Author: s4k

Mr. Bubble Spots One

Greenspan, the man who said bubbles can not be foreseen, told Bloomberg there is a bubble in stocks and bonds.

Greenspan gave a speech in which he stated the following (my emphasis):

Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past. But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade? And how do we factor that assessment into monetary policy? We as central bankers need not be concerned if a collapsing financial asset bubble does not threaten to impair the real economy, its production, jobs, and price stability. Indeed, the sharp stock market break of 1987 had few negative consequences for the economy. But we should not underestimate or become complacent about the complexity of the interactions of asset markets and the economy. Thus, evaluating shifts in balance sheets generally, and in asset prices particularly, must be an integral part of the development of monetary policy.

He calls it “irrational exuberance”. He never mentions the federal reserve is the culprit behind the bubbles. From the 8/19/97 FOMC transcript.

Cathy Minehan doesn’t think rising asset prices is inflation. Above are two clueless people who ran the US economy for an extended period of time. They could not see the dot com bubble. They did not realize they created the housing bubble.

Than and Now

Trump once said the stock market was a giant bubble.

Now.

Putting aside the hypocrisy, politically, this is a huge mistake. This bull market is mature and drawing to a conclusion. Trump is on record taking credit for it. While I don’t believe a recession is coming anytime soon the fed is about to slam on the brakes. A lot will be revealed when (if?) the fed starts to unravel their balance sheet. The voting public will not blame the fed.

Media Bias in 1858

At the conclusion of the first joint debate at Ottawa, August 21, 1858 between Lincoln and Douglas, the Tribune, which was a pro Lincoln paper, reported:
At the conclusion of the debate, when Mr. Lincoln walked down from the platform, he was seized by the multitude and borne off on their shoulders, in the center of a crowd of five thousand shouting Republicans, with a band of music in front. The Chicago delegation scattered for the cars, and so ended the great debate.
The Times, which was a pro Douglas paper, reported the opposite:
When Douglas had concluded the shouts were tremendous; his excoriation of Lincoln was so severe, that the republicans hung their heads in shame. The democrats, however, were loud in their vociferation.

 

Cash is King

Apple’s pile of cash.Naysayers say most of this is held outside the USA. My response: so? If you had a bank account in France would you not consider it cash?

Burning Money

Looking at some potential new stocks to buy I come across Tesla. Two issues  jump out at me when taking a birds eye view.
First, I look at their cash flow.

Not bad. I look a little deeper to see where all this cash flow is coming from.

Answer: Net cash flow from financing…
Than I take a look at the free cash flow (FCF).

The stock price continues to go up. Investors do not seem to be concerned.
Second, I don’t like their story. Maybe I should say, I don’t understand their story. I don’t understand why people waste money on new cars. Buy an indestructible Japanese used car. They run for 250K miles.