The Silicon Melt Dow Finally Hits
I remember 1900 like it was yesterday.
Work on the New York subway began. Women wore huge bustles under their skirts and cinched their waists to 18 inches to make themselves appear more attractive at social events.
The hot new consumer product of the day was the Edison wax cylinder player, the first device that allowed people to play music in their own homes.
The Dow Average brought in a pretty mediocre year, rising a scant 3.4% to close at $70.44.
There was one other thing I recall. The year 1900 was the last time stocks were priced as highly as they are today.
So says Goldman Sachs (GS) in a research report released today.
It was enough to set the cat among the pigeons with technology stocks, 2017's runaway market leaders, which in many cases saw whopping one day declines of 10%-15%.
Much beloved stocks I have been recommending to followers for years like NVIDIA (NVDA), Lam Research (LRCX), Amazon (AMZN), and Tesla (TSLA), running up 200%, 300%, and even 400% gains, we suddenly taken out to the woodshed for a beating.
Is it game over? Has the top been ticked? Should I panic and dump all my technology stocks?
We all knew this day would come.
The theory I have been proposing is coming true.
Technology would not roll over due to deteriorating earnings or a weakening business outlook. The sheer weight of high prices would do the trick, much like they did in Tokyo on the first trading day of 1990.
The Goldman report merely provided the match.
There are an unusual number of risks suddenly piling up for stocks as we rush pell-mell into yearend.
1) Passage of the tax bill could set off one of the greatest "buy the rumor, sell the news" dump of all time. Once the bill becomes law, what will be the next surprise to drive prices ever upward? Nothing.
2) The tax bill doesn't pass. That means we have to back out all the market gains of the fall, or a couple thousands Dow points.
3) An enormous amount of tax selling has been deferred to January to take advantage of perceived lower tax rates. When a ton of selling is about to hit the market in January, what do you do in December? Not much.
4) If you sell your technology stocks now you get paid your annual performance bonus in January. If you lose all your profits before then, you won't.
5) The bitcoin fever is becoming so overheated that it is starting to suck money out of other asset classes. Since Thanksgiving, 100,000 new bitcoin accounts have been opened, mostly by Millennials.
The global cash glut is becoming so severe that we are having to invent new assets out of thin air just to soak up the surplus. Welcome to bitcoin, where 2018 yearend forecasts are now exceeding $50,000.
6) Did I mention that the government is shutting down on December 8?
The tech wreck prompted a vicious sector rotation out of the FANG's and into financials and retail. The move into banks will be sustainable through all of 2018. The switch into retail won't.
Is this REALLY the end of tech?
I don't think so. While the sector periodically suffers serious draw downs, with lead stocks like Apple backing off 40%, they always come back.
That's because the actual technology produced by these companies is hyper accelerating, thanks to artificial intelligence.
Tech isn't dead. It is just resting.
And by the way, will readers please quit asking me if they should buy retailers because they have gone down so much? It is a sector that's NOT coming back. It's a lot like buying buggy whip manufacturers....in 1900.
No, It's NOT Dead
