This segment is excerpted from this week’s Notes From the Rabbit Hole, NFTRH 329, and was originally titled…
Does the US Economy and Stock Market Need Manufacturing?
The ISM PMI reports for December and January showed deceleration in line with our view that a persistently strong US dollar would begin to eat away at US manufacturing, exporters and other companies that depend on significant foreign business. But in an age where investors will bid up Twitter* (with its forward P/E of 141 and 30B market cap to 1.2B revenue) by 16% in a day, are we returning to the old days of ‘PE’s don’t matter’ with the hook or tout being ‘it’s all about ad revenue’?
One analyst quoted in the WSJ: “Given FB’s (Facebook) history… we think that investors do not want to miss out on another social stock run”
Is this type of mentality not reminiscent of the late 1990’s? Twitter, like Facebook, is implementing strategies to monetize all those short attention spanned eyeballs, but 30B?
As you will see by the charts in this week’s report, despite elevated general forward valuations (graph below) and ridiculous individual valuations like Twitter and so many other fad stocks, the bull market’s technical situation remains unbroken and generally bullish, although the volatile ‘swing’ market theme remains intact for now.
* Personally, I deleted my Facebook account because after all, who really needs to see yet another picture of someone’s super bowl chili or winter vacation in the tropics? I use Twitter as a button at the websites. Make post, press button… done. Another tweet the world really doesn’t need. But it is a handy little tool.
Back on topic, here is the current forward P/E level of the US stock market (graph source is factset.com, by way of the free ‘Daily Shot’ email service from soberlook.com). They each cover relevant global macro data and are recommended.
P/E is as stretched as it gets for US corporations. But in a world where deflation is the key theme, capital flows have well, flowed into US asset markets. On a risk vs. reward basis, the view continues to be that certain global areas are more favorable than the US for new investment. As an example, we have been noting that Germany, as an exporter operating behind a weak currency and QE-inclined Central Bank, could be a destination for favorable investment vs. the US in 2015. Deutschland factory orders are improving.
Continue reading The Financialized Economy