Russell 2000 back where it had first been in November 2017.
This market, after a historic rally despite declining corporate earnings in the first quarter, was looking for a trigger, any trigger, and it found a trigger, or triggers. But the trade war cannot explain the colossal flops in the over-hyped IPO realm.
The Nasdaq composite dropped 3.4% today. In the six trading days since its peak on May 3 (8,164), it has dropped 6.3%, after a historic surge of 32% from December 24 through May 3. I mean, what did you expect? The index is now back where it had first been on June 6, 2018.
Uber, which had sold its China operations and is no longer significantly tangled up in the US-China trade war, is morphing from the biggest, most hyped tech IPO in recent memory into the most colossal flop in recent memory. Shares plunged nearly 11% today to $37.10 a share. This left shares down 17.6% from its IPO price of $45, at which Uber had extracted another $8.1 billion from gullible investors.
Prior investors are even deeper in the hole. Uber extracted nearly $7 billion from institutional investors between December 2015 and February 2017 by selling them 140 million shares at $48.77 a share, over half of them to Saudi Arabia’s Public Investment Fund, and these folks are now down nearly 24%. Shares of Softbank, which also holds a large stake in Uber, fell 5.5% today.
Lyft dropped another 5.7% today, to a new closing low of $48.15. Lyft had been the trailblazer this year for the hottest most hyped IPOs.
On March 28, Lyft priced the IPO shares at $72 and extracted at this price about $2.3 billion in new money from IPO investors. On March 29, the first day of trading, it took hours of machinations before shares finally started trading, with a heavily mediatized “pop” of 21%, at $87.24. Then, Lyft shares plunged 10% in 4 Hours from “pop” to close. Today, shares were down 45% from the pop.
Both Lyft and Uber have no idea if, when, or how they’re ever going to reach a self-sustaining business model that doesn’t burn large amounts of investor cash every year. Now, since their IPO, they’re loaded up with cash to burn and can fuel their cash-burn machines for a little while.
Speaking of which…. Tesla extracted another $2.7 billion from investors last week via a share and convertible note offering to fuel its cash-burn machine. Its shares fell 5.2% today to $227.01, down 41% from its peak in June 2017. Giddy Tesla investors had first seen this share price of $227 in June 2014. Oh my, how time flies when you’re having fun.
Apple – unlike the hapless rideshare companies in search of a business model – is deeply tangled up in China with its supply chain and with its revenues. It’s also deeply tangled up in other issues, including iPhone sales that have gotten battered by competition in a stagnating smartphone market. It didn’t help that Apple got hit by a US Supreme Court opinion today that allows consumer plaintiffs to move forward with their antitrust lawsuit.
So Apple shares fell 5.8% today to $185.72, which leaves them down 20.5% from their high on October 3, 2018
Intel fell another 3.1% today, to $44.76, bringing its plunge since its peak on April 22, 2019, to 26%. Global semiconductors sales are now in the steepest plunge since the Financial Crisis.
The Dow Jones Industrial Average fell 2.4% to 25,324, a level first visited on January 9, 2018. In other words, the index spent 16 months going nowhere despite hair-raising volatility that caused a 19% peak-to-trough plunge, followed by a blistering 22% rally in just four months. It’s now about 5% below its October 2018 peak.
The S&P 500 index dropped 2.4%, is down 4.5% over the past six trading days, and is back where it had first been on January 19, 2018. Like the Dow, it spent 16 months going nowhere despite violent ups and downs. Unlike the Dow and the small-cap Russell 2000, the S&P 500 did eke out a new closing high on April 30 and May 3, but barely, and the 4.5% drop since then is staring to not look very pretty on the chart (data via S&P Dow Jones Indices):
The Russell 2000 index, which covers stocks with smaller market capitalizations, fell 3.2% today, to 1,523. It has now dropped 12.5% from its October 2018 peak (1,741) and is back where it had first been on November 19, 2017, a very volatile 18 months of going nowhere.
The straggler behind the Fed and the ECB gets the drift. Read… QE Party Over, Bank of Japan Stealth-Tapers Further
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For those who make commissions on the way up and more commissions on the way down, those charts probably look like heaven.
