Wednesday, July 27, 2011

Google Stock To $1500?

And people think there's a bubble in gold?  The bubble out there that is inflating is the bubble in "new generation" internet/tech stocks.  GOOG, AAPL, AMZN, NFLX.  Here's an analysis by James Altucher, who I think is the current Pied Piper of the stock market with his outrageous bullishness based on pure fluff.  Here's the analysis he presents to support his argument for a $1500 GOOG:  LINK

Please note that his analysis is largely based on a regurgitation of the old internet stock valuation metric from 1999-2000 of "clicks and eyeballs."  In no way is his valuation analysis based on anything concrete like earnings, cash flow, market size, etc.  He does present a "forward earnings multiple," but he in no way attempts to provide a reasonable derivation of future earnings.  What happened to things like:  1) are GOOG's accounting methods credible?  2) earnings quality/sustainability 3) competition (Microsoft etc)...I would have been flunked out of my introduction to finance class at University of Chicago if I presented a stock valuation analysis as retarded as the one Altucher lays out...

Having said all of that, I will say that IF the Fed/Government continues on its policy path of debt issuance and money supply inflation, then $1500 GOOG is entirely possible, even probable.  Of course, if $1500 GOOG happens, expect that gold will be hovering around $5000 and silver around $200.  Here's a 1-yr chart of from the Fed of the money stock, M2:

(click on chart to enlarge)

As you can see, the Fed has been very busy inflating the money supply.  I'd love to see M3, the all-encompassing measurement of the money supply, but the Fed eliminated the reporting of M3 back in 2006 (Didn't Obama promise more Government transparency during his campaign?).  Now, does anyone believe that the U.S. economic output has increased this year?  Maybe a little?  In reality, if the growth in money supply outpaces the marginal growth in a country's GDP, then inflation ensues.  I truly believe that if a realistic GDP price deflator metric were applied to the Government's measurement of nominal GDP (i.e. nominal GDP less inflation, or real GDP), we would actually see a decline in GDP this year.

Please make no mistake about it, in the 5000 year history of organized civilization, whenever there has been this kind of currency debasement, rampant price inflation has ensued (and social unrest, wars, etc).  So the good news is, if you own GOOG, you might easily see your stock rise to $1500/share.  However, if you own gold and silver, you will see the value of your holdings outperform GOOG.  Even better, if you own carefully selected mining stocks, you will see those investments dramatically outperform the price performance of gold and silver.


  1. Dave,

    Speaking of mining stocks they continue to sucka$$. It is very frustrating as that's all I own anymore is physical bullion and mining shares. I was wondering what your take is on ECU now that it is merging with AUMN.

    You probably don't remember but I told you to take a look at AUMN a few months back. I mentioned they were from your home state and way undervalued from my analysis.

    Also anything new with SDRG? I dumped it back in March on its run up to .20 and haven't been following it since. I did see they launched a new website but that's it.

    Any miners that you want to recommend I take a look at? I currently own:
    golden minerals
    ecu silver miners
    silver wheaton
    silvercorp metals
    canadian zinc corp
    centamin egypt
    eurasian minerals
    gabriel resources
    tinka resources
    plus gdxj & sil etfs.



  2. Altucher is crap..listen to someone that has made real investments and money with sound analysis..

    Macro policy trying to effect economic outcomes

    Eric Sprott joins Jim to offer his views on silver manipulation and the opportunities ahead

  3. 1) MCD is an $87 stock going to $250--at the same time a happy meal will cost 29.95.

    2) did you see the Matt Taibbi article in his blog about how GOOG is paying an effective 3.1% federal income tax rate and is part of the group seeking amnesty on taxes for funds held outside the US. If and When GOOG has to pay that tax and other taxes (ie GE) the profits of companies will drop like a rock -that in combo with the what if the FASB ever had banks actually mark to market (like what FDIC has to do to get someone to buy closed banks) would kick start a real selling frenzy in the market.

