MorningWord 1/13/15: Getting Ready to Party Like It’s 1999?

by Dan January 13, 2015 9:30 am • FREE ACCESS

Alibaba (BABA) was by far the biggest single stock story of 2014, at one point rising 75% from its $68 ipo price, sucking out, at its November highs, $300 billion from other equity investments.  So far in 2015, BABA mania has subsided a bit, but the stock’s market cap and the company’s mind-share will remain a force to be reckoned with inside investors portfolios given the relatively unknown growth potential in China and abroad.

There has been little doubt in my mind that part of Google’s (GOOGL) under-performance since the Sept 18th BABA ipo has been a sort of “out with the old, in with the new” from web investors.  In fact GOOGL has lost nearly $60 billion in market cap since Sept 19th, and just yesterday made a new 52 week low.  This is fairly disconcerting for one of the largest market cap stocks in the world, despite what continues to be very healthy growth expectations at a very reasonable price.  GOOGL currently trades at 16.5x expected 2015 earnings growth of 16% on 18% sales growth. Either investors are missing something in a big way, or the big money just doesn’t believe the consensus estimates.  I am assuming the latter.

And then there are the IT net stocks of 2013, Amazon (AMZN) and Netflix (NFLX), both about one bad trading day away from a matched 52 week low.

One fairly clear take away from the recent price action in once high fliers, is that investors are becoming a lot more discerning about piling into once popular stories, with Apple (AAPL) down 10% from its all time highs made late last  year, BABA down 15% from the Nov high, and Tesla (TSLA) down 30% from its Sept  high.

Although, all this strikes me as a bit odd. If our equity markets are NOT rolling over, and the bull remains very much intact, and we are about to reap the further benefits of ZIRP forever with the added rocket fuel of lower for longer oil, then I would expect a sort of 1999 move in equities at some point in the coming months.  Why? Because per usual there are little other investment alternatives, and investors just can’t help themselves.  What does the 1999 move mean?  For those who weren’t around, it’s an eye-popping, rip your face off parabolic movement that will first be manifested in some of the sturdiest stocks of the last few years (AAPL & GOOGL types) and then find its way into some of the more speculative (AMZN, NFLX & TSLA) followed by some really speculative sector that goes up 5 fold, and then ultimately into everyday mom and pop holdings (GS, MSFT, PG & PEP).  One way or the other, an early 2015 equity decline could set the stage for some stock silliness if all the stars align. But buyer beware, we know how this movie ends as we have seen it before.  This is not a prediction, and to be fair I am not positioned for it, but the longer we don’t correct, with the backdrop of global easing and an improving U.S. economy, the greater the likelihood of stuff getting silly.