[scorpion]

If you've been paying attention you're probably aware that we're currently in a gigantic asset bubble inflated by the Fed's near-zero interest rates. The stock market has nearly doubled in the past five years, and real estate prices in many markets have eclipsed their pre-crash highs. The question everyone has been asking themselves for the past couple of years is how much longer this thing can keep going. Everyone knows it's just a matter of time before the thing collapses again. The bubble economy is like a game of musical chairs in this regard - for now the music is still playing, but it's inevitable there's going to be a huge scramble out of assets at some point. Everyone wants a piece of the market while it's going up, but nobody wants to be left holding the bag when it tanks. To this end, there has long been great sport (and profit) in spotting market tops, or signs that the market has reached its peak exuberance and investment euphoria.

Now gentlemen, I offer for your consideration the following story. Could it be the harbinger of a market top? It certainly would seem to indicate that investors are behaving in a manner that is completely irrational, and are throwing money at any investment that appears remotely associated with the hot trends of the day. This sort of phenomenon has historically been associated with a market at or near its peak.

http://www.zerohedge.com/news/2014-07-09...res-traded

http://finance.yahoo.com/news/social-net...33473.html

A social media company called CYNK has emerged from nowhere over the past few weeks and now has a market capitalization of over $4 billion. There's just one little thing, however: the company has no assets, no revenues, no product and only one employee. This impressive figure is one Marlon Luis Sanchez, holding the title of CEO, CFO, chief accounting officer, secretary, treasurer, and director. The company is based in Belize. A blurb from the company's website: "Thru our marketplace you may both buy and sell the ability to socially connect to individuals such as celebrities, business owners, and talented IT professionals."

Interesting. Potentially lucrative? Perhaps. Let us investigate more.

From the company's 10-K filing:

Quote:

We have not yet commenced our full scale business operations and we have not yet realized any revenues. We have minimal operating history upon which an evaluation of our future prospects can be made. Based upon current plans, we expect to incur operating losses in future periods as we incurred significant expenses associated with the initial startup of our business. Further, we cannot guarantee that we will be successful in realizing revenues or in achieving or sustaining positive cash flow at any time in the future. Any such failure could result in the possible closure of our busiess or force us to seek additional capital through loans or additional sales of our equity securities to continue business operations.

Oh dear, I must say that doesn't inspire much confidence. I must be overly pessimistic, however, since the market has thrown $4 billion at CYNK already.

I believe what we are seeing here is clear evidence of irrational exuberance in the market. There is too much paper wealth floating around and not enough "real" investments to support it. The result is situations like this, where people begin throwing money in the direction of anything that sounds remotely like other profitable investments. And so CYNK, a one-man company that has no revenue nor any plan in place to earn revenue, is somehow worth $4 billion.

The story reminds me of an excerpt from Charles Mackey's classic Extraordinary Popular Delusions and the Madness of Crowds (highly recommended):

Quote:

Some of these schemes were plausible enough, and, had they been undertaken at a time when the public mind was unexcited, might have been pursued with advantage to all concerned. But they were established merely with the view of raising the shares in the market. The projectors took the first opportunity of a rise to sell out, and next morning the scheme was at an end. Maitland, in his History of London, gravely informs us, that one of the projects which received great encouragement, was for the establishment of a company "to make deal boards out of saw-dust." This is no doubt intended as a joke; but there is abundance of evidence to shew that dozens of schemes, hardly a whit more reasonable, lived their little day, ruining hundreds ere they fell. One of them was for a wheel for perpetual motion—capital, one million; another was "for encouraging the breed of horses in England, and improving of glebe and church lands, and repairing and rebuilding parsonage and vicarage houses." Why the clergy, who were so mainly interested in the latter clause, should have taken so much interest in the first, is only to be explained on the supposition that the scheme was projected by a knot of the foxhunting parsons, once so common in England. The shares of this company were rapidly subscribed for. But the most absurd and preposterous of all, and which shewed, more completely than any other, the utter madness of the people, was one started by an unknown adventurer, entitled "A company for carrying on an undertaking of great advantage, but nobody to know what it is." Were not the fact stated by scores of credible witnesses, it would be impossible to believe that any person could have been duped by such a project. The man of genius who essayed this bold and successful inroad upon public credulity, merely stated in his prospectus that the required capital was half a million, in five thousand shares of 100l. each, deposit 2l. per share. Each subscriber, paying his deposit, would be entitled to 100l. per annum per share. How this immense profit was to be obtained, he did not condescend to inform them at that time, but promised that in a month full particulars should be duly announced, and a call made for the remaining 98l. of the subscription. Next morning, at nine o'clock, this great man opened an office in Cornhill. Crowds of people beset his door, and when he shut up at three o'clock, he found that no less than one thousand shares had been subscribed for, and the deposits paid. He was thus, in five hours, the winner of 2,000l. He was philosopher enough to be contented with his venture, and set off the same evening for the Continent. He was never heard of again.

[Travesty]

I have heard market top since before I pushed every penny into the market back in 2012 once I paid off student loan debt. Probably as far back as mid 2010 when the DOW was nearing 10k. I wanted to push everything back in 2009, but no $.

