WASHINGTON, January 30, 2015 – It’s a typical Friday on Wall Street, which means it’s the best of times for some and the worst of times for others.
On the best-of-times side of the ledger, Shake Shack’s IPO was a stunning success. Initially anticipated to price between $14-16 per share, estimates bumped up midweek to the $17-19 range before shares actually priced at $21 Thursday evening, with the share offering count also upped from 5 million to 5.75 million shares.
SHAK shares blasted off when they opened, some time after 10:30 a.m. EST. Quickly spiking from $21 to 52.50 per share moments after opening, the stock backed off a bit as flippers happily pocketed profits as high as 150% for about 3 minutes of actual work.
The stock has settled down just a bit, currently trading at $48 and change at the noon hour, still a gain of roughly 130% if you chose to dump your SHAK shares now. Except that neither you nor the Maven have any to sell.
Given that most small investors couldn’t touch this issue at all, you just knew it was going to be a barn burner for Wall Street’s 1% clientele. Mega-rich investors and institutional traders can generally get all they want of hot issues like this one because brokerages typically give them first dibs. It’s a way of giving their biggest clients free presents of more money they don’t need but love to have anyway.
So today’s wealthy SHAK flippers are singing a happy song, secure in the knowledge that they’ve just put even more distance between themselves and the saps in the 99% which just goes to show you we need a real regime change in Washington. And in New York’s financial district for that matter.
That’s because, while it’s the best of times for the mega rich, anyone stuck in the normal market today is finding that they are once again in the worst of times. The non-Shake Shack stock market opened down this morning, as you might expect since yesterday was a big up day.
Averages proceeded to encounter a waterfall decline, with the Dow itself tanking at least 150 points before snapping back a bit at 12:15 p.m., with the average down roughly 90 points. The S&P currently sits at minus 7.21 while a slightly optimistic NASDAQ nudged upward +4.5 despite Google’s (GOOG’s) pathetic earnings numbers.
It’s still too dangerous to commit funds out there unless you’re an inveterate day-trader who’s invested in a sophisticated real-time computer service that feeds you much more real time info than the average investor can afford.
That’s because, now more than ever, this irrational market seems firmly in control of the machines which are now taking the remaining little guys—and many mutual fund—to the cleaners roughly in 48-hour intervals.
After driving markets up big-time as they did yesterday, the HFTs and algos manage to sucker small traders and some funds and hedgies into buying at higher prices. Then the next day, the machines hit the sell button on any pretext, and down she goes. The HFTs either by drawing in new longs with phony quotes, after which they sell their own positions to the marks; or they short at price peaks on the good days and then buy back the stocks for a profit when they’re driven back down over the next day or so.
Actually, the cycle is now running approximately every 72 hours—roughly two hard down days to every one up day. What’s really happening is that the machines are slowly manipulating the market down more and more by selling into the positive days they artificially create.
What they seem to know is what might not be obvious to the Great Unwashed who are desperately hoping to increase their retirement funds since they won’t be getting any meaningful raises over the next 30 years. The secret is this: The Fed has been inflating the stock market with buckets of free QE money since roughly 2009. The money has gone almost exclusively to banks, big trading firms and various other favored constituencies who’ve used it to drive stocks up to the stratosphere for their own fun and profit.
Happy to play along, major corporations have been buying back their own stock by the bucket load over the same time period, creating the impression that their profits are increasing. But in fact, for many of them, that has not really happened. The reason their profits seem more impressive is that they have been spread out over less and less of their shares as the buybacks continue.
Now, the buybacks are slowing and/or stopping altogether, since there’s no longer any free money from the Fed to fuel the action. So stocks are slowly, steadily, finding their real level of value now. Translation: they’re going lower, since the buyback game is coming to a close.
In a way, this is good. It means that stocks once again may start to trade on real value and earnings as opposed to the market wide mega moves currently generated by HFTs which trade only on headlines and nothing else. A truly rational market—at least insofar as the market is ever rational—would become once again the real happy hunting grounds of serious investors and stock pickers who rely on corporate quality and actual earnings numbers in order to make real money.
In the meantime, though, we suspect a good deal of pain in the markets as they slowly adjust back to the way things used to be—a trip that’s still at quite a delicate inflection point at the moment given that Europe and other countries are only now beginning to embark on their own dubious QE experiments.
The whole idea of the central bankers is to get out of the mess they got most of the world in roughly a decade ago by inflating asset price and creating once again a sense of wealth, causing people to spend and invest again instead of paying down debt.
Problem is, the only people feeling wealthy these days are the 1%, most of whom have been well-protected by the politicians they’ve bought and most of whom have barely been touched by the still ongoing Great Recession.
Problem is, the central bankers are scared, even though they won’t admit it. Their little game of inflating the world out of recession has encountered a little snag. From oil prices to pretty much everything else in the commodity world, we’re not getting the expected inflation at all. Commodities continue to deflate at an alarming pace as central banks run out of ammo.
In other words, unless someone gets us out of the Keynsian rut, and soon, this unexpected deflation is getting us dangerously close to what happened near the end of the Hoover Administration. That’s when, in the teeth of a depression, our own central bank actually raised interest rates—something the clueless Roosevelt socialists did once again, BTW, in 1937, right after they’d won their second term. It caused another nasty downturn, which liberal historians tend to brush aside.
In our own times, however, having run out of “lower the interest rate” ammo to stimulate a moribund economy, the Fed will likely have to raise them at least a little closer to “normal” just to right the boat again. And that could kill the weakest excuse for a recover that the Maven has ever seen in an increasingly long lifetime.
Others are sensing this, too. So, while the HFTs are gaming this decline, even many professionals are slowly slipping out the back door. 2015 is starting to look like it might be a bust—yet another price that everyone is paying for the massive, early 21st century real estate bust.
Don’t believe all the Administration happy talk. Things are still pretty bad for the average family, in case you haven’t noticed. There are still debts to be paid down. And the average dude won’t be getting shares of hot IPOs like Shake Shack to help out with the bills, either.
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