To market, to market to buy a fat pig. Friday was jobs day. The number did not have a three in it, heck, it did not even have a two in it and was slightly light of expectations. The revisions northwards (an extra 37 thousand) of the prior numbers were pleasing. I read in the Calculated Risk blog -> March Employment Report: 192,000 Jobs, 6.7% Unemployment Rate that "Private employment is now above the pre-recession peak by 110 thousand and at a new all time high." Wow.
Markets in New York opened higher, but then trended lower on the day with the NASDAQ heading towards their worst single day performance since 2012. Yech. Why? Well, some of what I read said, OK, out of growth and into value. Biotech, one of the high flying sectors over the last year slumped over four percent. Fast flows and fast moves have seen (according to the WSJ -> Stocks Drop Sharply; Nasdaq Leads Market Lower) 526 million dollars into the Biotech ETF in the first two months of 2014, and guess what now? 280 million Dollars out in the last two weeks. How do you spell sheep?
So, stocks that have had a fabulous 12 months are all coming back sharply, Google (the split ones) fell four and two thirds of a percent, even Microsoft did not escape, down 2.78 percent on the day. Facebook fell by nearly the same amount as Google. Stocks that have been unloved in the technology space, IBM and Intel fell modestly, much less than the rest of the index. The divergent valuations on part of high flying internet stocks from Facebook, NetFlix, even Tesla to TenCent (to Naspers) relative to the "old tech" has been most evident in the last year. Over the last year, 12 months, Cisco is up 10.3 percent, IBM is down 7.4 percent, Apple is up 25.6 percent, whilst NetFlix is up 105.9 percent, TenCent is up 102 percent, whilst Tesla is up a whopping 351 percent. And Tesla is not even a tech company, they are essentially an industrial business, a motor vehicle manufacturer. Facebook is up 107 percent. Intel is up by about the same amount as Apple.
So now what? Is new tech a passing fad that will get trounced quickly and rerated back to a whole lot less? Is Apple old tech or new tech? Is Amazon and recently over the weekend Yahoo and their streaming businesses a big threat to NetFlix? One thing is for sure, as was pointed out in his Crossing Wall Street newsletter Friday, Eddy Elfenbein showed that GE trades on a 15 multiple NOW and back in the go-go days of the tech bubble traded on a 42. The message was titled, "Are we in another bubble?" and contains this insightful paragraph:
General Electric is about the bluest blue chip you can find. The stock is currently going for $26.23 per share. That's half of where it was 14 years ago, yet the company is expected to earn $1.70 per share this year. Compare that to 2000, when GE's bottom line was $1.27 per share. So profits are up 34% in 14 years (not so good), while the stock price is down by 50%. GE's Price/Earnings Ratio has dropped from 42 to 15. My point is that people have forgotten what a real bubble looks like.
Whilst GE has under performed in terms of the price, the profits have also been average. But the point is simple, how could the market possibly be in a bubble when one of the pillars of the market, in terms of blue chip measures, trades at around the long term averages? The high flyers of future years, which include newly listed businesses are either pumped up or crushed depending on the mood. The next question is, should Facebook trade on a 86 multiple historic and 49 forward (2014) and further into the future, the 2015 fiscal year, it trades on a 37 multiple? So, is that very expensive for a company that is growing fast, still has a fast user adoption and a relatively low user per revenue basis. But if you believe in the chief, believe that "new internet technology" will finally have decent profits relative to back then (2000) when anything with a dotcom had an infinite multiple i.e. no earnings whatsoever. Google looks expensive on a 31 multiple, but forward around 21 percent and next year 18. Expensive? No.
So what to do? Nothing. If you are a longer term holder of high growth businesses, waiting for them to morph ironically into more mature businesses with earnings that are less "growth" and more sure, then you must roll with the punches. The prices have possibly got ahead of earnings, but the market is still coming to terms with what is the internet era. The happiest people in this equation are the deep value crowd, because you can bet your bottom Dollar that there is a "I told you so" recency bias. The problem is that we have been told so since all these stocks were half of where they are now.
Lynx, I'm reading this, you should too
Sorry, we are now in second place on the continent, with regards to GDP on the continent. The Nigerians started measuring telecoms and financials services. And as such GDP added 89 percent. This rebasing exercise to present day is the first in nearly two decades. Astonishing. Check the FT story -> Nigeria almost doubles GDP in recalculation.
I know you love the stuff. Don't lie to me. Nutella. The business is owned by Ferrero Rocher and via AEI comes the graphic of the global value chain of Nutella. I suppose the only comment that I wanted to make is that even though this company is headquartered in Italy, their products are sourced from around the world for their factories that are around the world. Including Russia, that must be tricky.
I am not sure if this is anything but for interests sake, but when copying nature you can sometimes come up with very efficient models: This Amazing Jumping Kangaroo Robot Can — In Theory — Go Places Wheeled Robots Cannot. Michael said what happens if it falls sideways?
This is obvious, the earlier you start saving, the better, right? With the first line titled: Young people are going about investing all wrong it is pretty self explanatory. Too much cash, not enough equities.
Home again, home again, jiggety-jog. Stocks are coming back off their worst levels. Is this the last full week in a while? I think so.
Sasha Naryshkine, Byron Lotter and Michael Treherne
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