Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Stop Believing The 'Economy' Is The Same As The Stock Market - 12th Jul 20
Spotify Recealed as The “Next Netflix” - 12th Jul 20
Getting Ahead of the Game: What Determines the Prices of Oil? - 12th Jul 20
The Big Short 2020 – World Pushes Credit/Investments Into Risk Again - 11th Jul 20
The Bearish Combination of Soaring Silver and Lagging GDX Miners - 11th Jul 20
Stock Market: "Relevant Waves Vs. Irrelevant News" - 10th Jul 20
Prepare for the global impact of US COVID-19 resurgence - 10th Jul 20
Golds quick price move increases the odds of a correction - 10th Jul 20
Declaring Your Independence from Currency Debasement - 10th Jul 20
Tech Stocks Trending Towards the Quantum AI EXPLOSION! - 9th Jul 20
Gold and Silver Seasonal Trend Analysis - 9th Jul 20
Facebook and IBM Tech Stocks for Machine Learning Mega-Trend Investing 2020 - 9th Jul 20
LandRover Discovery Sport Service Blues, How Long Before Oil Change is Actually Due? - 9th Jul 20
Following the Gold Stock Leaders as the Fed Prints - 9th Jul 20
Gold RESET Breakout on 10 Reasons - 9th Jul 20
Fintech facilitating huge growth in online gambling - 9th Jul 20
Online Creative Software Development Service Conceptual Approach - 9th Jul 20
Coronavirus Pandemic UK and US Second Waves, and the Influenza Doomsday Scenario - 8th Jul 20
States “On the Cusp of Losing Control” and the Impact on the Economy - 8th Jul 20
Gold During Covid-19 Pandemic and Beyond - 8th Jul 20
UK Holidays 2020 - Driving on Cornwall's Narrow Roads to Bude Caravan Holiday Resort - 8th Jul 20
Five Reasons Covid Will Change SEO - 8th Jul 20
What Makes Internet Packages Different? - 8th Jul 20
Saudi Arabia Eyes Total Dominance In Oil And Gas Markets - 7th Jul 20
These Are the Times That Call for Gold - 7th Jul 20
A Reason to be "Extra-Attentive" to Stock Market Sentiment Measures - 7th Jul 20
The Beatings Will Continue Until the Economy Improves - 6th Jul 20
The Corona Economic Depression Is Here - 6th Jul 20
Stock Market Short-term Peaking - 6th Jul 20
Gold’s Major Reversal to Create the “Handle” - 5th July 20
Gold Market Manipulation And The Federal Reserve - 5th July 20
Overclockers UK Custom Build PC Review - 1. Ordering / Stock Issues - 5th July 20
How to Bond With Your Budgie / Parakeet With Morning Song and Dance - 5th July 20
Silver Price Trend Forecast Summer 2020 - 3rd Jul 20
Silver Market Is at a Critical Juncture - 3rd Jul 20
Gold Stocks Breakout Not Confirmed Yet - 3rd Jul 20
Coronavirus Strikes Back. But Force Is Strong With Gold - 3rd Jul 20
Stock Market Russell 2000 Gaps Present Real Targets - 3rd Jul 20
Johnson & Johnson (JNJ) Big Pharma Stock for Machine Learning Life Extension Investing - 2nd Jul 20
All Eyes on Markets to Get a Refreshed Outlook - 2nd Jul 20
The Darkening Clouds on the Stock Market S&P 500 Horizon - 2nd Jul 20
US Fourth Turning Reaches Boiling Point as America Bends its Knee - 2nd Jul 20
After 2nd Quarter Economic Carnage, the Quest for Philippine Recovery - 2nd Jul 20
Gold Completes Another Washout Rotation – Here We Go - 2nd Jul 20
Roosevelt 2.0 and ‘here, hold my beer' - 2nd Jul 20
U.S. Dollar: When Almost Everyone Is Bearish... - 1st Jul 20
Politicians Prepare New Money Drops as US Dollar Weakens - 1st Jul 20
Gold Stocks Still Undervalued - 1st Jul 20
High Premiums in Physical Gold Market: Scam or Supply Crisis? - 1st Jul 20
US Stock Markets Enter Parabolic Price Move - 1st Jul 20
In The Year 2025 If Fiat Currency Can Survive - 30th Jun 20
Gold Likes the IMF Predicting a Deeper Recession - 30th Jun 20
Silver Is Still Cheap For Now - 30th Jun 20
More Stock Market Selling Ahead - 30th Jun 20
Trending Ecommerce Sites in 2020 - 30th Jun 20
Stock Market S&P 500 Approaching the Precipice - 29th Jun 20
APPLE Tech Stock for Investing to Profit from the Machine Learning Mega trend - 29th Jun 20
Student / Gamer Custom System Build June 2020 Proving Impossible - Overclockers UK - 29th Jun 20
US Dollar with Ney and Gann Angles - 29th Jun 20
Europe's Banking Sector: When (and Why) the Rout Really Began - 29th Jun 20
Will People Accept Rampant Inflation? Hell, No! - 29th Jun 20
Gold & Silver Begin The Move To New All-Time Highs - 29th Jun 20
US Stock Market Enters Parabolic Price Move – Be Prepared - 29th Jun 20
Meet BlackRock, the New Great Vampire Squid - 28th Jun 20
Stock Market S&P 500 Approaching a Defining Moment - 28th Jun 20

