The unfounded contortions currently employed to rationalize this mega Tech bubble are pushing the limits of fraud, even by today's Trumptopian standards. Social mood is reaching manic stupid heights of willful gullibility. The only thing that has kept this gong show from exploding already, are parabolic Tech moonshots by trillion dollar companies. Social mood will be the final arbiter of insanity as manic morphs to panic...
"It worked":
"People were talking about a bubble. I said what bubble?"
On Friday this past week, Amazon rejoined the $1 trillion market cap club, which now includes Apple, Microsoft, and Google. However, by the end of the day, Amazon's market cap was back under $1t. A Key reversal of fortune.
Zerohedge just gave us the litany of Goldman Sachs excuses for why "this time it's different".
"Kostin, who has a 3,400 year-end price target understandably does everything in its power to mitigate fears that the Nasdaq is about to experience a second catastrophic plunge"
First off, Goldman completely ignores the market cap concentration risk, which I call the "crash ratio". The fact that five stocks now comprise 50% of the Nasdaq 100 and 18% of the S&P 500.
In addition, they focus on today's lower valuation ratios (P/E multiples), by totally ignoring the fact that profits as a % of GDP are almost 3x higher now than they were twenty years ago. In other words, on a cyclically adjusted normalized basis, today's profits are in no way sustainable.
Worse yet, they ignore the past year's multiple expansion which occurred solely due to the Fed lowering interest rates into a slowing economy. In other words, they ignore the deflationary/recessionary backdrop. Which means that today's forward profit estimates have the veracity of a Magic 8 ball. Recession concerns are driving valuations to extreme levels in the reflexive belief of lower interest rates.
Which means that whereas in Y2K, that bubble burst was not coincident with recession, this bubble burst IS coincident with recession.
As this article describes, all four of the largest companies have converged on the EXACT same business model: Cloud computing. Basically the migration of decentralized enterprise computing to factory-style centralized mass processing. One can make the case that this not new business model is "priced in".
"Apple, Amazon, Microsoft and Google parent Alphabet have all looked to services and cloud businesses for growth in the past couple of years. In turn, the market has rewarded the companies richly, as each of the tech companies’ market values have climbed to record levels."
The question on the table is how much is social mood driving the market versus the market driving social mood. Now trapped in some sort of manic melt-up which has pushed consumer confidence to a twenty year high. At the worst possible time.
Below we see the weekly Nasdaq RSI (top pane) which is more overbought than it was two years ago. In the main panel I hid the Nasdaq and instead overlaid the world ex-U.S. to show the three wave social mood pattern. In other words, despite driving to new highs, the Nasdaq is following the same ebb and flow of risk appetite as the rest of the world. Which is the long way of saying we are now at third wave down in social mood:
This is the right shoulder crack high, which will be far more lethal than the left shoulder and head:
Overnight, despite the PBOC interventions, Chinese markets were a bloodbath. As it was in 2015, efforts by the government to prevent meltdown did not work:
"The wipeout came even as the central bank made its biggest cash injection to the financial system since 2004 and despite apparent regulatory moves to curb selling."
Here in the U.S., the overnight futures found their footing just above the 50 day moving average. The key Maginot Line for accelerated meltdown. This pattern so far is identical to the one in 2018. The market opened green on the Monday two years ago. The close will be more interesting.
As over-valued Tech stocks make their final moonshots, economic cyclicals have been going bidless:
Nasdaq down volume is already the highest since the last major selloffs:
Google is the last of the mega cap Techs to report, today after the close:
This is their last chance to get in before meltdown.
