The easy-money gravy train is starting to run off the rails — just as I expected.
Market Roundup
Remember what I wrote back on Sept. 4? How we’ve seen a tremendous private-equity and private-valuation bubble, particularly in technology?
Well, the public markets are now increasingly saying “no mas” to the offerings thrown at them — and not just in tech. First Data Corp. is one prime example. The bank and merchant payment-processing company tried to power through with a massive Initial Public Offering (IPO), despite worsening credit and equity market conditions.
But investors balked, forcing FDC to sell only 160 million shares at a price of $16. That missed its $18-to-$20 target range by a wide margin. Result: The company only raised $2.56 billion, rather than the $3.2 billion it had hoped to scoop up.
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| A profit warning by Wal-Mart shook up the retail sector. |
Things were even worse for the grocery store chain Albertsons Cos. It wanted to sell 65 million shares for $23 to $26 late Wednesday. But then Wal-Mart Stores (WMT) dropped its earnings bomb on Wall Street. That provoked fears of stiff competition, deteriorating margins, and weak sales among grocery store and general merchandise firms.
So Albertsons had to yank the deal entirely. Whether it will be able to raise the $1.7 billion it was seeking at a later date … be forced to sell fewer shares or accept a lower price … or shelve the transaction entirely remains to be seen.
But clearly, this is a troubling sign for markets overall. Many of the companies that are trying to go public were previously taken over by private-equity buyers. Those deals loaded them up with debt. The plan was always to raise tons of cash from willing investors, which could then be used to reduce leverage and pay off the dealmakers.
If the IPO market shuts down, the pipeline of easy cash dries up. The PE bonds begin to sour. Corporate default rates go up, money gets even tighter, and confidence in the outlook for stock market overall sours.
| “If things get even worse in the last three months of the year, look out!” |
So watch the IPO market closely. Deal volume and dollars raised via IPOs already slipped to a three-year low in the third quarter. If things get even worse in the last three months of the year, look out!
What about you? Do you think this is yet another sign the gravy train is running off the rails? Does that make you even more nervous about holding shares? Would you buy shares in companies like Albertsons or First Data, or have you bought shares in other IPOs earlier this year? How did you fare if so?
Let me hear about it over at the Money and Markets website.
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The nature of deflation. The market outlook. The misery of being stuck on an airplane for long flights. You were discussing a little bit of everything at the website in the last day.
Reader Robert P. offered this take on the activity in the markets: “All this rhetoric reminds me of the referee in a professional wrestling match … while he’s distracted, one of the opponents takes something out of his trunks, cold-cocks the other one and then hides it away again … and the poor referee doesn’t have a clue!
“In wrestling, it’s all for a show and the response of the crowd. In real life, however, it’s us who just got clobbered, and it’s our money (or what used to be our money!) that’s down for the count!”
Reader Books weighed in on the pricing debate, saying: “What constitutes deflation or inflation? Groceries have never been costlier. Car repairs, cost of college, buying a used car, are all very expensive. With poor returns for years on safe investments and the cost of daily needs going higher, it seems like inflation to the average person.”
Reader Billy added his view on that topic, too, saying: “Of course everything you mention is a serious problem. It all points to one major problem that you did not mention explicitly, but only implicitly and that is deflation. I have mentioned this to you for what seems many months and, unfortunately and in a paradoxical manner, this deflation is the result of years on monetary inflation created by the central banks.
“Most sharp people understand this. What ultra-sharp and awake and aware people are wondering is: Was this by design, to bring in a crisis in order to propose some solutions? That is what the sharp folks are contemplating.”
Reader Chuck B. also answered someone’s question about credit market conditions with these comments: “Tightening credit means that interest rates for business loans are rising, and loans are harder to get, requiring more security.
“If money is harder to borrow, and often takes longer, businesses are hampered in expanding their operations or maybe even keeping the business they have. They may need to reduce their operations or hire fewer employees.”
Finally, Reader H.C.B. shared these comments about a day gone by in airline travel:
“I once flew to South Australia from Oregon, a 16-hour flight or so. It was in a jumbo jet (707) but they crammed all the passengers into the lower level so as to use a smaller stewardess staff and save costs. You could have slept just fine by sneaking up the stairs to empty seats and quiet above.
