Nasdaq, “Tech,” & IPOs are in for Gut-Wrencher



Posted by Ed 8 mths ago
Nasdaq down 24% already. Renaissance IPO ETF down 31%. But Uber and other unicorns are planning record IPOs in 2019, à la dotcom-crash-debut in 2000.

The IPO hype machine has produced some very successful companies and a lot of spectacular wealth transfers from the hapless public to early investors selling their shares. Here are two of the standouts that I covered:

Snap [SNAP], purveyor of the Snapchat app and must-have sunglasses with a built-in camera: Shares peaked at $29 on the second day after its IPO, given it a market capitalization of $32 billion. Shares closed on Friday at $4.96 and this morning trade at $5.24, down 82% from day two of trading.

Blue Apron [APRN], the cream of the crop of about 150 VC-funded meal-kit startups founded over the past five years, was valued at $2 billion during its last round of funding in June 2015 when it was one of the most hyped unicorns that would change the world. Then enthusiasm began to sag. By the time the IPO approached, the IPO price was cut from a range of $15-$17 a share to $10 a share. Shares closed on Friday at $0.68 and are trading this morning at $0.71, down 93% from its IPO price.


Ed 8 mths ago
How The Fed Is Helping To Rig The Stock Market

There's been a lot of talk about the Federal Reserve rigging the stock market. If you've been wondering, as I have, how it is being done, here's some terrific insight from our own David Santschi.

David wrote in this week's TrimTabs Weekly Liquidity Review, “The Fed is exchanging about $4 billion in newly created money every business day for various types of bonds. All else being equal, the Fed’s bond buying puts more money in investors’ hands to buy other assets, including stocks.”

I had thought that the major bond dealers sold back to the Treasury the bonds that they bought from the Treasury, making it pretty much of a wash transaction. What I had not realized, until I saw what David wrote, is that major bond traders when they sell Treasurys back to the Fed on the same day then buy other bonds from other bond dealers. And as this buying and selling goes down the chain, Voila. Apparently some of the Fed’s newly created money ends up in the equity market.

Here is what happens, as I see it now. Every day, Federal Reserve traders are buying about $4 billion in long- term Treasurys and mortgage bonds from major trading houses. How does the Fed pay for those purchases? Simple. The Fed gives the seller a credit on their Federal Reserve statement. Remember, the Fed is a bank that can legally give away money. Meanwhile, the seller of bonds to the Fed can then withdraw some or all of that money, or leave it on deposit with the Fed.

In other words, the Fed doesn’t pay anyone anything. All the Fed does is in essence create new money to give the seller. So let us follow that newly created money. The major dealers who sell the bonds to the Fed can take that money and buy other bonds in the open market. The new seller then gets paid with that newly created money, which in the bank clearing system, acts just the same as money you and I work for.

Therefore, to make this really simple, the Fed creates $4 billion a day and eventually some of that money goes into equities. And that, of course, helps keep stock prices elevated. So it doesn't matter that we are having major problems with the underlying economy and markets that normally would depress stock prices.


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