The end of a truly amazing era.
By Wolf Richter for WOLF STREET.
So now we’ve got another stock that went public less than a year ago and then collapsed unceremoniously by 82%, including today’s 29% plunge upon the news last night of a minuscule revenue increase, a hit to revenue guidance, and another big loss. This misbegotten Wall Street Hype & Hoopla product has now taken down just about every investor that ever touched it.
For about a year now, I’ve been screaming about IPO stocks and SPAC stocks that had been hyped to the nth degree by the Wall Street Hype & Hoopla machine, and their shares were then sold to the public at huge valuations and, after a quick “pop,” promptly collapsed, one after the other.
The last time I’ve seen anything like this was during the dotcom bust. But this here feels a lot worse because it’s just the beginning and the overall indices haven’t plunged yet, though they’re down some.
So here we are with the miracle IPO of the day that collapsed in 10 months. I don’t have any problems with the company or its products. Sales of diapers, beauty products, shampoos, face masks, and whatnot, OK, fine, if the company can make money with it. But turns out, it cannot make money with it.
And this Hype & Hoopla product screwed over befuddled retail investors, who, blinded by greed and a belief in some new paradigm, eagerly ate up this hype and hoopla that they were fed, and they got what they had coming. Yup, been there, done that.
But this is pretty thick, even by Hype & Hoopla standards.
So the stock in the sickening horror-chart below is The Honest Company [HNST] since the IPO. The IPO price was $16 a share. Trading started on May 5th, 2021, and that day, the price “popped” 50% to its all-time higher of $23.88, which gave the company a valuation of $2.2 billion – for a diaper and shampoo company with $300 million in annual sales, decorated by big losses, a tiny, money-losing company in a field crowded by giants.
The 29% plunge this morning, to $4.32 at the moment, barely registers in the overall 82% collapse since the high on the first day last May (data via YCharts):
The end of a truly amazing era.
We have now seen chart after chart like this: A big price when they start trading, and maybe a “pop,” that the financial media oohs and aahs about, and a few months later there isn’t much left.
This has now been time after time the same thing, including a couple of days ago with the three BBQ grill IPO stocks. It’s not an accident. It was a systematic effort by Wall Street and its minions and the sundry insiders and pre-IPO investors to clean out hapless retail investors for as long as possible.
The fact that these stocks are now collapsing has caused these retail investors to sit up straight and pay attention, and suddenly the IPO market has essentially shut down.
How is the Wall Street Hype & Hoopla machine supposed to sell these ridiculously overpriced shares when investors are actually paying attention? Well, they can’t. And IPO volume fizzles. And this is now.
Over the past three months – December through February – the number of IPOs in the US plunged by 71% from a year earlier, to just 25 IPOs, according to Renaissance Capital. In March through the 21st, there have been only two IPOs. This gig is up.
Over a year ago, on March 3, 2021, I asked, “Was That the IPO Stocks Bubble that Just Popped?” And we now know the answer.
Honestly.
The Honest Company reported last night that revenues, at $80.4 million, edged up only 3% year-over-year in Q4, not even keeping up with CPI inflation. And it reported a loss of $9 million for the quarter, bringing its annual loss to $38.7 million for the year, up 167% from 2020.
It reported a 68% collapse in sales of its “household and wellness” category, which includes face masks and sanitizing products. So here we go: This was another company, like the BBQ grill maker IPOs, that rode up the pandemic boom and at the very end of the boom, when everyone already knew it would end, it sold the shares to the public at a ridiculous valuation on the idea that the brief pandemic boom would be a permanent feature of the company.
The company also lowered its revenue guidance and said it would raise the prices of most of its products to deal with surging costs and inflation.
The company was founded in 2012 by movie and TV star Jessica Alba, and her Hollywood glam carried a lot of weight with customers and investors. It raised $730 million by 2018. Alba ended up on the cover of Forbes. The company got tangled up in a scandal over labeling of ingredients on some of its products, which was very embarrassing for a company running on a meme that its products were somehow “Honest.”
But OK, marketing is marketing, and a name is just a name, and I get that, and I wish the company good luck, and I hope it will make it. But the Wall Street Hype & Hoopla machine, after exacting its pound of flesh from retail investors, is finally screeching to a halt, and that’s a good thing.
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Market Cap still ~1.7x revenues.
Short.
Tesla is 20x revenue. Elon Mask made more money in one year than Warren Buffet and Bill Gates in their lifetimes, combined.
Our “winner take all” eCONomy is responsible, not Elon Musk.
Just remember..
The Fed intended to FORCE the investor to take more risk.
They did this by flattening the yield curve, pounding the long rates down.
They turned many into yield chasing, risk assuming for little return, robots.
The Fed has no business doing such. They “decided” to skew the risk/return ratios and historical PE ratios all on their own.
What does this have to do with a “free market”? Nothing.
Managed economies and markets are characteristics of Socialism.
historicus,
Hussman recently deployed the term “return-free risk” to describe the current investing conditions. Probably not original to him but an apt expression for what the fed has created.
Do you mean to say Elon’s net worth doubled? none of that is realized, and he certainly did not “make” it.
Didn’t he just give $6 Billion to end world hunger. Or was it Buffet. No, wait.. Buffet gave all his money to Bill Gates. Probably tax deduction.
All these foundations donate to each other and all get to claim tax deductions (circle tugging?)
Musk didn’t say which charity he donated to. Most likely to a “Musk global initiative” or a “Musk foundation”.
“If you liked this stock at $24, you’ll *love* it at $4.30. ”
I first heard this gem from someone called Rick Rule who was hawking junior miners.
that’s from the movie boiler room.