Most structured products referrence the SPX and RTY indexes. They will take a hit to especially if they fall below the buffer. Too bad to those who bought them.
I wrote on Zerohedge with regards to the Lyft IPO:
‘A wonderful shorting opportunity is about to present itself’
I really can’t believe what investors put their money into. These unicorns are so glaringly obviously turkeys. Now the investors want to sue as they believe they were misled by Lyft.
You really can’t fix stupid.
Turkeycorns.
Unicorpse
If this trade war isn’t just one of Trump’s “Art of the Deal” gimmicks and if it lasts for any length of time the broad based price increases could lead to full on inflation, the kind the central banks can no longer ignore. If that happens, the average man on the street is going to have a hard enough time paying for the essentials let alone a glorified cab ride on Uber or Lyft. To paraphrase Marie Antoinette, “Let them ride the bus!”
It has to happen eventually. Rip off the band-aid for fucks sake. Before we wake up to find out that we’re a Chinese province.
probably finally figured out that the fed can’t create it anymore outside of asset price inflation….so plan b….trade war…..the bankers want inflation…
more appropriate would be “If they can’t afford Lyft, let them take a cab!” As she was reportedly to have said when told the people couldn’t afford bread that they should then eat cake.
All the fun with Tesla stock happened during the 12-month period between March 2013 and Feb 2014 when it increased from $35 to $230. That’s about a 600% gain in a year. It’s done nothing since then.
But Tesla has come out with a new product: Car-B-Q!
Its smokin hot
Chariots of fire…
Just be sure to get out of the car before you burn to a crisp.
Trump is doing this on purpose to compel the fed to lower rates in hopes it will juice the economy before election time.
When Trump gets his Pre-election rate cut he’ll move to soften the trade war which will send markets soaring ensuring him a second term.
Inflation will be out of control and his base will likely be hurt most. Since most people other than the 1% don’t sacs they won’t notice that their purchasing power is getting decimated. They will only notice that their pay is increasing faster than their debt servicing costs. However the remainder cashflow will buy fewer consumer goods than in the past.
Stagflation here we come!
But that seems contradictory. After all, aren’t tariffs inflationary? If Trump imposes his next round of tariffs this summer the cost of consumer electronics will skyrocket, which could easily boost inflation above three percent. I could see the Fed holding rates steady if markets are struggling, but cutting them in that environment seems like a stretch.
There is a solution. Open up Death Valley and other areas of the Desert southwest to mining for rare minerals.
Comrade Trump will have a closed door meeting without a transcript of the discussions at the G20 meeting next month with Xi Jipeng, then exclaim how he is a wonderful man and great leader, call off the tariffs and claim victory.
He has already been tweeting about the bailouts he is going to give the “patriotic farmers” and “workers” in his managed economy.
Meanwhile the dude who raised $22 million on his behalf for “The Wall” on GoFund Me has bought himself a new yacht. Google it.
I love the whiff of schadenfreudelicious Communism in the morning.
I think it’s a little different now because FINALLY it’s been made what Terms Trump had believed the Chinese would agree to In a deal. So The difference now is that if Trump Doesn’t get those terms (e.g. making actual changes to Chinese law) it will be clear that he was the loser. At the same time, the Chinese have finally declared publicly their own red lines, which includes the removal of all tariffs. Personally, I think Trump was better off just making an agreement to buy some soy beans and calling it a win and moving on. But that is not Trump! When he realized he was getting played by the Chinese (which should have been apparent to his advisers all along as they should know those terms supposedly agreed to by the Chinese were just too good to be true), he took a risk by ramping up pressure and making the disagreement public, rather than keeping it secret that he got played, accepting defeat and moving on.
My personal opinion is that he needs to manage expectations as he doesnt want the market to crash and he doesn’t want to lose
Control. So now he just bought himself and the market another 6 weeks time. Then that falls through and he’ll
Do something else
To keep people guessing and manage expectations following the next big selloff after the G20. He’ll play this game until
He pulls back at just the right time to let the markets rip into 2020 election.
History rhymes. Uni-cycle stagflamation, baby!
I once read that History would not have to repeat itself if people listened once in a while….
