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March 26, 2021 | Stock Market Investors Are Doomed When the Markets Correct

Is an American author of books and articles on economic and financial subjects. He is the founder and president of Agora Publishing, and author of the daily financial column, Diary of a Rogue Economist.

YOUGHAL, IRELAND – The moon is in its “Waxing Gibbous” phase… bright and bold, last night.

And the lunatics are howling.

At the macro level… the situation could scarcely be any zanier. The feds have spent $5 trillion, supposedly to cure an $800 billion loss in GDP caused by the COVID-19 panic and shutdowns.

They destroyed millions of careers, jobs, and small businesses. They added $4 trillion of debt in 12 months. And now, they’re cueing up another $3 trillion spending lollapalooza.

What is really going on is that the politicians are using The Plague as cover for boondoggles, giveaways, pet projects, and bailouts – intended to enrich their friends and supporters, at others’ expense.

And now, they’ve gone too far, stayed too long, and can’t get back.

The boondoggles – the “stimmy” checks, grants, loans, and giveaways – are the income and “savings” that sustain the economy. Any attempt to reduce them will bring sad headlines about how “sales are falling” and “jobs are being lost.”

Yes, Dear Reader, the boats have been burned. We have no way to get home. Forward! Into the Katastrophenhausse!

Big Joke

Meanwhile, just as the phony money addles the macro picture… so does the moonshine make a joke of the micro world. That is where people have to make real decisions about their own money. What to buy? What to sell? What will go up? What will go down?

Remember all that hullabaloo around GameStop a couple of months ago? The kids got onto it… decided that they could ride it to the moon… and also squeeze the pros.

It was the No. 1 finance story for a few days, as hedge funds were forced into bankruptcy by the amateurs – who seemed to regard honest stock analysis as a loser’s game.

This left the winners in a bad spot, however, because they were holding a lot of stock for which they had paid far too much.

It was then that we announced, with a knowing, arrogant sorta smile, that the stock was probably doomed to go back whence it came – about $15 a share.

Which is not what happened. The kids kept at it, apparently convinced that they saw some future that the pros and the old-timers couldn’t see.

They bid the shares back up so that, as of Tuesday, it was still about 1,000% above our price target.


Trouble is, the bulls are trapped. They’ve pumped up a stock. Now, they own billions of dollars’ worth of it. Like the feds’ dilemma, any normalization will mean big losses.

What can they do, but buy more… and hope the company eventually becomes worth the price?

Alas, you can’t lose weight by eating more. And mistakes can’t be undone by making more of them.

And on Tuesday evening, the company announced its latest results. Oops. It “missed” consensus earnings targets. Yahoo! Finance has the story:

Shares of GameStop Corp. tanked 15.3% in Tuesday’s extended trading session after the electronics retail company reported fiscal 4Q results (ended Jan. 30) that came in below analysts’ expectations.

Putting that into perspective… In the previous full fiscal year, the company earned MINUS $471 million. For the most recent quarter, net income was $80.5 million. So any positive number is an improvement.

But over at Bloomberg, Matt Levine offers more detail:

Bloomberg’s EEO screen tells me that consensus analyst estimates for adjusted earnings per share are negative $2.10 in 2021, negative $0.62 in 2022, positive $0.24 in 2023 and positive $1.25 in 2024. The stock closed yesterday at $181.75 per share, or 145 times four-years-ahead earnings.

The stock continued to fall. At yesterday’s close, it was down to $120.

How much is GameStop really worth? Nobody knows. Our $15 is still as good a guess as any.


There’s more micro madness going on in Cathie Wood’s shop – ARK Invest – too.

She’s put a price target on Elon Musk’s electric carmaker Tesla (TSLA) that deserves some kind of lunatic award. That is, she says the price should hit $3,000 by 2025, which would make the company worth almost $3 trillion.

And yes, of course, anything could happen. Especially now that Musk will take bitcoin in payment for its autos.

But the stock is still quoted in dollars, not cryptocurrency. And this is an “expected value” forecast… presumed to be coming from someone who is still sane – if any sane person is left.

And presumably, this is something sane investors should take seriously and make their investment decisions based on it.

It seems crazy. But this is La Bubble Epoch… and no impossibility is so impossible as to not become federal policy… or scare away investors…

Impossible Math

We’ve done this math before, but we will return to it.

Imagine that there are 100 million automobiles sold in 2025. And imagine that automakers could make $2,000 on each one. That gives us a TOTAL POSSIBLE earnings base of $200 billion.

So to make sense of Cathie Wood’s price target of $3 trillion, at a reasonable price-to-earnings (P/E) ratio of 15, we also have to imagine that Volkswagen, Toyota, Audi… all 14 of the major automakers… somehow disappear, along with their 60 popular brands, leaving Tesla with 100% of the auto market, rather than just the 1% it has now.

How likely is that? About as likely as Treasury Secretary Janet Yellen and Federal Reserve chief Jerome Powell creating a genuine, sustainable boom.




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March 26th, 2021

Posted In: Bill Bonner's Diary

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