdurden
Posts: 629
Incept: 2015-01-29

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My employer wasn't content just crowing about EBITDA while ignoring all of the dreck it's trying to sweep under the rug. Nope...now they decided that even that was too honest and straight forward. Now they will only be touting "adjusted EBITDA!" Oh, and the CEO decided to move up his retirement that was due to happen at the end of the year to next month. And he has decided that he won't take the board chairmanship that he had planned to move on to. Wonder how long after he leaves that all of the toxic waste comes to the surface.

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"I'd like to live just long enough to be there when they cut off your head and stick it on a pike as a warning to the next 10 generations that some favors come with too high of a price." -Vir Cotto Babylon 5
Aztrader
Posts: 7963
Incept: 2007-09-10

Scottsdale, AZ
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Amazon's bread and butter are the Chinese located on the mainland that can ship here for free. Subsidiary by the USPS. Paying the USPS $2.00 a package when small guys may pay over $10.00 for the same package.
Both UPS and FDX subsidize them with $5.00 packages that cost small businesses up to 4 times as much. Take these away and watch them implode.
Click
Posts: 168
Incept: 2017-06-26

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"unicorn farts"...

Tell me what isn't based on and/or backed up by "farts"?

What backs the U.S. Dollar? Is it taxes? The US military? The Fed? Oil? Or is it faith? What backs a piece of paper with a picture of a dead man on it? A Holy Ghost?

What backs stocks? Do you think just because you own a stock that you actually own a share of a company?, i.e., a tangible asset?

What is religion itself based upon? What is religion's means of production? What is the state's? Yet some of the most valuable material assets are held by the church and state. Why? They don't produce anything material... Those entities only consume. The church might console you and the state will gladly organize and tell you and yours what to and not to do, but both church and state together actually produce less material benefits than do the FANGS... Whatever material benefits you receive from church and state were sourced from an actual producer through taxation and charity.

Jesus said, "faith moves mountains"? If you don't believe that, then how is it that one very poor carpenter born in Egypt and raised in Galilee goes on to found the greatest belief system in history?

I say, Jeff Bezos is just another little Wall Street Jesus ( one in a long line and among many financial prophets) who is moving financial mountains because people have faith in AMZN... until they don't.

Even the tangible gold and silver I own is based on human subjectivity; which, in turn, is based on faith which is based on tradition. Actually, my gold has increased in value less than AMZN in the past decade. Does this mean that my gold is based on farts, too? --- and less valuable farts, at that?

What backs AMZN is the very same force that backed up tulips during the Dutch Golden Age. It's the very same force that backs up Bitcoin.

And anybody who underestimates the power of faith and how faith moves markets doesn't understand just how Little Jesus Bezos recently bought Whole foods....

But I'm not God, so what the **** do I know? I'm just an outcast who has managed to make and save enough to not have to worry about where his next meal is coming from. And that's not saying too much in a country where even idiot-savants don't starve... I'm just a guy with time on his hands who enjoys reading this blog.



Themortgagedude
Posts: 10594
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saint louis
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I think Amazon could turn a profit. They'll have to change their approach to do so. But most men won't shop anywhere else because we're lazy. The others such as Netflix and Tesla and Uber? All zeroes. I personally can't see any other outcome for Tesla. Netflix might be able to make changes and survive. But I doubt they'll ever make money. It will drop so far you'll think it's a zero. Even Amazon will drop by at least 50% because if they start trying to make money the valuations won't be supported.

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I think its time we ask ourselves if we still know the freedoms that our founding fathers intended for us. Ronald Reagan 1964
Poorsaver
Posts: 395
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Sunshine Tax State
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Seems fishy that the White House backtracked on investigating Spamazon and the market rebounded somewhat. Methinks Trump is trying to manipulate the market to not spoil his Trump rally.

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"I'm going to need a hacksaw"----Jack Bauer
"You can get killed walking your doggie!"----Vincent Hanna
Memeticdefense
Posts: 6
Incept: 2018-03-26

Las Vegas
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I have a hard time seeing how Amazon creates value to the consumer longer-term, when it just seems to be an unnecessary middleman. I think some of you mentioned in the past that Amazon collects a 15% fee much like Ebay does for selling through its website. From an independent seller's perspective, this is really just an extortion tax to allow your product to be found online, since companies like Google and Amazon control what shows up when people search for a product they want to buy. If e-commerce is supposed to be for the public benefit, it should be run like a utility where there's a central database that allows people to search for what they want to buy. The fee for selling through such a platform should be something like 0.5% rather than 15%.