It’s been real quiet on the Fed (FRB) front the last several days. Is Powell and cohorts going to stand back this time? Of course, the drop from Oct-Dec 2018 was much bigger. It is still early days. But I hope asset prices will be un-bubbled finally.
Powell better do something. It’s the job of the Fed and President to make stock markets go up. Everyone knows that.
Except that Powell has nothing to do with tariffs. That’s all Trump’s.
“In the six trading days since its peak on May 3 (8,164), it has dropped 6.3%, after a historic surge of 32% from December 24 through May 3. I mean, what did you expect?”
That means it still is 24% up from Dec 24!
2718 would be a great spot for reversal and long tail up past 2760 for new bull trend..
Exactly.
Or another factoid :
The Q’s are up 19.57% annually over the last decade and 12.40% annually over the last 15 years.
And i blame the dastardly Fed.
“The index is now back where it had first been on June 6, 2018.”
I wonder how many Uber employees have effectively levered up on their shares by taking on more mortgage than they would have if they weren’t counting on a >$100B post-IPO valuation.
Disclaimer: I cashed out of Valley real estate last spring, so not my problem. :)
Wolf,
Trading volume has been anemic most of the year. The new highs were suspect since there was no conviction, just corporate boards purchasing their own stock with algos taking advantage along the way.
Don’t forget the NYSE Composite. This one has been telegraphing trouble for a long while. Has made lower highs and lower lows since peaking 16 months ago. Worse, the 200-day MA broke below the 400-day back in March.
Lastly, if everything is so awesome with this economy then why are coffee futures hugging 13-year lows? Always thought coffee was the fuel that powered American workers throughout the workday?
commodity knock down cycle….outside of hogs everything is getting beat up…..the big boys have a crowded trade me thinks…
Hogs are up because African swine fever virus has decimated pig farms in China.
I would note that Beyond Meat did an IPO a few days ago and its stock immediately shot up from its IPO price. So this is one IPO that did well. Not sure about its long term future though, as it doesn’t seem to have anything unique and patented to fend off future big corporate copycats like Tyson.
Impossible Burger, on the other hand, with its plant based heme, may have something unique that can’t be knocked off easily. If they are smart they will stay private until they’ve built up a huge business
Using the dubious CPI figures do a chart on coffee futures over the past thirteen years.
I do appreciate your NYSE reference as it is better than the heavily weighted popular averages.
Yet another good article, except I donated last week. I’ll try again on Friday.
OH NOES
Sky falling. Abandon ship!
Profitable or not, Uber is the Bitcoin of the Gig economy and, as unemployment surges in the coming recession, it will prove indispensable to many millions in search of income. I’d venture to say that’s a better business model than the majority of Nasdaq stocks out there.
Speaking of Bitcoin, hows that, “It’s a big fake bubble” narrative holding up against he backdrop of providing the sole means for Chinese to acquire Dollars as banks run out during this trade war? Still think it has no useful role in a global economy where currency flight is going to take front and center stage in the coming years?
Q: If you’re Chinese with 1M Yuan to move out of the country into a Dollar denominated exchange; how much is too much to pay for Bitcoin?
A: The price of Bitcoin is of no consequence, no matter how high, because it’s simply a vehicle to move your funds and the transit time from exchange A (China) to exchange B (USA) is only about 20 min. After which you can immediately convert it into $USD, USDT or TUSD.
Q2: Now what happens to the price of Bitcoin when millions of Chinese are all trying to move there Yuan outside the country into other currencies at the same time during say a devaluation, severe inflation or IDK a trade war?
A2: Being that price is of no consequence due to the short transit time, You fill in the blank.
And what will exactly the recipients of yuan in “exchange A (China) ” do with them – withdraw them in cash an use them as wall paper perhaps?
The chinese exchanges will quickly run into wall where they can no longer settle coin transaction’s with RMB/CNY.
As with any forex medium, (Which is what it is being used for in this case) it quickly experiences massive price movements, then quickly grinds to a halt, when it encounters large one direction volume.
If things get serious the ccp chinese will do what they always do use the ccp national firewall to block the offending traffic.
