The Great Money Bubble by David Stockman

Author:David Stockman [Stockman, David A.]
Language: eng
Format: epub
Tags: BUS016000 BUSINESS & ECONOMICS / Consumer Behavior, BUS019000 BUSINESS & ECONOMICS / Decision-Making & Problem Solving, BUS022000 BUSINESS & ECONOMICS / Economic Conditions, BUS023000 BUSINESS & ECONOMICS / Economic History, BUS029000 BUSINESS & ECONOMICS / Free Enterprise & Capitalism, BUS031000 BUSINESS & ECONOMICS / Inflation
Publisher: Humanix Books

Amazon: Overvalued by Any Measure

At the end of the day, valuations do matter, and that’s why the valuation of the very highest-flyer of the present bubble cycle, Amazon, is so hideously excessive. Indeed, as I explain further later, we seriously doubt that it will ever post earnings remotely consistent with its current $1.7 trillion market cap. That’s because its gigantic e-commerce business is not a profit maker, and the overwhelming share of Amazon’s modest earnings of $29 billion on $443 billion in sales is due to its Amazon Web Services (AWS) cloud business, a classic case of a one-time shift of technology that will soon reach its GDP-anchored limits.

It’s worth remembering that when stocks appear to grow to the sky, skydiving is next on the agenda. For instance, during the years from 1998 to 2000, the Nasdaq-100 appeared to attain liftoff from a tenuous mooring to the net income of its constituent companies, rising by 300 percent to a peak of 4,700 in less than 24 months.

Then came the March 27, 2000 blow-off top. Twenty trading days later, the index was down by a gut-wrenching 30 percent, only to stutter long enough at 3,000 for buy-the-dippers to come in for one last killing, a slaughter that proved to be their own. By October 2002, the index had lost 83 percent of its peak value. At 800, it posted lower than way back in December 1996, when Greenspan first warned about irrational exuberance and no one paid attention, including the “maestro” himself.

That was a warm-up. Consider the same chart today, which is destined to become the Nasdaq-100 blow-off top of the near future. This time it took a tad longer to reach low-earth orbit at 16,000, but the index did touch 7,000 as recently as March 23, 2020, when the U.S. economy hit the skids under the lockdown shock, leading the Fed to run the printing presses round-the-clock.

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