Amazon has been allowing sales of Hampton Bay ceiling fans for years now. These are exclusively sold by Home Depot. The way I believe this works is that someone places an order for, say, a Hugger 52 inch ceiling fan on Amazon for $60.45 (currently the lowest price). The seller then purchases the product through HomeDepot for $49.97 and has them ship it directly to the unsuspecting Amazon customer. If Amazon's commission is indeed 15% ($7.50), then this leaves about $3 in profit to the seller. The buyer receives the order in a Home Depot box, but instead of being outraged leaves a positive review on Amazon, encouraging additional buyers to fall for the same scam.
Minimalist
Posts: 330
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Memticdefense,

Amazon charges more than 15%. Some things I get tagged for at 26% but nothing is as low as 15%. Then you get to pay the monthly subscription fee and be responsible for every customer whim including theft of your merchandise. The zon actually encourages you to refund and let the scammer keep the goods.

Bodhi
Posts: 366
Incept: 2008-02-23

Georgia
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Quote:
The seller then purchases the product through HomeDepot for $49.97 and has them ship it directly to the unsuspecting Amazon customer.


I'm seeing the same thing on eBay. I dropped Amazon a couple of years ago as their prices were rarely, if ever, the lowest. But more and more I order merchandise from an eBay seller and it shows up in an Amazon box with an Amazon receipt inside.
Asimov
Posts: 109819
Incept: 2007-08-26

East Tennessee Eastern Time
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I got a package the other day from amazon. The item was cheaper there than I could find anywhere else by about $20. It cost ~$100.

When it arrived, it was MUCH heavier than I expected. I checked what it would cost for me to ship it back... $45.

So.. Almost 1/2 the cost (for us sheep) was shipping. And it was still $20 cheaper than I could drive to the store and buy.

*Sigh*

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It's justifiably immoral to deal morally with an immoral entity.

Festina lente.
Memeticdefense
Posts: 6
Incept: 2018-03-26

Las Vegas
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I can see why Ebay packages would arrive in Amazon boxes because of Amazon's Prime membership policy that waives the minimum order for free shipping. If you don't have Prime membership it becomes cheaper to order on Ebay from someone who uses his Prime membership to order from Amazon.
Bodhi
Posts: 366
Incept: 2008-02-23

Georgia
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Quote:
I can see why Ebay packages would arrive in Amazon boxes because of Amazon's Prime membership policy that waives the minimum order for free shipping. If you don't have Prime membership it becomes cheaper to order on Ebay from someone who uses his Prime membership to order from Amazon.


That makes sense, but I'd imagine Amazon would put a stop to limitless free shipping to anywhere but the Prime member's listed shipping address.
Demosthenes
Posts: 78
Incept: 2017-04-28

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Quote:
If e-commerce is supposed to be for the public benefit, it should be run like a utility...


I've seen how governments run public utilities. The water in my town frequently cannot be drunk, and periodically cannot be used for washing either. Well, if one likes large greasy orange stains, it could be used for washing. And yet we're required to pay this utility regardless of quality or performance, and may not seek out other options.

No thanks.
Asimov
Posts: 109819
Incept: 2007-08-26

East Tennessee Eastern Time
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WAITAMINUTE.

Amazon will ship for free to any address if you're a prime member?

People can actually buy **** on amazon and sell it elsewhere and have amazon ship it... they never touch the package?

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It's justifiably immoral to deal morally with an immoral entity.

Festina lente.
Cerich
Posts: 982
Incept: 2008-12-17

ga
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ASI-yes
Memeticdefense
Posts: 6
Incept: 2018-03-26

Las Vegas
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I don't have prime membership, so I ordered an item from Ebay that I knew was cheaper on Amazon, except for the shipping charge. The item arrived in an Amazon box and it had a message saying something like "here's your gift". It seemed like the seller had somehow qualified for a gift and used that to send me the item.

If you search for the Intex 12 foot pool cover it sells for $10 on Amazon and $11.50 or more on Ebay. There is some kind of arbitrage going on, as the item will come in an Amazon box.
Themortgagedude
Posts: 10594
Incept: 2007-12-17

saint louis
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I ship to 7 different addresses on my Prime account. I'm not sure how many they allow but they haven't said no yet. Two offices, two brothers, mother, mother in law and home.

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I think its time we ask ourselves if we still know the freedoms that our founding fathers intended for us. Ronald Reagan 1964
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