NEW YORK (Real Money) -- When you have a selloff as dramatic as we have had in certain Nasdaq names, the move can't be dismissed as something based on fundamentals. There are deeper forces at work that have to be explored, because the velocity -- the sheer ferociousness of it all -- is so extraordinary.
It's so extraordinary that I have seen it only one other time in my life, and that's after the Nasdaq peak in 2000.
The other day, David Faber and I got into it on the set of the New York Stock Exchange when he gave me some push-back regarding my concern that we could be in big trouble on the Nasdaq because of the kind of activity that I am seeing. He cautioned me not to presume that the current period is comparable to 2000, because we had both lived through 2000 and we know that there are grave differences.
Normally, I would leave it at that. But the wonders of social media have forced me to conclude that I can't leave it at Post 9 or blithely dismiss the comparison here.So let me go over exactly what I am seeing that you might not be seeing, and what makes me so reluctant and reticent to be as opportunistic about buying as I would like to be. First, it takes many elements for the market to get into the fix that it is in. So let's go over the characters that have caused us to arrive at a juncture at which stocks are falling apart left and right, and yet nobody of any size seems to want to take advantage of the decline. Given how politically correct we have to be these days, I don't mean that there aren't buyers. Many smaller investors who own some of these stocks are tempted, but there seems to be very little interest among the kinds of big funds that could stop a decline with the sheer force of their buying. That hasn't happened. That, too, has to be addressed. But let's go back in time to the 2011-to-2013 period. That's a period that we can only quantify as a lower-growth environment. There are many aspects of a lower-growth environment that get talked about on television endlessly. We hear about how the Fed has kept interest rates low, and that this has created a rush to own high-dividend stocks that give you a yield superior to all sorts of bonds without all that much of a degree of risk taken, especially when you consider their after-tax favored status. You have the endless borrowing of money and buying back of stock that has bolstered earnings per share and kept stocks looking less expensive than they might otherwise be, given the lack of sales growth. And, perhaps least talked-about, you have a return ascendance of the momentum managers, who seek to own only the highest-growth stocks, regardless of whether the companies they own are profitable. These managers aren't as sensitive to earnings growth as most others are. They care far more about any growth possible. Often they think that the earnings growth we see in most of the S&P 500 is manufactured by buybacks. These momentum managers would, on the other hand, be far more willing to buy companies with terrific revenue growth, and they trust companies' management teams when they say, "Look, we could be profitable by traditional metrics, but that ends our first-move advantage we get otherwise." Why bother to care only about revenue growth? Isn't that a silly, fatuous metric? Not if you have watched the trajectory of Amazon (AMZN) or Netflix (NFLX) or Tesla (TSLA), it isn't. Those stocks have been remarkable performers, and these companies have all have embraced the concept of, "Revenue growth is a terrible thing to waste on the faux altar of profitability."
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