FAANG BUBBLE STATISTICS
-- SOURCE: 06-08-18 EconMatters - "FAANG Bubble Statistics" --
Everyone has piled into the same trade for long enough that we have an acronym for this herd mentality in FANG, then expanded to FAANG, and other derivatives to include hot stocks like Microsoft and Nvidia. The lack of imagination on behalf of investors, that they think these are still fairly priced stocks that represent good value in the market after everyone and their uncle has crowded into the same stupid trade is beyond stupidity. So is your strategy: Be the last in, and the last out of this trade - the the ultimate bagholder! You know there are a whole bunch more companies in the S&P 500 to research and invest in right?
At this rate, we should just scrap the indexes, since the entire market is basically 10 stocks, and just label them Apple, Facebook and Amazon. I guess we truly can just eat IPhones for meals and all the world's problems are solved. Hopefully some investors saw that Unit Labor Costs are soaring, that sure takes a bite out of corporate earnings, but hey we can pay these employees with free IPhones, this will solve that issue as well.
In short when we look at some of the recent gains in these stocks after already being pushed up to ridiculous bubble levels for years, it is quite staggering just how many bagholders there are who are going to lose a lot of money on the downside in the unwinding/crash of this trade. Make no mistake, this is one trade, pooled money all chasing the same highly concentrated niche market, which has blown up to the degree, that it has actually become the entire market. When 7-10 technology stocks become the entire market, how do you think that ends when 3 or 4 of them all miss earnings during the same quarter?
Amazon could fall $350 in a flash crash day, Apple could gap down $50 easily with a miss at these nosebleed levels as investors all run for the exits at the same time. I realize that markets are so rigged that many investors think they can use discreet algos to slowly unwind trades, well that doesn't work on gap down earnings misses which we have seen many times in these names through the last 10 years. Remember those $50 amazon gap downs on earnings misses, well at these $1700 a share levels this now means $300 gap down moves!
Think about that effect on highly levered concentrated markets, especially when technology reports around the same two/three week period in the quarterly earnings reporting cycle? The 2nd quarter earnings for technology companies could be an absolute bloodbath come July given that this is the slow time of the year for many tech companies. There is no way I would want to go into Amazon's next earnings report with the stock at $1700 a share, or Netflix at $370 a share. I was just on Netflix last night, they have nothing to watch, no new release movies, and their original programming sucks to put it bluntly. What a bubble stock Netflix has become, good luck with that gap down some earnings report!
There really are some stupid and risky investments being made right now, so reminiscent of the 2000 tech bubble, and subsequent tech crash that wiped out Silicon valley, and the entire stock market, sending the country into a recession. Well that's where we are headed, and as the rising labor costs illustrate, nothing happens for free, and at the end of the business cycle inflation brings costs out of control, interest rates rise, and the overextended free money central bank punchbowl dries up, and investors are left holding the bag on bubble stocks.
Facebook has gained $40 in two months with some pretty disturbing reports that ultimately will reduce earnings going forward as they can no longer get the same revenue from selling users data, you don`t think there is a decent chance that shows up some earnings reporting period? Just a matter of time, I sure wouldn't hold Facebook stock at record highs going into this upcoming report, there is always a lag between bad news, and when this bad news affects earnings results. The bad news keeps coming, and the stock kept going higher, welcome to rigged markets - that is some crooked trading going on there because the news was pretty damaging. Some of the future implications for revenue growth were being completely ignored and not priced into the stock at all! But remember when I said this trade is a pooled money trade, Facebook is in the 7-10 stock money pool, it gets dragged higher anyway. Again these are some of the most rigged markets ever, as the regulators have stopped regulating completely right now. There is so much collusion going on right now, just like in 2000, cheating is off the charts in financial markets, always the sign of irrational exuberance, and the next financial market crash being just around the corner!
Amazon stock has gained $350 in two months, what a complete joke financial markets have become, you don't think that is a bubble move? Good luck buying Amazon at $1700 a share with a P/E near 300, I am sure that will end well for some idiot bagholder going into second quarter earnings. Remember, this isn't the holiday christmas quarter folks! The law of large numbers catches up to everybody in the end, even monopolies like Amazon.
Apple stock has gained $30 in two months. This is hardly some hot new IPO stock, given the market cap and size of this company, this is one incredibly bubbly move in a stock that has actual legitimate growth concerns with a mature and declining smartphone market going forward. The channel checks and all these buy 1 phone get the other free deals with all the phone carriers seem to be confirming the slowing of the smartphone market. Good luck going into a weak period for smartphones with a $190 stock price, a 20 P/E for a commoditized hardware firm (Most of the earnings and margins come from smartphones). Let's get serious here, Apple isn't a software company, a services company, this is just analyst spin, again welcome to rigged markets. It's the same kind of misleading spin/hype by Tim Cook that they will save consumers from smartphone addiction with their new software tweeks, just total marketing bullshit! Apple actually has declining revenue growth over the last three years with a stock price up over 100% during the same period, that makes sense, and will end well for investors! People/investors cannot be this stupid. Just read the financials, it's all there in black and white. This is why I say rigged market, nobody could be this bad of an investor. Warren Buffett should have invested in Apple 10 years ago, not at the tail end of the smartphone supercycle, just as it is coming to an end. This is why we get bubbles and crashes. Stupid/corrupt central banks give a bunch of printed money out of thin air to a select chosen market participants, and say go buy stocks and build big bubbles, this is good for our economy. Then the entire market crashes like in 2000, 2008, 2018 (about every ten years) and we get more government bailouts and negative interest rates. What a scam our society has become!
