I tried watching the debates.
I tried to watch the Q&A election segments.
I really tried to tune out the noise and just listen for the policies…
But it all just sounded like a Bill Burr skit to me. In fact, now whenever my wife and I hear political debates on TV or the radio, we put on silly voices and quote Bill Burr for fun…
Conan O’Brien: ‘Have you been watching the convention, the republican and democratic conventions?’
Bill Burr: ‘No. If you watch those I think you’re an idiot. I don’t understand why you would sit there wasting your time, they all say the same thing. They’re all like ‘You know, over the last four years, everything good that happened was cause of us. And we would have done more good stuff if it wasn’t for those guys.’
[Sick of the political jargon? Sick of hearing about bond yield and interest rates? So are we. It’s why Lachlann and I sat down to talk about the stuff we thought was interesting, no mainstream balderdash. We covered topics like the tariff hikes to the problems going on in Europe. To watch our informal chat, click here.]
That’s what it boils down to at the end of the day.
Pollies know votes aren’t won with smart policy promises or action. Votes are won with character attacks and pulling on the heart strings of the public.
It’s why I found it so hard to watch any of the debates during this election campaign. Nothing but character attacks and kissing babies on both sides.
Rather than list the empty promises you could easily find on The Age or Herald Sun, I thought we could talk about something more exciting today.
Let’s take a look at the Aussie tech implosion waiting to happen…
But first, to a more interesting political figure…
You may have heard Trump tie his success to the stock market before. When he cut taxes, which momentarily lifted stock prices, he was the first to take credit.
Stocks are falling now. Does that mean Trump is losing? Nope. Not according to Trump…
Cited by the Australian Financial Review, Trump notes:
‘We take in billions of dollars [in tariffs], it’s a very positive step, I love the position we’re in. There can be some retaliation [on China’s part], but it can’t be very, very substantial by comparison.
‘A small portion [of the billions] will go to our farmers, they’ll be very happy, our industries will be very happy.’
Investors are not as happy, though. They finally stepped back and had a look at stock valuations. They decided they were a tad high. Especially if more tariffs are on the way.
Just think of the economic implications, which South China Morning Post (SCMP) noted:
‘The latest salvo in the multibillion-dollar trade war between China and the US raises the stakes significantly in the US as the associated costs and losses become more visible not only to farmers but to most American consumers.
‘China’s announced higher tariffs Monday on US$60 billion in US goods – in response to the Trump administration’s 25 per cent tariffs on US$200 billion in Chinese goods on Friday – suggests that both sides are facing growing domestic pressures, reducing room to manoeuvre and increasing uncertainty, say analysts, farmers and industrialists.’
And if corporate earnings do fall, it’s almost certain stocks will follow. There’s only so much low interest rates can do.
Once stocks start dropping, investors won’t be thinking about discount rates or cash flow streams. They’ll all be looking at that door, wondering if they can get out before anyone else.
Of course, we’re not there yet. Yesterday, I mentioned the frothy behaviour going on for electric vehicles (EVs). But it’s not just that. Investors in China, for example, are willing to put money into dozens of unprofitable start-ups.
Again, from SCMP:
‘Sequoia Capital China, Tencent Holdings and IDG Capital are the three top ranking investors in Chinese unicorns, according to a new report.
‘The Hurun report lists 202 unicorns, start-ups valued at more than US$1 billion, in China as of the first quarter of 2019. Sequoia China has invested in 53 of them, Tencent has put money into 31 and IDG has invested in 25.’
You also recently saw tens of billions of dollars pour into Uber, an unprofitable mess.
The speculation seems to be finished though. There were likely more than a few traders jumping into the stock, hoping for a first big day gain. That didn’t happen…
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Then there’s bitcoin. The shiny token has screamed passed $11,000 apiece. Speculation likely had something to do with it. Companies expected to accept crypto payments, like eBay and Whole Foods, was likely another motivating factor.
All of this suggests financial speculation is far from over. But the facts still stand. Financial assets are still incredibly expensive, especially those in the tech sector.
The tech bubble reborn
Fund manager Ray David recently pointed out in a LinkedIn post that Aussie tech/software values are now trading at similar multiples to five of the richest Nasdaq stocks in 2000…
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Maybe investors are still trying to find the next Microsoft…good luck!
You’ve probably come across a few richly valued Aussie tech stocks yourself. Afterpay, WiseTech, Altium. The usual suspects come to mind.
There is no doubt in my mind, investors simply aren’t bothering to look at valuations. They have overly optimistic assumptions for earnings. And they’re forgetting about competition.
Right now, it’s just all about revenue growth. But what happens when the scary moment hits? What happens when tech investors all start looking for the door?
You might be safe holding highflyers for now. But that day will come…bang…crazy…and everything comes back down.
Maybe that doesn’t happen in weeks, months or the next few years. Maybe we continue to plod along as easy money continues to flow into stocks.
But I wouldn’t count on it.
Find the door now,
Editor, Money Morning
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