Bubble Schmubble - 1999 Versus Today

1.) YES – Investors keep saying yes to companies wanting money! Here’s the recent list of capital raises: Alphabet: $80 billion; SpaceX: $75 billion; SK Hynix: $26.5 billion; Nvidia: $25 billion; SpaceX again: another $25 billion; and now Intel: $20 billion. What’s interesting about the INTC raise is that it is reported there was an oversubscription to the tune of $100 billion! Companies want money. Investors have money, and they keep giving it to them. I don’t think the important question is why all these companies want money. Some look at it incorrectly as them “needing” money. No, that’s not it. I mean, if you could sell stock at high prices and investors were lined up to buy it, wouldn’t you? No, the important part is that investors keep saying “YES!”. Right now, there seems to be a lot of money looking for somewhere to go. This tells us that investors are willing to take risks to fund projects that may take years to pay off. The companies raising the capital aren’t hoarding it… they’re spending it! That is what creates a continued broadening of markets as that money gets spent on all sorts of things – electricity, chips, memory, factories, cooling systems, equipment… you name it. Investors saying yes to capital raises like this is not the stuff of markets in trouble.

2.) BUBBLE – There continues to be a lot of ink spilled about this current “bubble” and comparisons to the dot-com bubble and subsequent market crash. But there are significant differences from then to now, and perhaps the most glaring are the earnings versus valuations. In 1999, the earnings peak was already well in place, and all the gains came from valuations. That's the opposite of what we have today. In 1999, earnings were rising, but so were P/E ratios – valuations. Today, earnings are rising while valuations are dropping. Historically speaking, that would suggest markets are nowhere near a topping point like they were in 1999.

3.) GOLD – Gold is moving into more of a “buy the dips” pattern as the US Dollar has moved into a bearish (downward bias) trend. Gold is moving above the top of its trend level at $4,404. This suggests buying gold on pullbacks has become much less risky. Currently, the US Dollar index (DXY) is signaling its first “oversold” signal since April 20th. The difference from then to now is that back then the Dollar had not broken trend. Today it has. Does that mean the Dollar is about to rip higher? Probably not, but a bounce toward $100 wouldn’t be too surprising either. Gold currently has a negative correlation to the Dollar, but it’s only -0.15 on a short-term 15-day basis. That just means that if the Dollar did bounce some here, it would not likely be too damaging to gold. Intermediate to longer term, gold has a -0.70 and -0.86 negative correlation on a 30 and 90-day basis. This would mean that if/when the Dollar resumes its downward move on a more intermediate-term basis, gold would get a tailwind as well. All this to say that gold has probably seen its bottom and that over the next several weeks and months, it likely climbs higher.