“It was permitted to tour the pilot/cockpit area during flight over the South Pacific at dawn. Awesome view! Unfortunately, now airlines are more like grossly overpriced Greyhound buses. Food about the same as a Greasy Spoon on the road at the bus stop, too.”
Thanks for mentioning the “good old days” of flying. I’ll be traveling to Europe at the end of the month to present to subscribers of our German-language version of Safe Money Report. The perks may be better on international flights versus domestic ones, but they’re nothing like in the past.
As for the stock and credit markets, all I can say is watch the latter. I have spent my entire professional career focused on bond market conditions because they drive all the other capital markets. When junky bonds lose value, and interest rates on riskier loans rise, it’s a huge headwind for stocks.
Any ground I didn’t cover yet? Any pushback or support for my comments you want to share? Here’s the link where you can do it.
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Netflix Inc. (NFLX) missed sales and earnings estimates, as well as domestic subscriber growth targets, putting downward pressure on the red-hot stock. Questions about rising costs and the need to raise more capital to fund its aggressive expansion plans also weighed on the share price.
While Wal-Mart grabbed attention for driving yesterday’s market malaise, Boeing (BA) was another laggard amid worries about future sales. Delta Air Lines (DAL) said there was a “huge bubble” in the marketplace for used, wide-body airplanes coming off lease. That would allow Delta to expand its fleet on the cheap. But it would hurt sales and profit for Boeing and Airbus by driving down demand and pricing for new planes coming off the assembly line.
If you watch NFL games — or any professional sport, really — you see advertisements for daily fantasy football websites in heavy rotation. But now the practices of sites like DraftKings and FanDuel are coming under scrutiny from the Federal Bureau of Investigation.
Employees from both companies have been playing at each other’s sites and reportedly winning hundreds of thousands of dollars. Investigators want to know if they’re doing so with the benefit of insider information or other advantages the general public lacks.
The plan to withdraw almost all of America’s troops in Afghanistan is on ice. President Obama hoped to wind troop levels down from around 9,800 now to just 1,000 by the end of his term. But security issues and worries about Afghanistan’s ability to handle them on its own will force more troops to remain for a longer period of time.
Can the market handle even more downward pressure on earnings from the likes of Netflix or Boeing? Do you use daily fantasy sports websites, and if so, what do you think of the government’s investigation? Any other thoughts on these stories? Let me hear about them online.
Until next time,
Mike Larson
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
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Mike !!
I’m flabbergasted to read your todays comments. Here we have a lackluster bank earnings with all arrows pointing downward and missing their earnings forecast of wall street, IPO’s flop all over, and guess what happen …. dow/s+p/Nasdaq goes flying. No comments on that what-so-ever ??
That should really nail the notion that the stock markets are ‘manipulated’ and market forces of common sense has taken another hit. Bernie Sanders must be smiling as wall street confirm his sentiments. Who would ever feel comfortable investing is that swamp.
I agree with H.T.J.
We so called “smart investors” have been busy selling or at least hedging against the “inevitable” correction given all the dour predictions and bad news yet the stock market continues to soar upward in the strongest rally of the year.
Could it be the volume of fright capital from abroad seeking a safe harbor in U.S. dollar stocks is creating the massive new market highs that we’re led to believe will spur the DOW to 31000?
Is anyone else concerned that financial and economic indicators are consistently being adjusted downward in the weeks and days following their release (I’m referring to those indicating a poorer economy as they diminish ) ? I’m not sure why the brokerage houses and they’re entourage even use them. Who is the most efficient at manipulation of the market. ..China or U.S.?
If COLA does not allow for any additional increase to SS income, then how do they justify allowing Medicare insurance companies to increase premiums, increase deductibles, and lower payouts for medical procedures ? Are these people less “in touch” than congress ?
Not only that, but most of us on SS will be hit with a higher Medicare deduction.
You might just remember this on voting day, next year, by the way.
Chuck,
You do know that it is the Republicans in Congress that want to increase the fees for Medicare and increase the Deductibles, don’t you? Thy also want to gut Social Security… Gee remember when the tax rates for the Ultra Wealthy were really high and we paid our bills and had a small deficit? It was just before Reagan was elected and the Republican Revolution began… :(
Reagan’s “revolution” caused total Federal revenues to soar upward. The Democrat Congress managed to spend it all and then some. Jim
And since when do the Republicans get anything they want? Jim
The top ten per cent of taxpayers pay eighty five per cent of the taxes. The bottom fifty per cent pay nothing. So what exactly is unfair? Jim
But of course anyone who receives SS will have their 2016 Medicare Part B premiums frozen.
