Preston Clive
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Preston Clive in Preston Clive - THE IRRITATED AMERICAN, Wielding The Digital Hatchet,

A Veritable Gaggle of Doomsayers

Is that Mark Cuban or Alan Greenspan prophesying on the mountaintop?

"There are no accidents in politics." 

That was a remark that Joe P Kennedy made to a reporter back during the days of JFK's ascendancy. He also famously said "Never buy one more vote than is neccessary; I'll be damned if I'm going to pay for a landslide." That latter quote was certainly in evidence during the election of son JFK, who--until the tiebreaker recount controversy between Bush and Gore--won by the slimmest margin in the history of the presidency.

But it's the first quote up top which I'm focusing on-- because I think the same goes for big picture finance. 

It's because of this that I find the recent pronouncements by men like David StockmanAlan Greenspan, and--now--Mark Cuban regarding the current state of the economy, almost humorous. There really aren't very many accidents when it comes to the endless flows of cash gushing into and out of the stock market. What's being touted as emergency warnings by Greenspan et al has been known be anybody with a half a brain's worth of analytical observation in real time; these warnings of danger blithely disposed to the public as though a reshuffling of numbers and a new examination of all pertinent documents and secret filings have unearthed a shocking new reality to which we all should lend our ears prontissimo or face the consequences--let us all put down the charade and admit that there is nothing new here with these pronouncements. 

We all know that the magical record high numbers this past monday are based on smoke and mirros, irrational exuberance and not real value. Investors are now more than ever posessed by a fever of generating money for its own sake; money that has little interest in building out companies in the long term. Greenspan warned that one of the primary failings of the market is the fact that nobody is looking beyond an intermediate to short term for long term capital injections. Money is not investing in companies--money is simply investing in money. The days of offering stock as a method of appeasing investor and company alike for a means to long term growth, expansion and success for the public-market good seem long gone. Artificially inflated valuations don't help a corporation when the inevitable happens--just ask Jack Ma, whose AliBaba stock, fresh from a November IPO where he raised a brain bending $25 Billion with shares on opening day skyrocketing way above the $68 opening price to close its first day at $94. Presently the stock is tanking, moving steadily south into the very low $80's (this past tuesday it almost hit $80).

What's the problem? Irrational exuberance? Overengineered expectations? They're both the same thing, essentially--they equal ridiculous valuation. With the  numbers the stock started out trading at, and even now we are looking at a new company that is trading at 30 times the value of forecasts for 2016. For a brand new company trading at the $100 threshhold right out of the gate, that is beyond absurd. Add to this the greenish odor of counterfeit goods being passed off as legit (for those living down the rabbit hole, Ali Baba is aiming to be the Amazon of the far east), as well as the effluvium of the "brushing" practice picked up on by the Wall Street Journal (brushing is the practice of having buyers purchase goods from the site at cost, specifically for the purpose of pumping up the site rating by leaving a very favorable review .  .  .  essentially padding the site) and you've basically got Money Hungry Money about ready to wrap up and call it a day.

Mark Cuban, the latest to warn the country with innuendo of doom and gloom, has posted on his blog yesterday the following thesis: Why This Tech Bubble is Worse Than the Tech Bubble of 2000

Mark begins,

Ah the good old days. Stocks up $25, $50, $100 more in a single day. Day trading was all the rage. Anyone and everyone you talked to had a story about how they had made a ton of money on such and such a stock. In an hour. Stock trading millionaires were being minted by the week, if not sooner.

You couldn’t go anywhere without people talking about the stock market. Everyone was in or new someone who was in. There were hundreds of companies that were coming public and could easily be bought and sold. You just pick a stock and buy it. Then you pray it goes up. Which most days it did.

Then the boot of reality:

Then it ended. Slowly by surely the air came out of the bubble and the stock markets declined and declined till the air was completely gone. The good news was that some people were able to see it coming and get out. The bad is that others were able to get out, but at significant losses.

If we thought it was stupid to invest in public internet websites that had no chance of succeeding back then, it’s worse today.

He goes on the split the eras with the following statement:

Back then the companies the general public was investing in were public companies. They may have been horrible companies, but being public meant that investors had liquidity to sell their stocks.

The bubble today comes from private investors who are investing in apps and small tech companies.

Just like back then there were always people telling you their idea for a new website or about the public website they invested in, today people always have what essentially boils down to an app that they want you to invest in. But unlike back then when the dream of riches was from a public company, now its from a private company. And there in lies the rub.

People we used to call individual or small investors, are now called Angels. Angels. Why do they call them Angels ? Maybe because they grant wishes ?

According to some data I found, there are 225k Angels in the US. Like the crazy days of the internet boom, I wonder how many realize what they have gotten into ?

So in addition to the overinflated market value on the NYSE and NASDAQ, we've a calamity waiting in store for smaller angel investors in smaller, private companies when the bubble bursts at last. 

My question is, how much of this is really a tremendous surprise? How much of the "blindness" alleged to be out there is genuine and how much of it is willful? In terms of the stock market anything but the acknowledgement that the blindness is willful, is blind in and of itself. Investors are grabbing as much as they can within short term parameters because they are not interested in long term scope anyway. When it all pops, they will do what they always have done--on to the next .  .  .  . 

Thus the next time some heroic looking talking head seems to do a philosophical 180, and jumps onto the airwaves in front of any camera that will have him, and proclaims the error of his past exuberant ways, and proclaims the apocalypse, know that you're not seeing a repentant soul. 

You're seeing a PR tour re-engineering the image for an upcoming or existing book.

Preston Clive