With the Dow off another 2.5% yesterday (Tuesday), the Nasdaq continued to be the main sick patient – down another 4.11% after a disastrous Friday last week. There’s a lot of blah-blah in the media about why this is; being an old-fashioned sort of chap – and having lived on the edge of the Dotcom bust last century, my view (for once) is not particularly contrarian.
The gearing of Nasdaq PE ratios in 2020 makes 1980 look like a model of good behaviour. Forty years ago, PE’s of 35-40 were regarded as First Things to Sell when traders got nervous. AI being mainly in charge today, perhaps it takes a little longer before any human life form notices that today’s PEs can be over then times that level of bonkers…..or a lot more.
Zoom Video Communications, for example, has a PE ratio of 474. At times in this century, the entire index has been at 115. It’s now at around 25, but in my eyes that’s still daft. High fliers until last week were, quite simply, radioactive isotopes about to go critical:
TAL 7272, QADA 4109, BHE 1973, STZ 1043, NOVOCURE 684….and on and on and on.
Anyhow, at the first sign of risk-off, stocks like these get mown down. They have further to fall, and so the losses get higher.
At which point, people begin to look more closely at hyped stock valuations beyond the Nasdaq.
I remain, for example, convinced that that you need very serious psychiatric help and perhaps even a lobotomy if you holding onto Tesla shares at the moment (860) or Hilton Hotels (766) and RPA Properties (661).
Lest we forget, a P/E ratio is the relationship between the cost of buying a share, and what level of earnings you’ll make from that. Thus, if you’re a Tesla believer, you think it’s just dandy to pay $330 for 1 share, your return on which per annum will be 39 cents – equivalent to 0.12% as an interest rate. That’s probably what your bank is giving you, which is equally ludicrous.
As you can see, the roulette table is ever so slightly weighted against us.
Or put another way, the whole thing is completely insane and unsustainable.
But when it comes to insanity – well, two can play at that game….for over at ITV, Old Pesto has another theory:
In a dramatic whine on ITV News this morning, famed Muswell Hillbilly and top Common Purpose ace bad news inflator Roberto Pesto broke the story coming from New York: a random test on the Nasdaq mainframe computer has yielded a positive result – albeit negative if you’re the Nasdaq mainframe computer.
The following quote from Signor Pesto has been speeded up by 30% to reduce both viewer drowsiness and his extended vowelation syndrome:
“Basically, the first thing to be clear about is that here we have at last some settled science to show that the inexplicable data coming out of the Nasdaq since last Friday can be ignored and everything is absolutely fine but experts are sure that this new strain of Covid19 – codenamed CovidIA20 – has caused serious brain damage to Nasdaq and it will have to go into isolation for at least 329 years.
“An initial contract to supply masks for Nasdaq has been awarded by the Bill Gates computer vaccination foundation to the Carte Blanche division of the New York Times, which has unparalleled experience of covering up Very Big Things.
“Of course, there we all were expecting the Second Wave to be more of the same, but this time, the deadly global scourge of humanity has now not just leapt to one Black Labrador in Ipswich, but to an Artificial Intelligence form.
“I spoke to Peter Horby of the government’s Recoverup Programme this morning, and he says that over three billion share price valuations will have to be tested and recalibrated but he will know more after he speaks to Neil Ferguson, who is at this moment building a model in his garden shed in between shagging his squeeze.
After a brief period of being rewound offscreen, Pesto added:
“The search for a vaccine against CovidAI20 begins right now, but in the meantime keeping all computers, mobiles, androids like me and other things digital socially distanced from each other is a vital priority if we are to avoid catastrophe.
“Imagine a world in which all computers die and cannot do any more modelling to warn us of things that never happen? It would be devastating, and leave us open to smug deniers when we tell them that there has been an invasion of Earth by Octopoid lizards and that’s why we need what’s left of your savings in order to reconfigure the banking system and fire deadly eviction notices at the aliens and ifffffvvvvv