Gary Kaltbaum was on fire this AM. That is, with respect to the dumpster fire that was racing through the casino. So we quote at length his sentiments, which are ours as well.
ENERGY has topped. All the major ETFs are now below support and the important 50 day moving average and worsen today.
TRAVEL-RELATED areas look like they have topped with many names breaking below support and the 50 day average. We are talking CRUISE LINES, AIRLINES, HOTELS and the like.
GM and FORD have topped and have broke below support and the 50 day moving average. Yes…they matter.
Seeing a few too many SEMICONDUCTOR names doing the same with the SOX looking like a near term top.
The REGIONAL BANK ETF (KRE) is breaking below support and the 50 day average today.
Bubbles have burst everywhere. SOLARS, SOLAR CELLS, WEED STOCKS, PENNY STOCKS, NO SALES STOCKS, ELECTRIC VEHICLE STOCKS, SPACs, ridiculously priced IPOs…all the froth has been getting slammed…many down 50%+.
Bitcoin looks like it is topping out. Yes…you know, that new asset class that will never go down. That asset class that is now being accepted AFTER A 6-7 -FOLD MOVE in the past year. That asset class where a gargantuan IPO was able to come public at valuations beyond the beyond AFTER A 6-7 FOLD MOVE. That asset class that is NOW being talked about by everyone AFTER A 6-7 FOLD MOVE. Catching our drift?
What merchant in their right mind would accept this asset class AFTER A 6-7 FOLD MOVE? The answer is a ton of them but…watch what happens if this asset class that will never go down decides to go into a bear market. What? You don’t think an asset class that just went up 6-7 FOLD can drop 30, 40, 50%?
WE ARE UTTERLY AMAZED AS TO HOW MANY HAVE COME TO BELIEVE THIS “THING” WILL NEVER GO DOWN. WE ARE STUNNED BY HOW MANY WILL NOT EVEN CONSIDER THE POSSIBILITY. Seems that ridiculously priced IPO may have marked a moment.
We want to especially second the motion with respect to Coinbase and the cryptos, even Bitcoin. The latter ain’t money, folks, because Gary Kaltbaum is dead right. The purpose of money is to function as a store of value and a medium of exchange.
Forget the store of value thing. Bitcoin may be the greatest speculation in recent history, but when “value” explodes by 6-7X in one year’s time, and will most surely implode by 75-95% when the next financial crisis makes its deadly arrival, it’s not “storing” nothin’.
But you can’t use it to make payment for goods and services, either. Well, unless you instantly convert it to fiat dollars, but then what’s the point?
Sure, a bubble-rider like Elon Musk says he will take it in payment for one of his snazzy $100,000 cars, but that’s because this foolish man thinks it will never stop going up, and most especially on his say so.
Then again, what do you expect in a casino that is so intoxicated that it has bid up the price of a joke? That’s the aforementioned Dogecoin, which is now up since the beginning of 2021 by 8,100%.
And, yes, this is truly a big number. In fact, it’s more than double all the gains on the S&P 500, including dividends, since Bubbles Alan Greenspan started the entire present day stock market bubble way back in 1988!
For want of doubt, that’s a market cap larger than 70-year old Marriott International or 125 year-old Ford Motor company.
But that’s not all. Here’s one straight from ABC News, and we quote the latter because in a world of Fake News we can’t believe that even ABC could invent this one.
An NFT called The Pixel— an image of a single pixel — was also up for auction, fetching $US1,355,555 million after a 90-minute bidding battle.
Then again, this singular dot was made by an artist known only as Pak. Brevity is apparently his shtick.
Still, today we heard a talking head on bubblevision say that things like Dogecoin, The Pixel and the $100 million New Jersey deli don’t mean anything. They’re purportedly just the work of some stray juveniles having fun along the sidelines of the big game on Wall Street.
If so, Wall Street has its share of stray juveniles and unhinged robo-traders. After all, who bought 371 blank check SPACs worth $120 billion at par during the last 15 months on the hope that their sponsors would make an awesome deal?
Indeed, the final throes of the SPAC craze have made even the dotcom madness of early 2000 look tame by comparison.
After all, what else can you say about a market that recently ponied up $300 million for something called the Mission Advancement Corp. launched by, well, an unemployed former NFL quarterback named Colin Kaepernick.
Kaepernick plans to remain a “highly engaged owner”, has a board made up of mostly “black, indigenous and people of color” and claims its mission is to “invest in and grow a business in a way that delivers a significant impact financially, culturally and socially.”
Good luck with that, of course. But what in the world does any of this have to do with a rational, productive capital market?
Gambling joint is the better word for it. That’s essentially what Wall Street has become after years of being drowned in liquidity, stock index puts and ultra-cheap debt by the Fed and other central banks.
Still, when speculative madness reaches its apogee, things eventually begin to crack, and in the SPAC case that is already happening.
Since peaking in mid-February, the U.S. IPOX SPAC index, which tracks U.S. blank-check stocks, has plunged over 24%. That’s more than twice the 10% drop in ‘traditional’ IPOs since the same peak.
But here’s the thing. The penumbra of speculative frenzy which has enveloped the financial system does not stop in the tech sector or along the boundaries of the loony bin inhabited by the Redditt mob and the crypto crazies.
Way over on the other side of the deck we have today two no-growth Canadian railroads in a bidding war for the no-growth Kansas City Southern at valuations which are a truly ludicrous.
At the $325 per share offered by Canadian National, which is 14% owned by Bill Gates, the Kansas City Southern would be valued at $29.5 billion, and at $33.7 billion on a TEV (total enterprise value) basis when you add-in the debt.
What these valuations amount to is literally out of this world for a little train company that wishes it could (its the smallest of five remaining Class I railroads in the US) but hasn’t. The proposed deal’s relevant valuation multiples are:
- 47.7X LTM net income of $618 million;
- 48.8X LTM operating free cash flow of $604 million;
- 36.3X LTM EBITDA minus CapEx of $926 million.
The EBITDA minus CapEx multiple is downright insane. Before the central banks went totally off-the-deep end after the turn of the century, a typical valuation for a no growth company would have been 5X-8X, not 36X.
For want of doubt, during the last nine years, the company’s sales have grown at just 2.1% per annum and its net income has risen by 5.5% per year.
By contrast, its market cap in June 2012 was just $7.6 billion, meaning it will have risen at an 18% per annum rate at the deal price now pending.
So the question recurs. How in the world can the Canadian National justify this stratospheric valuation?
Simple. They are financing about $19 billion with cheap debt and the balance with vastly over-valued stock. That is, the Canadian National has been even more of a zero-growth company than its target, but is currently valued at nearly 30X net income.
In fact, when you look at its 5-year financial results, its pretty evident that the casino has engulfed the entire stock market, including the staid old railroads.
Between April 2016 and the April 2021 sales and net income grew by +2.5% and -0.7%, respectively, even as the company’s market cap soared from $41 billion to $79 billion.
So doing, its net income multiple rose from 14.8X, which is reasonably frisky for a railroad, to today’s out-of-this-world 29.4X. Likewise, its free cash flow multiple climbed from 21.5X to nearly 30X during the same five year period.
Then again, it’s pretty obvious where the incredible froth in current financial markets originated. During the last 13 months there has been $27 trillion of monetary and fiscal “stimulus” injected into just the five large economies shown below.
That will do the trick when it comes to inciting a “boom”.
It will also insure that the mother-of-all-busts follows thereafter.