Ladies and Gentlemen-
Wolf has given me permission to request the asking price of anyone currently owning a genuine “Nothing Goes to Heck in a Straight Line” beer mug who is willing to sell it. My current bid is $200.
HarryHoundstooth at yahoo dot com
I’d sell you mine, but I’m going to IPO it…
Khowdung Flunghi,
Before your IPO, consider taking various pics of your mug and creating an NFT…could make ya zillions….
Inflation due to supply chain issues….. LOL
if we’re forced to make coil or pinch pot Wolfstreet mugs one at a time, they could be even better.
x
My Wolf Street mug is the centerpiece of my mug collection. You mean there can be something better coming soon?
No way! Their great for playing beer pong!
I just want to point out that Harry Houndstooth’s name is on my waiting list for an original new WOLF STREET mug. But it seems Harry doesn’t want to wait any longer. And maybe he wants to find out if there is a price, or if they’re priceless :-]
Great article. It does feel like just the beginning. Another bear market rally is running out of steam. While the yield on 10-year treasury jumped .75% in only two weeks. Waiting for curcuit breakers.
I really don’t understand anything about the stock market, outside of the basic concepts, but it’s amazing to me that a global pandemic and now very real threat of nuclear war hasn’t just shattered the whole thing.
I do understand that the massive intervention by the government has a lot to do with it, but damn. I was thinking the whole thing would crash right around year two of Trump!
Here here! Must be that economist math!
I am being a little sarcastic here but since Blackstone probably and it’s 10 trillion under management probably decides if the markets drop. The retail investors moving their money out of stocks is probably so small it does not effect anything. Where would the top 1% put their money if not in stocks or bonds?
lol Maybe real estate or cryptos?
As interest rates rise, I would bet the smart money goes into bonds and hard assets (Real estate, gold).
Worse than TINA, they have to own it, cash is not an option. They don’t care if it drops 20%, (small investor cannot assume that risk) and they can hedge more effectively than you. Just to square the circle PGJ is up 25% off the lows, that’s the basket of Chinese ADRs which were pummeled last week. If you are a millionaire and lose 1/5, you are down to your last 800 million. They also have the cushion to deal in distressed securities, esp bonds. Its not a level playing field.
That is why I want to start my CLOUD Data company, called PONZI Cloud Data,. Now is the time.
First rule retail sucks,low margin labor intensive more fools in these ponzu schemes ,don’t people have any common sense
Andy
I am getting my popcorn ready for circuit breakers kicking in! Let me see another trading day in March 2020!
Those investors who don’t get out from the recent rally should learn a good lesson — with their hard-earned money.
My portfolio has nothing but SQQQ and SARK. I don’t wanna put my money in any stocks except hedging. Even dividend-paid stocks (KO, BHP) are overvalued
Tour 2 weeks early my opinion
I’m down to just a few oil and nat gas stocks, and one energy ETF. I have stops on those. I’m waiting for 5% T bills!
Overvalued and overleveraged. KO used to be one of a handful of AAA rated companies.
VIX down today. Weird! Like the world suddenly got calm? The problems and dynamics are suddenly good? Just the employment numbers do this? Stock (white knuckle) holders grasping at one stat?
Yes, MAYBE Russia bogs down and we get big prestige and humpty dumpty is reassembled. Sounds like a speculator’s grasping hope but it is all the big stock holdings. What does Fink know?
Things have really changed in relative valuation. Let’s say you need income and buy a 20 year Treasury. Alternative is to buy SP500 and live off dividends. At 4% dividend growth rate it would take 18 years before income from SP500 is as large as 20 year Treasury payout. Nobody knows for sure if SP500 will be higher in 18 years as bubble is so big
Even utility stock yields are only about 1% higher than 20 year Treasury.
“The Honest Company” says it all. LOL LOL LOL 🤣🤣
Jessica Alba spun it just in time to cash in.
Value destruction alright. Or market justice.
These celebs have been hawking stuff of very questionable value for years. It was once through tabloids.
Yet still, the markets today wander sideways as if in a dream ….
I wonder how long this dream persists. So many zombies ….
Wait for bikini NFTs..
That sounds so much work. There’s a better/cheaper way to sell snake oil now. Her next play: join Tom Brady, Matt Damon, Reese Witherspoon and co. in the promotion of crypto/NFT.
If the Kardashians are involved, you know fools and suckers are targeted.
If a way to make money needs marketing, it means it isn’t one.
“If a way to make money needs marketing, it means it isn’t one.”
Sounds like sense to me.
int/ian-so very well-said. (“…we gotta move those microwave ovens…” – ‘Money for Nothing’, Dire Straits).
may we all find a better day.
Able I was, ere I saw Alba
After seeing her dance in Sin City, I’d be all in.
Coincidentally, I just pocketed 9% today on “The Honest Company” after it dropped by 30%,, I bought it at about 29.50% down and I noticed a huge buy order for it at $4.20 via Level II Market Data. Which means somebody was holding the line there to stop any furthering dropping. So, it’s money to be made on these dips if you intend to sell that same day or the next. The days may be gone for a while when you could just sit on a stock and do nothing & it goes up. Average investors are gonna have to move the money around more regularly to get gains. Just a little info for the readers here
420, thought that was a Musk meme. Tweet tweet, TSLA going private, funding secured. Take another toke (yes there is a pic from that time, he did it live on a webcast), his stock spikes. Thumbs his nose (still) at SEC after all that. That’s supposed to mean he is a genius (at least in a 19 year old boy’s eyes). Oh, tell me there is karma! Mean reversion! A business world that makes sense! But no, he was off to another diversion and vaporware (and love child) announcement. AverageCommenter has a point: there must be opportunity in all this persistent NOISE plus loose cash!
