Who buys the euro?... People like paper money... Let's blame China... LinkedIn IPO: 1,200 times earnings... Central banks buying gold (again)...
Too often, it seems to take forever for a worthless asset to get the price it deserves.
The euro is the current example. Against all reason, the euro is higher now than it was in December, despite the ongoing massive indebtedness and utter failure of so many euro zone countries.
The world knows Greece is doomed. The only question is how it'll get bailed out. Portugal, Ireland, and Spain are also drowning in debt... "Saving" them will cost trillions. But you can't paper over problems forever. The European Union and European Central Bank have two options: Continue funding the follies of the weaker euro nations or cut them off. Either way, the euro is in trouble. One path leads to inflation and de facto default, the other to actual default.
On a side note, for a comprehensive outlook on the euro and how to best profit from its collapse, read Porter's latest issue. To gain access, click here...
So again, why would the euro rally in the face of an obviously dire situation? One reason is something I bet you won't want to hear: People like paper currencies. They feel safer holding them than they do holding stocks and bonds. When they think of money, they don't think of gold or silver. They think of paper. A little thing like $1,500 gold isn't nearly enough to change that viewpoint, any more than $850 gold changed it back in 1980 (not to mention $50 silver now and then).
Looking for someone to blame for the euro rally? How about the Chinese? They love to force their banks to shove money down borrowers' throats, even if the borrower has to build an empty city to spend it. Why not force some cash into a "prop up the euro" trade?
Europe is China's largest trading partner. And the Chinese buy everything – commodities, real estate, Treasurys, gold, art, reverse mergers... you name it. Can European sovereign debt be so far out of the question?
Or maybe... just maybe… China wants to buy some influence with the IMF...
Today, Dominique Strauss-Kahn, the alleged rapist, resigned as head of the International Monetary Fund. There's much debate on who will take his place. Unfortunately, I've heard no one debate how soon to shut down the IMF, which is what needs to happen. The world has enough mega-bankers meddling in everybody's business. It doesn't need the mega-mega bank meddling in the meddlers' business, too. The IMF claims to "facilitate the cooperation" of its 187 member countries. That's pure bunk. The IMF is in the business of sending money where it'll be treated worst: failed economies. That's not cooperation. It's coercion.
No word yet on who has time for such a meaningless conversation, what with American Idol getting down to the last two finalists and all. But so far, the Europeans seem to want another European running the IMF – potentially Jean Claude Trichet, the current head of the European Central Bank.
The Chinese feel differently. Chinese central bank Governor Zhou Xiaochuan, in his first statement since Strauss-Kahn's arrest, said, "The senior management team of the IMF should better reflect changes in world economic patterns and should be more representative of emerging-market economies." In other words, China's tired of U.S. and Europeans being in charge. The U.S., France, Germany, and Italy account for more than one-third of IMF voting rights. China wants more influence. Maybe European bond buying will slow if China doesn't get its way.
More signs of a top... Shares of LinkedIn, the largest professional networking website, more than doubled in their first day of trading. The company sold 7.84 million shares at $45 each (after raising the initial public offering range from $32-$35 to $42-$45 on May 17). And shares jumped as high as $112 today.
LinkedIn earned $2.08 million in the first quarter on $93.9 million of revenue. Annualize that number and you get $8.32 million for the year. LinkedIn's market cap hit $10 billion today, giving the company a price-to-earnings ratio of around 1,200. Even Methusalah would die before getting his initial investment back.
Who pays 1,200 times earnings for anything? The benighted masses love to get fleeced by brokers and CNBC talking heads. According to the American Association of Individual Investors, less than half of individual investors in its Sentiment Survey are bullish now (26.7%) as in December (63.3%), and more than twice as many of them are bearish (41.3% now vs. 16.4% then).
Investors are unequivocally bullish at tops, not increasingly bearish. Maybe they're just depressed because they can't sell their homes...
The National Association of Realtors reports existing home sales fell in April versus March. The inventory of existing homes for sale rose to 9.2 months' worth of supply. Six months is considered a normal level. If only you could IPO a house. You laugh, but if you gathered up a couple thousand of the nearly 4 million existing homes for sale right now, you could probably sell them in an IPO for 1,200 times rent.
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New 52-week highs (as of 5/18/11): Dreyfus High Yield Strategies Fund (DHF), Pepsi (PEP), Forest Laboratories (FRX), Medtronic (MDT), McDonald's (MCD), Intel (INTC), Altria Group (MO).
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"Hi, Porter. I felt your answer to the writer (5/18/11) who complained about your refusal to reconcile different opinions on muni bonds was spot on. This is exactly why Stansberry Research is my preferred source for ideas on investing: you still leave with ME the decision to make a trade. I can't do that intelligently if I don't have both sides of the story.
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"A while back you wrote that owning Annly was like holding cash, I took your suggestion. It's also been suggested that holding Reits is dangerous, I am now getting concerened about the Fed talking about raising interests. I know you can't give personal advice, but is there some way you can inform us of the dangers involved. I would appreciate any help you can give. It is certainly hard for my husband and me to give up that interest rate. Thank you for your time." – Anonymous
Porter comment: Have you tried reading the most recent issue of my newsletter...?
Regards,
Dan Ferris and Sean Goldsmith
Medford, Oregon and Baltimore, Maryland
May 19, 2011