by Henry Makow Ph.D. — henrymakow.com Sept 8, 2018
In the past couple of years we have seen the price of a bitcoin rocket from $200 to $19,000 in December 2017 to settle at around $6400 Friday. Other cryptocurrencies followed suit although not in so spectacular a fashion.
The value of cryptocurrencies is established by what people will pay for them. They have no intrinsic value. They are not even backed by government imprimatur like fiat currencies. All of these, including gold, are media of exchange, entirely based on social acceptance i.e. “demand.”
Increasingly corporate shares are behaving like cryptocurrencies, detached from the real world of earnings. In fact, the shares that do best seem to be those based on pipe dreams.
Those companies that have actual earnings and low p/e’s are punished mercilessly. People are willing to pay now for what shares might be worth five or ten years from now if everything goes according to plan.
An example is Advanced Micro Devices (AMD) whose shares have tripled since March. Estimated 2018 earnings of .30 mean the P/E ratio is 94.
Meanwhile, Micron (MU) is the dog at the party. It made the error of executing in reality instead of what if. It will make $10 a share this year and trades at $45, giving it a P/E of 4.5. It peaked at $61 in June.
What’s going on? Micron investors must be tearing their hair out.