On the backs of these stock certificates, if you squint with the right kind of eyes, you’ll see the words “In Fed We Trust”
Oops.
But there must be a due number of suckers playing in, or all the Fed’s horses and tricks would mean nothing. It is never one-dimensional.
Alba’s “Honest” company is as good as her acting.
Not sure I’d buy products from a company named “Honest”. LOL!!!
The IPO was the buisness, not the products.
I never watched any of her films but doubt she was selected for her acting skills. She’s “hot” or at least used to be and that’s what matters most.
Watching ‘The Dropout’ series right now. The actress does a great job at making Elizabeth Holmes look like something that escaped from the Reptile House at the zoo.
“Never eat at a restaurant called Mom’s, never play poker with a man named Doc, and never get involved with a woman who has more problems than you do”
– Nelson Algren
My latest startup idea…
“Left-handed Buggy Whips and More”
(Full disclosure: I’m out after the IPO “pop”)
Apparently honest y doesn’t sell.
“Dis” Honest Company – may not be very honest
I’m amazed at all of this carnage. Yet people who have their money in large caps and index funds are shrugging their shoulders, and they are telling me that all is well. I tell them to read Wolf Street but they never do.
“I tell them to read Wolf Street but they never do.”
They do their own research. It’s not their fault if reality contradicts their expert opinion.
Dunning–Kruger rules. Discussion deferred.
No, they do not do any research.
“No, they do not do any research.”
Okay. Ignorance is bliss then.
Does that work for you?
“Boy and hold” and “index” is a mantra they recite like zombies. It is holy writ. Over any 20 year period they preach, stocks WILL go up in a nice percentage. It is the core of their reward system, lifelong. Even as the Fed’s unsustainable machinations have become the wellspring of it. I sniff opportunity there! The universe does not stand still. And I don’t have 20 years to wait, especially in this environment.
That’s one of the indicators of a mania. Buying into the most overpriced US stock market in history with mediocre to awful fundamentals while simultaneously believing the upside is unlimited.
“The Honest Company” must have been inspired by Orwell and his newspeak when choosing this name.
If you see celebrities involved in stocks … run!
It’s just beginning. Stocks have to fall a lot with S&P today just 6% below ATH.
Right up there with Truth Social, and the USSR’s Pravda — “Truth.” All a card trick looking for followers.
Still suffering from that Tee Dee Ess, huh? Get over it, gramps.
Oh, so Truth Social is your new savior? Good luck, kid.
Oh and you missed the point, DC. The point is about promotions, pied piper claims to grand lofty things. But I would expect that. Gramps will meet you any street, anytime, any terms.
Like clockwork, the trumpers project dear leaders failings onto the reality based community. There is an exhausting laundry list of TFG’s derangement and depravity. The latest: his risible RICO lawsuit against various and sundry. My personal favorite: staring, agape, at an eclipse after waving off the protective glasses.
You forgot to include all five of the truthless big five US media conglomerates and the supposedly respectable (but actually garbage) US daily papers.
Good point. Add Vanguard that won’t sell me short ETFs.
From the press release:
Full year 2022 Adjusted EBITDA is expected to be a loss of approximately negative $5 million to negative $10 million, which includes an expectation of approximately negative $10 million of Adjusted EBITDA in the first quarter.
Charlie Munger referred to EBITDA as bull shit earnings. What to do when BS is negative?
Create NON-GAAP Earnings…..
Wolf’s post reminds me of the IPO’s back in 1986 and early 1987 in New Zealand before the October 1987 crash.
Lawn mower companies, BBQ grill Co, and the best one of all “Kiwi Bear” Co that was an IPO based on marketing possum fur. Possum’s in New Zealand are a pest introduced from Australia in the 1800’s. Back then a glossy prospectus document and someone with a name on the board was all you needed to successfully IPO.
“The propensity to swindle grows parallel with the propensity to speculate during a boom… the implosion of an asset price bubble always leads to the discovery of frauds and swindles.”
– Charles Kindleberger
Ever thus, and onward forever.
And as some other WS commenter said: “You can’t fix stupid.”
I can also guess in advance that however ridiculous, the amounts involved were peanuts since the New Zealand capital markets have no meaningful scale.
That’s what makes this leg of the US stock mania different from all others. The sums involved are so big.
This one isn’t huge but still significant while the best known (such as Uber and AirBnB) which should be worth zero or close to it are and were worth 10’s of billions.
A parody of value and honesty, colorful and ephemeral as a bubble, perfect for what has become a broader parody of capitalism. Orwellian indeed.
Can we retrace, and how? There are still millions of folks fervently consuming, shouting for more, and swiping the credit cards (though the fear is for now more the transfer of mishandled credit from household balance sheets to governments). Everybody seems in a WTF-level volatile rush to — where? Fascinating times!
FOMO still abounds amidst the sound of crashing “new age” firms and the ratchet of rising rates. I could write a soundtrack, lots of crashing cymbals and LOTS of cowbell.
Accounting scandals soon to erupt. How many are swimming naked? I’m waiting to see a big, serious name appear.
Can’t wait to see the fireworks when DWAC crashes. I wonder who will be blamed ?
I wouldn’t be so sure that it’s over. I’m sure they can still weasel a few slow learners into overpriced junk if they adjust their spiel a bit.