Market Oracle FREE Newsletter

AI Stocks 2020-2035 15 Year Trend Forecast

The Next Stock Market Bubble is Forming Right Now

Companies / Corporate News Jun 05, 2011 - 10:44 AM GMT

By: Jared_Levy

Companies

Best Financial Markets Analysis ArticleThe mass media is obsessed with bubbles. They see market bubbles everywhere, like in crude oil, soft commodities or China... Granted, there are some serious issues with all three, especially with China and its consumption of the other two.


According to a report from a colleague of mine, there could be something happening with regard to China and its crude oil that could have a larger impact than what mainstream media has us concerned about. Follow this link to read more about China's secret oil "colony."

But the mainstream hasn't seen the market bubble I want to talk about today.

Remember the Dot-Com Era?

I know I do. Specifically I remember the summer of 2000, which was the beginning of the end for many dot-com companies. One experience punctuated the end of the decade for me (and it wasn't the Y2K scare).

At the time I was an options market maker. It was our job to create liquidity for the options markets. When the public was selling options, we were buying them and vice versa. A friend of mine was going on vacation for the month of June and asked me to trade a couple positions he had in Broadcom (BRCM:NASDAQ). Back then BRCM was a high-flying (and fast dropping) IPO. I was excited and scared at the same time.

I remember he said one thing to me before he left: "make sure no matter what happens that you are long gamma!"

That was a bold statement to make. It meant that this stock was going to be very volatile and you better be on your toes.

That summer, BRCM rallied over 140%, to a high of about $185 -- By February of 2001, it had fallen to $18 a share.

I remind you of this stock because we must remember how it was hyped up, misunderstood and subsequently pumped to price levels that were unsustainable, all due to something called the Internet. Amateurs and professionals alike were lured into worthless companies like the children of Hamelin were led to death by the Pied Piper.

There was no way to quantify the potential earnings of many of these companies, because we simply did not know what the Internet would become, how people would use it or how companies would profit from it. People simply bought blindly and ignored logic. Many saw their fortunes crumble.

Social Media = Dot-Com 2.0

In my eyes, social media is in many ways the dot-com of today. It carries the same ambiguity and mystique, which makes it both sexy and scary at the same time. And social media companies are attracting many of the same types of personalities that were lured by the likes of webvan.com, pets.com and other Internet flops.

Social media companies are supposed to be changing, tracking and profiting from the ways we communicate, entertain and market to one another. The Internet is an instantaneous gateway to information no matter where it is. But social media is the structure, sorting and disseminating that information.

Unlike industry media, social media is consumer generated. It's a way for us to share information with our friends in the most effective way. There are companies trying to profit from the new ways we interact, but not every company will get its time in the sun.

The big problem is that social media is still evolving. The way we learn and share information is constantly changing. And there is a ton of it including blogs, videos, tweets and reviews.

Right now we don't know what social media companies will be successful because much of it is still an experiment of sorts.

I'm not trying to be Debby Downer, but I remember the bad days of dot-com vividly. I know dozens who lost everything betting on tech companies. It seems to be happening all over again.

