By the look of things, we’re in another Tech Craze, similar to the one in 2000.
The last two years have seen a number of high profile Tech IPOs for businesses that are barely profitable or have never turned a profit. Indeed, of the tech firms that went public in 2013 so far, 73% have never turned a profit (compare that to just 27% of the tech IPOs that were unprofitable in 1999).
Of those companies that are profitable, trouble is brewing. I’m talking about Facebook, Zynga, and the like. All of these businesses have very serious issues with their business models.
A final key component of the market’s current bubble concerns profits. As I’ve pointed out before, today corporate profits as measured by earnings or net income are at a record.
This has contributed to the market rally in a big way. However, the reality is that these earnings numbers are in fact heavily massaged through various accounting tricks pertaining to taxes.
As Citigroup recently noted, if one were to look at operating profit margins (profits before taxes, amortization and depreciation), one would find that profit margins have been flat to down for the last year and a half.
My point is that if we look at real earnings instead of those being manipulated by taxes and asset manipulation, the corporate profits picture is not nearly as rosy as the markets imply.
All of this points to signs of a major market top forming. This is not to say that there won’t be significant opportunities for investing to the longside in the markets.
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Best Regards,
Phoenix Capital Research
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