If you've been paying attention you're probably aware that we're currently in a gigantic asset bubble inflated by the Fed's near-zero interest rates. The stock market has nearly doubled in the past five years, and real estate prices in many markets have eclipsed their pre-crash highs. The question everyone has been asking themselves for the past couple of years is how much longer this thing can keep going. Everyone knows it's just a matter of time before the thing collapses again. The bubble economy is like a game of musical chairs in this regard - for now the music is still playing, but it's inevitable there's going to be a huge scramble out of assets at some point. Everyone wants a piece of the market while it's going up, but nobody wants to be left holding the bag when it tanks. To this end, there has long been great sport (and profit) in spotting market tops, or signs that the market has reached its peak exuberance and investment euphoria.
Now gentlemen, I offer for your consideration the following story. Could it be the harbinger of a market top? It certainly would seem to indicate that investors are behaving in a manner that is completely irrational, and are throwing money at any investment that appears remotely associated with the hot trends of the day. This sort of phenomenon has historically been associated with a market at or near its peak.
http://www.zerohedge.com/news/2014-07-09...res-traded
http://finance.yahoo.com/news/social-net...33473.html
A social media company called CYNK has emerged from nowhere over the past few weeks and now has a market capitalization of over $4 billion. There's just one little thing, however: the company has no assets, no revenues, no product and only one employee. This impressive figure is one Marlon Luis Sanchez, holding the title of CEO, CFO, chief accounting officer, secretary, treasurer, and director. The company is based in Belize. A blurb from the company's website: "Thru our marketplace you may both buy and sell the ability to socially connect to individuals such as celebrities, business owners, and talented IT professionals."
Interesting. Potentially lucrative? Perhaps. Let us investigate more.
From the company's 10-K filing:
Oh dear, I must say that doesn't inspire much confidence. I must be overly pessimistic, however, since the market has thrown $4 billion at CYNK already.
I believe what we are seeing here is clear evidence of irrational exuberance in the market. There is too much paper wealth floating around and not enough "real" investments to support it. The result is situations like this, where people begin throwing money in the direction of anything that sounds remotely like other profitable investments. And so CYNK, a one-man company that has no revenue nor any plan in place to earn revenue, is somehow worth $4 billion.
The story reminds me of an excerpt from Charles Mackey's classic Extraordinary Popular Delusions and the Madness of Crowds (highly recommended):
Now gentlemen, I offer for your consideration the following story. Could it be the harbinger of a market top? It certainly would seem to indicate that investors are behaving in a manner that is completely irrational, and are throwing money at any investment that appears remotely associated with the hot trends of the day. This sort of phenomenon has historically been associated with a market at or near its peak.
http://www.zerohedge.com/news/2014-07-09...res-traded
http://finance.yahoo.com/news/social-net...33473.html
A social media company called CYNK has emerged from nowhere over the past few weeks and now has a market capitalization of over $4 billion. There's just one little thing, however: the company has no assets, no revenues, no product and only one employee. This impressive figure is one Marlon Luis Sanchez, holding the title of CEO, CFO, chief accounting officer, secretary, treasurer, and director. The company is based in Belize. A blurb from the company's website: "Thru our marketplace you may both buy and sell the ability to socially connect to individuals such as celebrities, business owners, and talented IT professionals."
Interesting. Potentially lucrative? Perhaps. Let us investigate more.
From the company's 10-K filing:
Quote:Quote:
We have not yet commenced our full scale business operations and we have not yet realized any revenues. We have minimal operating history upon which an evaluation of our future prospects can be made. Based upon current plans, we expect to incur operating losses in future periods as we incurred significant expenses associated with the initial startup of our business. Further, we cannot guarantee that we will be successful in realizing revenues or in achieving or sustaining positive cash flow at any time in the future. Any such failure could result in the possible closure of our busiess or force us to seek additional capital through loans or additional sales of our equity securities to continue business operations.
Oh dear, I must say that doesn't inspire much confidence. I must be overly pessimistic, however, since the market has thrown $4 billion at CYNK already.
I believe what we are seeing here is clear evidence of irrational exuberance in the market. There is too much paper wealth floating around and not enough "real" investments to support it. The result is situations like this, where people begin throwing money in the direction of anything that sounds remotely like other profitable investments. And so CYNK, a one-man company that has no revenue nor any plan in place to earn revenue, is somehow worth $4 billion.
The story reminds me of an excerpt from Charles Mackey's classic Extraordinary Popular Delusions and the Madness of Crowds (highly recommended):
Quote:Quote:
Some of these schemes were plausible enough, and, had they been undertaken at a time when the public mind was unexcited, might have been pursued with advantage to all concerned. But they were established merely with the view of raising the shares in the market. The projectors took the first opportunity of a rise to sell out, and next morning the scheme was at an end. Maitland, in his History of London, gravely informs us, that one of the projects which received great encouragement, was for the establishment of a company "to make deal boards out of saw-dust." This is no doubt intended as a joke; but there is abundance of evidence to shew that dozens of schemes, hardly a whit more reasonable, lived their little day, ruining hundreds ere they fell. One of them was for a wheel for perpetual motion—capital, one million; another was "for encouraging the breed of horses in England, and improving of glebe and church lands, and repairing and rebuilding parsonage and vicarage houses." Why the clergy, who were so mainly interested in the latter clause, should have taken so much interest in the first, is only to be explained on the supposition that the scheme was projected by a knot of the foxhunting parsons, once so common in England. The shares of this company were rapidly subscribed for. But the most absurd and preposterous of all, and which shewed, more completely than any other, the utter madness of the people, was one started by an unknown adventurer, entitled "A company for carrying on an undertaking of great advantage, but nobody to know what it is." Were not the fact stated by scores of credible witnesses, it would be impossible to believe that any person could have been duped by such a project. The man of genius who essayed this bold and successful inroad upon public credulity, merely stated in his prospectus that the required capital was half a million, in five thousand shares of 100l. each, deposit 2l. per share. Each subscriber, paying his deposit, would be entitled to 100l. per annum per share. How this immense profit was to be obtained, he did not condescend to inform them at that time, but promised that in a month full particulars should be duly announced, and a call made for the remaining 98l. of the subscription. Next morning, at nine o'clock, this great man opened an office in Cornhill. Crowds of people beset his door, and when he shut up at three o'clock, he found that no less than one thousand shares had been subscribed for, and the deposits paid. He was thus, in five hours, the winner of 2,000l. He was philosopher enough to be contented with his venture, and set off the same evening for the Continent. He was never heard of again.
[size=8pt]"For I reckon that the sufferings of this present time are not worthy to be compared with the glory which shall be revealed in us.”[/size] [size=7pt] - Romans 8:18[/size]