Perhaps, but don’t forget that the demand of any such ‘invester’ has a very short lifespan as well. All those bitcoins purchased to make the transfer get sold very shortly thereafter. Admittedly the slow speed of bitcoin clearing may create a temporary bottleneck if everyone attempts to do it at the same time.
Why wouldn’t the Chinese government simply block internet traffic to foreign bitcoin exchanges?
Why wouldn’t the Chinese government-sponsored hackers simply hack the bitcoin exchanges and steal the bitcoin … Oh Wait … all of those ‘whatever’-coin exchanges get summarily hacked all over the place!
Or
Why wouldn’t the Chinese government set up enough computing nodes to control the blockchain … and where are the majority of the bitcoin miners!?
Bitcoin is pretty useless and lame. The serious criminal uses a real bank for their money laundering and if nicked, everyone gets away with it for only a small-ish fee.
Bitcoin etc are to imaginary and impractical for most people. Pie in the Sky. That entire industry is a unicorn.
The Chinese wealthy are doing a good enough job laundering money through real estate. They use any tangible asset structure available and start trading. In a capitalist structure the profits out weigh risks in the decision making process so the money moves quite easily for the start up. Bitcoin went in a flash, but real estate can climb and fall at a much more stable rate.
For an example look up the story of Peter Brown selling a listing for $31.1 million to a student in Vancouver. The name of the student that can’t be reached is telling.
the problem with the companies that are public is that they have net losses during an economic expansion. this economic expansion will be in a recession by the fall. thus, they will not have a cushion when there is less revenue. they are a good short opportunity.
The SPX monthly log chart operate like a microscope.
Suppress the rich, empower smallness.
On a log chart u can see the 1929 collapse, but on a linear chart 1929 and 1987 are infinitesimal.
On a log chart, the SPX within a decade will reach the moon, climbing on Jacob ladder.
But on a linear chart the SPX have left the LPSY.
If so, big red monthly bars will appear on the chart.
In a bear market, in the first phase, fading hopes send the markets down.
Next, in phase II, disappointing EPS and dividends cut are coming.
And in phase III, the longest & the meanest, forced liquidation of what u love the most, due to margin calls, send the markets to their bottoms.
Spam “experts” ==> its Charles DOW from 120 years ago.
Don’t you notice we’re doing all the talking or should I say tweeting. You haven’t heard a word from official China.
I wonder who is playing whom? But I think the Chinese are ready to talk to a new person after 2020. They hope. It will be a rocky ride in the stock market.
Yea, what has really happened? Every has been pushed to the end of June. Trump can do a lot of caving before then. ;)
There are more buying opportunities in a rocky ride, than in a persistently overvalued market. When VIX hits 30, I will be buying like a drunken sailor, and the more people on this board that caution against this, will only confirm my decision, since some of the best purchases I have made were when I thought I would throw up.
Interesting investing idea, except the last time the VIX was 30 or above was the 2008-2011 major bear market period. So isn’t that what everybody and his brother is waiting for? The next big bear market before jumping back into stocks?
With the Fed so determined to keep the stock market afloat with low interest rates, I suspect a better indicator would be when official inflation indicators finally rising inflation. That’s when the Fed will be forced to raise rates and that’s likely to finally cause all those zombie corporations kept alive by low interest debt to go bust
The last time the VIX was above 30 was 12-24-18 (intraday). Look at candlestick graph, not line.
Yes sitting in our Barcoloungers, its natural to opine on the best time to load up on stocks, but I can remember that back in March 2009 (the absolute low) there were plenty of pundits saying that the market was due for an additional 50% decline! Recently the VIX had spiked above 80, and at that time “everybody and his brother” were running screaming for the exits, unloading stocks in both taxable and tax deferred accounts. “Jumping back in” was widely considered financial suicide at that time.
Wendy, again an interesting investment idea, which I think can be characterized as Pure Short-Term Contrarian, based on the expectation that the Fed will continue to lower rates or at least not raise them, in response to a market collapse. Lots of people or algos already seem to have this idea which probably accounts for the daily seesaw characteristics of the stock market.
