Karl Denninger compares our present situation to earlier collapses, and thinks we’re ripe and ready for another one.
You see, when people are buying stocks of companies that have nothing but negative free cash flow as far as the eye can see or sky-high P/Es of 60, 80, 100 or more they’re betting with their eyes taped over on exactly one thing: Indefinite exponential growth of the business and, of course down the line, profits.
The problem is that this is an impossible premise. There is no way for that to ever happen because it is mathematically impossible.
Today we have Amazon, Facebook and Apple all priced in this way.
. . .
Every morning some percentage of people wake up with a raging hard-on and then buy stock. They believe … Then there are some percentage of people who wake up in a cold sweat. They ate the red pill. They used to believe, but today they do not. Something changed their mind. They recognize that Amazon isn’t a zero, but it’s probably only worth 10% of its current stock price. Apple isn’t a zero either, but as a commodity player it’s priced at twice it’s value — so it’s worth $70-75, not $150. Facebook is worth $30 or $40, because you can’t keep growing user base in a saturated market, those not on the platform are either too young, too old or make $2 a week and you also can’t keep adding ads without eventually causing a user revolt. Netflix is worth $10 for its user base but zero for anything else and Tesla is a literal zero. They add up their shares, they multiply by the current prices, compare with the above and immediately vomit.
The day that there are a lot of the second and few or none of the first is the day the suspension of disbelief and continued buying into what is outrageously overpriced, and in many cases arguably worthless securities, ends and selling in size begins.
Is it tomorrow? Probably not. But today feels eerily familiar. The vomit-inducing upward spikes have come, and now we’re seeing people starting to ask questions.
. . .
The screams, cries, and gun-in-mouth suicides are coming folks. I can’t give you a date and neither can anyone else but this is the exact pattern that I’ve seen play out before, and this movie ends with the protagonist jumping out of a 75th floor window.
My camera is pointed upward and I’ll have film of the splat at 11.
There’s more at the link.
Mr. Denninger provides compelling evidence, tied to an historical perspective that’s right on the money (you should pardon the expression). I think he’s more likely to be right than wrong.