The company should’ve came up with some diaper tech. An app that send out a clip of jessica saying diaper is dirty. Lost opportunity 💸
Every time I hear SPAC I think of a foul smelling discharge that a camel might launch at someone the camel wanted to repel, like maybe a boiler room IPO stock barker. Getting SPACKED sounds disgusting.
In a junkyard, if you have good eyes there are often
some gems. Keep your eyes peeled.
And I am not giving back my Weber.
Thanks for covering this stuff Wolf. You usually don’t hear about corp media uncovering the slaughter across unicorn land. The narrative is always, stock will only go up, buy that dip now.
Even just going off my own indicator and just tracking two of the companies I loathe, SNAP and Beyond Meat, it brings me joy to see both are beaten close back down to reality somewhat. IMHO, still overvalue at current price so hopefully more room to go down
“You usually don’t hear about corp media uncovering the slaughter across unicorn land.”
You’ll note that CNBC has never offered Wolf a show…
“You’ll note that CNBC has never offered Wolf a show…”
You could make a list of people CNBC does NOT want to talk to. Best to just glance at the numbers and ignore the commentary.
I haven’t said anything about Jim Cramer. Not even going to mention him.
Nov. 15, 2021: “Jim Cramer looks at tech stocks to own in A.I., the metaverse, electric vehicles and fintech”
Cramer was broadcasting from a rooftop in San Francisco touting the whole tech fever dream, IMO a contrary indicator for the markets:
The “metaverse” is an alternate pretend reality, totally fitting and consistent for the greatest mania in human history.
AI is more properly called machine learning. Intelligence implies life.
‘
Terminator isn’t here yet and if it ever arrives, it’s going to be something completely different from the movie series since the premise is complete BS.
Beyond Meat is another company that should be worth nothing.
GFS IPO’d in Q3 of last year. Logged an all-time closing high today.
Change that to Q4
GFS is a huge semiconductor manufacturer with plants around the world and with over $6 billion in sales. It has been around for over a decade. It should be publicly traded. They’ve lost a ton of money in prior years but over the past two quarters have made a tiny bit.
But this is also a super-hot time to be in semiconductors, and they moved their IPO forward to get it out the IPO window before the boom ends. So keep your eyes on it.
We’ll do Wolf and thanks for all of your hard work. Best website in the history of mankind, IMO.
Why has Gamestop stock doubled after a disastrous money-losing holiday quarter?
Why is the S&P 500 back to within 5% of records?
This is going to take years to wash out properly. Maybe many many years. This was and is a HUUUGE binge, the hugest ever by far, and it’s not going to disappear overnight. As I said in the article, we’re barely looking at the beginning of the washout.
i’d be floored if this takes years. when you are this heavily leveraged, and everything priced to perfection, it only takes a small spark to create a huge explosion.
Me either.
It might take a while for the company to go completely broke since so many lemmings gave it more money to incinerate, but this company is a complete dead end and has no future path to “growth”.
This is even assuming the economy doesn’t come unglued which isn’t my base scenario either.
augustus, i wasn’t even referring to gamestop specifically, but the craziness in the debt and equity markets in general.
but your point still stands
The Elliott Wave progression has already peaked. It’s now downhill for decades.
Thousands on Wall St should be sent to Rikers island
They were just following orders.
+1
Katie Wood with her gaping mouth and 1000-yard stare is out.
Katie Haun (Crypto Ventures Capital Fund) is in.WSJ & Bloombers assure us that Katie #2 is THE REAL DEAL and will change EVERYTHING.
Never give a sucker an even break…
Are you talking about Cathie Woodshed?
Yeah,that Cathy of Ark Innovation…
She recently started shedding like feline in spring,$15M here,$11.5M there, which is no good.
Therefore Katie Haun is in,Ms Haun is former federal prosecutor among other things.
Sine qua non of being successful Judas Goat,just like her soul sister Sidney Powell of Unreleased Kraken 😁
Does Katie #2 have an instagram following, a youtube channel and a viral presence on twitter? Otherwise, not a real deal.
Hmmm… I agree that somebody got taken to the cleaners on this. Supposedly only sophisticated investors are allowed to get in on IPOs so my guess is that the retail buyers saw Jessica Alba’s name attached and bid the stock up from $16 to $24.
That said, is a $9 million quarterly loss the end of the world for this company? $38.9 million loss for the year? If my math is right they made $1.47 BILLION off the IPO. Even subtracting the $730 million that Alba and others had put into building the company there should be $700 million or so left. At that rate “The Honest Company” can stay solvent for another 20 years. Longer if they actually do raise their prices to match inflation.
REAL LESSON: Never invest in something because of a Hollywood celebrity’s name being attached. The hype will eventually go away and the stock will crash. This ain’t the first time…
Someone please clarify for me, as I’m still learning market basics, in the process came across various muckraking articles and the Jon Stewart’s The Problem podcasts regarding Wall Street. Aren’t retail investors’ funds funneling mainly into dark pools? And if so, would they have any real affect on the market price or a tanking thereof?
If retail investing is legit (or still legit after the Game Stop fiasco), I can see Honest Company appealing to certain demographics and being a popular stock. Alba’s supposedly toxin-free products were huge among new parents back when mine were born. Wasn’t a particular fan myself cuz the ingredients were terrible and the diapers leaked and couldn’t mitigate a blow out, but I could see Honest Co. drawing novice investors using retail apps.
Lily-
Dark pools are whole another type of market corruption, but one that’s used mainly by large investors like pension funds and hedge funds.
Retail investors go almost entirely through the public exchanges.
