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By Bill Fleckenstein President Of Fleckenstein Capital
June 5 (King World News) – The market was higher through midday, led by the Nasdaq, which gained 0.3% while the Dow and S&P went nowhere. Again, this is the same momentum that has been feeding on itself with just mindless buying...
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In the afternoon, the market fell back to almost unchanged before a rally took it back to where it had been, with only the Nasdaq doing anything. Away from stocks, green paper was mixed, oil was 1% higher while fixed income was a little firmer, and the metals gained about 0.5%.
We Don’t Tout It
Now I’d like to touch on some content that ran yesterday on Bloomberg, including a video segment by Rishaad Salamat, “No Bubble in FAAMG [sic], as Goldman Sees Tech Ruling for Decades,” and a related article by Lu Wang headlined,” Goldman Sachs Doesn’t Think There’s a Bubble in Tech Stocks.” My immediate reaction was, “Oh, yeah?” It turns out it was the typical nonsense that is only seen at market peaks, i.e., it rationalized the valuations of big momentum tech stocks and argued they were going to dominate prospectively because:
“Unlike the technology mania of the ’90s, most of this success can be explained by strong fundamentals, revenues, and earnings rather than speculation about the future…Given that valuations in the aggregate are not very stretched, we do not expect the dominant size and contribution of returns in stock markets to end any time soon.”
The pundits went on and tried to make the case that all these companies deserve to trade at current prices and that their valuations are purely a function of analysis, fundamentals, and logic and have nothing to do with speculation or myopia.
Famous Last Words
In 1929 the infamous quotation by Irving Fisher was, “Stock prices have reached what looks like a permanently high plateau.” The 1960s mini mania ended with the one-decision Nifty Fifty stocks. Everyone remembers in 2000 we had the rationalization that Internet stock valuations were justifiable based on “eyeballs.” And of course in 2008 we were going to grow forever because people could just take money out of their homes and do whatever they wanted and homes would just keep going up in price. Now here we are in this mania.
As for timing, an article like this doesn’t mean that stocks will go straight down next week, but it perfectly fits with the top that is being created, and it is completely oblivious to the fact that worldwide QE that is only reason stocks are trading where they trade.
Included below are two questions and answers from the Q&A’s with Bill Fleckenstein.
It Will End Badly
Question: Bill, the appetite for tech stocks doesn’t seem much different than it was back in 2000, the stocks go up everyday and all moves up are justified. Do you think things are different this time around, due to the fact that society is so connected and dependent on tech? Which is pretty sad!
Answer from Fleck: “Do you think things are different this time around?” Different this time in a generic sense or different from 2000? In either case, this entire up-cycle is different, i.e., unique, in that QE on this scale has never been done before. However, it will still end badly, so in that sense now and March 2000 are similar, not different. Hope that makes sense.
“They Are All Heading To Zero”
Question: Something interesting I received:
RBI prohibits dealing in Virtual Currencies
Dear Customer, We would like to bring to your attention that the Reserve Bank of India has a clear stance on Virtual Currencies (VCs) – that these currencies do not have any regulatory permission or protection in India. In its latest circular (dated April 6, 2018), the RBI has directed that the entities that it regulates shall not deal in VCs or provide services for facilitating any person or entity in dealing with or settling VCs. These services include maintaining accounts, registering, trading, settling, clearing, giving loans against virtual tokens, accepting them as collateral, opening accounts of exchanges dealing with them and transfer/receipt of money in accounts relating to purchase / sale of VCs. We here at Kotak Mahindra Bank request you not to make any transaction involving virtual currencies from your bank account. However, if done so, under regulatory guidelines, we would need to close your account without further intimation. We value our relationship with you and for further clarification; reach out to your Relationship Manager or Branch Manager.
Warm regards,
Team Kotak Mahindra Bank
Answer from Fleck: “They are all heading to zero. The only question is how fast, and when the next leg down will start.”
***To subscribe to Bill Fleckenstein’s fascinating Daily Thoughts CLICK HERE.
***ALSO JUST RELEASED: “Get Me Out At Any Price,” Plus The Current Risk Level For Gold CLICK HERE.
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