Ferrari IPO debuts, stock market fails to absorb hormones

Ferrari IPO debuts, stock market fails to absorb hormones

The much-anticipated Ferrari IPO opened Wednesday with a decent pop before settling down. Stocks fail to ignite as healthcare, energy sectors continue to swoon.

Gleaming new Ferrari at 2013 Geneva auto show. (CC 2.0 via Wikipedia)

WASHINGTON, October 21, 2015 – The eagerly-anticipated IPO of the costly Italian automaker Ferrari was priced Tuesday evening at $52 per share—the high end of its estimated range. As predicted, the stock popped during this morning’s opening trade, briefly hitting $60 per share before settling back in the $56 dollar range.

The Ferrari action (TRIGGER WARNING: Stock symbol RACE) was a rare sunshiny spot in this fall’s anemic IPO market. But much of its trading traction today is likely due to the romance of brand name recognition.

High-end Italian sports cars in general, while brilliantly and sexily designed, are not nearly as renowned when it comes to the profitability of their manufacturers. In this case, that’s parent company Fiat-Chrysler (FCAU), which is spinning a chunk of the Ferrari brand off as a separate company. (FCAU will still own roughly 80% of the stock after the IPO is completed.)

Stocks themselves are once again trading in a narrow range today, held back for the most part by continuing weakness in the energy and healthcare sectors. The former continues to gyrate wildly depending on what the rumor of the day happens to be on when and how much Iranian oil will come back on line when that Islamofascist government gets a big, multi-billion dollar cash infusion from Uncle Sam.

That said, we suspect that much of this Obama administration bonus check will go to fund Iranian-backed terroristas worldwide, so it’s hard to tell how much that country’s crippled oil industry will benefit, at least short term. So all we have right now is speculation, and that keep support for energy stocks soft. On the other hand, if the Northern Hemisphere gets another Ice Age style winter this year due to global warming climate change, that equation could change.

Healthcare stocks are also getting slammed again today after last week’s brief rally/selling respite. Pharmaceuticals in particular remain under major pressure, courtesy of Hillary Clinton’s ongoing demagoguery. The Smartest Woman in the World kicked off stock price Armageddon in this sector a couple of weeks ago with her salvo against one rogue manufacturer and one rarified drug. Said manufacturer massively repriced upwards in a single day, earning HRH’s wrath.

The highly questionable drug repricing was retracted within 24 hours, BTW, making the Maven wonder yet again why so many unbelievably stupid people make more money than he does. But this is, perhaps, an existential question.

The entire nonsensical episode seems to have been a stupid PR stunt on the part of the manufacturer as best we’re able to ascertain. But immediately after the story hit the headlines, the market tanked biotechs, regular pharmas, and much of the entire healthcare sector, all of which are under pressure again today after that sector had long basked in the limelight as one of 2015’s rare stock market success stories.

Fact is, many of these stocks were breathtakingly overpriced to begin with, so it didn’t take much of a headline excuse for those wacky HFTs to unleash a selling wave that at times has resembled the violence of Noah’s flood. Unfortunately, this wave of selling has been washing decently performing, decently yielding veteran pharmas and healthcare giants alike into the gully of lost stocks.

Losses to investors (except for the HFTs that probably shorted these stocks as well as selling them outright) have been catastrophic. Again, the initial impulse was generated by Her Hillariness. But that said, most investors who’ve lost their shirts in this investing Superstorm Hillary will probably vote for her if she’s nominated in 2016. No learning here, ever.

Along the lines of funny economics, we get a fairly admiring report in this morning’s Wall Street Journal regarding yet another round of stock buybacks, this time by conglomerate United Technologies (UTX). The headline of the Journal’s page B-9 story is unintentionally hilarious:

United Technologies Raises Buyback as Earnings Fall

We have been complaining for what seems like years about this continuing wave of corporate buybacks. That’s actually the underlying reason as to why the Federal Reserve’s years-long QE strategy of money printing has never resulted in the central bank’s target inflation rate—the 2% rate that’s supposed to help put the 10+% of unemployed or underemployed Americans back to work, raise their wages and pump the economy back up to health.

What’s happened instead is that major corporations have been gorging on this nearly interest free money by buying back their own stocks on the cheap. This has kept earnings per share on the increase via the simple magic of division.

The less shares into which you divide corporate profits, the greater the apparent earnings per share. If the accountants figure things just right, a company with declining profits can appear to be increasing profits per share if it has less and less outstanding shares into which to divide those declining profits.

That’s the intentional (or unintentional) in the WSJ’s headline. “Oops,” said UTX management. “Our earnings per share are falling. We’d better take in more shares to paper that over in order to provide increased ‘stockholder value.’”

That’s what’s been making the rich richer since about 2009, while the rest of us rubes (including the Maven) work harder and harder to hold our jobs as we watch ourselves falling farther and farther behind.

There are two major problems here.

  1. For all its QE money printing, the Fed action has ultimately failed for the average working American. There is no “velocity” to all this money. The bigwigs and corporations have borrowed most of it at nearly zero interest rates to buy back shares of stocks, inflating their value by sleight-of-hand and increasing their own wealth in the process.
  2. Meanwhile, the average small investor, small company or average American citizen finds it difficult to get hold of this cheap money since Dodd-Frank loan standards for individuals and small companies have made it nearly impossible for them to get loans as their level of indebtedness and/or net worth doesn’t hit the magic number.

In short, there has been virtually zero velocity to all this years-long money printing, by which we mean that the consumer isn’t getting any of it. In turn, this discourages savings (too many bills still on family books), investing (stocks go up too fast to catch at good prices) and consuming, which is what all Americans are supposed to do but can’t since they still can’t pay off their bills and since they don’t have nearly the discretionary income they used to have.

Worse, in addition to the lack of velocity for all this free money—which, if it were restored, would actually accomplish Fed inflation objectives—the massive and ongoing corporate stock buybacks are spending corporate money that once would have been used to keep companies and entire American industries competitive and on the cutting edge of innovation.

When this nonsense finally comes to an end, we’ll inherit a corporate America that’s as indebted as the already over-indebted Federal government—a corporate America that will no longer have any money to invest in new technologies.

Third-world economy, here we come. Nobody in America seems to be seeing this. Except maybe for Mr. Market, which may very well be trying to tell us something about what happens to a country when most of its people are abused, neglected and forgotten. We are at the point where we need to have a Second American Revolution to pull what’s left of this once-marvelous country out of the tank. But we’re not sure how many of our severely beaten citizens who inhabit flyover country actually grasp the catastrophic endgame of the rolling disaster that began to unfold in late 2007.

Today’s trading tips

As was true yesterday, high-yielding utility stocks and REITs might prove to be a short-term port-in-a-storm in 2015. But if an investor can ever catch one or two of these stocks on a currently rare down day, none of them should be considered a long-term hold, at least in this environment. That’s because at the merest suggestion that the Fed is once again itching to raise interest rates—which it eventually must do—these stocks will get seriously gobsmacked once again, as already happened earlier this year.

So travel at your own risk.

Caution is still the watchword. The major glimmer of hope at this point is one simple observation: So many pundits, gurus, investors and money bigmouths have gone bearish on this market that we may be at or close to a bottom in stocks. As the Maven has often observed, “Everybody” is always wrong.

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