Lily,
It’s never about what a company actually does…
It’s about
a) will the company pay a dividend on a share of stock… (optional, these days)…
Or…
b) will the stock price go up or down…
Bet right…yay
Bet wrong…boo
That’s about it…
By the time you see anything as a retail investor, hedges, institutions and the big players already know about it…
You can study, read til you’re blue in the face, learn GAAP, EBITA, and it won’t matter…
It will always come down to a or b above…
Certainly you both make sense. But to SpencerG’s sentiment, if retail stock purchases are the bottom feed of investments after the info has sifted its way down to them, then can they really influence price that much? Especially now that retail apps have adjusted their policies after the Redditors/Robinhood/Citadel thing.
If you want to play the stock market as a game, sure… go ahead and amuse yourself…
If you want to build wealth, then you have to be a lot more careful with your money…
In regard to stocks, here are a couple of our hosts posts that you may find interesting…
https://wolfstreet.com/2022/03/01/this-stock-market-is-coming-unglued-stock-by-stock-2/
And
https://wolfstreet.com/2022/01/18/russell-2000-drops-below-year-ago-level-collapse-of-ipos-spacs-housing-tech-stocks-arkk-etc-progresses/
Appreciated COWG. I’ve read em. I’m not interested in playing the game, only how its played. In my commoner little world, a savings account has become useless, RE is completely unaccessable for the forseeable future (in my situation) and friends are getting dragged down in Crypto (which I wouldn’t touch with a ten foot pole). The chances of me retiring in the US are nil. So, its more curiosity than gaining executable knowledge at least for the time being.
Everyone at each other’s throats over politics and wealth, I find it fascinating (in a worrying sort of way) where this whole sh*tshow is headed and why.
Hey there Lily,
Yes, retail stock purchases can move a stock price pretty easily after an IPO. A lot of the IPO stock is “quarantined” so it can’t be traded for a period of time after the IPO. Restricted access to shares when there are a lot of buyers means that the price goes up… Basic Supply and Demand.
I am not saying that Retail Investors are the bottom of the information chain. In fact their information may be superior to EVERYONE’s… they may have an opinion of a stock based on personal experience with the product (like you did here). On the flip side, they may be complete dummies who invest in Jessica Alba’s company because they thought she was cute in some movie or whatever.
What I am saying is that retail investors are third or fourth in line to get a crack at buying a company’s stock:
-Insiders/Founders (Alba in this case)…
-Venture Capital…
-IPO-qualified investors ($250K or more in liquid net worth)…
-Retail Investors buying stock from e-Trade, Merrill Lynch, Charles Schwab, or wherever.
Moreover it is something of a “Fail” for a stock to zoom by 50% fresh off an IPO. The company doesn’t benefit from that zoom… it would far rather price the IPO shares at the higher end to capture that extra money for itself. That Alba’s company got screwed out of 30% of the Capital it could have made if the IPO had been priced correctly is not a good look for whatever investment bank brought her company out… too many of those kinds of mistakes and they won’t be allowed to bring ANY companies public.
PS: I did some more research and found out that the Short Interest in this company is 25%… so the $4 price tag may be oversold. There is not a lot of “Float” (unrestricted shares that can trade) out there so any increase in price might cause a Game Stock spike.
Thank you for the clarification, SpencerG. Retail trading has been presented as something of an exercise in futility by the cynics and muck rakers so my curiosity piqued if it truly is.
Nothing against cynicism and muck raking at all–usually yields an interesting perspective even controlling for bias/agenda.
Lily… listening to the Doomsayers is pretty depressing. They make EVERYTHING seem like “an exercise in futility.” Even Wolf gets onto them from time to time for overstating things.
It may be hard to do retail investing well… but it is hard to do professional investing well also. 30 years ago the manager of the biggest stock fund in America was a man named Peter Lynch and he encouraged people to invest in companies that they understood. He wrote a book called One Up on Wall Street that pointed out that retail investors often had knowledge that professional stock market analysts didn’t have…
-which stores in the mall have your daughters started shopping in?
-which ones have they stopped shopping in!
– which restaurants are you no longer eating in because the food quality has gone down?
-which restaurants are you going to instead?
-which competitor to the company you work for is gaining market share from you?
-which vendors is your company increasing its purchases from?
These things take months if not years for Wall Street analysts to take notice of. Meanwhile, they are making decisions by COMMITTEE to compile a portfolio of hundreds of stocks! That just kills the chance for winning stock picks. YOU only need to buy eight to ten stocks to have a diversified portfolio… and you know something about each of the stocks you are buying.
If you look at The Honest Company stock chart again you will notice that the retail investors who bid the stock up on the first day clearly lost money. But so did the institutional investors who had a 60-day lock on selling their IPO shares. Anybody who wasn’t out in sixty days lost money on this stock. Maybe they should have taken more notice of whether the diapers were leaking… because you know that the Mothers of America were.
My advice is to pay attention to Wolf’s blog posts AND the commenters. But to the best of your ability ignore taking the Doomsayers too seriously. Absent the Four Horsemen of the Apocalypse (war, famine, disease, and death) the world tends to get better with time… not worse. That smart phone you use every single day… fifteen years ago it was Science Fiction!
Look at the starting prices of some of these IPO and look at the historical opening stock price for a lot these companies. A lot of companies beginning had a stock price of 13cents, $1, or $2…. not each stock is worth $200 or $300. You buy a stock from a newly listed public company at $40 opening day or $60, I mean you are just asking to be taken to the cleaners. Maybe you buy an IPO with the specific goal of unloading it in 2-3 weeks & pocketing that percentage but anything else is outright absurd. The stock prices are way too steep to begin with
A fool and his money soon parted. Its fascinating to watch people throw away their money
“A fool and his money are soon parted.” Hm. That should mean there is a shortage of stupid rich people.
