News headlines across the world early this morning displayed images of 90-year old Margaret Keenan, as she became the first person to be vaccinated against COVID 19 via the Pfizer shot.
However, despite this symbol of hope, lets not forget the about the crisis in ongoing Brexit negotiations, or the fact infections are swelling across American and most of Europe.
Currently, Britain is under the Hotel California standard, with the EU allowing them to check out, but never actually leave. Fishing rights seem to remain the key issue…
Despite recent years being more bubbly for markets come Christmas, this one feels different. Despite the obvious fact that we are still in a global pandemic, something is up. We’re all very aware how Central Banks are backstopping markets (main reasons for equity performance) through ongoing ultra-low rates and monetary policy like QE (to infinity and beyond), and that government’s stand ready to provide further stimulus to get us over the pre-vaccine effectiveness darkness before the dawn.
But, I’ve never sensed such a bizarre sense of FOMO driving the market. That’s evident in the headlines about day-trading sites like RobinHood crashing due to volume, and yet more noisy social media proclamations from former taxi-drivers and strippers about markets never heading lower, and the extraordinary gains to be made in their favorite stocks (the scene where Mark Baum goes to the Florida strip club comes to mind). Their momentum seems to be driving the market, along with the Wall Street whales, and it all makes very little sense with the end of the pandemic support phase in sight next spring.
The moment central banks and governments take their feet off the accelerator is the moment the markets will wobble. With Keenan getting a jab this morning being a sure signal, that moment is coming.
But for now it’s that insane FOMO momentum that is driving belief in certain “story” stocks.
For example, Airbnb, which IPOs this week. Despite the virus, investors are anticipating a bumper 2021 for Airbnb as repressed travel kicks off again – the deal is now being priced with a valuation of $42bln. Bear in mind, while many people do go and hire someone else’s house for their vacations, even more still go looking for a cheap 2 weeks in the sun on a package tour. There was a time when these firms made lots of money – but competition and then the virus means these same mass market holiday firms are going bust at a rate of knots. Remind me why Airbnb is different?
Additioanlly, the belief in improbable profits tomorrow (always tomorrow) shows no sign of fading.
Tesla (TSLA) is up over 15% in the last week, and there are rumours of another stock split (on Motley Fool), adding further demand pressures, as with its inclusion in the S&P 500 index (now that Tesla has become part of the S&P, every index tracker will become a holder). Fantastic – except, nothing changes the actual real fundamentals facing Tesla: selling cars in an increasingly competitive market, cutting costs as lithium rises, and actually delivering all its promises on, ex/ self-driving etc. It still hasn’t made a penny profit actually selling cars.
Another example would be Palantir technologies, a software analytics company. 40x projected revenues valuation is modest compared to the levels the other, younger Software-as-a-service stocks are trading, but yesterday’s 23% gain on news of a rather modest $44mm government contract (where it garners the bulk of its revenues already) is hardly a paradigm shift. Palantir stock has doubled in a month. Following its IPO in September nothing has really happened to change the stock fundamentals – except all the insiders have been able to ditch their holdings. Yet its price has doubled.. What are we missing?
Finally, we can look at Virgin Atlantic, whose stock soared higher on the news it might actually fly its fleet of planes into space. The market soared anticipating a successful flight, without any real consideration of what a space tourism business is actually really worth.
It was Tesla’s boss, Elon Musk, who has highlighted the real possibilities of commercial space flights. There are around 17,000 satellites likely to be launched into Low Earth Orbit in the next 10-years. SpaceX would have been well placed to seize much of that highly lucrative market, but will have to become a buyer itself to launch its own 12,000 Starlink high-speed internet satellites (S&S reported on this venture a few months ago).
Bill Blain had this to say about all the market euphoria:
- Tech stocks have benefited from Social Media reinforcement – Tesla fans have their faith in the firm constantly validated by the targeted social media posts they receive, reinforcing and building their certainty on the firm. The degree to which social media narratives have overtaken stock market rationality is extraordinary.
- The second factor is success attracts success. At a time of economic pressure and uncertainty the return equations in markets have changed, ultra-low interest rates have forced investors into the equity markets in search of returns – and Tech looks an attractive bet. If every tech firm might just be the next Apple, Amazon or Microsoft, then retail wants in.
- Third – In times of economic hardship, the promise of instant returns and infinite wealth from owning bubblicious Tech stocks are hard to resist – and when every single day-trader is boasting about how much they’ve made from their savvy positions..,, then it sucks in more and more players.. till eventually we get to “Greatest Fool”.. the investor holding the ticking package when it goes pop.
Works Cited:
https://www.zerohedge.com/markets/did-little-old-lady-just-signal-beginning-end-markets