Wednesday, October 22, 2014

Are IBM And The IT Industry Headed For Disaster?

Let me first take a few paragraphs to comment about the markets in general.  One of the long-time themes on here is that we would eventually see Wall Street trade counterparties out of financial markets and market “professionals” will be left batting massively overvalued shares back and forth.  There is little to no liquidity in financial markets and that dynamic has been building since 2008.   No one knows how much true manipulation is going on because no one has an overall view of markets.  But a substantial amount of market liquidity is predatory and meant to steal money from counterparties.  This is driven by algorithmic trading and serves absolutely no purpose other than stealing.   The last week has been a derivatives (leverage) driven rally by market professionals or whatever invisible hands that lie behind all financial markets today.  Some indices may yet make new highs but in many instances open interest in financial futures markets has imploded or is imploding.  I talked about that very fact in the gold market some time ago.  That open interest in gold derivatives collapsed by 90% in its selloff.  I have seen statistics that I cannot corroborate that in many regards we have never seen such thin liquidity in some markets.   That means if you breathe on a stock, in many instances it is going to spike higher or collapse.  

This is one hell of a dangerous market that is only levitated through massive fraud and corruption around the world.   Just like in the underlying economy, state-created monopoly in financial markets has driven out price discovery, counterparties and competition.   This dynamic has been building for many decades and is now reaching its finality.  Benjamin Graham, the greatest investor of all time, essentially threw up his hands more than forty years ago in stating that he could no longer find any value in stocks.  ie Price discovery has been ablated for forty years or thereabouts.   This is so mind boggling that I doubt there is anyone who is reading this who will even consider this to be true.   Because if one considers this to be true, then what comes next is beyond comprehension and causes a reaction of pure fear for those who are institutionalized to this system.   So, instead people will simply continue to deny truth.   That is, until it forces them to face reality.    With massive valuation expansion, financial engineering (fraud) and an endless wall of renter-capitalist dirty money over the past forty years, if Graham were alive today, I can say with near complete certainly there isn’t a single stock he would remotely consider owning.   I say this to make a point.  Who the hell is going to be the counterparty in markets that are more expensive, more distorted and more manipulated than at any time in history?  Ever.  Much more so than 1929.   Most often by magnitudes.  Certainly not most Americans.  They don’t have a pot to piss in.   I’ll tell you who is holding the bag.  Wall Street dunces, central bank dunces, political dunces, mutual fund dunces, public pension dunces, renter capitalist dunces and all of the other dunces who benefit from this mess.  That is, the members of the plutocracy that created this Humpty Dumpty through decades of self-interested “laws” and rules they passed to enrich themselves at the expense of humanity.   We have a small group of dunces holding most massively bubblicious financially-traded assets.  Perceptions are that they are rich on paper.  But the paper is based on four decades of worthless monetary emission that isn’t backed by any type of wealth creation.   Now they have no one to dump any of this toxic trash onto so they are going to have to ride this pig to zero or thereabouts.   I have written on here many times over the years that central banks will never be able to stop printing money without economic reform.  That economic policy for the last forty years has destroyed wealth creation and thus the only way to perpetuate this illusion is endless, useless monetary emission in the largest financial bubble the world has ever seen.  That policy will ultimately fail.  The only question is when.   Now onto the post.

A little over three years ago I wrote a detailed post that IBM was putting in a major top, and maybe its last top.  Forever.  The company’s stock has not moved since.   That is, until its just-reported earnings and the stock has now experienced a mini crash.   The company has reported shrinking revenues for the last three years as well.  In that post I wrote a detailed review of their major lines of business and how they had come to rely on unsustainable business models, rent extraction schemes foisted upon clients and too-big-to-fail clients, specifically in the finance industry.  The finance industry, which is nothing more than a rent-extracting Ponzi Scheme itself, has come to dominate IT spending to create these schemes.  And, just as finance creates no wealth, but rather loots society to maintain its usurious existence, IT too employs similar rent extraction to then loot the finance industry. 

This really has nothing to do specifically with IBM, but as noted at that time, is representative of the entire industry, which is living on borrowed time.  The IT industry is one of the most bloated, mismanaged, unproductive, financially-engineered industries.    And the business models in this industry are clearly unsustainable; a topic of discussion on here many times is how few corporations today actually have a sustainable business model and, thus, we could possibly see large corporations fall like dominos.  To top it off, IBM’s intrinsic value, as just one example, is nearly 4x what the average stock was valued at in 1929 before markets fell 90%.  IBM is the second most expensive company in the Dow behind Boeing, which itself is an astronomical bubble.  Boeing’s bubble is not only in its business but in its stock.   For what it’s worth another IT bellwether, SAP just missed earnings as well.  

As I wrote back before the 2008 collapse, my downside target for IBM’s stock is in the mid-20’s.   It remains the mid-20’s which would be a 90% drop from their all-time highs made over the past few years.  That is, if the company even survives the next decade.  If our monetary and financial system fail, the IT industry will fail.  At least as we know it.  The assets and technology may be reorganized or redeployed but there is no way these companies can weather a systemic monetary or financial system storm without bankruptcy or worse.   (Central banks truly are in a fight for their lives and a fight for the future of capitalism’s central planning.  They will certainly fail as all central planners eventually do.)

Looking at the chart of IBM, from a technical standpoint, there isn’t even any price support until $130.  The chart pattern is the exact same fractal pattern exhibited by U.S. stocks from 1932 till today.  That is, a rapid spring higher, a period of middle section malaise - a chart pattern that George Lindsay made famous - and a final rapid rise into a blow off top.   Some may wish to take a view of these three segments as Kondratiev’s spring, summer and fall of capitalism.   If so, all that is left is the now unfolding economic winter or possibly the demise of capitalism. 

IBM could see shares fall precipitously in coming months until they find some support at $130. 


posted by TimingLogic at 9:59 AM