WASHINGTON, November 12, 2013 – While the market has generally been experiencing a bout of irrational exuberance over the past week or so, the Maven has been battling bravely against the Ultimate Head Cold, an adversary that’s rendered even the current bullish trend considerably less enjoyable than it might have been otherwise.
However, as symptoms are fading, so too is the market mood, with the Dow down over 60 points just after the noon hour. The broader-based S&P 500 is off about 7.50 and the tech-heavy NASDAQ is looking anemic as well, off slightly over 5 at 12:30 p.m. EST.
All this might have been expected after the frothy but lightly traded Veterans Day semi-holiday yesterday. Today’s news has another loose-lipped regional Fed bank president—this time Atlanta’s Dennis Lockhart—cheering on an early end to QE3, as by the end of December.
Plus, the always-clueless financial press has been badmouthing the apparently recent re-entry of “mom and pop” investors to the market action after largely boycotting same since the launch of the Great Recession/Great Depression II, circa December 2007. We see no evidence for these reports, which seem to be merely hearsay, but self-serving urban legends like this one quickly take on lives and become “accepted science,” something like global warming climate change.
We don’t seem to be able to do anything about the Fed’s current Babel of babbling motormouths, none of whom actually make policy by fiat but all of whom adore the sound of their own supposedly authoritative voices. Perhaps the whole idea for this incessant policy blathering is intentional, designed to keep the market on edge and away from getting too excited.
But all the money printing over the past few years has largely been aimed at propping the markets, which it has by giving fat cat bankers daily helicopter drops of paper money to maintain their swell lifestyles at the taxpayers’ expense. So why would anyone want this more or less raging bull to stop? Like pretty much everything else in government, the answer to this question is a mystery whose answer probably lies somewhere in the realm of Deep Throat’s legendary advice: follow the money.
We’ve won a few and lost a few in the IPO wars, lucking out by actually managing to obtain 100 shares of Twitter (TWTR) in the offer. Many who got in on the deal flipped the IPO near its official opening trade last week, pocketing a cool 80% profit or thereabouts. Under our brokerage’s rules, we are honor-bound to stick around for a month before unloading, so we get to see how far Twitter’s price will erode before then. Which it will.
From its 50-ish opening salvo last week, the stock settled down to around $45 per share before dribbling as low as 39-something on Veterans Day. It’s wobbly today, off around fifty cents, but it’s still back to 42-something so we shall see.
That said, the IPO floodgates have really been opening over the past month, another sign, say perma-bears, that the market is getting way overvalued, which it actually sort of is.
But, as Yogi Berra observed, it ain’t over ‘til it’s over. So the IPO deluge continues this. The top attraction this week seems to be something called Zulily (proposed symbol: ZU). It’s an innovative online shopping site, à la Amazon.com, but it’s specifically geared toward stay-at-home, soccer mom types.
From all reports, including the prospectus for the offering, ZU could be this week’s barnburner, but you never know. They do, after all, have to compete against the 800-lb. gorilla in the room—Amazon, of course. But then again, Samsung had to compete against Apple. In what’s left of our capitalist economy, you never know when some tiny little warm-blooded animal is going to emerge to wreak havoc on your dinosaur paradise.
Also on tap: IPOs for Extended Stay America (proposed symbol: STAY), and Houghton Mifflin Harcourt (proposed symbol: HMHC). Both, oddly enough, have fairly recently completed a tour through bankruptcy restructuring and are being offered to the public by the vulture capitalists and investment banks that performed the required surgery.
Of the two, STAY is a going concern and probably the better bet. Houghton, an old legacy publisher, has plenty of cash cows in its huge backlist, like that perennial kids’ favorite “Curious George,” as well as Cliffs Notes and other stuff you’d never be without at various points in life.
Unfortunately, HMHC’s current officers and directors and other muckety-mucks appear to be grossly overcompensated, and it doesn’t look like the emerging company is going to get a dime of the offering’s proceeds. Both these facts combine to make this offering a lot less appealing than the other two.
But everything depends on pricing. We expect ZU to get priced up, perhaps considerably, which, oddly enough, is generally a good sign for IPOs circa 2013. STAY might get a modest kick as well, but look for HMHC to cut the offering price somewhat which has generally not been a good sign for the opening trade, at least lately.
Even the discount of such offerings tends not to be enough, and the stock will tend to float downward after the opening trade, maybe recovering over time and maybe not. We got burned by one last week, an outfit called, with unintentional irony, Endurance International (EIGI), a website hosting/cloud computing firm that has yet to make any money. But endurance is what we’ll need, since we have to hold this puppy at a current 8 percent loss for another three weeks or so.
But that’s the IPO game. You win some, you lose some. If you choose well, over time, your wins will outpace your losses by a comfy margin. But nothing is guaranteed, so if you have any interest in these, travel at your own risk.
As to timing and the odds: ZU, frankly, might be hard to get, but has potential. It gets priced Thursday evening, November 14. STAY could be slightly tight, too, but also has potential and it’s the first out the gate, getting priced tonight to open trading tomorrow, November 13. We suspect there’ll be plenty of HMHC. Although we’re in for some, we will likely back out unless it’s priced way down. D-Day for this one is November 13 for pricing and November 14 for trading.
Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate. He currently holds a small position in FPX and has just acquired a small amount of TWTR on the offer).
Positions mentioned above describe this author’s own investment decisions and should not be construed as either buy or sell recommendations. The current market is highly treacherous and all investors travel at their own risk, so caution should be exercised at all times.
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