Bubble Market Stunner: Revenueless Biotech Goes Public, Drops, Trades For Six Days, Then Voids Entire IPOSubmitted by Tyler Durden on 08/12/2014 11:49 -0400
In what is certainly a historic, and quite stunning, market first, not to mention prima facie evidence that Janet Yellen was right about the biotech (and not only) bubble, last week the equity markets experienced something that has not happened in decades: a biotech firm went public, traded for six days, only to announce Friday that it would void its IPO and won't issue shares after all, thanks to a key investor's failure to follow through on a commitment to buy stock. In other words, days after going public, yet another darling of the momo bubble mania du jour, decided to undo everything, and went back to being private (and soon: bankrupt).
"Don't fight the Fed," unless she tells you to sell your favorite idiot-maker momo stock. For a few days, investors were anxious after Yellen's July 15th warning, then a barrage of disgruntled asset-gatherers explained how 'she knows nothing about stock valuations' (but we must trust her every word on the economy). Now - 3 weeks later, Dow and Trannies are down 4%, S&P and Russell down 3%, and Nasdaq down 2% from her warnings... still wanna fight the Fed?
What a difference a weekend makes... After offering $2 billion for Trulia last week (and seeing its share soar), Zillow has decided that $3.5 billion worth of its bubblicious paper money-stock is the right price for its real estate marketing and income-less competitor Zillow. Of course, on the back of near-record short interest the stock has exploded higher once again this morning and is now up over 60% from before last week's offer. We suspect the word 'synergy' will be used heavily (and not the word 'layoff') but in the interests of helping our fellow man, we present the combined firm's income statement...
"The head of the International Monetary Fund warned on Friday that financial markets were "perhaps too upbeat" because high unemployment and high debt in Europe could drag down investment and hurt future growth prospects." To summarize: first the BIS, then the Fed and now the IMF are not only warning there is either a broad market bubble or a localized one, impacting primarily the momentum stocks (which is ironic in a new normal in which momentum ignition has replaced fundamentals as the main price discovery mechanism), they are doing so ever more frequently.
Since Janet Yellen started speaking yesterday, the USD has jumped most in 10 weeks to 1-month highs, Treasury yields have risen 5bps at the short-end but are unchanged at the long-end, Gold and silver are down 1%, oil up 1%, and copper -1.4%. In stock land, The Dow and Trannies are leading, S&P is unch, and Russell 2000 is not happy (-1.3%). VIX tested down to a 10-handle once again (but closed at 11.1). Credit markets remained far less excited than stocks today. Biotechs are down over 4.5% since Yellen started speaking and Social Media -1.2%. The Russell 2000 closes -0.8% for 2014.
What does Yellen know? Nothing apparently (if she says 'sell') US equity markets, juiced by China's GDP data (but missing China's retail sales and home price slump) and helped by Portugal 'reassurances' that have yet to materialize, are soaring this morning... VIX is back at a 10-handle as Dow hits record highs, the S&P nears record highs and even small-cap, social media, momo, tech fantasy stocks are ripping... you can't keep a good market down... It seems "fight the Fed" is the new "Don't fight the Fed"
It's Tuesday but not everyone had fun... Having been told by the Fed that small-caps were stretched, investors bid Trannies and Industrials into the green (well the Fed never said they were rich?) Russell and Nasdaq were sold (but only dropped around 1% as every trick in the book was found to "fight the Fed"). VIX slams, JPY ramps, Gold slams... but amid all the furore of the "Sell" momo stocks signal from the Fed, bond markets shrugged (admittedly with some noise) closing flat in 10Y (and modestly higher in yields in the short-end). Gold was monkey-hammered once again, smashed back below $1300 (but remains above June FOMC levels) with its worst 2-day drop in 10 months (breaking its 20, 50, and 100DMA). Biotechs closed worst among Yellen's shorts and Russell 2000 ends -0.65% for 2014.
"My 10-year-old knew it was a scam. It was a complete joke," rages Tom Laresca - a market-maker at Buckman Buckman & Reid - who sold "pure madness" stock CYNK Technology short at $6 last week. Laresca assumed (reasonably so) that the SEC would suspend trading, sending the price towards zero. Despite Zero Hedge's initial exposure of this farce to the world (and the rest of the mainstream media's attention following), the SEC was slow and CYNK soared to $16, squeezing Laresca and forcing his firm to cut off his ability to hold positions - he plans to resign today. "I wish people would just not trade the stupid things."