Shoot just pull up a 4 hour, 5 minute chart of the S&P 500, AMZN, AAPL, MSFT they all sell off for the same 30 minutes, are then brought up together for the next hour, the five minute bars are the same, it's just one giant pooled money rigged market scam. There are no traders anymore, the system has just become a giant pooled money programmed algo that has devolved into an absolutely rigged market scam. This is why negative Facebook news doesn`t matter unless somebody was going to jail in a breaking news type story, and why investors run for the exits every time the VIX spikes above 15! The VIX has basically become the police department raiding the drug dealer indicator for the stock market thieves. This is how corrupt financial markets are right now.
So Google has gained $150 in two months, has a P/E of 65, but at least they have positive revenue growth unlike the hype machine that is Apple. Apple is the most overhyped dog of a stock on the planet earth, they are basically a boring hardware company, dressed up to appear like a sexy high flying growth company. Just like with all computers and electronics, prices come down over time, nobody will be paying more than $250 for a smartphone in five years, because they have become fully commoditized. One square rectangular device that makes calls and takes pictures is just as good as another, very minute differences these days in the product cycle! Getting back to Google, the selling data, and data tracking issues that affected Facebook regarding privacy concerns is also going to be a headwind for Google. Not to mention the fact that many of Google's established revenue producing segments are mature markets these days, and most of those research business segments never amount to anything. Remember all the hype and promise circulating around the Nest acquisition? I wouldn't want to be long this stock at $1,140 a share going into any earnings or potential risk off event like a midterm election. Yes $1,140 a share with a P/E of 65 for a company that has been around a long time in technology terms. This isn't some high flying new tech IPO. Google has become a solid, but slow growth technology company,. However, the growth has definitely slowed down from the early days of this once hyper growth company. Again, Warren Buffett and everyone else should have invested in Google when they first came to market via the IPO, not at the height of the Central Bank Liquidity Bubble where even the ECB will be forced to raise interest rates off the zero bound.
This brings me to Netflix, one of the bigger bubble stocks in the markets these days. Netflix has gained $80 in two months, after already being in bubble territory for years. Netflix has a P/E of 300, and more debt than they can every sustainable pay off without raising subscription fees by such a dramatic amount that they will lose much of their customer base currently freerolling Netflix`s highly subsidized low cost subscription model.
And did I mention their original programming sucks, and it isn`t like every other network and cable channel isn`t also producing their own original content, we have peak original content right now. Netflix like Tesla is getting a free pass right now on their future debt obligations, but so did companies in the subprime housing market and real estate boom leading up to the 2007 crash.
Start to see the similarities in irrational exuberance, where normal business math doesn`t matter. That companies can load up on debt to subsidize artificial growth numbers. These stock valuations become juiced up into extreme bubble territory with 300 P/E Ratios, and when the economy turns, which it is close to doing this late in the business cycle, everyone runs for the exits, including Netflix subscribers as they aren`t going to pay more money for crappy original programming to bail out Netflix`s high and unsustainable debt levels. When you get right down to it Netflix and Tesla are in effect Ponzi Debt schemes. They both face Bankruptcy risk in the next 5 years, legitimate bankruptcy risk, and this fact isn`t remotely priced into either one of these two stocks. We are in a pure fantasyland and denial financial market landscape right now.
This brings me to Microsoft which I guess wouldn`t be a tech bubble and subsequent crash if Microsoft did not participate for nostalgic reasons alone. MSFT has gained about $15 to put in a new record high around $103 a share with a P/E in the 70 to 80 range depending upon the calculation. Microsoft with this elevated stock price and high P/E also has declining real revenue growth over the last 3 years. Don`t believe me just look at the revenue portion of the income statements for the last 3 years on an annual basis.
Welcome to scam markets and central banks liquidity induced market bubbles, you cannot make this kind of stupidity up! Microsoft despite all the hype around recent acquisitions and the sexy CEO isn`t some high flying growth company, but you wouldn't know it by the recent runup in the stock. The stock price has quadrupled over the last 3 years, all with declining revenue growth over that same period, talk about an efficient pricing market.
Needless to say, there will be a lot of disappointed Microsoft bagholders looking at their 401k statements wondering what the hell happened when Microsoft crashes with the rest of these bubbly technology stocks in the upcoming crash. What I refer to as the Tech Crash version 2.0. When will Central Banks ever learn that Free Money is invested very Poorly, and Causes excessive Financial Market Bubbles, that always Crash, leading to more problems then you started with in the first place!