Looking at the history of the SP 500 since 1980 the trajectory we are on right now is not obscene yet.

With a globalizing economy and Fed policy as is, I don't see a large correction (20%+) until DOW 21k at least.

We haven't had a huge technological advance available to the masses since the cell phone/smart phone. I believe there will be another huge advance or more likely multiple that will bring huge value to the economy in the next decade.

There is just an unreal amount of $ in Silicon Valley and too many brilliant minds at work for it to not happen.

Not to mention globalizing and flattening wages will only optimize huge corporations to make more $ and the rich that own stock in them. I believe there would need to be massive economic overhaul to change this direction. Won't happen.

Occupy Wall Street was as close as we got haha.

[WestIndianArchie]

That giant pool of money has to go somewhere.

WIA

[Bushido]

(07-09-2014 06:24 PM)Travesty444 Wrote:  

We haven't had a huge technological advance available to the masses since the cell phone/smart phone. I believe there will be another huge advance or more likely multiple that will bring huge value to the economy in the next decade.

There is just an unreal amount of $ in Silicon Valley and too many brilliant minds at work for it to not happen.

Bubbles often follow legitimate progress and technological advancement, e.g. the Dot-com Bubble. The internet was here to stay but the valuations were crazy.

It's like with China - nobody denies it will play a huge part in the world economy of the future but it is also in a bubble. Let's hope the comedown will be gradual rather than a crash.

Looks like social media could be the next bubble.

[rekruler]

(07-09-2014 06:24 PM)Travesty444 Wrote:  

We haven't had a huge technological advance available to the masses since the cell phone/smart phone. I believe there will be another huge advance or more likely multiple that will bring huge value to the economy in the next decade.

There is just an unreal amount of $ in Silicon Valley and too many brilliant minds at work for it to not happen.

Not to mention globalizing and flattening wages will only optimize huge corporations to make more $ and the rich that own stock in them. I believe there would need to be massive economic overhaul to change this direction. Won't happen.

I disagree on both counts. Globalization is by and large not a force for economic expansion-as far as the West is concerned. Up to this point globalization has largely consisted of a gigantic wealth transfer from the West to the East, with Western elites acting as aiding and abetting middle men and pocketing a small % of that wealth transfer in the form of rising corporate profits. Insofar as the East ever gets past the mercantilist parasitic model and starts to develop a large internal market, the West will not stand to benefit from this market.

Second, Silicon Valley is nearly worthless. The last time actual technological breakthroughs occured there was probably back in the days of Shockley and Joyce developing ICs. Shit like Facebook and to a large extent even Google don't contribute anything to human progress or the wealth of the nation. How do these companies generate revenue? Advertising. Does an increase in the total amount of advertising and/or transfer of advertising from the TV space to the Internet space increase societal wealth? Hardly. These are not wealth generating activities we are talking about here. Not only that, but social media makes societies into shit, so it doesn't even have any positive externalities going for it.

In the end, as someone here pointed out, there is a lot of capital floating around and it must go somewhere, which is why worthless "Social Media" startups are valued at billions. The reason there is so much capital floating around is because of FED fiat. We know how this ends.

[Travesty]

I really have a hard time understanding why people equate technology and Silicon Valley only with social media and ad revenue, probably because it is the only thing that gets media attention.

There are billions going into biotech, nanotech, & robotics. This is the future.

I am only talking about the stock market, not the effect on your average $50k a year American. Yeah they will get squeezed as time goes on of course. Stocks and global corporations will benefit i.e. the entities that own these $50k a year workers.

I'd also think it would be interesting if the people that believe we are at the top of a bubble say at what level will the SP 500 or DOW fall and how far? Do you think any day now? 2 years? 5 years?

[bacon]

Shit when I read about it a couple days ago it was only 4 dollars a share now its at 13 dollars. The company just went up 400% overnight.

For some perspective Buffalo Wild Wings has a market cap less than this company.

This is perhaps the most extreme example of people or more likely momo chasing machines bidding up a stock with the hope it will go up a little in value so it can be dumped for a bit of profit.

Mark my words this company will be remembered as the equivalent of a Pets.com and its massive overvaluation during the 2000 tech bubble pop when people should have realized that its sky high evaluations were a signal of the impending bubble to burst. I am confident that when people think years down the line, after the stock market contracts, that beyond very high PE ratios, a sluggish real growth in the economy the best signal that this current bull market in equities was topping was that this company which has no profit, one employee and no real product could be worth 4 billion dollars.

[germanico]

The funniest part is that its actually true.

[joehoya]

This sounds like a pump and dump to me.
1) An OTC traded stock.
2) less than 0.02% of the outstanding stock is being traded.

Don't let this The $4 billion valuation fool you. It is the result of only $800,000 worth of stock (57,000 shares out of 290,000,000) being traded. Those same 57,000 shares were worth a grand total of $5,700 back in May.