Since we are not talking about real estate:
Got a ping from a head hunter in Boca Raton.
Took a look at Boca Real Estate prices on Zillow and how they have changed in the last two years.
Looks like they doubled or tripled, and are now declining quickly from the peak,
If I cannot afford a decent house in a job location, will just pass.
Worse than the house prices in the areas with good jobs are the house prices in areas with no good jobs. The locals have gone from being able to rent a very modest but safe and affordable shelter to living in the local campgrounds. There are whole families living in tents. This is disgusting.
DC, you condemn the recent handouts in stark terms yet you seem to be impliedly recommending some other form of redistribution. (I may stand corrected if you explain more, beyond your basic refrain here.) Uh, where in this is the consistency, the logic, the plan? Positive recommendations?
What I hear from you whispers to my (perhaps confused) ears something like national socialism? For the downtrodden volk? With the usual suspects locked up or worse? With their winnings confiscated?
Tommy Hilfiger made $19 million by flipping a property after only 3 months. Was in not last year that property appreciation exceeded the average annual salary.
It’s hard to say what is going to get whacked in this market. People who thought they were being conservative and bought TLT 20-year bond fund last summer are down 25% from the high.
Heck, I lost 5% in three months on 3-year bonds.
Bobber,
Somewhere along the line, the idea started cropping up that bonds were like stocks and people invested in them to get capital gains. And you can do that, and when you buy a bond fund, that’s exactly what you’re buying. And you end up getting capital losses.
But bonds were never designed for that. They are a “fixed income” instrument. You pay X amount up front, you know that at the end of the term, such as 10 years, you get your money back. In the interim, you collect interest. And that was it. You had to deal with some risks, such as credit risk (company defaults), and interest rate risk, meaning that interest rates rise, and you’re stuck with your coupon, and so you make less than you could have. But a high-quality bond assured you a fixed income stream and your money back at the end of the term. There is nothing to worry about in between. With bonds, you sleep well.
With bond funds, however, you don’t sleep well. You bought a trading instrument – you might not trade, but the fund is trading. In addition, you can get a run on the fund, which could be devastating.
That’s why I hate bond funds, and why I like bonds.
I buy bonds at issuance from the company or from the government directly, and hold them to maturity. So I don’t need to worry about losing money or the day to day price. It’s not a factor. All I worry about is that other people make more money than I’m making by having bought the bond later with a higher yield.
But I’m not buying long-term bonds right now because I think I can get a better yield later. Short-term is OK.
If I want to trade short term, I trade bond funds, stocks, or commodities funds.
Exactly Wolf, and IMHO EXACTLY why the FRB was started in the first place,,, and equally EXACTLY why the FRB has been following their various policies lately:
First, the ”banksters” realized they were losing, consistently, the profits to be made from burying one’s gold in the backyard during the good/boom times and taking it out and buying ”real” assets for pennies on the dollar during the bad/bust times; that this was being done by the little old ladies — of all ages and genders is very clear to anyone who reads his and her stories of the 19th and early 20th century.
After that time and the establishment of the FRB stopped the practice of saving in gold, etc.,, the LOLs began buying bonds to achieve reliable incomes, again at the expense of the banksters; SO, the FRB came up with the PRACTICES deliberately against their announced and approved POLICIES as mentioned once or twice by commentariat on Wolfstreet to FORCE the LOLs away from bonds and toward risk, etc.
With the USD down approximately 99% from start of FRB, it will be interesting to see where we go from here, that’s for damn shores.
Oh well,,, off to the beach during another perfect day here in the saintly part of the tpa bay area;;; after all,,, ”Life’s a beach, and then you dine.”
“SO, the FRB came up with the PRACTICES deliberately against their announced and approved POLICIES as mentioned once or twice by commentariat on Wolfstreet to FORCE the LOLs away from bonds and toward risk, etc.”
To know the Fed was no longer the promoter of “stable prices” and “moderate long rates” but rather the pumper of money and the promoter of inflation was to make a killing in the past two years…and maybe all the way back to 2009.
Who decided they would abandon the mandates/instructions which essentially were the AGREEMENTS to allow their “special existence and powers” ? That was the whole game.
You can take all the economics PHDs in the world and throw them in the garbage….for to know what was once down is now considered up and will be defended ad infinitum ….with abnormal policies…..was to be plugged in. Ask those 3 Fed governors who “resigned” and those they “advised”.
“the idea started cropping up”…
Wolf you’re being too kind to Wall St. Finance firms pushed the idea of bond funds because someone who buys a 30 year bond and never sells doesn’t make them any money. Get people to trade a bond like a stock and you’ll earn easy money with commissions no matter what happens to the bonds themselves.
And I wonder why every “financial advisor” has marching orders to push bond funds…
Franklin-Templeton’s California Tax Free Income Fund first came to market in Feb. 1977 at $10 a share. It closed yesterday at $7.13 (FKTFX symbol). Since the beginning of 2022, its total return at Net Asset Value has been -7.14% (as of 3/25/22).
Bobber
I’ll repeat what I previously posted.
Bonds have interest rate risk, capital loss risk, and default risk. They are not as conservative as you think.
