Thursday, 19 May 2011

The holy trinity of bubbles - Gold, Commodities and Technology.

On the day that Glencore and Linkedin launched their IPOs in the UK and the US respectively, I can't help but feel we are teetering on the edge of a precipice again. If you haven't heard, Linkedin finished the day valued about double their launch price, a quite insane figure of $94 per share. If you have ever used Linkedin you'll know that it's basically just the the stalking ground of disgruntled employees, lazy recruitment agents, spammers and linkbots. To value it as something of any value at all, it would need to be making money and lots of it. Which it isn't.

This feels like 1998 all over again. Just last week, Skype was sold to Microsoft who bizarrely feel they are missing out on something and have jumped into this second dotcom bubble with both feet, wasting $8.5bn on a company that has never made any money (basically because it provides a service that the world is already well provided with - communication). Microsoft have brilliantly forgotten that Verizon, AT&T, Vodafone, Deutsche Telecom, BT, etc. already provide half decent communication tools. God - Google and Apple already provide free video communication tools as does Microsoft already with its IM product. Not to mention Facebook with its chat thingy. Skype would need to be earning a fortune to be worth $8.5bn plus have no competitors in the communication industry. But of course it does have competitors - loads of them - and has never made any money!

In the meantime Zynga and Groupon have been watching this today with glee. Zynga makes Facebook games that have proven to be addictive wastes of time and they are rubbing their hands at the prospect of their little company being worth $10bn. Groupon meanwhile provides the world with useless discount vouchers to hairdressers, spa therapy days and coffee shops. They turned down Google's billions last year as they rightly foresaw that the world is once again awash with luddite idiots who don't understand technology but think that lots of flashing colours on a screen equals money. Groupon's valuation is all the more idiotic as they, 1. didn't invent the online discount voucher and 2. have no way of protecting the idea and preventing others from copying it which is what dozens of companies have done since. The day hardly passes without another coupon of the day flashing up on your favourite site of the day.

Looming over all of this is the IPO of Facebook, the largest social network in the world, where shares trade privately at the moment valuing the company at $70bn. When this comes to market next year at an almost certainly mental valuation of $100 plus billion we won't want to be anywhere near the market as it will tank under its own stupidity. Stay well clear of technology trusts and the like for the time being, unless you really like excitement. Holding anything but Apple or until recently Microsoft in your technology portfolio is sheer madness.

Which brings us to Glencore, the Swiss based commodities trader who listed today on the FTSE at the top of their price range with an offer that was over subscribed by £40bn. This would be ok if there weren't any doubts over the company. But of course there is... Why are they listing at all? Why on the FTSE? The only people to benefit from Glencore listing are the blokes who run it now. With the company creating at least 10 billionaires and many more millionaires today you can see the incentive to bring it to market. :) They could have listed at any time over the last 10 years, yet decided this year was the one as they presciently bring to a close the commodities boom that has plagued the world since the early 2000s.

And lastly to Gold. No useless hunk of metal that has no use industrially or commercially let alone no use as a currency is worth anything near $1500 per oz. And don't give me the excuse about all those nice new rich Indians and Chinese people buying loads of gold watches, rings and necklaces. The first thing you do when you get a bit of money beyond feeding yourself is find a decent roof over your head, followed by some sort of transport, followed by a decent telly, the internet, an iphone, some nice food, etc. Gold trinkets are way, way, way down your list. If there were any real value in gold, the gold miners themselves would be going gang busters and their shares would reflect the value of the gold in the ground. Yet they aren't. That's because the Gold price is just a reflection of speculation and a general consensus that you should buy anything metallic. Most of the gold price is now traded in speculative ETFs which don't actually hold real gold anywhere but hold a swap to pay for it. The whole thing is a joke. Remember the only time to buy gold is when you need it to pay for food and an AK47 when the world is ending.

We are at a truly momentous point in history. The correction when it comes is gonna be great. Neil Woodford is going to be proved mega correct - Defensives are the order of the day people. Companies that make real things, are reliable, not full of puff and nonsense, and have a discernible, definable reason for existence are the place to put your money now.