>>There is absolutely nothing wrong with paying 25-50x earnings for growth stocks.<<
That's how the tech bubble got started. The essence of a bubble is that it involves a sharp rise in the value of an asset that inevitably destroys the reason behind the rise. Tech was a classic example. The problem wasn't just that tech stocks rose to such giddy heights. It was that as prices soared and multiples expanded, tech companies began using their stock for acquisitions and massive capital projects resulting in a surge in the number of shares outstanding of virtually every major tech company. (Cisco, for instance, increased its share count by more than 50% between the mid 1990's and the early 2000s.)
Wall Street (and the high techies,) saw no problem in this, of course, blissfully recommending that investors scoop up tech shares in anticipation of continued torrid earnings growth. But all those newly issued shares both diluted earnings and funded capital investment that led to vast overcapacity and ultimately an earnings collapse. (Ironically, if Wall Street had been more skeptical, tech stocks might have remained in a less frenzied but more sustained uptrend.)
I don't see a bubble today, just a return to the stagflation of the 1970's, where prices are rising while employment falls. It's inflation that's making the multiples contract. That's where the real Bear market lies.
I'm net short here so I'm enjoying this market tremendously. What I primarily care about is being on the right side of the Trade. Debt? I don't have any debt. I was raised to save and invest wisely. I'm a worker and creative thinker. All these people carrying debt are foreigners in spirit to me. It's Time for them to pay the piper while I profit!
I have no biases like you when it comes to investing/trading in these markets. My goal is to profit, long or short. I don't care if it's in tech, gold, coal, energy, old economy, new economy, retail, consumer discretionary, etc; I don't give a flying hoot.
I think that 2006 will not only see the Fed end its long string of rate hikes, but will also see the Fed start to cut rates aggressively as it tries to fight off the recession that's coming in 2007. Once the markets realize what's ahead, there are going to be some big moves in financial and commodity prices!
But till then these markets are going downtown this summer and I plan on continuing to profit on the short side. |
