1/6/11…secular bear market?

…that is precisely what TB believes we are in and since they last for years it is unlikely, especially given the problems the U.S. and every major economy faces…eventually it will impact emerging markets too but they could remain the best performers. Even in the best of times, not the worst recession since the Great Depression, secular bear markets average SEVEN year or more…not two or three!

Most of you have never seen a secular bear market…after all didn’t we destroy cycle theory in the 1990’s?…even with a stock market crash (1987), a banking crisis AND an S&L crisis! No, we are America…we are in charge…or more accurately Wall Street is and even more so today as they control Congress…by the way at the boring swearing in of long-faced Bonier as House Speaker, it was pointed out that hedge funds were huge contributors to campaigns…in order to preserve their 15% tax status.

Yesterday, TB referred to a site that shows just how poorly stocks have performed over the years. Thanks to Marc, a friend and reader in S.F. TB’s memory was jogged when he sent a link to an NY Times piece. Busy with yearend work didn’t have time to check it out. It was based on the same table TB discussed yesterday. Here is the link: stock market performance. This is from Easterling BUT the site TB was thinking of was Crestmont Research. Easterling is, or was, a partner in CrestmontTB urges you to look at this site. On January 11th they will have the tables updated for 2011. When TB first found this site, again thanks to John Mauldin, he printed the tables…downloaded and took to Kinko’s to print in color on large format…they are suitable for framing. Highly recommended and again, thanks to Marc!

Note the two top stories today about Facebook. First, Goldman put out a selling memo to high worth investors (minimum purchase is $2 million), saying that they reserve the right to hedge or sell their remaining $50 million investment at any time after unloading $400 million to the suckers, er…investors. See this is how they make money…in addition to borrowing at near zero interest rates from the taxpayers, screwing buyers of their offerings by touting them while shorting on the other side, but more importantly they learned from that episode: now they are telling you up front you are a fool if you buy it! Don’t bet against the house – ever!

The second story on Bloomberg concerns Facebook’s $50 billion valuation and compares and contrasts it to Tencent Holdings Ltd., China’s top internet company by market cap, rather than to Google. Tencent has online games, instant messaging AND 600 million users with a market cap of $42 billion on the Hong Kong exchange. Tencent has succeeded at social networking while both Google and Yahoo! Inc have not had great success. Meanwhile fast-growing start-ups Twitter Inc, and Zynga Game Network Inc. remain private. So how did the $50 billion market cap come to be? Because if you extrapolate on the $500 million, yes MILLION price Goldamn is offering the shares at (less 50 million for themselves and another 50 for Russian investor, Sky Technologies (interesting name…think ‘Blue Sky’ which led to the ‘blue sky’ regulations.

According to the Bloomberg article, Facebook, whose value has surged five-fold in two years, is at a multiple of 25x 2010 revenue…while Google’s is just NINE times. Tencent is valued at 15 times revenue. While China’s Baidu Inc. a search engine trades at 31x, Youku.Com Inc, their largest video site went public last month at 90 times revenue!

That is what speculation does and assuming that the new, new thing is worth even more than proven (?) companies. Sure looks like another dotcom bubble to TB and coming on fast! Right Goldie? After all this is intellectual property and can become worthless in a nanosecond today.

Now consider something more mundane, the $100,000 Tesla prototypes which were snapped up by those wishing to show just how ‘green’ they are. So when the company went public (TSLA), the shares were eagerly purchased…they have no earnings and revenues are small at this point. Also they will not be in production for at least three more years – if all goes well…remember the DeLorean? Young folks think of it as the ‘back to the future’ car. Shares were priced at $17 on 6/28/10, hit a high of $30.42 on June 30 only to close at $23.83 that day. It then hovered around $20 until November 4th, rallied to $36.42 on 12/1, and closed yesterday at $36.42. Investing in technology – new technology can be hazardous to your investment health.

The point is that people are grasping at straws to regain their wealth from a Wall Street crisis that wiped out all their gains and more since 1999. That is a poor way to invest unless you are good enough to be on Dancing With the Stars! Meanwhile, IF, and TB and many others believe we are, this is a secular bear market, you will wind up worse than you already are and that is not good.

Yesterday, TB discussed weekly jobless claims falling below 400k and how that means layoffs are mitigating but means nothing as to hiring possibilities. Today we got the lastest weekly data and it is above 400k again – 409k vs estimates of 405k. Oh, well, tomorrow we get the monthly employment data…prepare to be disappointed, right? Even if they are good that does not a trend make.

. . . - - - . . .    . . . - - - . . . (S.O.S.)

TB listened to the long-winded outgoing speaker speech by Nancy Pelosi in which she nearly introduced everyone in the audience…including the incoming speaker’s wife! Then came the long-faced Boehner who appeared as if headed for an execution but spoke…haltingly…of and end to partisanship and doing the people’s business. It was reminiscent of the old joke about Harry Truman visiting an Indian reservation. He made promises and on each one the tribe responded ‘oompah! Oompah!’ As he walked to his car he smiled thinking it went quite well…when suddenly he was shoved hard! “Why did you do that???”, he asked. “Because Mr. President you almost stepped in a pile of oompah!

If the above sounds cynical you didn’t hear Bill Gross’ comments afterward about the length and tenor of both speeches. Color him, and TB, dubious at best. By the way, U.S. GDP hit $1 trillion for the first time in 1970…TB will never forget it…and, according to Gross, the DEBT will grow by $1 trillion a year until we get out of this mess…if we don’t get destroyed by it first.

Have a great day…and don’t step in the oompah!


Trader Bill thinks it is clear to anyone reading these missives that they are merely commentaries...as he sees it...and do not necessarily reflect the views of anyone other than his own. Information is gathered from sources he has found reliable, but no guarantees of accuracy are implied. These are merely observations of events in the marketplace offering in an attempt to offer a non-mainstream viewpoint. Copyright TBD Capital LLC, January 6, 2011.


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