Dennis Elam
Friday April 24, 2015
Word Count 667
Everything Old is New Again
Bill Griffeth and Sue Herera, CNBC anchors, could hardly contain themselves. The NASD index of high tech stocks had soared from 1750 in October of 1998 to a lofty 5,000 by March of 2000. The party did not last long with the index returning all of those gains in the next two years.
So here we are again at NASD 5,000. This time the NASD has merely doubled in the last two years. We are assured that this is not a replay of the dot.coms, those alluring internet stocks with no earnings and high prices of the earlier era.
These days Facebook trades at a 74 price earnings multiple. Priceline’s $1,221 value seems downright blue chip, trading at a 26 multiple.
This time around however some of the highest fliers are not listed. Pininterest an online scrapbook, has an estimated value of $11 billion. Lyft, a ride sharing service is apparently worth $2.5 billion. Uber the original ride share service is apparently worth $41 billion.
But hey, tech high fliers sport high multiples, right? I put together a short list of some current favorites
|
Stock
|
Price
|
Price /Earnings
|
|
Yelp
|
50.32
|
105.94
|
|
NFLX
|
559.06
|
129.41
|
|
AMZN
|
399.
|
–
|
|
LNKD
|
256.24
|
–
|
|
GRPN
|
7.15
|
–
|
From the top those are YELP, a rating service, Netflix, an on line entertainment provider, Amazon, the biggest retailing success ever and the most incapable of turning a profit, Linked In, a wildly successful social network, no profits, and finally already fading coupon star Groupon. The lack of a price earnings ratio means those firms literally have a price but no earnings!
At least back in 2000, the public pushed stock valuations higher. This time around the companies themselves have pushed stock prices higher.
Consider this from the February, Atlantic Monthly.
Over the past decade, the companies that make up the S&P 500 have spent an astounding 54 percent of profits on stock buybacks. Last year alone, U.S. corporations spent about $700 billion, or roughly 4 percent of GDP, to prop up their share prices by repurchasing their own stock.
Companies have used Bernanke’s zero interest rates to borrow and buy back their own stock, insuring the generous options owned by CEOs pay off. But that means the money did not go to hire new workers or stimulate investment. And so we have a slow growth economy.
This incidence of self-indulgence (buying one’s own stock to increase the price) is now reflected in social mood. The ends of eras produce nostalgic look-backs rather than startling new ideas. This summer one needs go no further than the nearest cinema to see social mood in action.
Mad Max Fury Road iis the fourth release in the Mad Max series. The first three outings were released form 199 7-1985 at the end of the last long bear market. As befits the world situation now, there is little dialogue but lots of violence.
Jurassic World will be the fourth in the Jurassic series from 1993-2001. Interestingly the last Jurassic film was released in 2001 just as the market began a serious decline. Things never turn out sell for the tourists who keep coming back in the sequels.
Poltergeist is also a fourth release from the 1982-1988 series. Themes are haunted houses and child kidnapping ghosts.
And oh no, Terminator Genisys features Arnold once agin reprising his role from 1984-2009. This will be fifth film with two more to follow. And yes, our famous android is beginning to age. The plots always involve time traveling assassins trying to re-arrange biological history.
We joined the Griswalds for five vacation films and now son Rusty is back with his own family. Will Granny Beverly D’Angelo die off as in the original version?
Only the Vacation series is what we might call light hearted fun, the others are dark themed movies. Is it coincidence that all are coming this summer with the NASD back at its old highs?
We will track the social mood throughout the summer, as well as the markets.
Follow Professsor Elam at http://www.themarketperspective.com
Professor Elam 