It will never happen…

  • We tried
  • Maybe we worry too much
  • What if none of it matters

From the Financial Times:

Support for the EU among its citizens has jumped sharply since the Brexit vote, even as Europeans expressed doubts about Brussels’ handling of migration, trade and the economy.

Countries including Germany, France and even the UK all reported a big rise in the number of people with a favourable view of the EU as the bloc’s reputation recovered from a series of crises in recent years.

And from Bloomberg:

German Finance Minister Wolfgang Schaeuble said that the U.K. would be welcomed back to the European Union if the British decided they no longer wanted to quit the bloc.

Your editor has said since even before last year’s referendum that bureaucrats, the ‘Deep State’ and vested-interest politicians would never allow the UK to leave.

In fact, we wouldn’t be surprised if 20 years from now current British prime minister, Theresa May, confessed to deliberately sabotaging Brexit by delaying the Article 50 trigger, and then calling an unnecessary election.

We’ll see. Our view remains: the UK will never leave the EU. Powerful interests will make sure of that…

Markets

Overnight, the Dow Jones Industrial Average fell 14.66 points, or 0.07%.

The S&P 500 fell 5.46 points, or 0.22%.

In Europe, the Euro Stoxx 50 index fell 21.69 points, or 0.61%. Meanwhile, the FTSE 100 dropped 0.74%, and Germany’s DAX index fell 0.89%.

In Asian markets, Japan’s Nikkei 225 index is up 145.56 points, or 0.73%. China’s CSI 300 is down 0.19%.

In Australia, the S&P/ASX 200 is up 14.51 points, or 0.25%.

On the commodities markets, West Texas Intermediate crude oil is US$44.48 per barrel. Brent crude is US$46.98 per barrel.

Gold is trading for US$1,252.56 (AU$1,651.59) per troy ounce. Silver is US$16.75 (AU$22.09) per troy ounce.

The Aussie dollar is worth 75.83 US cents.

We tried

What a ride!

CNBC notes:

Bitcoin slid to its lowest for the month on Thursday amid a broader sell-off in digital currencies.

Bitcoin briefly dropped more than 12 percent to $2,185.96 Thursday, its lowest since May 31 when it hit a low of $2,162.23, according to CoinDesk. The digital currency recovered to near $2,366 early Thursday afternoon, little changed for June.

As we write, the bitcoin price is US$2,424.99. What’s all the fuss about!

If you’re looking for slow and steady, not-much-fuss gains, then for the love of God, don’t touch any cryptocurrency.

But. But, if you love speculation, and you have a few groats to spare…well, it’s hard to look past bitcoin and the armada of other cryptocurrencies available for trading online.

Based on the chart, the bitcoin price is currently down 18.77% from its recent peak:



chart image

Source: Bloomberg
Click to enlarge


It’s a big drop. But in the investment world, surely the aim is to ‘buy low and sell high’. It was high. Now it’s low. Or rather, low-er.

Time to buy? Your editor couldn’t say. The world of cryptocurrencies is all Greek to us. We won’t pretend to fully understand what it is or what it’s all about.

Although we did try this morning. Chatting in our office to one of our staff, discussing a new venture (more about that soon), your editor tried his darnedest to explain cryptocurrencies.

We swear we could see the corner of the staff member’s mouth struggle to not curl upwards…such was the pathetic nature of our explanation.

Still, regardless of our skill, or lack thereof, we felt ourselves talking with such enthusiasm for the subject that we were…well…enthusiastic about the subject.

Even so, it’s one thing to embarrass oneself in the company of one. It’s another to embarrass oneself in the company of thousands. For that reason, rather than holding court on the merits of bitcoin and cryptocurrencies here, we invite you to check out what a real expert has to say. Go here.

Maybe we worry too much

It’s not just cryptocurrencies where volatility is forming. Stocks too.

We note with a keen interest the share price performance of Amazon.com Inc [NASDAQ:AMZN], a stock which, along with Tesla Inc [NASDAQ:TSLA] we have followed for a long time as indicators of a potential market top.

The following is the one-year chart for Amazon.com Inc:



chart image

Source: Bloomberg
Click to enlarge


The price swing for Amazon.com over the past week is the largest since just after the US election in November.

The Amazon.com stock price fell sharply back then, due to a (surprise, surprise) Twitter spat between the previously Republican candidate, Donald J Trump, and Amazon.com chief, Jeff Bezos.

During the campaign, Mr Trump had suggested he would enact policies that would hurt Amazon.com’s business model. So when Trump won, the share price slumped.

It has of course, recovered since then, and climbed even higher.

But last week, tech stocks started to crumble. Amazon.com shares fell more than 3% in a single day. Other tech and consumer tech stocks fell too, such as Apple Inc [NASDAQ:AAPL] and Microsoft [NASDAQ:MSFT].

Is this just the beginning of a major tech-stock share price crunch? That’s always possible. After taking until 2015 to finally hit the previous record high from 2000, the NASDAQ Composite index has surged higher.

The enthusiasm for tech, especially driverless cars and artificial intelligence, has resulted in investors falling over themselves to grab some of the action.

But, while such things may excite us too (some not so much), we always believe that one day, sooner or later, investors will start to ask about that crazy old thing called ‘profits’.

We look especially at Amazon.com. It’s the darling of the market. And its chief, Jeff Bezos, is one of the top five richest men in the world.

Even so, investors are willing to buy the stock with a price-to-earnings value of…wait for it…180-times trailing earnings. In other words, Amazon.com’s market cap stood at US$460.8 billion, with net profits of US$2.3 billion last financial year.

You can argue over whether the following is a useful way to think about a company’s profitability, but in effect, if you had the cash to be able to buy the entire business, and pay at least US$460.8 billion for the shares, it would take 180 years of the same level of profits in order to get your money back.

Is that a price worth paying?

The counterargument is that it’s meaningless. For one, you’re not buying the entire company. And second, it doesn’t take into account the potential for earnings growth.

Granted.

But then, we counter that counterargument by saying, what earnings growth? Amazon.com made its most recent profit on the back of US$136 billion in revenue.

In 2010, Amazon.com’s revenue was US$34 billion, with profits of US$1.1 billion. Put simply, in order to double its profits, Amazon.com had to quadruple its revenue.

To us, that’s interesting. It’s also interesting that analysts forecast roughly a 15% increase in revenue over the next year, while also forecasting a 40% increase in profit.

And a 50% increase in revenue over the next two years, along with a more than doubling of profits compared to today.

That’s all entirely possible.

But given the recent volatility in some of these big tech stocks, it’s hard not to think that your editor isn’t the only sceptic.

Perhaps analysts and fund managers on Wall Street are starting to have their doubts too.

We shall see. All we know is that as interest rates continue to rise, the projects and financing deals that have kept the US economy afloat and stocks booming for the past nine years, may soon wane.

Higher financing costs tend to do that. When money is cheap, folks will throw it at anything. When money isn’t so cheap, it becomes more valuable. People prefer money rather than pie-in-the-sky dreams.

That’s when the bull market finally ends.

What if none of it matters

Ah, maybe. But what about the ‘Grand Cycle’?

We can pontificate all we like. But as one controversial economist claims, if it’s not within the framework of the ‘Grand Cycle’, all the words and predictions mean nothing.

More here.

Cheers,
Kris