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2017-12-21 09:59 by Karl Denninger
in Market Musings , 309 references Ignore this thread
There's No Bubble In Stocks
[Comments enabled]

No, this isn't 1999 -- or February of 2000.

It's not middle of 2008 either, when Countrywide's "Tan Man" was making nearly-daily parade appearances on Communist News Bull **** proclaiming how he was going to "take share" from collapsing subprime lenders, pumping his share price.  The company subsequently collapsed in a smoking heap.

I know, I know, stocks are cheap.  I just had someone run that crap on me with Micron in the bar last night, pointing to their TTM earnings P/E and "forward estimates."  He of course ignored the ~400% price rise in the last 18 months or so, the rather-high price:sales ratio and the proved, 20+ year cylical nature of the DRAM and NAND chip sector, along with the fact that they're in a commodity products business which means that as soon as you start getting >10% pretax margins (which Micron is achieving at present) someone will come shooting at you -- because you have no "moat" and they can.

I wished him the best of luck in buying it at $45.

This morning we have this piece of crap:

This is a tiny little microcap company that announced it's changing it's name to "Long blockchain", if I read the release properly.  The result?  A 200% move in the price.

Isn't that nice.

Remember the 1998/99 timeframe when any company that put the word internet or web into its name suddenly doubled, tripled, or went up in price by 10x?  Not a single thing changed in its operation, but the name alone was good for that doubling.

Well, here we are again.  When this happens in a so-called "market" the entire market is full of nothing but hot air.

The Fed doesn't care and Trump is cheering it, but pop it will, and when it does everything will get a big fat horse-schlong up the chute at once.

Just remember folks that these sort of shenanigans, along with things like Apple intentionally trying to toss off warranty repairs in a fashion that tends to try to force you back into the store to buy another phone are all the hallmarks of extraction, which comes with bubbles.  Buybacks and other machinations of that sort are another indication; when you cannot find an innovative use for your profits, that is, to actually improve the company what you do is issue shares to the executives and buy back float so as to effectively steal equity from the common shareholders and give it to the executives.  Not one person in a thousand realizes what's going on because the price goes up for a while but the decrease in float means that increase in EPS happens because the divisor got smaller, not because the actual gross earnings increased.

That's important because when losses come that same smaller divisor means the loss per share goes up by the exact same amount, and the resulting share price damage will also be multiplied.

Said executives will have sold their positions through "pre-planned" sales first, at least in part, while you will probably not since you think the price is going to continue to rise to the sky.

Beware pins.

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