800 Pieces (Min. Order)
30000 Piece/Pieces per Month (Supply capacity) The Great Deformation:... Best Price: $4.26 Buy New $8.99 (as of 05:50 EST - Details)
Well, the above red hot multiple was not actually with reference to the company’s results, but to its drop-box financials. That is, before the day was over it was trading at 27X the LTM sales posted for a shell in the Cayman Islands—-an entity on the word processor of a law office located there which may or may not receive actual cash dividends and honest accounting statements from a myriad of entities that do countless things in China.
Ah, yes, in China—-the most stupendous bubble of unsustainable construction, borrowing, speculation and corruption known to the pages of history.
So with regards to BABA’s $230 billion market cap at week’s end, you can say this: None dare call it price discovery!
What it shows is that Wall Street is well and truly off its rocker. The Chinese swindlers behind BABA didn’t even have to tap their home market. These preposterously over-valued shares were sold overwhelmingly to Wall Street—-to the gamblers, speculators and robo-traders that have occupied what was once a reasonably honest capital market.
But here’s the thing. BAMA isn’t remotely worth $230 billion because even in China its 40% broker’s margins cannot possibly endure the tsunami of competition it is likely to face—even in the near future. But honest PE multiples and capitalization rates are driven by the longer-term future, and China’s middle class doesn’t have one!
This is just another version of Japan Inc.—a state-built house of debt, export mercantilism and fabulous over-investment that eventually came to a dead stop 20 years ago. And Japan at least had some rudiments of true Broken Markets: How Hi... Best Price: $7.44 Buy New $24.98 (as of 05:40 EST - Details) capitalism such as law, contracts and some vestiges of market discipline.
As to the case of China’s red capitalism, however, there is no place in the history books where you can find a booming economy that is so artificial, fragile and prone to cataclysmic accident. It has not grown organically from the grass roots owing to capitalist enterprise. Not in the slightest.
Instead, it has been concocted from the center by communist party bureaucrats who discovered the miracle of an unhinged printing press; who adopted the economic arithmetic of Keynesian GDP accounting under the slogan “if you build it, we will count it”; who created a vast pyramidal apparatus of credit distribution down a cascade of corruption that is pleased to call itself a banking system; and which is now swamped in mindless, debt-fueled speculation and building without any semblance of economic discipline, efficiency or rationality.
Folks, that is how a backward economy which was until recently run according to the precepts of Mao’s little red book managed to balloon its total credit outstanding from $1 trillion to $25 trillion in just 14 years after the turn of the century. That is how an orgy of construction resulted in more cement production in China during 2012-2013 than in the USA during the entire 20th century—-a time which witnessed the building of the New York subway, the Hoover Dam, the vast expanse of Army Corps of Engineers waterways, the Interstate Highway system, the sprawl of American suburbia and its 13 billion square feet of mall space, among countless others.
It is also how China ended up with upwards of 70 million empty apartments, thousands of miles of bridges and roads that are virtually unused, notorious and proliferating ghost cities, and thousands of miles of hastily built The Secret Club That R... Best Price: $2.23 Buy New $16.87 (as of 09:55 EST - Details) high speed railways that are unsafe and mired in corruption. It is also the well-spring of a precarious system of local government finance that is based on little more than monumental speculation and inflation of the price of the lands which were seized by the state 65 years ago. And the list goes on and on.
That there will be a thundering collapse of China’s stupendous borrowing and building spree is only a matter of when, not if. And in that event, the mirage of China’s booming middle class will become painfully evident. Indeed, it is the very same frenetic buyers of stuff on BAMA websites who have jobs which will disappear when the building boom stops and who have asset ledgers which will violently deflate when China’s towering debt bubble finally bursts.
So why did Wall Street capitalize an opaque mass merchant operating in a precarious economy at 27X sales? The answer is that Wall Street is a momentum driven casino that is now over-valuing everything that moves and all that stands still.
That’s the ultimate evil of monetary central planning. Having destroyed honest price discovery in the financial markets, the Fed now “accommodates” the speculators one meeting at a time—in deathly fear of a hissy fit that will bring down the entire phony edifice of insensible asset inflation that it has midwifed since the last financial crisis. You would think that absurdities like the Alibaba IPO would finally get the attention of our clueless monetary politburo.
But apparently not. As they watch the market climb the precarious chart pattern shown below, you wonder where they think it will all end.
Unfortunately for the American people, the nirvana of Keynesian full employment does not suggest itself as one of the possibilities.
Reprinted with permission from David Stockman.