Stock Valuation under Commiecapitalism

     If, as we have repeatedly suggested in these pages, our formerly capitalist nation began to fall under communist control with the nationalization of the US Treasury bond market a while back, and, following Japan's lead, central bank ownership will spread to corporate bonds and ultimately stocks, then what does the future hold?  For starters, the day could come when one branch of the government or another would seize all financial assets they don't already own and replace our electronic interest and dividend payments with electronic welfare payments.  At that point all marketable securities would be valued at zero.

     Fortunately, rising stock prices seem to tell a different story.

     Commie China has been playing at faux capitalism for some time now, establishing zones of commerce, industry, and finance that pinko officials allege are owned by private interests even though the Communist Party has not ceded control over so much as one single thing ever over there, retaining the right to pull the Marxist rug out from under whatever it wants any time it so chooses via this weird kind of whatever-it-takes due process officials dream up after the fact to justify anything they need to get away with once all is said and done.  They even print stock certificates in Red China, just like we do, and say that private interests own them, again just like we do, and trade their faux stocks in faux stock markets, and everybody involved pretends the state doesn't own everything in commie China even though it really does and has a serious habit of shooting anybody who says otherwise about anything the party says.

     Could that, or something like it, be happening here?

     Sure.  Since we're really talking about the American Liberal now, a nut case if ever there was one,  anything's possible.  One look at the lying, fleecing scum they've got running for President until the bitch gets indicted should tell you that the do-and-say-anything-you-freaking-want part of commie governance is alive and well in our backyard too.

     Such being the case, how should the investor value his/her holdings in the event we're falling under some Chinese style faux capitalist commie wonton soup of a socioeconomic structure?

     Lets take a look at an old favorite of MacDougal's, this sweet electric utility outfit that's been an industry leader for as long as anyone alive can remember, a gilt-edge blue chipper if ever there was one.  It shall remain anonymous as there's no sense dragging a pristine name through Americal liberal commie wonton soup mud just because our valued subscribers need to know what they're worth under the spreading waves of Marxism sweeping across our beleaguered amber plains of Red America these days.

     Selling for 85, Anonymous Electric yields a tad under 4% with a price:earnings ratio (PE) rounded up to 19x on earnings per share (EPS) close to $4.50.  The stock has been making a bull run as investors are thinking 1) everything central bankers say is a crock and 2) Washington will never be paying the bond-holding public appropriate rates of interest on Treasury bonds ever again.  Utility stocks and them have turned into an oasis of much-needed dependable income for all kinds of wandering victims of unrestrained commie American Liberal spend-all-you-want politics.

     The balance sheet carries $38 billion in long term debt and $40 billion of shareholder equity, and management pays interest expense that's a bit under $2 billion before arriving at diluted net income a touch over $3 billion.  Interestingly, on the books the company gives bondholders close to 4% interest, about what the stock yields today.  What all this means is, under Zero Interest Rate Policy (ZIRP), if Anonymous eliminates interest expense by refinancing its long term debt at zero interest, EPS jumps 35% to something a bit over $6.00, after screwing with the after-tax effect.  Under Negative Interest Rate Policy (NIRP), should bondholders have to pay the company 4% a year to "invest" in their bonds, EPS climbs to almost $8.00, a pop just under 45%, after the aforementioned screwing with.

     If the PE holds at almost 19, Anonymous stock pops 45% too under NIRP.  Given the insane conditions we're left with, however, where you pay the company 4% to "invest" in their bonds or they pay you 4% if you hold their stock, one can conservatively assume that the PE on that stock would rise exponentially, at least doubling.  More realistically, the forecaster might call for a PE explosion of something like fourfold, maybe ten times or more, depending on how many abused bondholders are forced to jump into utility stocks and when.  Remember, reader, business risk disappears when bondholders give the company cash each year to hold company bonds.  If management screws up, THE CEO AND THEM GET FREE MONEY TO PAPER IT OVER WITH!  Look at that this way, Anonymous isn't just being subsidized through ZIRP/NIRP.  Being a great big blue chip industry leader, Anonymous is part and parcel of the Federal Government here, at least the company's entire financial end.  

     That puts our ZIRP forecast of Anonymous stock prices at something between 300 and 3,000 under conditions that call for bondholders to pay Anonymous 4% a year on Anonymous bonds.  That's up somewhat more than handsomely from a current price of 85, you will recall.

     Conversely, under the aforementioned case where American Liberal commies seize all financial assets and replace personal interest and dividend income with welfare checks, Anonymous stock would be valued at zero, along with everything else in the portfolio.

     Extrapolating this analysis, we feel it would be prudent for our valued subscribers to incorporate both forecasts into their long range financial planning, assuming that in the long run one's net worth will be valued within a range of 1) something like 10 to 15 times what it is today or 2) zero, depending on which way it goes with the fruitcakes in Red Washington.

     Hope that helps all of you out.  If the crystal ball clears up any, we'll be sure to let you know.

     Hey, chill.  We're doing the best we can here.