Social Bubbles

This note was originally published at 8am on March 26, 2014 for Hedgeye subscribers.

“I wonder how much it would take to buy a soap bubble, if there were only one in the world.”

-Mark Twain

 

Imagine that – if there were only one bubble, tulip, or social media stock left in the world – what on earth would we pay for it? Someone at Morgan Stanley can surely answer that with a comp table.

 

I have to give it to the folks @Facebook. They’re nailing it on “scarcity value.” I didn’t know that either of their last two acquisitions existed. After spending $21 billion on WhatsApp and Oculus, FB’s stock has broken my mo-bro line of $67.52 support too.

 

Social Bubbles - social media bubble burst

 

Imagine there was only one bro left in the marketplace? How much would he pay for the all-time-bubble-high in the last social media stock that stops going up? It’s all fun and games until someone gets popped.

 

Back to the Global Macro Grind

 

Never mind trying to figure out what Oculus is (an “immersive virtual reality company”) or that it was “valued” at $30M in June. These guys just got $400M large (in cash) and another $1.6B in Facebook’s (FB) bubbled up stock. #cool

 

Until it’s not…

 

In FB inflated currency terms, Oculus is “cheap” though. Ask the bankers. When you slap it on a sheet of paper next to Candy Crush (coming public today with at least a $7B valuation), it’s probably relatively “cheap” too.

 

I know. Fourteen years ago (Q2 of 2000), while I was leaving the big bubble house that Frank Quatrone built (Credit Suisse First Boston), calling a bubble what it was back then was subject to some really smart “it’s different this time” analysis.

 

But it wasn’t. This time won’t be different either.

 

Moving along, why don’t they just jam the US stock market right back to the all-time-bubble closing highs (SPX 1878) again in the next few trading days?

  1. It’s quarter-end…
  2. There’s no-volume out there anyway,
  3. And squeezing hedgies who keep shorting low and buying high is easy to do

On that last point, at least from a Style Factoring perspective, being long High Short Interest stocks is back!

 

Now tracking +2.8% YTD, that beats being long either Low Short Interest (as a style factor in the SP500) which is only +0.8% or, god forbid, the Dow (which is still down -1.2% YTD).

 

Alternatively, you can triple bypass the stress associated with buying the high short-interest bubble and:

  1. Buy #InflationAccelerating
  2. Buy #GrowthSlowing
  3. Short the US Consumer

How do you buy #InflationAccelerating?

  1. CRB Food Index +18.1% YTD
  2. Gold +9.5% YTD
  3. CRB Commodities Index +7.5% YTD

What about #GrowthSlowing?

  1. Utilities (XLU) +7.4% YTD
  2. REITS (MSCI Index) +8.1% YTD
  3. Bonds (yep, long-term Treasury Yields are down 30 bps YTD)

Oh, and the Short US Consumer Discretionary (XLY) position acts fantastic with the sub-sector -3.3% YTD. That’s horrendous on both an absolute and a relative basis. If you’re into that sort of thing…

 

You might be into buying former bubbles that blew up too. After all, isn’t that what being long of Gold and as many homes as you can get your hands on from A&E’s house flippers is all about?

 

Or is the show called Flip This House? Who cares what these $2, $7, or $19 billion dollar companies or shows are called. Fully loaded, listening to #OldWall bankers and mortgage brokers pitch us on why it all makes sense is just getting fun to watch.

 

Our immediate-term Macro Risk Ranges are now:

 

UST 10yr Yield 2.62-2.81%

SPX 1854-1878

VIX 13.09-17.47

USD 79.18-80.41

Gold 1301-1345

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Social Bubbles - Chart of the Day

 

Social Bubbles - Virtual Portfolio


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