Wednesday, August 8, 2018

"There Is No Alternative" To Crash

The operating assumption is that it will always be the exact same people who continue to suffer the majority consequences of this global exploitation scheme. Compliments of untold ignorance and arrogance, that's just not the case...

The Trump/Fed tag team wrecking ball are imploding one asset bubble at a time, intermittently pausing for FOMC meetings and rounds of golf. Stoned gamblers are crowded into the riskiest and least profitable stocks, because according to bubble finance 101, "there is no alternative"...

Via the magic of the Excel-based discount cash flow model, the day of economic reckoning has been conveniently deferred until "never". Today's asinine valuations make sense only when viewed through the lens of bubble finance 101. An infinite annuity invented by the exact same industry that fabricated the concept of the infinite annuity: The Finance Industry Flat Earth Society. Sadly, in taking their Magic 8 Ball dependent model to its logical conclusion, they've now turned this entire clown show into a binary call option on the linear extrapolation of bullshit...

The reason they have no clue it's ending is because they don't teach commonsense at MBA school. Especially as it pertains to the overall economy, because what works great for one company becomes an unmitigated disaster when implemented en masse. What we are witnessing are the "unintended consequences" of Ponzinomics. The over-investment in mutual assured bankruptcy:

The dearth of growth globally, has kept long-term bond yields suppressed across the globe even as the "global synchronized" reflation reaches halfway through its tenth year. At no time in history has the U.S. long bond yield been lower at the latter stage of the recovery than the early stage of recovery:

A trillion dollar deficit for 2018 still sees today's yields lower than 2011 and only breakeven with 2014:

Given this no-growth environment and miniscule cost of capital, it should come as no surprise that the bubble finance machine has gone into asinine overdrive.

Companies are now using near-free levels of capital to generate top line growth which is driving asinine stock prices. All predicated on the indefinite possibility of future profitability. Myriad companies across multiple industries are using this exact same model, the most notable being Amazon, Netflix, and Tesla. But many others including Dropbox, Snapchat, Workday, Spotify, Salesforce use the exact same "land grab" model. In doing so, they've all turned into massively leveraged call options on sustained economic expansion. There is zero room for error in future growth forecasts. Either they will be indefinitely marginally profitable or they will be wiped out aka. "Facebooked". 

"Netflix raised $1.9 billion in the junk-bond market in April and will surely return to that market before the year is out. (That said, the markets could dry up for exogenous reasons, like another financial crisis; Netflix’s growth story is inseparably linked to the easy money of the past five years.)"

Slowing global growth and the strengthening dollar has herded ever-more capital into these massively crowded binary Technology bets; which is why a handful of Tech stocks now account for all year-to-date stock market gains. Facebook gives a small taste of what happens when growth forecasts are lowered. I say a small taste because compared to the other bubble stocks mentioned above Facebook is a highly profitable company with by comparison a reasonable valuation.

In summary, the Tech sector overall can no longer accept an overall (U.S.) growth downgrade. Because it is now a massively leveraged call option on the linear extrapolation of bullshit. Ten years into the new Y2K cycle:

As I write, Amazon is making a new all time high. Using untold amounts of free capital to bankrupt the rest of retail. What could be more bullish than that?