I flat-out didn’t believe a recent news story.
A publicly traded New Jersey deli had a market cap of over $100 million, according to hedge fund manager David Einhorn.
That’s not a chain of delis, mind you. We’re talking about a single delicatessen shop in suburban New Jersey.
I looked it up. Sure enough, Hometown International Inc. (OTC: HWIN) — the proud owner of Your Hometown Deli in Woodstown, New Jersey — was worth $101 million earlier this week before being delisted yesterday due to public disclosure “irregularities,” according to CNBC.
It must be one hell of a sandwich. But who in their right mind is buying the stock?
I find myself asking questions like this as market bubbles form.
For reasons unknown to me, GameStop Corporation (NYSE: GME), the struggling videogame retailer that was subjected to an epic short squeeze earlier this year, is still trading for $170 per share. This is a stock that has spent most of the past five years bouncing in a range of $10 to $20 per share. It still faces a changing market that it is ill-equipped to handle.
I understand rolling the dice when the price dipped below $5 per share last year. The short-squeeze trade was epic. But who in their right mind is buying it now, at this price?
And then there is cryptocurrency. Relative newcomer dogecoin was up 400% last week on no real news.
Now, I like cryptocurrencies. I think the concept behind them is solid. I like the idea of a currency that a central bank can’t manipulate. But if the idea is to hold something stable … an asset that soars by 400% in a week isn’t it.
When Will the Market Bubble Burst?
We’re in a bubble economy. That’s abundantly clear at this point.
As for the “why,” that’s a little more complicated. Federal Reserve stimulus is a huge part of the story. The Fed has expanded its balance sheet by nearly $4 trillion since the onset of the pandemic. It has created new dollars and used them to gobble up a couple trillion dollars in bonds and other assets. That new liquidity is sloshing around in the financial system, providing the fuel for the bubble.
This doesn’t explain why otherwise sensible people are willing to bid up the price of a New Jersey sandwich shop to $100 million. But that’s where we are.
Now, I’m not complaining. We may be witnessing an epic bubble. If it’s like past bubbles, it won’t end well. But that doesn’t mean we can’t make some solid profits in the meantime.
A key factor of our Green Zone Ratings system is momentum. We prefer stocks that already have strong uptrends in place. High-momentum stocks trend even higher a lot of the time. An object in motion stays in motion.
In a market bubble, momentum trends go into overdrive. You’re not likely to see us buying $100-million New Jersey sandwich shops, as we have rigorous screens for growth, quality and other factors. But we do believe in buying the dominant stocks leading the market higher.
Bring on the bubble. We’re ready for it.
And if you’d like to join us in our highest-conviction stock research and recommendations every month, check out our premium research service Green Zone Fortunes. My colleague and co-editor Adam O’Dell is now targeting a stock trend that he believes has the potential to be bigger than the internet: genomics.
He believes DNA technology is mankind’s next great leap forward. And he’s targeting this mega trend through his Top 4 DNA buy recommendations. To find out more about this tech that he calls “Imperium,” click here.
To safe profits,
Editor, Green Zone Fortunes
Charles Sizemore is the editor of Green Zone Fortunes and specializes in income and retirement topics. Charles is a regular on The Bull & The Bear podcast. He is also a frequent guest on CNBC, Bloomberg and Fox Business.