FORTUNE
Editor's Comments:
The Challenge of our Times
First of all, it is difficult to argue that even today the index is fairly valued. On the other hand, there are a number of metavariables that leads us to conclude it is extremely over-priced and there is a major correction brewing in the winds of market volatility. In a nutshell here are a few factors that drew us to this conclusion:
Clearly, an increase in the Fed rate will impact the valuation mathematics. Simply doubling the long rate from 1% to 2% - depresses the net present value of cash flow and earnings by 50%.
Climate change weather and water shortages will continue to put pressure on the production of agricultural items and essentials; thereby inflation.
The costs of diesel fuel are rising faster than gasoline under the current oil market frenzy which adds more cost pressures and creates logistical issues for the supply chain. Result - more inflation and higher rates.
Housing costs continue to rise throughout Western societies and workers we can expect will be demanding greater compensations. Again fueling the algebra of inflation/rates.
Geopolitical issues remain unresolved and that could lead to further supply and market disruptions which could lead us to Oil priced over $200 a barrel in 2022. You know what that means!
The proliferation of cryptocurrencies garners little in terms of concrete real value or logistical science and hence the danger becomes that they could undermine the inherent value of sovereign currencies thereby fueling the road to the US dollar losing its reserve currency status. Fear this event above all - because it provokes the unknown ravages of hyperinflation which are beyond any imaginable catastrophes.
Bottom line, one could argue that cost containment and inflation is now in the ballpark of nature - and it bats last. We are, most importantly, running out of essential industrial resources, water, climate conditions, and arable land. The microcosms are demonstrated today by terrible economies in a number of countries; viz, Turkey, Lebanon, SriLanka, Venezuela, Argentina and so forth.
There is no reason to believe that nature will provide papal dispensation to Western societies from these economic diseases because our broken models and theories are corrupt and outdated. They do not recognize the consequences of the per capita imbalance of population and natural resources: particularly energy, materials, and agricultural inputs.
Conclusion
To summarize, what can be expected in the future as a consequence of these hard and logical growth limits imposed by the planet? The answer is clearly more inflation, higher rates and naturally lower NASDAQ stock values over the longterm.
So don't be surprised to see the average PE Ratio for the NASDAQ market drop below 10 or worse as real earnings and future outlooks evaporate while inflation and rates sky-rocket to the high heavens. The economies are backed into a corner as we knowingly created a physical-mathematical trap that has dire consequences.
We cannot build a sustainable economic system and markets unless we redefine our economic, concepts theories and models to rebalance the relationship between population and essential resources. We need thinking based on reality and mathematics, not invisible hand abstractions.
"THIS IS THE MOST CRITICAL CHALLENGE OF OUR TIMES"
T A McNeil
CEO Founder
First Financial Insights Group
The NASDAQ’s real value is shockingly low—and it could drop another 18%
The NASDAQ's fall was bound to happen, and it's still not nearly deep enough to hit bedrock. The powerful momentum driving tech's shooting stars ever skywards is finally surrendering to market gravity. The "innovation-at-any-price" high spirits that sent the NASDAQ shooting into the stratosphere over less than three years, is giving way to the realization that its members can't grow profits nearly fast enough to give you a decent return. The reason is basic: These stocks are still just too damn expensive. Put simply, the fundamentals are taking hold following a long and crazy ride. The more unhinged prices became, the steeper the fall that was bound to follow––and most likely, we're witnessing the early stages of that inevitable descent right now.
Gravity is finally taking hold
How deeply will the NASDAQ drop? To make a reasonable estimate, let's unpack the traditional metrics that are reliable predictors of equity price trends over long periods, and address the question: What's the NASDAQ really worth? The NASDAQ 100 that represents the vast bulk of the overall index's valuation has already entered correction territory, shedding 10% from the close of 2021 to stand at 14,438 at the close on Friday, January 21, and down 13% from its all-time high, set on November 19, of 16,573. Among the glamour, stay-at-home economy luminaries that suffered the biggest hits since then: Zoom (down 41%), Netflix (-42%), Peloton (-43%), and Docusign (-56%).
BOTTOM LINE
NASDAQ GROWTH VALUE IS A NEGATIVE-SUM GAME
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