All P, No E in Tech P/E Ratios
Friday, 1/24/2014 09:29
Amazon at 1,000...? LinkedIn around 800...? Ignorance says "Sell!"...
SELL the tech stocks. Buy the gold miners,
writes Bill Bonner in his Diary of a Rogue Economist.
This simple formula is our moneymaking advice for this year.
Not that we have any new insight into technology...nor any way of knowing what is ahead for gold or the companies that dig it out of the ground. Not at all. Our advice is based on ignorance, not knowledge. Not knowing what is ahead, we revert to an old rule: Buy low. Sell high.
What's high? Open any newspaper to its financial pages and you will have your answer. Amazon. LinkedIn. Twitter. Zillow. Nest. Facebook. Google. Choose almost any internet-related company and you will find a good short sale candidate. Amazon traded at a price-to-earnings over 1,000 the last time we looked. LinkedIn was trading on a P/E around 800.
As for most of the internet companies, there is no need to look. You will find plenty of P but no E to divide into it. Most of these companies do not make money; they lose it.
Will tech stocks survive the year without crashing? We don't know, but beware a bear market. When the market turns south, the companies that led it up will lead it down. Those that rose the highest will sink the lowest. Take a look at a chart of the S&P. You will see what appears to be a 'double top'. Does this mean the entire market – with the techs leading the way – is ready to take a dive? Maybe.
Last year, companies that mined the World Wide Web soared...but those that got their hands dirty slumped badly. Gold went down about 30%...some gold stocks were cut in half.
As might have been expected, this produced an anticipation of further losses. Almost every account published at the end of the year told us that gold was destined to go down further.
"Little hope of glitter for gold in 2014', said the
Financial Times on December 28th. "Rebound unlikely..." continued the report.
"Gold bulls lose faith in metal's reputation as a store of value," opined Gregory Meyer on January 4.
"Very, very few analysts are bullish gold..." said Michael McGlone, US director at ETF holdings.
"The deck is pretty much stacked against gold next year," added Philip Klapwijk, from Precious Metals Insights in Hong Kong. He predicted an average price of $1170 for 2014. Then, the metal traded at $1200. Now, it trades around the $1240 mark.
So far this year, gold has defied the pundits. So have the mining stocks. After putting in 'double bottoms' last year, both gold and gold miners seem to be moving up.
If anyone knows what 2014 will bring he does not work here at
The Daily Reckoning. Instead, we – poor, ignorant humans – must stick to the basic principles of sound investing. When something is very expensive, we sell it. When it is very cheap, we buy it – that is all ye know on earth, and all ye need to know.
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