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June 6, 2018

Tech Bubble 2.0

By EconMatters

Microsoft`s recent purchase of GitHub for for 7.5 Billion in stock tells us a couple of things about financial markets right now. Namely, the number being discussed for GitHub was around 3 Billion, and Microsoft overpaid by 4.5 Billion. But did they, as Microsoft which is sitting at $102 a share with a p/e of 83, yes an 80 p/e handle depending on how you calculate this metric, that is how big a bubble there is right now in these blue chip technology stocks.

Microsoft is no spring chicken, hardly a high flying growth technology company that can carry a ridiculously high p/e. In fact Microsoft has declining revenue growth over the last 3 years, but you wouldn't know it by the trajectory of its stock of the last three years.

Welcome to the corrupt and rigged game of QE Bubble Markets, share buybacks, Carry Trades and the Swiss National Bank buying Technology Blue Chips. Let me repeat that Microsoft is not growing at all with the only true metric which is revenue growth, all the other financial “growth” metrics for Microsoft are manipulated to make it appear as if it is growing.

Microsoft is the same stodgy mature technology company that traded in a range of $22 a share to $32 a share on a good quarter for the longest time. The only thing that changed is the ECB buying 90 Billion Euros of assets each month and the Swiss National Bank not wanting the Swiss Franc to appreciate (get too strong) versus the Euro, so they created money out of thin air in terms of Swiss Francs, sold these to artificially weaken their currency, thus buying US Dollars, and then happily buying Microsoft stock, and Apple, etc., etc.

Thus Microsoft`s stock price has all the feel of a high flying technology growth company, but once you look under the rigged share buyback hood of the company you notice that they aren't actually growing at all, if anything they have declining revenue over the last three years. Financial markets are so full of shit, the games that are played with financial metrics are criminal financial engineering when you really get down to it. We need to go back to basic accounting standards to get actual legitimate growth measures.

So Microsoft has an 80 P/E with negative revenue growth over the last three years, no wonder they were desperate for revenue that they no longer bundle Microsoft Word, Excel and Powerpoint in software that used to come standard when buying a computer, they need to try and generate revenue growth any way they can. Well I am writing this article on Free Google Documents online, good job of turning loyal customers to your direct competitors product Microsoft! Geez did you ever think about the unintended long term consequences of motivating customers to find alternatives outside of what was previously a monopoly market share for Microsoft? What better way for Google to grow this business then have Microsoft send a bunch of customers to Google Documents, which basically do the same thing for free! The amount of short term thinking in corporations these days is astounding!

The reason Microsoft doesn`t mind overpaying for GitHub by 4.5 Billion is because they know their stock is way overvalued by historical standards in a non bubble market. In fact they remember the last time their company's stock was this overvalued back in 2000, and what happened after the tech bubble popped in 2000? Artificially high paper stock price valuations plunged and were as worthless as toilet paper in many cases. Microsoft realizes their stock isn`t worth $102 a share, it will be less than $50 in the next three years conservatively. So this is basically a free roll for them, paper stock values means you haven't lost anything by buying a company with future worthless stock at these valuation levels.

Hint for GitHub be smart like Mark Cuban in the last tech bubble, cash out your Microsoft shares ASAP because these shares will be losing value every month that goes by. Mark Cuban was smart enough to cash out those worthless Yahoo Shares they paid for his bogus company, and now he still has money, you better do the same if you want to keep the winnings of your recent lottery luckbox.

In fact, every technology company should buy anyone they want to acquire right now because all their shares are going to be dropping precipitously over the next three years as the technology 2.0 market crash begins. Artificially high paper gains never last and high P/E Ratios for declining revenue growth companies like Microsoft, Apple, Intel, Cisco and the like all revert back to historical norms. Your stock prices are all artificially high due to the Central Bank Liquidity Punchbowl Bonanza so overpaying for companies with future worthless stock is a good idea, and essentially a freeroll.

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Item Reviewed: Tech Bubble 2.0 Rating: 5 Reviewed By: EconMatters