    3) A good portion of better earnings is coming from companies not experiencing growth and in addition to headcount cutting, they capex has declined which results in lower depreciation exp which of course results in higher earnings.

    4) also, inventory building (or channel stuffing in GMS case) absorbs costs of production thereby inflating profits too.

    We are living on the edge just ready to be pushed.

  4. haha, I actually read altucher's blog and think it's great. But, it isn't about investing. On the investment front I certainly don't agree with him but I'm not convinced he actually believes what he's saying, it's more a publicity ploy, IMO.

  5. AUMN and ECU are my carefully selected mining stocks. However, they keep dropping after they announced merge. Any thoughts on this? Thanks!

  6. (Dave)

    Zephyr, I'm scratching my head on ECU daily. It's big position %-wise in our fund. In general the juniors are sucking wind. I think the terms of the merger have not been explained well by either management. ECU needs to start producing MSZ drilling results. But also don't overlook the fact that ECU is highly manipulated. I think ECU requires extreme patience.

    JD, your stock list looks good. I really like Rye Patch Gold RPM.V/RPMGF

  7. Why not. During the Weimar Republic the stock index went from 100 Marks to 26.89 million Marks & Old Mutual (OM) on the Zimbabwean exchange went from ZW$26 to ZW$500 Trillion ($500,000,000,000,000).

  8. Rye Patch Gold eh. I never heard of them. I will check them out.



  9. (Dave)

    RE ECU: It's being affected by the market as much as anyting else. Today for instance, here's the performance of some select silver miners:

    ECU: -7.2%
    GPR -6.5%
    SVM -5.6%
    EXK -6.4%
    MVG -6.2%
    MGN -8.2%

    SVM and EXK are larger cap producers.

  10. Good reminder to all the non believers...

    A Thousand Pictures Is Worth One Word: Worthless
    "History has a message for us: No fiat currency has lasted forever. Eventually, they all fail. You might suspect this happened only to third world countries. You’d be wrong. There was no discrimination as to the size or perceived stability of a nation’s economy; if the leaders abused their currency, the country paid the price." We may add one other thing: no country in the history of the world has imploded from hyperdeflation. Not one.

  11. Concerning James Altucher and his tech stock picks, its deja vu all over again.

    Maybe he thinks, wishes, hopes, prays that after a decade everyone would have forgotten about the tech wreck.

    You can fool some of the people all of the time
    you can fool all of the people some of th time
    bu you can't fool all of the people all of the time-A lesson Madoff and Ponzi learned the hard way.

  12. Donating a house may create an income-tax deduction, said Robert Willens, an independent accounting analyst based in New York. A bank might deduct as much as the fair market value if a home wasn’t acquired with the explicit intent of knocking it down, he said.

  13. Dave,

    What are your thoughts on the ECU merger now that the ECU shareholders are getting 50% of a sub $15 company rather than a $19+ company when the merger was announced? Golden Minerals shares have become hard to borrow at one major broker. It seems the ECU short seller has migrated to Golden Minerals.

    I have a hard time understanding how a massive sulphide announcement will be sufficiently newsworthy to overcome the negative momentum of two stocks trading worse than the USD.

    Thanks for your thoughts.

  14. (Dave)

    I think regardless of the short term trading action, the merger is a great deal for both companies, especially ECU.

    Part of the weakness in both stocks is the general weakness in juniors plus lately the weakness in silver stocks. This will pass soon.

    ECU is one of the most manipulated stocks I have ever seen. The Canadian regulators are every bit as sleazy as the U.S. regulators, if not moreso.

    I believe patience will be rewarded.


    SS can send the IOUs over to the banks, the banks trade them in to the Fed, and Fed puts $ on deposit for the banks which back up the SS checks. Just like treasuries. Of course, this is pure money printing on the part of the Fed.

    In principle, SS could run like this for YEARS! The Fed ends up with 4.3T of IOUs on its balance sheet. Yipes!