I see that UBS has decided to fold their High Yield Plus bond fund. It began in 1998, and survived the dot-com bust, and the Lehman crash, but the current credit bust has done it in, and the board has voted to liquidate. I doubt if it will be the only casualty.
With all the prophets warning about disaster ahead, the current earnings season is bringing anticipated bad news.
HOWEVER, bad news is now good news, since it DECREASES the likelihood of a rate rise by the Fed……so the market is taking off to the upside! Go figure….
Wonder when this predicted catastrophic drop in the markets will happen…?? We are currently losing money, since we have been scared away by the nay-sayers!
Weiss and company is saying Dec. 16?! We’ll see….. Wonder how many times they’ll push that date further out when it doesn’t happen as prescribed……….?
Robert P,
They are ALL right wing Republican Prophets… See the problem?
eagle: Democrats and Republicans alike have proven time and again that they all have the ability to screw it up…..the economy, foreign trade, internal business, whatever you want to talk about!
I think they go into office with the best of intentions, but it’s not long before they get caught up into “the system”…..and then they’re just part of the status quo.
Everybody from Weiss, to Jim Rickards, to Jim Cramer, to even Icahn, who went so far as to make a video……..to the “hanging man formation” a few days ago in the transport avg….. ALL predicting gloom for the markets……and so we’re UP over 200 pts. today on the DJIA! …and that’s on the heels of the dow going up over 1,000 pts in only a week! Crazy!!
Only the stock who reported disappointing earnings on a given day gets taken to the woodshed…..all the others go up like wildfire!
You know it’s gone too far, too fast, and will soon drop like a rock….but then it goes up again! It’s hard to figure which way to invest!
When fundamentals say one thing, but the market says another, it might be better NOT to invest – or should I say, gamble. Something has to give, one way or the other
we’ll we all know we can trust icahn. he wouldn’t lie to us for his own personal gain. and cramer contradicts himself weekly on buy or sell the market. he’s real dependable.
$1,000 gold, point well taken…but ALL of the “talking heads” AND the writing hands (newsletters, advice services, etc…) seem to fall into the same category…..
“Do your own homework” people say….but then my homework leads to the wrong conclusion too, in a market that’s continually being “messed with.”
Walmart, for instance….a good solid company….makes sense that lower gas prices would lead to more spending in the store, especially at back-to-school time. Wrong!
Got their head handed to them when they reported earnings recently!!
Hi Mike,
Larry and you paint a different picture compared to what the stock markets around the world are saying…..You sure u-guys aren’t looking at the charts upside down?
I just flew back from Europe on an Airbus double decker never again it took 1 1/2 hours just to load the plane with passengers and hand carry.
How on earth does the stock market keep rising with all the negative news flowing these days? Big companies missing earnings, Inflation on everything that is being ignored and lied about. Stocks so overpriced you have to go to Mars to buy them. This is ridiculous. It is about time the markets crashed to levels so low it will make sense again. Try DOW 3,000 or lower. I have been shorting the markets and getting killed. Everyone is negative but the market continues to soar. Go figure !!! Does true value truly matter anymore?
it was blue skies, no bears, and we thought we could never have another down day in the market in 2008.
Markets usually crash when everyone is optimistic, which certainly doesn’t describe the present situation. With all the pessimism out there now a short squeeze could send it much higher. The wall of worry? Jim
when people are fearful, be greedy. when people are greedy, be fearful. truer words were never spoken.
Evidently, both of us Roberts are getting the same treatment!
I was very successfully trading the whipsaws…..until, without warning and without making any sense, it stopped seesawing and started going straight up!!
So now what….??
If the economy is as bad as many people say it is, then how is it that all of the sporting events are all sold out. I was watching monday night football, and the steelers had just about as many fans as the chargers.They are a small market franchise and the have a huge following on their road games. Is the Pennsylvania economy doing that good.
I don’t think we realize the advantages of being the best house in a bad neighborhood. Jim
…but not always an advantage to buy the best horse in the glue factory.
You’ve never flewn unless you flew Aeroflot in its heyday. Midair refueling buffet and bar in the back, planes making connecting flights landing on streets and making the plane change in restaurant parking lots, and the thrill of livestock running up and down the aisles. And they had a safety record most countries could dream about. Then there was the joy of stand by flying in the country. And Greyhound service has improved as of late.
