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The Edelson Institute
by John Issacson
8/11/2017
Excerpt:
How would you value a company that lost $666.6 million in the first half of 2017 … burns $2.0 billion in cash a year … and just sold $1.5 billion in junk bonds to fund operations?
If you’re the stock market, you’d give that company — Tesla — a pass. Year-to-date, the shares are up by more than 70%. Talk about a disconnect!
The fact is right now the fear of missing out on the next big thing – in a world of excess liquidity – shifts focus away from fundamentals. And pumps up companies that may normally be left behind.
Plus, it underscores a real danger: how complacent the market has become in pricing risk and valuing assets.
I spoke about this in my intermediate forecast in June.
After all, world central banks bought nearly $11 trillion in assets over the last nine years. And that rising tide lifts assets and distorts fundamentals.
Unfortunately, the music’s about to stop. And that’s because economic conditions are finally at a place where central banks are slowly tightening ultra-loose monetary policy.
A pullback in the money-flow spigot poses a significant risk to inflated asset prices that have become dependent on easy money. Even the slightest disruption in those flows puts overvalued assets in a vulnerable position.
And that could blow up in everyone’s faces.
.................................................. ..........
View the complete article at:
https://www.edelsoninstitute.com/sto...n-the-machine/
by John Issacson
8/11/2017
Excerpt:
How would you value a company that lost $666.6 million in the first half of 2017 … burns $2.0 billion in cash a year … and just sold $1.5 billion in junk bonds to fund operations?
If you’re the stock market, you’d give that company — Tesla — a pass. Year-to-date, the shares are up by more than 70%. Talk about a disconnect!
The fact is right now the fear of missing out on the next big thing – in a world of excess liquidity – shifts focus away from fundamentals. And pumps up companies that may normally be left behind.
Plus, it underscores a real danger: how complacent the market has become in pricing risk and valuing assets.
I spoke about this in my intermediate forecast in June.
After all, world central banks bought nearly $11 trillion in assets over the last nine years. And that rising tide lifts assets and distorts fundamentals.
Unfortunately, the music’s about to stop. And that’s because economic conditions are finally at a place where central banks are slowly tightening ultra-loose monetary policy.
A pullback in the money-flow spigot poses a significant risk to inflated asset prices that have become dependent on easy money. Even the slightest disruption in those flows puts overvalued assets in a vulnerable position.
And that could blow up in everyone’s faces.
.................................................. ..........
View the complete article at:
https://www.edelsoninstitute.com/sto...n-the-machine/