Courtesy of Karl Denninger, The Market Ticker
In certain stocks trading at P/Es of 80 or more….
Which, according to at least one hedge fund, is being generated by rather-aggressive accounting practices. Of course the problem with such practices is that while they’re legal they do nothing for your deposit ticket at the local bank, and you’re never able to play with the latter. When the cash flow runs out, so do you. See the myriad companies that wound up with no cash to maintain operations in the long term in 2000.
We could talk about cotton….
Or if you prefer, how about inflation?
This index is actual prices in actual stores collected by actual people. It’s not the CPI’s "weighting" nor does it include their distortions – including intentional ones like hedonics and "owner’s equivalent rent."
But that doesn’t really count inflation correctly either, because how price changes impact you depend much on how your spending is allocated across various classes of products and services. For those with high incomes changes in energy and food costs mean almost nothing. For those with low incomes those same products literally can put you into starvation or cause you to freeze to death.
The fact remains that "price stability" are two simple words that mean just that: PRICES THAT DO NOT CHANGE. Yet this is anathema to The Federal Reserve, even though the advance of human technology and understanding always leads to natural deflation in the economy, not inflation.
See, The Fed and the rest of the financial industry, along with the government it has co-opted and infiltrated, survive only by turning you into a debt slave. By enticing you into taking uneconomic decisions – the decision to borrow in order to consume or speculate.
Those economic choices are always poor. They are always wrong. Yet without them the entire financial industry instantaneously collapses.
The problem is that these practices have led to us doubling both Federal and Systemic Debt three times – from 1980 to 1990, from 1990 to 2000, and from 2000-2010. Now we’re being told that we have to do it again.
With what we pay the interest on that ever-increasing pile of debt in order to power the markets and economy higher?
Go ahead folks, buy the parabola. Remember Microstrategy, which sucked in so many people. For those who forget, here’s the split-adjusted chart from 1999 and 2000.
This is the pyramid scheme you’re currently involved in with stocks like Netflix. With the belief that "it’s all ok" and you should "buy all dips."
And while I’m sure you’re convinced you’re good enough, and fast enough, to figure out when the bubble will pop, and you’ll get out with a huge profit, in 2000 you only had to be off by three days to lose 2/3rds of your money, and only by one day to lose half.
If you believe you’re that good you’re deluding yourself.
Then again, throughout history the people who listen to the crooners, and buy into these insanities, always are.
