WASHINGTON, March 27, 2014 – As Jimmy Carter once noted, life is unfair. That’s almost certainly what the new shareholders of Europe-based Candy Crush game-maker King Digital Entertainment PLC must have been muttering after yesterday’s poorly received IPO.
King Digital’s new stock (symbol: KING), overpriced at a lofty $22.50 per share by its greedy J.P. Morgan Chase-led syndicate, took a beating when the stock opened for trading yesterday, closing at $19 per share, a loss for IPO holders of nearly 16 percent. KING was sacked again today, closing off roughly another point-and-a-half at slightly under $18.50 per share.
The cruelest cut of all is the fact that almost alone among the recent rush of social networking, cloud, and game stocks, King Digital actually makes money and is currently quite impressively profitable, operating on a conservative economic model in a Wild West frontier-style industry whose eventual dot.bomb-style reckoning is yet to come.
The style of these IPO offerings of late is for the offering syndicates to price the issue up smartly when setting the final offering price, assuming—until now, generally correctly—that the relatively limited number of new shares will trade hands vigorously at the open.
IPO holders typically flip their shares into the eager hands of mutual funds and mom and pop investors alike who couldn’t get in on the offer, with the hapless stock chasers often left holding the bag in the aftermath. (Ask those disgruntled Facebook stock fans who bought the stock on that IPO’s opening pop.)
In this case, the Morgan-led syndicate played that overpricing hand one too many times, a situation not helped by the market’s current Ukraine wall-of-worry. Thus the undeserved fate of King’s IPO.
That said, syndicates technically work for their IPO customers, and King certainly can’t be disappointed in the price IPO investors paid for the stock, as it puts more money in King’s till for improving and growing this already successful, multiplatform game business.
The KING swan dive, though, is also typical for current markets, negatively influenced in equal measures by Vladimir Putin’s threatening swagger and Barack Obama’s tragi-comic ineptitude.
A more important reason for the market’s current Carter-like malaise, however, may very well be end-of-first-quarter portfolio juggling and illegal but never prosecuted portfolio window-dressing as funds sell off their losers and load up on current winners to make their quarterly reports look more promising than they really are.
The selling over the last two weeks or so has been relatively quiet but also surprisingly relentless, as if the “sell in May” crowd is sufficiently nervous to the point where they’re heading for the exits early. The Ukraine situation is more complicated and potentially negative than it looks (as reflected in today’s escalating oil prices); the Fed, for all intents and purposes, is gradually withdrawing its QE feedbag; and, Administration lies notwithstanding, Obamacare is slowly proving to be the rolling, massive disaster anyone with a brain predicted it would be with unpredictable consequences for businesses and individuals as a fateful 2014 election cycle slouches toward November to be born.
In short, there’s a lot to worry about. So those with profits or with positions in industries that are starting to look shaky or frothy are pulling out relentlessly, letting the air out of the bull market’s tires and leaving each day’s close as flat as a worn-out Michelin.
We’ve been peeling out of a few positions ourselves, some at modest losses. Little is working for us right now, although we continue to nibble at currently-declining gold bullion via the SGOL ETF as a modest hedge against Russia’s newly rediscovered adventurism and thuggery.
You have to be defensive here. Even low-information voters are finally waking up to the fact that they’ve elected—twice—an empty and ignorant cypher to the Nation’s highest office; one who holds his lavish, taxpayer supported vacations and frequent golf outings in higher esteem than the welfare of the country he’s refused to preserve, protect and defend.
The country is in a nervous, ugly mood as March draws to a close. And the malaise has finally begun to overcome the remaining animal spirits on Wall Street.
The market is fast approaching short-term oversold, so we may get a snappy, bullish bounce at any time. But as Obamacare’s stratospheric premiums begin to sap consumer buying power at the same time the international climate deteriorates, 2014’s worst may be yet to come.
Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate. He currently holds positions in SGOL.
Any 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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