Ep24: Five minutes to Doom?
Recently a couple of high-tech stocks took a nose dive. Among them Amazon, Netflix, Google (Alphabet) and Facebook. Trading nerds refer to them as FANG or FAANG stocks which would include Apple Inc. As is usually the case, some dooms sayers see this as the first sign of disaster – among them no other than the original Dr. Doom, Marc Faber, publisher of the Gloom, Boom and Doom report.
Doom Forecasters
In June this year Marc Faber, the editor of “The Gloom, Boom & Doom Report’ and perma-bear, gave one of his gloomy forecasts on CNBC “Trading Nation. He “isn’t backing down from his latest dire prediction that would send stocks plummeting by 40 percent or more.”
A drop of that size could take the S&P 500 Index down from Friday’s closing price of 2,438 to 1,463 a level seen for the first time in 2000.
“The Nasdaq is being driven by very few stocks,” according to Faber. He continuous to say, that this “is not a particularly healthy sign from a technical point of view, and valuations are very high.”
Jim Rogers
On Business Insider with Henry Blodget, JIM ROGERS proclaimed his usual negative view about the markets and his perennial scapegoat the Fed. “The Fed is clueless and is setting us up for disaster.” He continues: “It’s nearly nine years. It’s the second longest expansion in recorded history in America. So we’re getting towards the end.”
He is confident that we are heading for disaster within this year. He has been many times before. So far he has been wrong for at least three years in a row.
George Soros
In March this year, it was reported that billionaire investor George Soros increased his short position (a losing bet so far) betting on falling prices. He increased his short position from an already formidable size to a nominal value of $ 1 billion. It clearly is a hedge for the rest of his portfolio as opposed to a directional bet. Like all clever long-term investors, he wants to hold on to his core investments but tries to hedge some of the downsides he would experience if markets tanked. He is managing his own money structured within a family office. His AUM is estimated to be around $25 billion.
Paul Singer
Last year, on August 18th, the founder, and CEO of Elliott Management had a very interesting message for his investors. In his letter to investor he warns that the bond market is “broken” and that “when the central bank actions of recent years no longer ward off a market downturn, the subsequent loss of confidence could be severe.” – “Market ‘breakdown’ to be ‘sudden, intense, and large’
Bernard Arnault
In January at a press conference, the CEO of the leading luxury brand holding company LVMH gave this comment: “My sentiment for 2017 is one of caution. When everything is going so well, one must be very vigilant.” In June he reiterated his cautious and a rather negative stance: “Asset price bubble is building.” Eventually, they will pop. He could not say when this would happen but according to him they always do.
http://video.cnbc.com/gallery/?video=3000628113&play=1
Others in the negative camp are James Rickards and James Chanos famed short seller. It seems that the average age of Doom Sayers is north of 60.
Counterview
“I think some of those FANGs are still undervalued,” Marc Benioff said on the sidelines of the World Economic Forum in Dalian, China. Marc Benioff is the CEO and founder of Salesforce.com.
“You look at Amazon Web Services (AWS) business going past $20 billion this year and I think it is on a trajectory to go to $100 billion,” Benioff said. His optimism is based on the close working relationship his company has with Amazon. He predicts the Seattle-based firm would have a “tremendous upside” with Chief Executive Jeff Bezos at the helm.
Not surprisingly, Jim Cramer, host at CNBC, has a more bullish view on FANG stocks.
Index Fund Proponents
Then there is the typical camp of index funds proponents such as John Bogle and Warren Buffett who argue that forecasting gloom correctly is impossible and market corrections are meaningless in the grand theme of things. Interestingly, Warren Buffett sits on a cash hoard of $90 billion as of June 2017.
Recently, we noticed a particular dislike towards dooms sayers from younger generations. As one might expect, they seem to be more upbeat and actually annoyed by the constant negativity of some older folks.
Our Views
Constant negativity can become a self-fulfilling prophecy.
“A self–fulfilling prophecy is a prediction that directly or indirectly causes itself to become true, by the very terms of the prophecy itself, due to positive feedback between belief and behavior.”
Financial markets are complex systems – with each factor influencing each other. According to several recent polls on CNBC almost 50% fear a market correction coming soon.
Market Prices are based on the confidence and trust in the system and hope for a better future along the way – the fundamentals today, don’t play a role. If that trust and confidence are undermined in any way, those playing the game and late to the party will suffer the consequences. So a generally more cautious stance towards stock and financial markets might be a prudent choice. The decisive factor will always be your personal assessment of risk and possible returns. If you are offered a bet where you could earn 4% but could lose 40% at any time – you should stay away. In fact, make a huge circle around it.
If you ask yourself with all the doom and gloom, what you can do? What strategy you should drive – as one of my friends mentioned – “one has to put one’s money somewhere” you should stay tuned and listen to our future episodes and subscribe here or on your podcast channel.
ALSO MENTIONED
Henry Blodget is the editor and CEO of Business Insider.
In October 1998 while still working at Oppenheimer & Co he predicted that Amazon, then trading at $240, would trade for $400 within a year. This was thought highly unlikely by many traders at the time; however, just three weeks later Amazon’s stock passed that mark (a gain of 128%). Two months later, he would work at Merrill Lynch, with even more outlandish forecasts for Amazon. In early 2000, days before the dot-com bubble burst, Blodget personally invested $700,000 in tech stocks, only to lose most of it in the years that followed. According to Wikipedia, due to his violations of securities laws and subsequent civil trial conviction in the aftermath of the dotcom bubble, Blodget is permanently banned from involvement in the securities industry.
On September 29, 2015, Axel Springer SE announced that it had acquired 88% of the stake in Business Insider, Inc. for a reported $343 million holding ca 97%, with Jeff Bezos’ personal investment company holding the remaining shares. Finally, the circle closed with a happy ending for Henry.