With bond funds, there are added risks as Wolf pointed out. I’ve owned them over the years and have done very well except for junk bond funds. After the GFC and the meltdown of funds across the board I was out of them at the time, fortunately. Now I have become more cautious. With the one bond fund that I own, DMBAX (Short term muni bond fund), I check the 3 month statements carefully. The red flags to look for are falling total assets (increased redemptions), huge turnover in their portfolio, falling share price, negative yield, increased ave maturity, poor performance relative to competing funds. Of all of these my fund has a couple of red flags but it hasn’t gotten over the deep end yet. One more red flag though and I’m out of dodge.
These must be the most joyous condemnation comments I’ve seen yet!
To expect the Fed to do their duties was the biggest mistake in the past ten years.
And when it is a “mistake” to expect authorities to do that which is their assigned duty, then there is a much larger problem, isnt there?
Powell said he didnt want to do what Volcker did….
I am guessing Volcker didnt want to either……but he did what the situation demanded rather than what he “wished”. Powell is wishing too much…or is it pretending reality isnt real? Transitory? Inflation will come down to 2% all by itself? Come on man!
Q: When it is a “mistake” to expect authorities to do that which is their assigned duty?
A: Whenever they get personal (or in-group) benefit from modifying the “letter of the law” (supposed duties) defining their positions, while at the same time hiding, ignoring, or creating a cover narrative for their behavior. This is true in most private as well as government institutional contexts.
These days one almost always has join such environments, at least temporarily, or exert a lot of hustle or have luck to be independent.
I think it has to deal with cost of living and getting necessities. Special niche health and beauty costs a lot more then the off brands. Move most people to remote work and the need for beauty regimen was the first to go. I bet you would see gains in the sweat pants business. The stock is following trends. Baby Boomers are spending in health care, Gen X is getting ducks in row for retirement or putting kids through college, millennials are checking out starting families, and Gen Z are consuming everything. Stocks will follow suite. Medical and Health Care stocks are doing okay. College and retirement services are booming, house prices are insane due to demand, and electronics are in a permanent short. Yep. Stock market still thrive where we spend our money. Just less of it so expect some blow back on Fed practices. They need consumer confidence up again. That is the Honest truth.
Any bets that by fall, most will be concerned with obtaining sufficient food? What then of these silly frills peddling firms whose delivery costs are going to become prohibitive due to our suicidal energy policies.
1) The economy is strong, the Wimmer inflation need time to weaken it.
2) JP warned the banks that Loan To Value LTV is high. When LTV is high the risk is high. Mortgage rates are rising.
3) Gravity with European negative rates pull US10Y down. That explain
the divergence between the 10y and mortgage rates.
4) Volatility is still very high. The speed up/down need time to slow down.
5) SPX might breach Feb low, before moving up for half a year, possibly until Sep/ Oct 2022.
6)
Who in the market today has ever witnessed the devastation of rising interest rates, heading toward inflationary interest rates, on high debt to value companies?
All are retired, offering these comments that go unheeded until it is too late.
“Live and learn” must always be augmented by a thorough study of history.
Most people are ignorant of market history and many actually believe major central banks and governments are really in control, as if either can prevent declining living standards.
In several prior topics, several comments have been posted about waiting to “back up the track” to buy longer dated UST of various maturities.
That’s fine as an interest rate trade or a moderate term holding, with the right timing.
On the other hand, if the bond bull market from 1981 has ended, practically no one here seems to be aware of where US rates are ultimately headed.
I don’t think hardly anyone anticipated ZIRP 10 years or more before the GFC. I didn’t either.
Now, with the combination of current manic market psychology and awful long- term fundamentals, US rates are destined to blow past the 1981 peak in the upcoming major bear market.
It’s not going to happen tomorrow or necessarily “soon” but given how mediocre economic and financial conditions actually are already right now, it’s not going to take 40+ years to get there either, not even close.
What has not been reflected in the market is all the collateral margin calls that the big commodity trading houses must be facing.
The Honest Company … what a name. I would never do any business with a company like that. When I want satisfaction guaranteed, I usually go to mom and pop shops with names like Happy Donut. Never failed me once.
Since money became unanchored around 1970 the holding period for stocks has gone from 10 years to 6 months or so. Everyone is spending all their time guessing price movements and not doing due diligence on company. Stock market is more a reflection of Fed Policy than real economy.
This is why ordinary people should buy ETF’s especially conservative ones with low fees. If you hold cash or bonds inflation gets you. As for Individual Stocks, retail pickers are the last to know what’s really going on and will be fleeced by Insiders and BS artists. Sad to say, ETF’s are the new “savings” or what goes for savings in this world. As for gold, yeah trying buying or selling physical gold or silver. The so-called market spot price will look like a galaxy, far, far away between the dealer’s purchase discount or sales premium.
You’re just describing how the vast majority are ultimately destined to lose most of their purchasing when this mania ends.
Buying ETFs has worked only because of the mania, as the US stock market as a whole has never been more overpriced and foreign markets aren’t historically cheap either.
Since every security has to be owned by someone all the time until it ceases to exist, “investors” will later find themselves indexed to the greatest bear market in history and someone will ride it all the way down to the end to unprecedented losses.
Gold isn’t going to provide a long-term safe haven either because it is historically overpriced versus all other major commodities and probably most of the necessities most people need to buy. It’s better than owning fiat currency during high inflation but those who expect it to gain relative value will almost certainly be disappointed. It’s already gained noticeable relative value for several decades.
I believe this observation is over 2,000 years old, and appears in the Bible.
“A fool and his money are soon parted”
There are warning labels on cigarette packs and in every equipment manual. I didn’t think people in the investing community needed such blatant warning labels and stickers, but then here is the proof.
