…when tech stocks get demonstrably cheap, often times, they’re on their way to zero.Bill Fleckenstein via interview with Jim Grant on Real Vision™
What makes a stock, any stock, a “value” today? Hint: rhymes with, central bank.
So, with that said, is it fair to say that if the central banks of the world suddenly pulled all their current intervention from the capital markets, there would be an immediate repricing of everything with a ticker symbol?
Let’s take it a step further, but we’ll make it a bit easier to comprehend or digest its implications.
Using only one central bank e.g., The Federal Reserve. When they decided to alter their monetary policies, what happened to the entirety of stocks? Again, hint, rhymes with: plummeted.
Was it one stock? One sector? One geographic market? No hint needed, you already know the answer. e.g., No, everything went down, in unison.
So using the question I posed above, there appears to be an impasse to whether or not any true “value” can be calculated, correct?
After all, if the value question of any subsequent ticker symbol can be calculated effectively, then why does it appear to be at the mercy (and in actuality react) to the dictates of a cabal of policy wonks that have demonstrated time and time again, they have no idea of what they are doing except to engage the “print” button?
Remember, the “moves” I’m speaking to directly are not trifle. They are moves that have taken entire sectors, in unison, down some 20%, with some so-called “fairly valued, fairly priced” individual names down even further.
Again, in unison and not in years, but weeks, months, and for some – days. (See your own 2018 year-end statements for clues of validity.)
Since the now infamous “Sunday call from Cabo” where the Treasury Secretary called the U.S. major bank CEO’s interrupting his in-progress vacation to discuss liquidity levels on Dec. 23rd. The “markets” have not only recovered, but with the additional jawboning, then the subsequent implementation of the Fed going into full “pause” mode, they actually managed to recover recording another “never before seen in human history all time high!”
Albeit the move has been more incremental than anything else, it’s the time frame where this move really shined. So much so, that the mainstream business/financial media cadre of next-in-rotation fund-manger and associated Ivy League’s so-called “smart crowd” cabal are knocking over their own mothers to get in front of the the closest camera, microphone or keyboard to profess, “At this pace, it’s Dow 365,000 by year end!”
Over dramatic, but you get the point.
However, with this as a backdrop I would like you to revisit Mr. Fleckenstein’s observation which I started off with. The reasoning is this:
Why didn’t all the so-called “most coveted and highly valued tech stocks”(think FAANG eg. Apple™, Google™, Amazon™, Netflix™, Facebook™, etc.) recover to new highs, or at minimum, their once prior highs in unison?
Did they recover? Sure, but not as did the indexes.
This should be your first clue that something is no longer as it once was when valuing anything with a ticker symbol.
Or said differently:
When it comes to what was once seen as a “value,” it should now be looked through the prism so overly used this past decade but now represents the antithesis of what it first did. e.g., It’s different this time.
I was watching one of the television financial shows the other day when one of the hosts remarked that they were going to buy Apple, because, it was “cheap.”
Fair point if you use the metric they were, basing it upon the $215 of only the week prior to then sitting at $185 respectively. And yet…
Which is the real metric to base that value at? i.e., $185 is cheap relative to $215, so it must be a steal as compared to its prior $233 just a few months prior, right?
But then again, with all things being equal, how in the world was it ever “valued” in the $140’s in between?
See what I mean?
Google is in a similar quandary for those trying to figure out what this term “value” really represents in dollars and sense. And no, that’s not a typo.
Google reported falling metrics which should be raising concern to anyone that understands business in its latest earnings report. The stock “tanked” and so far has not only not recovered its prior highs has since, steadily, been going lower. The recommendations?
Based on the above, the “analyst” community, along with the next-in-rotation fund-manager set, have raised their outlook to the stock price not only recovering, but setting new all time highs. Imagine that, who’da thunk it?
So again, I ask: where does one calculate the “value?” From the prior highs? Or, the falling metrics?
My advice? Throw a dart, it would appear there’s really not that much difference between the two, is there not?
It would appear that the largest tech names are entering (if not already there) within the most hated window for investing in general. And that is: “the value trap.” aka dead-money.
This is when, based on all things being equal, the stock price of a company appears “cheap” compared to either its former valuation or, its metrics in relationship to others, whether it be P/E multiples, etc, etc., etc.
And it’s here the stock price, barely, if ever, moves up or down. It just sits there, forever. Hence the term “dead-money.”
But the term “value” will be used to describe this phenom over and over again, ad nauseam as to try and sell the narrative (and pocket a commission) that “it’s different this time” for ____________(insert ticker symbol of choice here) compared to other so-called “value traps.” Hint: “trap” is your first clue to what happens to the preponderance of said “value” stocks.
However, that’s if you’re one of the lucky ones. Why do I say “lucky” you ask? Great question. So, in that light, I’ll submit the following for you to decide. To wit:
On April 25th I posited the above and summarized that, from a purely technical view, there would be a moment in time coming for Tesla that could, as the title implied, be the beginning of an existential crisis. “What has transpired since?” you ask? Again, great question and again, to wit:
So with the above for context, where would you place the “value” price on owning the above? Because if you compare it to its prior prints from IPO to today, it would seem it is sitting squarely in the middle.
Yet, which end is it that constructs said “middle?” And is that the right one to use? Or is it higher, lower, or right where it is that makes it a “value?”
My intuition? Let’s just say I’m sticking with the dart analogy I used previously. But if that doesn’t sit well with you, maybe you should base it on the leaked email, only days ago, just after Tesla raised additional funding, that its current cash-burn rate – only gives them 10 more months to achieve breakeven. i.e., infer existential implications however one decides to.
And as far as “analyst” or any remaining Wall Street next-in-rotation fund-manager credibility is concerned? Here’s another “existential moment” for your consideration when it comes to whether or not I’m too hard on these people and that they really do have your best fiduciary interests at heart.
From the days-of-yore May 4, 2019. To wit:
Existential moments for value, tech and investing advice, in deed.
© 2019 Mark St.Cyr