Everyone knows that you "don't fight the Fed" - and sure enough, traders are selling momo, social media, and biotech stocks, sending the Russell 2000 ands Nasdaq to the lows of the day. Despite the best efforts of USDJPY momentum igniters - which has now shifted to tracking Treasury yields, pushing them modestly hgher. No bounce at all in broad US equity markets (though we expect the spin to be a rotation from growth to value once again very soon). Gold jumped on the dovishness but fell back to unch as did the USD. The S&P 500 is now in the red post-payrolls. Summing it all up - saying that these sectors are 'stretched' but the market is within 'norms' just won't cut it... Yellen is losing control and this level of specificity (and honesty) implies some degree of panic at the Fed.
"... signs of risk-taking have increased in some asset classes. Equity valuations of smaller firms as well as social media and biotechnology firms appear to be stretched, with ratios of prices to forward earnings remaining high relative to historical norms. Beyond equities, risk spreads for corporate bonds have narrowed and yields have reached all-time lows. Issuance of speculative-grade corporate bonds and leveraged loans has been very robust, and underwriting standards have loosened. For example, average debt-to-earnings multiples have risen, and the share rated B or below has moved up further for leveraged loans." - Janet Yellen
The distinction between the world's only two types of traders (good vs bad) has been a very vague one. Until now. According to a new study by researchers at Caltech and Virginia Tech that looked at the brain activity and behavior of people trading in experimental markets where price bubbles formed, an early warning signal tips off smart traders when to get out even as the "dumb" ones keep ploughing in and chasing the momentum wave. In such markets, where price far outpaces actual value, it appears that wise traders receive an early warning signal from their brains—a warning that makes them feel uncomfortable and urges them to sell, sell, sell.
A middle of the day co-ordinated VWAP ramp (thanks to VIX) lifted stocks briefly - aftewr the Russell neared unchanged for 2014 - but the last 2 days - the worst in 3 months - pushed small caps into negative territory post-Yellen's June Fed "all-clear". All major equity indices in the US remain notably red post-payrolls. Trannies (miraculously) recovered to unch on the day. Momo names and growth-sensitive stocks have been slammed since the exuberant payroll highs of last week. Treasury yields continues to slide. with the 10Y now 7bps lower in yield post-payrolls (and stocks caught down to that reality) FX markets saw early USD weakness then stability but AUDJPY was in charge of stocks today. Despite early USD weakness, commodities were all rammed lower around the US open - only to recover 'efficiently' back to unch on the day. VIX closes at 12.15 - 3 week highs.
What did investors in the growth-leveraged momo-darling stocks, that have raced back to record highs and "proved" that all is well in the world again, see in the Non-farm payrolls report that scared them short? From the peak last week, momo growth names have been monkey-hammered and even M&A-driven Biotech exuberance has given up over 7%...
Before 330ET, the Nasdaq was the lone survivor in the green this week despite every effort to spark short squeezes and ramps day after day - but that all changed as the ubiquitous late-Friday buying panic occurred of course - lifting stock green for the day (and desperately searching for green on the week). There was a sudden heavy volume dump at 1315ET with no news catalyst amking many wonder if a dark pool puked its orders? A glance at the week's market moves would suggest 'volatility' is anything but low - yet we always manage to close day-to-day calmly. Wondering what provides the ammo for Nasdaq's rise? "Most shorted" stocks are up for the 7th week in a row. Despite all that idiocy, bond yields tumbled the most in 6 weeks and USDJPY fell the most in 14 weeks. Oil slipped on the week but copper, gold, and silver all gained. With the Rusell rebalance, volume was extreme today (but only at the close and that 1315ET dump).
Priceline announced last week that it will pay roughly 112x for OpenTable - the reservation app pioneer - even though its growth has stalled for two years, is assailed by numerous aggressive competitors (e.g. Yelp, GrubHub and numerous international players) and is not protected by any evident moat of technology or branding. The bottom-line is that the artificial attraction of massive capital and trading leverage (through options) into rank speculation like the PCLN/OPEN deal here does not stimulate sustainable economic growth or a true rise in capitalist prosperity. It simply generates unearned rents for the 1% who have the financial assets and access to play in the Fed’s casino. One can't help but thnk of Dubai.