WASHINGTON, September 23, 2014 – It’s another typical Blue Monday on Wall Street today, as traders attempt to recover from twin weekend hangovers caused by a trifecta of allegedly bullish news late last week.
The Fed announced, more or less, that it wasn’t going to raise interest rates anytime soon. Scotland decided to remain in the UK, for now, perhaps the result of some generous last-minute bribes from the UK Parliament—bribes that Tory pols may regret making next spring when general elections are scheduled.
Finally, the successful Alibaba (BABA) IPO, huge as it was, was conducted with an almost textbook flawlessness, avoiding the pitfalls of the Facebook (FB) IPO disaster while netting oodles of moolah for the exclusive club of mega-rich oligarchs and sovereign funds that were able to get shares early or on offer.
But the averages hid more than a few shoals, many of which have caused investors to run aground this morning, with all the major averages down to considerably down—particularly the tech-heavy NASDAQ, which is off a whopping 50.85 at approximately 11:30 a.m. EDT.
Today’s problem is two-fold. First of all, speculation that the Chinese would goose their currently moribund economy with some QE of their own was squashed over the weekend, leading Asian markets down into the cellar on their Monday which, courtesy of the international date line, is actually our Sunday when our markets are closed.
Late reaction to this non-move threw a chill on the bulls, who were speculating that China would go on a new buying spree that would lift all investor boats. Today, at least, it looks like Alibaba is the only boat still afloat, although even that hot issue is experiencing some energetic flipping action this morning. Currently at $90 per share or thereabouts, it’s off nearly $4 from Friday’s close, at least at the moment.
Plenty of other stocks in virtually all sectors are hitting the silk this morning as well. Best guess is that a lot of buying power was exhausted Friday and perhaps we’re even seeing further sales in random stocks being dumped to pay for Friday’s Alibaba trade.
In any event, Alibaba has, at least temporarily, taken a lot of purchasing power out of the market, particularly in tech. Added to the usual market pattern of limp-to-awful Monday morning trading, things look pretty sick no matter what stocks you’re currently holding.
Tuesday is often a better day for bulls. Or at least has been over the last several months. But it’s entirely possible that the buying power now hidden in Alibaba shares and in the bank accounts of the 1% will stay parked for a while, thus depriving the market of rocket fuel, at least near-term.
We’re drinking Maalox by the quart this morning, sickened over the violent departure South of our Yahoo! (YHOO) options. Getting a bit greedy, as is generally not our custom, we bought some October calls and even picked up a couple hundred shares of Yahoo! stock again to await the announcement from management as to how they intend to share part of their Alibaba windfall with the hoi polloi who happen to own shares of YHOO common.
Wouldn’t you know—after a tremendous move up, and after the Maven considered a quick sell, disaster struck these two positions. Looking away from his computer for a few minutes to see what destructive fun his new kitty, Abby, appeared to be up to, the Maven returned to the console to witness the horror, the horror, recalling Marlon Brando’s famous line in “Apocalypse Now.”
Yahoo! shares and options were getting mercilessly slammed, waterfalling over a steep precipice so fast that there was no time to sell them even for breakeven.
Both now-anemic investments continue to plummet this morning, as current investors apparently aren’t bothering to wait to see what goodies YHOO CEO Marissa Mayer might soon have on offer. Hard to know how low things will go, as the stock itself has been too treacherous, at least for us, to enter a good-til-canceled stop order for protection.
We suspect we’ll get a bounce back up shortly and would be delighted to exit for at least a break-even. But Mr. Market can often be nasty to those looking to scalp a quick gain. That’s something the Maven doesn’t usually do, but this time he did. A stiff scotch may help.
On the other hand, the Maven made plenty of $$ on the initial proxy trade of YHOO for the BABA shares he never got, so things tend to balance out in the end. A little humble pie now and then is generally not a bad thing for an investor anyway. Keeps the hubris away.
In the end, both this (at least temporarily) failed trade and the market tone in general today are not too hot, so it’s likely a good opportunity to stay mostly in cash and conservative stocks until the gale blows over.
September and October can actually be the cruelest months on the trading calendar anyway, so the trick is to be out of the market as far as it is prudent. And then, if God is good, time a gradual re-entry to take advantage of a potential year-end “Santa Claus Rally.”
This year’s year-end action, however, is likely to be heavily influenced by the November elections. So irrational exuberance on either the bull or the bear side is inadvisable.
For now, we are inclined to peel off a few more of our interest-sensitive REITs and preferred stocks, as the Fed’s actions are causing a slow but likely unstoppable swoon in these issues. Banks, however, seem to be gaining traction, anticipating higher and more profitable interest rates ahead.
For that reason, we’re cautiously re-accumulating our position in Bank of America “A” warrants (symbol BAC/WS/A at Schwab, although your brokerage’s symbol might be different). Not set to expire until 2019, these warrants are still a good proxy for the stock, although Bank of America (BAC) itself can be had for roughly $17 per share today.
With much (though perhaps not all) of the Federal government’s extortion at an end, BAC could finally begin to perform respectably in 2015, so getting in around here might not be a bad idea. When everyone else begins to figure this out, it will probably be too late.
IPOs begin again this week
We’ve also put in for some shares of Citizens Financial. Based in Rhode Island, this bank is actually the wholly owned U.S. subsidiary of the UK’s ailing Royal Bank of Scotland (RBS). Now that the Scottish independence thing is over at least for now, things will stabilize for RBS, still mostly owned by the UK government courtesy of the 2007-2009 debacle.
But as a result of this, RBS is continuing to retrench, so gradually getting rid of its U.S. subsidiary brings needed dollars (translated back into pounds sterling) to beef up the RBS balance sheet. Hence the gradual sale of Citizens Financial, which eventually will be set completely free from the mother ship.
Problem is, due at least in part to subprime loans and the issues with its parent, Citizens Financial flunked the Fed’s most recent stress test and will likely be weak for some time to come. So, depending on the pricing of this issue, we may choose not to take down any shares, currently priced in the $23-25 range.
Citizens shares (proposed symbol CFG) are slated to be priced tomorrow and begin trading Wednesday.
Our broker has just now posted two more IPOs, slated to price a day later. They are Vantage Energy (VEI), priced in the $24-27 range; and Travelport Worldwide LTD (TVPT), with a current range of $14-16. We haven’t done due diligence on these yet, but we’ll report back when we have done so.
Other issues are bound to come as well but our broker doesn’t get in on them all.
The IPO market essentially stopped functioning near the end of August, and nothing that we know of was on offer until Alibaba started trading last Friday. No one wanted to attempt to go public in that period, knowing full well that the looming BABA IPO was sucking all the air and the capital out of the room.
Now the IPO floodgates are starting to open again, and there will be a lot of these coming now until just before Christmas. The early issues like these three, however, may suffer. It’s not altogether when buying power will re-materialize after that big Alibaba trade.