Do your homework before investing in any of these companies and do your best to ensure that their revenue streams are scalable and sustainable!

The IPO March

To be fair, several of the companies coming to market do have more extensive track records and are even seeing strong revenue growth. The key will be profitability and growth in the long term.

LinkedIn (LNKD:NASDAQ) -- This hot issue came to market last week and after hitting a high of $120, the shares have since tumbled to $78. What makes LNKD dangerous at this price is the fact that it made less than $10 million last year (though, the company is growing) and yet the market valued it over $8 billion.

What's worse is that Facebook could easily expand its employment history section and do everything that LinkedIn does, but better. It also has a much broader client base. LinkedIn is looking more like an employment site like Monster.com and CareerBuilder.com. Both have seen their shares tumble over the past year.

Options markets are also pricing in a huge drop in LinkedIn shares. The skew is massive, meaning that the out-of-the-money (OTM) puts are 41% more expensive than the OTM calls in some cases.

(Editor's Note: For put options, out of the money means the price at which you can exchange your options for stock is lower than the current price of the stock. For more information on options and options education, check out Jared's service, WaveStrength Options Weekly.)

I see the shares much lower in the coming months.

Groupon -- Last night Groupon announced its intentions to be listed under the symbol "GRPN." The company is looking to raise $750 million to expand and improve its business. In the first quarter of the year, it realized $644.7 million in revenue, but reported a $113.9 million loss (due to expansion).

Groupon is a great service and unique business model, but there is serious competition building. The other thing is business owners usually have to offer goods and services at or below cost. These companies could be disappointed when Groupon users don't become regular paying customers.

I would like to see another year of sales growth before I put any money in Groupon.

Pandora (music) -- The music streaming service is set to begin trading under the ticker symbol "P." Shares are expected to be priced around $7-$9.

While Pandora is cool, it has a plethora of competition, which makes sustainability and growth hard to justify.

Facebook -- Facebook is the beast in the space; I equate it to Google in terms of reach and sustainability. Like Google, it sorts data from millions of users and sells that data to advertisers. Facebook has weaved its way into just about every smartphone, home PC and website out there.

And it is making money. According to notes from Seeking Alpha, Facebook made an approximate $2 billion in revenue in 2010. They also noted that Facebook should earn $5 billion by 2012. Using Google's margins as a guideline, Facebook is on track to make $1.5 billion in profits by 2012. This is an IPO I would truly look into buying (depending on where it is priced, of course).

If you remember my story about Broadcom earlier, many of my colleagues are saying the same thing now that was said to me then and that scares me.

Many of these companies have positive aspects. I highlighted the negative aspects not to scare you but to insure that you consider all scenarios before jumping into a "hot" social media stock.

Editor's Note: Make big profits in the coming "technology metals" crisis... The U.S. wants to use "green technology" to decrease our dependence on oil. But China has a 97% monopoly on a natural resource that is vital to green technology... and we’re about to experience a serious shortage! Learn which companies could solve this crisis and hand you staggering gains in this URGENT FREE REPORT.

Don't forget to follow us on Facebook and Twitter for the latest in financial market news, investment commentary and exclusive special promotions.

Source : http://www.taipanpublishinggroup.com/tpg/smart-investing-daily/smart-investing-060311.html

By Jared Levy
http://www.taipanpublishinggroup.com/

Jared Levy is Co-Editor of Smart Investing Daily, a free e-letter dedicated to guiding investors through the world of finance in order to make smart investing decisions. His passion is teaching the public how to successfully trade and invest while keeping risk low.

Jared has spent the past 15 years of his career in the finance and options industry, working as a retail money manager, a floor specialist for Fortune 1000 companies, and most recently a senior derivatives strategist. He was one of the Philadelphia Stock Exchange's youngest-ever members to become a market maker on three major U.S. exchanges.

He has been featured in several industry publications and won an Emmy for his daily video "Trader Cast." Jared serves as a CNBC Fast Money contributor and has appeared on Bloomberg, Fox Business, CNN Radio, Wall Street Journal radio and is regularly quoted by Reuters, The Wall Street Journal and Yahoo! Finance, among other publications.

Copyright © 2011, Taipan Publishing Group


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules