YOUGHAL, IRELAND – Poor Mark Zuckerberg.

Rumor has it that he is some sort of advanced robot, “reptilian,” or alien.

“Lord Zuck,” the kids call him.

Lord Zuck

Yesterday, his company lost $151 billion in stock market value. The stock fell 20% after hours.

Today, if after-hours trading trends continue, Facebook will suffer its biggest loss in stock market history. And if that keeps up, Lord Zuck will soon be sleeping in his car, parked in a Walmart lot in Menlo Park. From MSN:

The tech-heavy Nasdaq was set for a big down day Thursday after disappointing quarterly results from Facebook sent the social media giant hurtling toward its biggest share price decline ever and on track to lose more than $125 billion in market value.

The Invesco QQQ Trust, which tracks the Nasdaq 100 index and can give traders a good idea of how the Nasdaq stocks will trade, was down more than 2 percent at one point in after-hours trading Wednesday. At last count, the ETF was off by about 1.4 percent. Nasdaq futures opened lower Wednesday evening, off by about 0.7 percent.

Big technology stocks other than Facebook felt the collateral damage as investors fled the sector. Apple lost about 1 percent. Facebook’s “FANG” brethren were also lower. Amazon, which reports after the bell Thursday, lost 2.2 percent. Netflix, which disappointed FANG investors with its own set of weak results earlier this earnings season, about 3 percent in after hours. Google parent Alphabet fell 2.3 percent.

Because the S&P 500 is so “tech heavy,” all of the gains in the stock market this year have come from the Big Tech stocks, the FAANGs: Facebook, Amazon, Apple, Netflix, and Google.

And what Mr. Market giveth… Mr. Market taketh away.

Primary Trend

The tech companies are all, more or less, in the entertainment business. The model is not much different from magazines. They capture readers’ attention with lurid pictures, fake news, gaudy prose, and misleading information – and sell access and advertising space.

But investors do not see old TIME or Newsweek when they look at the tech giants.

They see something new… pie-in-the-sky – virgin industries harnessing the wizardry of technology to deliver almost unlimited growth and profits.

And not for the first time. Markets move in big, long sweeps – taking decades to complete. Each time they near a top, they get dizzy.

The last major top was in the late 1960s. The market peaked out, in real terms, in 1966. Then, stocks trended downward for the following 16 years.

We saw another mini-top in 1987, which put the feds in a lather… panting to get stock prices up again.

For the first time in U.S. history, the Fed backed stock investors in what came to be known as the Greenspan put. The Fed slashed rates and flooded the market with EZ money. Stocks floated higher.

This foolish exercise (which we have described as Mistake #3 of Fed policy) was repeated after the subsequent tops in 2000 and 2007.

Maximum Illusion

Tops mark crests in human optimism… points of maximum illusion, when people imagine that trees really do grow to the sky and fairy tales really do come true. Then, they are willing to pay prices that have no connection to earnings.

Stocks represent part ownership of businesses. They are only valuable to investors insofar as the businesses make money and share it with them. But the techs often make no money at all.

They offer eyeballs, a bold and exciting fantasy future, and dreams of wealth beyond measure… but no cash.

Back at the peak of the Roaring Twenties bull market, investors took a shine to companies that developed the technological marvels of the time – automobiles and electrical appliances, mostly.

Then, in the Johnson era, electronics were the folie du jour. Companies with “onics” or “tech” in their names traded far beyond their actual earnings.

In our own era, the dot-coms were famously overvalued during the tech boom of the late 1990s.

We began writing this diary – then called The Daily Reckoning – in 1998, 20 years ago. We recall sneering at the internet darlings of the late ’90s and mocking the gurus of the time, such as George Gilder (who has since joined our very short list of heroes for his help in understanding our fake-money system).

We recall warning that the bubble would burst. And finally, we remember how upset readers were with us.

It was as if we had told a child that their dog had died and Santa Claus was a fraud. They didn’t want to hear it.

They had found their Messiah; they knew that dot-coms would liberate them from want… from need… from having to save money, think hard, or satisfy customers.

Alas, no substitute for hard work, discipline, patience, or luck has ever been discovered. Man was expelled from Eden a long time ago. Never since has he been able to live without sweating and hustling, despite huge gains in technology.

Present tech wonders will be no exception; today’s Icarus tech stocks will crash, just like the rest of them.

Regards,

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Bill

P.S. New technology was lethal to the residents of Nagasaki. More often, it is just a nuisance. And sometimes, it changes the power relationships that govern the world. With the only functioning atom bombs, Truman and Eisenhower suddenly had irresistible force at their fingertips. But it was only useful, in extremis, against foreign powers.

Today’s tech breakthrough could rearrange power relationships in a whole new way. When asked what he thought of President Trump, former U.S. Secretary of State Henry Kissinger replied (to the Financial Times last week):

I think Trump may be one of those figures in history who appears from time to time to mark an end of an era and to force it to give up its old pretenses.

Your editor fears that the new Big Data tech companies may have changed the balance of power, not between nations, but between the rulers and the ruled.

Using data and algorithms, in collusion with Facebook, Google, and Amazon, the feds may now be on the cusp of a totalitarian’s dream, where they are able to manipulate and control the masses on a scale never before imagined.

Paid-up subscribers to The Bill Bonner Letter will find a report on the subject right here. And if you’d like to join The Bill Bonner Letter and read it for yourself, go right here. Otherwise, stay tuned…

MARKET INSIGHT: FACEBOOK’S THREAT TO THE BULL

By Dan Denning, Coauthor, The Bill Bonner Letter

As Bill reported above, Facebook lost approximately one-fifth of its market cap in after-hours trading yesterday.

It wasn’t another data breach – like we saw in March with the Cambridge Analytica scandal – that sent the stock plunging. Facebook’s projected declining revenue and user growth are what had investors selling.

User growth for America and Canada was flat. It declined slightly in Europe. In the second half of 2018, the company expects revenue growth to decelerate. One analyst called the projection “nightmare guidance.”

Bad news for the company. But you may not own Facebook stock; in which case, you may think it’s not your problem.

But here’s the thing: You can be destroyed by the tech stocks even if you don’t own them. Today’s chart puts that into perspective.

Chart

The far-left bar shows the percentage gain for the S&P in 2018 that came directly from the FAANG stocks. At the time this data was compiled (earlier this month), the FAANGs had contributed about 3.4% on the year.

The rest of the index came in at a net negative, dragging the S&P down.

That means the FAANG stocks have contributed more than 100% of the returns of the S&P for the year to date. The exact figures have changed slightly in the past two weeks, but the message is clear: Without big tech, there is no bull market.

This is what I mean when I say that you can be destroyed by a tech crash even if you don’t own technology stocks.

These companies are widely owned by index funds and exchange-traded funds (ETFs). In the next bear market, all the buyers will become sellers, liquidity will disappear, and prices will crash. This is how it always happens in a bear market.

These stocks are the darlings of the bull market. But they also pose the greatest threat to it.

– Dan Denning

P.S. Let me remind you what’s at stake for you as an investor. Even if you don’t own any of the technology stocks, you could still be wiped out financially if, and when, these tech stocks blow up. And they will blow up.

Yesterday, I showed readers of The Bill Bonner Letter how they can protect their nest eggs when that happens. If you’re a subscriber and you missed that issue, you can read it right here. And if you’re not a subscriber, consider joining us so you can get all the details for yourself. Go right here.

FEATURED READS

The Knives Come Out for Zuckerberg
As Bill reported above, Facebook shares plummeted in after-hours trading yesterday. Already, a new crisis is emerging for the Facebook CEO: Some shareholders are plotting to oust the company’s founder.

Why the Old Guard Hates Bitcoin
Super investor Warren Buffett recently said bitcoin was “rat poison, squared.” Cryptocurrency expert Teeka Tiwari acknowledges Buffett as a master of value investing. But when it comes to cryptos, Teeka thinks the Oracle of Omaha is dead wrong…

Here’s Your Coffee; That’ll Be 2,000,000 Bolívar
Bill has reported on the financial crisis playing out in Venezuela in recent months. Inflation runs rampant as the citizens starve. Now, a new sign of the country’s financial straits: A cup of coffee will set you back 2,000,000 bolívar.

MAILBAG

In the mailbag, readers ponder whether Trump is a Russian agent or “just doing what the Constitution says”…

I confess, Bill, I was about to mark the box for Hillary… when I heard someone whisper that the Russians wanted me to vote for The Donald. So I did. Haha.

– Norm I.

If Trump was being blackmailed (instead of being paid) by the Russian government, what would he be doing differently? I think there are good reasons to expect the blackmail explanation to be much more likely!

– Bill S.

Other than the liberals hating Trump, I don’t see what there is to hate about the man. I believe the naysayers are afraid he is going to wreck their playhouse. I see the man doing exactly what the Constitution says.

– Perry P.

You dislike Trump, and you clearly do not fully comprehend his supporters. As an independent raised in Boston on liberal ideals, I tend to lean left on most political issues; yet I am a Trump supporter. Your article misses those of us in the middle who actually made his candidacy a success. We view Trump as a leader, not a politician controlled by the power elites and institutions. We see these things and the political infrastructure as corrupting our society. And the media is complicit in covering up this corruption.

Trump can change his mind in an instant, and back again the next minute; that’s what we respect about him. He adapts to the circumstances and the individual power centers as he encounters them. He performs as a powerful negotiator because he’s not tied to a specific ideological outcome. He will adjust and accommodate to accomplish change for the good of America with every situation and every power player he encounters on the scene. This obviously terrifies those in power.

– John W.

I neither love nor hate the president. He makes errors, as all humans do. He is what he is. Sometimes, I have to roll my eyes. However, I do believe his intentions are far better than Hillary’s ever were. I saw her as a liar and a crook, with an attitude of “mommy dearest” long before she ran for presidency.

Almost all – on both sides of the aisle – are bought and paid for by the richest institutions and entities in the world. They all know how dirty they all are. I will a million times vote for the crass, slouching, ebullient, or whatever over the sellouts that are the career politicians… if I believe that person is the better choice for our country. Trump does many good things, and his intentions, I believe, are good. I agree with him more than I disagree. So until someone comes along who has the best interests of this country at heart, and who isn’t a sellout, I will support him.

– Jackie D.

You’re spot-on with the pros and cons of Trump and his supporters and haters. But it’s not just Trump, it’s everyone in D.C. Look at Elizabeth Warren’s comments about the tax rate being 50% in a very “prosperous time.” She failed to mention that there were so many loopholes at that time that nobody paid a 50% tax! Circus it is. And the American public is becoming more and more disenchanted with what’s going on at the federal and state levels. The markets are stalling out. Inflation is on the rise again, and wages are not. People are unhappy. When the cow dung hits the fan – soon, most likely – America is going to become a battleground of disgruntled inhabitants. Don’t forget to duck.

– Stephen B.

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