February 12, 2016

Bearish on Amazon, Netflix and Tesla

Warnings about Tech Bubble 2.0 have been plentiful, from the proliferation of private-equity "unicorn" valuations to social-media stocks' elevated price-to-earnings multiples to "coders" who became rock stars. We've also seen a ready acceptance of non-GAAP accounting that excluded stock based compensation, as well as mal-investment that was an outgrowth of zero interest rates and the general "bull market in complacency."

And amid a belief that social media would eventually attain massive profitability, we saw conspicuous consumption and lavish lifestyles emerge in San Francisco, the "City by the Froth" (of Silicon Valley).

But yet another alleged "new paradigm" of prosperity and unlimited opportunity -- this time involving social media -- has been hijacked by reality.

The collapsing valuations of Twitter, Ali Baba, GoPro, Box, Square and Snapchat were all signposts of broader weakness months before the TFANGs began to wobble.

And they're likely just the tip of the iceberg in the "de-risking" that I expect among the social-media and Internet leaders. The IPO world's "debutantes in waiting" and private-equity valuations are both spiraling lower. And expect Silicon Valley's perks -- the purring Teslas and Ferraris and extravagant parties at places like Yahoo!-- to disappear faster than LNKD or Tableau Software (DATA) might drop.

I've long cautioned that the deliquesce of previous tech leader Apple's share price would presage a defanging of the TFANGs, which now seem on their way to becoming toothless.

In fact, the TFANGs are beginning to look a lot like Internet stocks did in mid- to late 2001, or how mortgage lenders and insurers did eight years ago. But as with those market leaders of yore, it's next to impossible to determine how far down the TFANGs' pendulum of valuation will swing.

There's no cushion or "margin of safety" from the TFANGs' lofty multiples or even loftier (and unrealistic) expectations. Moreover, the exits in a "crowded room" on Wall Street always become quite narrow when prices convulse and emotions sour.

Stay the heck away from bottom fishing, as the exit door is always narrow in a crowded room. The current "kaboom" in the TFANGs is no different than the dot-com stocks' disintegration in early 2000 or the mortgage lenders and insurers' collapse in 2008-09.

The era of the TFANGs might finally be over, and the "other side" might lie ahead, reflecting technical breakdowns and uncertain fundamentals for TSLA, AMZN, DATA, NFLX, LNKD, etc. The TFANGs are now in "bad" hands, and momentum stocks in bad hands are a potentially toxic cocktail.

That's why I remain fundamentally bearish on Tesla, Amazon and Netflix.

In other words: "Goodbye Yellow Brick Road!"

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