Example of Speculation Gone Wild: CYNK Technology

Here is an example of central bank induced speculation gone wild.

From Daily Reckoning’s Peter Coyne on “How to Make 35,966% in 56 Days” (link unavailable) [bold mine]

You would've had to buy about 17,000 shares of a company on the Pink Sheets called CYNK Technology for $1,000. You could've done that when it was trading for just 6 cents on May 15.

Then, prophetically, on July 10 -- you would've sold your shares when the stock was trading at $21.64, turning your original $1,000 into $359,600.

After that, you could've gone and bought your brand-new Bentley coupe (or whatever) and still have had more than $100,000 to play around with. Not too shabby…

Of course, hindsight is 50/50.

In reality, on May 15, you wouldn't have been able to distinguish a share of CYNK from a used tissue or crumpled candy bar wrapper. Yet in the past three weeks, the Belize-based penny stock has rallied higher than Apple rallied over all 34 years of its life as a public company.

What does CYNK do to justify it?

Something unclear dealing with social media -- a website called Infobiz. No matter, popular delusion and the madness of crowds brought the company's market cap to $4 billion.

Now all that's left is for Facebook to buy it up for two or three times that.

Now the kicker…

After all, CYNK is the ideal growth acquisition.

It has no revenue… no physical location… and no working phone numbers. It doesn't even have employees. Potential for growth doesn't get much better than that. And for $4 billion?

Anyways, even if you were foolish and lucky enough to buy shares ahead of their herculean run-up… you'd have to time your exit perfectly too.

$4 billion for nothing, Yikes!!!!

The US government steps in...

For example, if you have held until just one day after its peak on July 10 -- you wouldn't have been able to sell your shares, because the SEC suspended trading on Friday.

Why?

Because something -- and no one really knows what yet -- appears out of the ordinary to the SEC. Some people say it's a pump-and-dump scam… others say it's simply a short squeeze.

We don't know which it is… because we're too busy cracking up.

This hasn't just been a one issue affair.  The small cap Russell 2000 with trailing PERs at 78.06 (July 11 2014) is an example of widespread speculation madness.

 

This exhibits that by the temporary elimination or deferral of risks via the magical spell from central bank put, market participants have been transformed into mindless, market zombies going for one way trade gambits.

And this also shows how central bank hocus focus has mangled price discovery where in the frantic chase for yield, traditional "fundamentals" have become like dinosaurs--fossils. 

Such are symptoms of how central banks have essentially destroyed the essence of capital markets in order to put up a Potemkin economy.

No bubble?