It is completely conceivable that someone is artificially inflating the stock price based on there own trades and hyping the stock on penny stock forums and via spam email. Even with the BS $4 Billion valuation, the actual CASH moving around this stock is still under a $1 million. If Nigerian 419 scammers can STILL find idiots to give them millions of dollars a year, surely these guys can con a few million dollars for a nonexistent internet company.

This seems to have little to do with the "Tech bubble" and everything to do with people's ease of being scammed when you play on their greed.

[El Chinito loco]

(07-09-2014 08:39 PM)Travesty444 Wrote:  

I'd also think it would be interesting if the people that believe we are at the top of a bubble say at what level will the SP 500 or DOW fall and how far? Do you think any day now? 2 years? 5 years?

The Shiller P/E ratio which most financial media outlets use as a tool to see if the market is overvalued or not says that the market is overvalued.

The historic mean is 16.6 or so and we are at 25.8

http://www.gurufocus.com/shiller-PE.php

There have been decades where the Shiller remained really high though. The reason why is that the U.S. had consecutive booms in economic growth and added industry. Unfortunately, all this is relatively meaningless to your average middle class American. Not to beat a dead horse here but we've already gone over why wealth doesn't trickle down.

If you take into account the low fed rate then the market is not insanely overvalued. 2000's P/E looked way more scary than it is now and the market corrected for 3 years as a result.

We'll probably see a couple down years but I don't see the market belly flopping forever. People guessing that the U.S. will end within the next 20 years are going to be disappointed. It's just another market cycle.

Edit:

By the way, f you're really that confident about the market collapsing in on itself then here's your opportunity to get filthy rich with properly timed put options on the broad market index.

[Hotwheels]

(07-09-2014 10:03 PM)joehoya Wrote:  

This sounds like a pump and dump to me.
1) An OTC traded stock.
2) less than 0.02% of the outstanding stock is being traded.

Don't let this The $4 billion valuation fool you. It is the result of only $800,000 worth of stock (57,000 shares out of 290,000,000) being traded. Those same 57,000 shares were worth a grand total of $5,700 back in May.

It is completely conceivable that someone is artificially inflating the stock price based on there own trades and hyping the stock on penny stock forums and via spam email. Even with the BS $4 Billion valuation, the actual CASH moving around this stock is still under a $1 million. If Nigerian 419 scammers can STILL find idiots to give them millions of dollars a year, surely these guys can con a few million dollars for a nonexistent internet company.

This seems to have little to do with the "Tech bubble" and everything to do with people's ease of being scammed when you play on their greed.

What's Jordan Belfort up to these days???

[The Beast1]

Absolutely crazy. The stock is valued at 5 billion now!

[Veloce]

Haha 300%+ gain in 3 days.

[Genghis Khan]

(07-09-2014 08:39 PM)Travesty444 Wrote:  

I really have a hard time understanding why people equate technology and Silicon Valley only with social media and ad revenue, probably because it is the only thing that gets media attention.

There are billions going into biotech, nanotech, & robotics. This is the future.

I am only talking about the stock market, not the effect on your average $50k a year American. Yeah they will get squeezed as time goes on of course. Stocks and global corporations will benefit i.e. the entities that own these $50k a year workers.

I'd also think it would be interesting if the people that believe we are at the top of a bubble say at what level will the SP 500 or DOW fall and how far? Do you think any day now? 2 years? 5 years?

Like you said, there are billions going into biotech, nanotech & robotics. I think the issue is that billions are NOT going into software companies. You can invest millions into companies like SnapChat and get valuations of billions, which is why the focus (media-wise at least) is heavily on software companies.

Even investors to a certain degree feel the same way. A friend of mine is a banker in SF and they fund Silicon Vally startups. He told me his elder peers spend their careers investing in semiconductors. They got great returns. However now very few bankers will touch the semiconductor industry because in reality you're competing on price. And that extends quite a bit to nanotech, clean energy. You have to invest a lot of money to get huge factories and foundries/cleanrooms/whatever set up. Easier to invest in 20y old with a Mac.

To emphasize, I completely agree with you as to what the future really is. Just trying to explaining why there's a huge emphasis nowadays on software.

[JuanQuinQuin]

Nah, The FEDS have been printing money like crazies. The beanies have to go somewhere even if these companies do not produce anything. It is just a self diluted pump and dump kind of racquet. While, I have been putting my money on it, I'm cautious. If the House of Cards falls, there wont be any move else by the FEDS. So Western Governments aka the US and Europe will have to take real and hard cold policies. Don't get caught up on this. On hard times, Food and Energy are the Key Players. Invest wisely!

[Cattle Rustler]

(07-10-2014 01:42 PM)JuanQuinQuin Wrote:  

Nah, The FEDS have been printing money like crazies. The beanies have to go somewhere even if these companies do not produce anything. It is just a self diluted pump and dump kind of racquet. While, I have been putting my money on it, I'm cautious. If the House of Cards falls, there wont be any move else by the FEDS. So Western Governments aka the US and Europe will have to take real and hard cold policies. Don't get caught up on this. On hard times, Food and Energy are the Key Players. Invest wisely!

Since you seem to know a lot, when will the US fall?

If you can give me a date with exact timing, even better.