Excessive Bullish Sentiment
Pretend that every investor in the world likes a certain stock and they put all of their available funds into it. They will drive the price up as they buy it. Eventually, every investor acquires their desired position and has spent all off their available funds.
Will the price go up anymore? No. There are no more buyers left to drive prices higher. Will the price inevitably go down? Yes. Eventually some of these buyers will need to do some selling. Investors only buy for one reason. They think it is going up. But they may be forced to sell if they needs funds for things like home buying or paying tuition.
There are no buyers in the market anymore, so the sellers will have to lower their prices and hope that they can get a buyer to pay a discount. This will cause prices to drop.
So we can see that markets fall when there are no more buyers left.
It goes without saying that Amazon.com is one of the biggest and most influential companies in the world. On a research basis, AMZN is followed by 46 Wall Street firms. Every single one of them has a strong buy rating on the stock!
Think about that. Not one person in any of these 46 research teams that analyze this company has found anything to be concerned about. This is about as excessively bullish as it can get.
Excessive sentiment can also be seen in the consumer confidence surveys. The University of Michigan consumer sentiment index was reported at 102.4. This was well over the Street’s estimates of 97.5 and the highest rating since 2004. In other words, consumers are more Bullish then they have been in 15 years!
Ridiculous Valuations are being placed on companies that are losing money. The two most obvious examples are, of course, UBER and LYFT.
So let me get this right. Uber lost almost $2 billion last year and over $2 billion the year before. But the company has a market capitalization of $70 billion. That’s BILLION! Lyft lost almost $1 billion, but it isn’t as highly valued as Uber because it is ‘only’ worth $17 billion.
I thought the whole idea on Wall Street was to invest in companies that make money?
Unfortunately, I am old enough to remember the internet bubble. And unfortunately, some of the commentary I hear about Uber and Lyftt reminds me of what was going on then. Here are companies that are losing billions of dollars but analysts are saying that it isn’t a bad thing because the ways that companies are valued have changed.
Do you know some other times that analysts were saying ‘things have changed and this time it’s different?” In the late 1920’s, in the early 2000’s, and prior to every other market crash in the history of mankind.
As someone who has studied history extensively, all I can say is “are you kidding me?”. There are only two times when people would consider something as stupid as socialism. One of these times when things are horrifically bad, like the conditions that brought the likes of Hitler and Stalin to power. People were literally starving to death. It doesn’t take much to imagine how a desperate family that hasn’t eaten in two weeks and has no money or job prospects could embrace Socialism.
The other time that people would considered socialism in when things are so prosperous and going so well that naive college students and liberal journalists who obviously have no knowledge of history can be actually be taken seriously by some. In our country poor people are overweight and have HDTVs and smart phones. These are not the conditions that bring about revolution.
The reality is that communism and socialism don’t work because humans are only successful as a species because we compete with each other. For better or for worse, competition and competitiveness is why society advances. If humans didn’t have ambition and drive we would all still be living in caves and foraging for food in the forest. Socialism and communism eliminate the need to compete and that is not a good thing.