How are all of Mike’s inverse ETF’s working out for you perms-bears?
they never seem to work out for anybody. the fees are 1%, compared with 0.05% in some etfs. plus, they just don’t work right. 3x may act like 2x or even a 1x. but it’s a solid 3x on the way down. even worse, i’ve noticed leveraged etfs can actually go down when they should go up and visa versa. i think they’re flawed instruments with high fees. i used them enough that i think i end up a break even, the whole time my non-leverage did well with no effort.
look at DUST and JDST. both are going down at the same time gold is going down, the opposite of what a non-leverage would do.
I have never bought an inverse ETF and never will. I have never shorted anything and I’m still here. I just have trouble rooting for something bad to happen. If you are scared just go to the sidelines. Cash is good. Jim
you’re a smart man, jim. any money i lost in a leveraged etf is money gone forever that i’d still have invested in a non-leveraged etf.
Goldy. I’ll go you one better. With Larry as my guide I started loading up the week before his Oct. 7 crash. I’m buying KMI, BHP, and RIC. So far, so good! Jim
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I believe that IPOs are too risky in this market to consider as an investment.
The story about the 707 “jumbo jet” was funny! The 707 was a one-level airplane which flew mostly in the 60’s and 70’s. The writer was obviously referring to a 747, which has an upper level, now mostly used by flight crews as their “rest” area!
Obama want to keep pouring money into the Middle East, well Trump’s idea of taking renumeration as the price of our aid doesn’t bother me at all. China had some plan to mine in Afghanistan, did it not? Afghanistan and Iraq do not belong to the US.
Trump’s business instincts finally made sense. Didn’t Great Britain once do things of that sort? They would ally themselves with one local chieftain somewhere in trade fro commercial monopolies. It built them an empire.
Some have questioned if the situation we find ourselves in is “by design”. I must argue that it has to be becuase the people in charge can not possibly be THAT DUMB!!
tommr,
There is an article called “Dumb Rich People” by Alan Grayson… I would suggest you read it…. Currently they and their minions are in charge of our government and, yes, the American voters elected them… :( The last time they were in charge of our government was during the 1920’s… Their disastrous reign came to an end in 1932 after the Crash of 1929 and the Great Depression…
Just read it. Very good. But how do you explain Obama’s support for TPP, which will effectively negate our Constitution, in many areas, and put us under the control of an international tribunal that most likely won’t even include an American.
I’m at a loss on that one….. Reminds me of Clinton’s not vetoing the final signing of NAFTA which came out of the Bush Administration and the GOP majority….. The very same thing over the removal of Glass-Steagall in 1999, another Republican majority movement…..
We could currently be in a classic bull trap. To get out of it, three things need to happen The S&P 500 needs to close above the 200 day moving average, the moving average needs to turn upward, and the previous high of 2131 needs to be broken. Until these things occur, ignore the bull snorts. The bear is still riding his back.
The Institute for the Study of War, says that Russia is learning a hard lesson in Syria. Their bombing attacks have helped Assad’s forces recapture a few towns, but nothing major. In one case near Aleppo, they forced the rebels out of an area, but the rebels reoccupied the area quickly when the Syrians didn’t. Like us, they will need their own boots on the ground to accomplish anything important, and that will only be temporary unless they are prepared to stay there. That will mean the same saddened mothers, wives and children and mutilated veterans we have suffered, of course. Will it be worth it?
Putin could care less….. :(
Here we go. The Federal Reserve Will Raise the rate in 12 days. From the word of her mouth MRS Yellen . Will increase the rate 25 basis points. Suddenly it is upon you it will be this month !!!! “Triple Eve of what people call Halloween.” October 28th 2015.
I was just told it is only a 11 % chance that the fed will increase rates this month (October 2015). I say THEY WILL !!! I have been telling everyone since January 2015 it will be October 2015 when the fed moves it funds rate higher. Get Ready Get Ready. After this comes to pass I will tell you two other Major events that will take place before the end of the year of 2015.
Hi Mike, I enjoy your market thought and guidance. You are talking a lot about the bond bubble lately. How about big companies bonds. I want to invest some money and have a good night sleep…What do you think about AAPL or TEVA bonds with 3% coupon?
You got this one right Mike.