Market notes (and pics from San Fran)
I was in San Francisco for a total of 36 hours, not including 18 hours of travel time to and from driving 90 minutes from y office in Ruidoso, NM to the tiny regional airport in Roswell, flying to Phoenix to Oakland and from San Jose back to Phoenix to Roswell and driving back to my home in Alto.
I was there for an event at Bob Weir’s and Chris Moscone’s Sweetwater Music Hall in Mill Valley. Elon Musk wasn’t there, but I did get to mingle with some other very interesting people, including listening to Jeff Martin, the CEO of Tribal Planet and I spoke some with their CTO, Ron Buell. Astronaut Scott Kelley, who spent more time in space than anyone in history, gave a great talk and he and I chatted after he overheard me talking about the IAm App Platform that takes anybody’s social media and puts it into their own app.
I’m back and will be making some trades and writing some reports up this week, so stay tuned for that and much more as the merry go round of the economy and the roller coaster of the stock market continue apace.
Indeed, stock markets are continuing the churn and with biotech seemingly stuck in a rut and fading ever lower as the weakest sector in the markets.
I’m thinking banking is the next sector to short, if only as a great hedge for any potential near-term Deutsche Bank/EU-financial crises. Maybe oil and oil stocks too, as investors, traders and oil barons all have declared the bottom in oil prices is in.
Here’s an interesting discussion about valuations, our current economy, stock buybacks, central bank intervention, etc. Always keep an open mind when people like Jeff Miller and Robert Marcin, each of whom I have tremendous respect for, are debating.
Scuttle Conversation/Replies
2h ago i am sorry, that is the ev/sales chart for the entire stock market which shows we are as expensive as were were including the stupidity of the tech bubble valuations in a narrow slice of market.many dismiss valuation concerns today b/c of those dumb prices, but this shows not to.
here is the median psr chart from john hussman website….
2h ago @RobertMarcin Am I right in understanding that the bubblicious EV/Sales chart you posted shows is the result of both higher stock prices/valuations as well as from the growth corporate debt?
2h ago @CodyWillard, correct. adding up the price/sales ratios of all the companies in market, which are much higher than in 2000, despite the tmt bubble, plus the spike in corp debt has this to enterprise value to sales ratio approaching tech bubble highs. many talking heads and central bankers dismiss valuations b/c of the projected p/e of 18 vs a p/e of 24x’s in the 2000 bubble. this dismissal is might be technically correct but is an unsophisticated view of valuations.
1h ago @RobertMarcin Not to mention the fact that all that corporate debt has been issued at artificially-low interest rates, meaning that when rates some day do rise, you’ve got high valuations PLUS doubling/tripling of interest payments. It’s why I mostly avoid any company with net debt on the balance sheet. Then again, as you often note, valuation is a terrible timing tool, so should we worry too mucha bout it right now? @JeffMiller@HowardSimons et al?
1h ago @CodyWillard @JeffMiller @HowardSimons , its very difficult to fins underlevered companies in todays market. they have all used their borrowing capacity ammo to buy other companies or their own stocks to create eps growth in a slow growth environment. this is a significant unintended consequence of zirp that the central bankers dont acknowledge or recognize. all this big company financial engineering takes capital away from organic growth and destroys jobs in merger consolidations.
1h ago @RobertMarcin @JeffMiller @HowardSimons I do own quite a few tech stocks that are well under-levered. $GOOG, $FB, $AMBA, etc. But agree that there are trillions of dollars that corporations have borrowed to financially-engineer, waste on buybacks, executive compensation, etc.
1h ago @CodyWillard @RobertMarcin @HowardSimons Why do you think that corporations will be faced with rising rates on current debt? They sell bonds and pay them off. Put aside, for a moment, our opinions on how the money is spent. Suppose you were a CFO and you could choose to raise capital by selling stock or issuing long-term debt at a very low rate? It should be no surprise that many companies are choosing the latter.
1h ago @JeffMiller @CodyWillard @HowardSimons re compensation. there are 2 big issues for the provider of labor. first, wages/salaries/benefits share of the economy has shrunk a few hundred basis points and secondly, management taking much bigger share of compensation than employees. so the 9 to 5 worker getting crushed with current economic policy while owners of capital getting huge windfall from global qe and zirp. remeber, all qe is fungible and i am certain foreign central banks buy u.s. shares
1h ago @RobertMarcin @CodyWillard, I get very suspicious whenever someone starts using “naive” or “unsophisticated.” Markets are operating in a low inflation/low interest rate environment. It makes sense for multiples to be higher. Those of the bearish persuasion keep finding new measures (median stocks, price to sales instead of earnings) to claim they are right, even though the market disagrees. Hussman is a good candidate for most expensive free research reports.
1h ago @RobertMarcin @CodyWillard @HowardSimons Most central banks do not buy stocks. But I am curious. Why do you think that foreign central banks would find U.S. stocks to be attractive? And please don’t tell me there is some secret deal with the Fed!!
1h ago @JeffMiller @CodyWillard, jeff i know you do. but it doesnt make looking deeper wrong. in 2000, the unsophisticated view ignored the median p/e ratio as not bad, with many stocks at 10x’s earnings and much lower p/s ratios. also, the sophisticated view new in 2008 knew the average stock was so more expensive than in 2000 and avoided that crash. so looking deeper doesnt hurt, it just clarifies.
as for zirp and p/e ratios, i coined the phrase “justifiably expensive” years ago so i get it.
46m ago @JeffMiller @CodyWillard @HowardSimons i believe the swiss and japanese central banks buy us stocks when their monetary policies have them intervening in markets. also, in crises, i suspect central banks buy each others shares to stem market declines. i cant prove any of this tho.
PS. Here are a few pictures from my trip.