There are definitely traders with microsecond faster access to market prices and trades making gazillions of dollars on these daily seesaw trades
If inflation does rise, and corporate profits fall at the same time which might happen simultaneously if the trade war continues or escalates, the Fed will have to choose between feeding the inflation vs propping up the stock market.
Long term Treasury rates will likely stay up with rising inflation, even if the Fed lowers its Fed Fund rate. Investors are not going to lock into long term Treasuries except at higher rates, in the face of rising inflation.
Articles are appearing now in business and finance magazines trying to understand why we have had such low inflation for so long despite a ballooning Federal debt and trade deficit. I think that’s probably a sign that thise days of low inflation are over
I agree. That’s when I am buying, too. That is the time I will really have fear of missing out (the carnage). Meanwhile, my money stays in short term Treasuries. I guess that investment will be kept for my kids as I’m old enough NOT to afford another drawdown.
“The time to buy is when there’s blood in the streets.”
Slim checking in from Tucson. Where I’ve personally witnessed Uber’s cash burn.
I’ve been a member of a coworking space — it’s about to go out of business, and I’ll put a link at the end of this comment — and oh, have I seen some, ahem, stuff. When I moved in four years ago, Uber was here with bells on.
This was the place where desperate people would come, hoping and praying that they would be hired as Uber drivers. I remember the long lines that would stretch well beyond the edges of the courtyard outside the first floor.
That was back in late 2015. Then, in 2016, I started to notice that Uber’s second floor office was seldom occupied. I think they were paying around $1,000 a month for that place.
Uber’s wasn’t the only ghost office around here. There were plenty of others that were rented, but unoccupied.
In July 2017, Uber’s office was emptied. I seem to recall that happening over a weekend. The place was filled with Uber-stuff on Friday, then nothing but the coworking company furniture was in it on Monday morning.
Link that I previously mentioned: https://tucson.com/business/historic-rialto-block-office-building-seeks-new-tenant/article_098a5b73-d0f4-58db-a1b7-17401caccbf9.html
The global financial mechanism is generating that money, it is ‘merely’ being diverted into companies like Tesla and Uber. It’s not real money, and they aren’t real companies, although the Uber Lfyt model has credibility where it begins to realize that the broader mission is transportation, while Tesla is a boutique car maker, something like Cord was a hundred years ago. This whole trade deal with China dustup is done in order to supply a relief rally to already overextended stocks, but where the money flows what does that mean?
Maybe because it’s happening in Quebec, it’s not on the US radar, but the whole taxi medallion- rentier scam is about to end.
The fact that the privilege to operate a SINGLE taxi has cost up to a million dollars in NY and 800 K in Vancouver is the whole reason for Uber and Lyft coming into existence. (The price of medallions in both cities has fallen due to Uber but are still in 6 figures.)
These have to be purchased in the private market.
This creates an artificial shortage of taxis and a higher than market price.
Uber works around this and this makes it worth, for now, fifty plus billion dollars ( or whatever it opens at tomorrow)
You could probably arrive at a rough estimate of what Uber thinks it’s worth buy adding up the cost of the medallions it doesn’t have to buy.
There is at least 30 times as much capital tied up in the privilege to operate taxis as there is in the vehicles.
Imagine what it would cost to rent a car if the car rental business faced a similar entry cost. In fact, imagine almost
ANY other business like this.
At the moment Quebec is planning to allow the taxi business to operate like any other business, subject to basic regulation. It is offering 500 million compensation to the medallion holders, which they say is not enough.
Because most taxi drivers are working for the medallion holders (they are often leased at 5 figures per month) they would be better off without this expense.
For some reason I keep running into highly educated people who don’t know about the medallion system.
One thought the local cab company could add more cars anytime: the overhead being simply cars and drivers.
Others seem to think the system assures public safety, that the necessity to buy the medallion in the market is connected to driver qualifications, background checks etc.
Of course there is no necessary connection, and once a jurisdiction decides to open up the taxi business, it can apply whatever regulations it likes, including a reasonable limit on the number. Maybe it would be an idea to REQUIRE the driver to be the holder of the license.
There are all kinds of businesses much more closely regulated than taxis, (e.g. pharmacy) that do not have to pay these bizarre sums to enter the market.