Was this in the Bible?
“Always a borrower, never a lender be.”
That’s the Fed’s “Bible”
“Neither a borrower nor a lender be.” from William Shakespeare’s “Hamlet”.
you miss my point
Well, you would be correct if these people were actually investors making investments, but they aren’t.
Most supposed “investors” are speculators and most “investing” is actually speculation.
As the terms have been used for quite some time, there is no practical difference between “investing” and speculation.
It’s predominantly more marketing to rationalize overpaying for overpriced assets.
This also doesn’t just apply to this type of stock either but any financial outlay where the profit results from price changes or produces nothing.
One thing for sure they’ll sell less diapers every year unless they’re adult diapers. The birthrate is in a freefall.
The adult diaper need will balance out the birth deficit over the next several years of economic destructions and dislocations (eg. ‘Oh, s*** what’s happening to my portfolio?’)
Wolf,
Are there any stocks that you would recommend to buy right now? can we see a post from you on recommendation? if everything is bubble right now, at what point will you get in stocks, any parameters that you like?
Right now??? I’m not buying any stocks right now, except for very short-term trades maybe, if I feel like it. Buy and hold at these prices and with interest rates surging and bound to surge much further? Not me.
People obviously disagree with this, and that’s what makes a market.
thanks
I am wondering if the FED will need to increase its balance sheet again here shortly?
Who is going to buy the 1.5 Trillion Government debt to fund the omnicrom bill?
I did read the ECB will taper which means buying less 20 billion less bonds each month. They may even end bond buying in the 3Q2022 if inflation is still high. They are putting off raising interest rates because of the war.
—————————–
March 10
The European Central Bank on Thursday called Russia’s invasion of Ukraine “a watershed for Europe” and moved to speed the tapering of its asset-buying program in response to rising inflationary pressures.
In a statement following its policy meeting, the Governing Council said it would purchase EUR40 billion in assets in April, EUR30 billion in May and EUR20 billion in June. The ECB had previously planned to make purchases of EUR40 billion a month through the second quarter, scaling back to EUR30 billion in the third quarter and EUR20 billion in the fourth quarter. The ECB said it could end purchases in the third quarter if the outlook for inflation doesn’t show signs of easing.
Any interest rate increases would come “some time” after bond purchases ended, the ECB said, in contrast to its previous language that said hikes would come “shortly after” the completion of purchases.
Was Rivian one of the biggest scam IPOs or what?
Business as usual on Fraud Street and Silly Con Valley.
Oh, well. The QQQ just went up $41 in 8 days, as interest rates shot higher (!!!) Who needs online gambling, the biggest casino in the world is right here.
I am staying with my prediction that the S&P goes below 4000 and stays there a while. Maybe 3800 or even lower. It looked like a lock a few weeks ago, now the bulls are downright giddy again. A June $400 put option on the SPY is $5.20, the same price as a $475 call. 52 down is the same odds as 23 up. We’ll see what happens.
A Tesla Jan 2023 call option is still $35.00, selling just one contract will get you $3500. It is free money if anyone is interested in such a trade.
There is no way that Tesla will have a market cap of two Trillion dollars.
IT IS IMPOSSIBLE. (Just my opinion, options are not for everyone, especially short options.)
The Honest Company ipo was underwritten by, among others, Morgan Stanley and J.P. Morgan. The usual suspects. JPMorgan Chase has been charged with unprecedented five criminal felony counts since 2014, so it should come as no surprise that they’d underwrite dodgy ipos.
These guys are not your friends.
Jessica Alba made $100 mil on the ipo. She’s not your friend either.
> Jessica Alba made $100 mil on the ipo. She’s not your friend either.
Darn! I thought her fetching look was for me, as she brandished a bottle of overpriced slop my way. I can’t stop people from throwing money at silly things. Markets sort it pretty efficiently. But what markets do, (allegedly) well-intentioned bureaucrats labor to undo. Everybody’s “equal,” don’tcha know?
CNBC: Instacart said it’s slashing its valuation by almost 40% to about $24 billion, to reflect this year’s selloff in technology stocks.
The grocery delivery company was valued at $39 billion in March 2021, when it raised $265 million. That made Instacart one of the most valuable venture-backed companies in the U.S. However, with the Nasdaq down 12% from its November high and numerous newly public tech companies down significantly more than that, Instacart is telling its employees and potential recruits that upcoming stock awards will be issued at a much lower price, making equity packages more attractive and in alignment with market conditions.
After DoorDash’s blockbuster stock market debut in late 2020 and a rally in emerging tech stocks through most of last year, Instacart was viewed as a prime IPO candidate for 2022. Then came the twin concerns of accelerating inflation and projections for higher interest rates, which sent risky assets into a tailspin starting in November. The selloff gained steam after Russia’s attack on Ukraine last month added global instability and a further rise in energy prices into the mix. DoorDash has lost more than half its value since mid-November.
This is nothing new. Wall Street has been feeding off of retail “investors” since the beginning of time, aided and abetted by their shills (“third party” rating agencies, unscrupulous brokers and “reputable” publications like Barons, WSJ etc.) all promoting and selling junk to gullible, corrupt pension fund managers and ignorant individuals.
Until the class action lawyers start to eat the wall street con artists, the fraud will continue. Retail “investors” will keep getting fleeced, as they deserve, for their lack of due diligence and research. Greed and fomo are the only investment tools most “investors” possess. The next shoe to drop will be crypto.
It’s all the equivalent of the real estate industry selling swamp land to investors back in the beginning of the last century.