Market trivia; The tech stock decline today versus 2000 to 2002; In This Economy, Getting Fired Takes Hard Work; Offices are not back to normal; Bronze medal at the National Senior Games
1) Consider these interesting bits of trivia...
Tech stocks are on the longest losing streak (seven weeks) since the dot-com bubble burst, and the Dow is on the longest weekly losing streak since 1923.
And on Friday, the market briefly dipped into bear market territory – defined as a 20% decline from a previous high – making it the seventh fastest decline in history (the COVID-19 crash was second fastest):
2) Here's Gavin Baker with an insightful 17-tweet thread, comparing the decline in tech stocks today with the collapse of the Internet bubble from 2000 to 2002.
He makes a persuasive case that the 10 largest tech companies are much better, more profitable businesses and their stocks are much cheaper. Here are the first nine tweets:
1) This is nothing like 2000.
Valuations for tech peaked in 2020.
At the 2020 peak on a cap weighted basis, the 10 largest tech companies in the Nasdaq traded at a 44% discount to the largest tech companies at the 2000 peak using NTM EPS and 58% discount using LTM EPS.
2) We are 21 months post peak valuation in 2020 and today's multiples for the 10 largest tech companies on a cap weighted basis are 67% below the 2000 peak valuations on a NTM basis and 79% below on a LTM basis.
3) There is an even bigger divergence in actual business performance.
TTM EPS for the 10 largest tech co's *declined* 73% in the 21 months post peak valuation.
TTM EPS for the 10 largest tech co's today has *grown* 71% since peak valuations 21 months ago.
4) Because of this growth, today's 10 largest tech stocks are significantly *cheaper* today, 21 months post peak valuation than the year 2000 stocks 21 months post their peak valuation despite the year 2000 stocks having declined 80%ish at this point past peak.
5) Valuation multiples for the top 10 have compressed 40% in the 21 months since the 2020 peak, which is *more* than the 31% compression in the 21 months post the 2000 peak.
Simultaneous multiple compression and fundamental EPS implosion was what killed tech in 2000.
6) To approximate a year 2000 style meltdown, EPS for the 10 largest tech companies would have to decline 73%.
This is not going to happen.
7) A 73% decline in EPS is not going to happen even in a severe recession given how many of today's tech companies have either entirely or partly recurring revenues.
And for software, Covid showed that a "software contract is better than first lien debt."
8) So much of the revenue for 2000 tech companies was "capex" for their customers that could easily be turned off or deferred.
Revenue for many of today's large cap tech companies is open for their customers and their customers go out of business if they defer payment.
9) Am going to run the exact numbers but likely only 5-15% of revenue for the 10 companies from 2000 was recurring given the dominance of hardware and upfront software license revenue.
This number is *much* higher for today's companies so EPS will be much more resilient.
3) This is a funny/insightful Wall Street Journal article that speaks to how tight the labor market is: In This Economy, Getting Fired Takes Hard Work. Excerpt:
To hold down a job these days, a worker seemingly needs one essential trait: a pulse.
Some jobs have always required little more than the ability to stay awake. In the tightest labor market in a half-century, people in higher functions may get by just going through the motions, too.
"You'd have to be incredibly lousy" to get fired as a software engineer at the moment, says David Cancel, who employs roughly 700 people as chief executive of Drift, a Boston-based marketing firm that uses artificial intelligence. "Most companies – and us, in some cases – are keeping people who wouldn't be on the team in a looser market. The standards would be higher."
Though some economists warn of a coming downturn, layoffs and discharges in recent months have registered at or near all-time lows, according to the Labor Department. Less than 1% of workers are getting pink slips, roughly half the norm, with job security especially sweet in finance, education, healthcare, and the public sector.
To those giving less than full effort or just not up to the job: Your boss probably knows it. But there's little guarantee of finding someone better anytime soon, so you'll likely keep cashing that paycheck.
Much as businesses love to tout their ambitious corporate cultures – and have many ways of tracking employees' productivity – some would gladly settle for mediocrity right now.
When the human-resources software company UKG recently surveyed about 2,000 managers, roughly two-thirds said they'd be willing to rehire middling former employees, and 16% said they'd take back anyone, regardless of skill.
"I call it bird-in-the-hand management," says UKG Vice President David Gilbertson, who leads the firm's workforce research. "The companies I talk to are all worried about recruiting."
4) Commercial real estate firm Newmark (NMRK) has a fascinating chart showing that the number of people flying, going out to eat, and attending NBA games is nearly back to normal, but the number going back to the office is still down 68%! Take a look:
5) My cousin and I just got back from competing in tennis at the National Senior Games in Fort Lauderdale, Florida...
In singles, I had the misfortune of playing the guy who won the tournament in my first match, which knocked me into the consolation bracket, which I won, so I got a ribbon for fifth place.
My cousin Steve had an easier draw and made it to the bronze medal match against the No. 1 seed. Based on the rankings, I thought he was going to get crushed and, sure enough, he was quickly down 5-1 with a set point against him – and then staged a miracle comeback to steal the set 7-5. Then his opponent settled down and won the second set 6-0, meaning the match would be decided by a 10-point tiebreaker.
It was 92 degrees and both players were exhausted, but Steve hung on to win the bronze 11-9! Here's a picture of us with our awards:
In doubles, in our first match we beat the team that beat us 6-4, 6-4 in the gold medal match three years ago and got revenge, winning 6-2, 7-5. I thought that gave us a clear path to the gold medal match against the No. 1 seeds, but noooooo...
One of the other guys in our draw made a last-minute substitution, bringing in Mark Vines as his partner, a former world No. 110 who once made the third round of the U.S. Open before losing to Ivan Lendl in four sets (here's a fun New York Times article about him: Who Is Mark Vines? He Once Dominated Paris).
He's currently the No. 1 65-year-old player in the U.S. and No. 2 in the world, so we got smoked 6-1, 6-0. That knocked us into the bronze medal match yesterday, which we won 6-3, 6-0. Here's a picture of us getting our medals (Vines is standing next to me):
Overall, we had great fun and are planning to return for next year's games in Pittsburgh in July (they're normally every two years, but this year's was making up for the canceled games in 2020).
Best regards,
Whitney
P.S. I welcome your feedback at WTDfeedback@empirefinancialresearch.com.