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Morning Commentary

Snapping the Bull Market

By Charles Payne, CEO & Principal Analyst
3/6/2017 7:52 AM
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Oh, Snap, the IPO of Snap Inc. (SNAP), was up on the second day of trading on Friday. And now, shareholders are hopeful the amazing debut doesn’t vanish.  It’s too early to see where the company and stock might be a year from now, but there are cautionary tales from hot tech IPOs worth revisiting.

Tech Bubble Fever: the Beginning

TheGlobe.com (TGLO) saw a couple of college undergrads take the concept of chat rooms public, and that set the world on fire.  On November 13, 1998, the Globe’s initial price was offered at $9.00 per share and it began trading and rallied all the way to $97.00 before “settling” at $63.00 for a record one-day gain of 606%.  In many ways, this took the tech IPO market into overdrive and got a number of Americans thinking they would “play” the market and retire at age 40.

One of the founders was known for hitting the town in leather pants with his model girlfriend.  It’s not known what happened to the pants or the girl as the stock proceeded to eventually work its way to $0.10 a share.

Tech Bubble Pops (Reality Struck)

If the Globe took the tech bubble into overdrive, it was World Online (WOL) that erected its brick wall.  The Dutch tech company was billed as the America Online for Europe and Africa. 

It was successful with growing subscribers, but there was the issue of profits; however, that’s not where the deathblow came from.  Goldman Sachs (GS) was the lead underwriter and the IPO party was graced by Sarah, Duchess of York, Christopher Reeve, and Joe Cocker.

There was a hell of a party that day on March 17, 2000, as the stock was oversubscribed 21 times. When trading began, the shares skyrocketed; by the closing bell, they were unchanged at €43 but still sported a €12.0 billion valuation.

In the midst of the party, someone asked CEO Nina Brink what she thought of the action and what she was going to do with her newfound wealth.  That’s when she admitted to having already sold her entire stake, ten percent of the entire company in a private transaction for only €6. 

Needless to say, the stock began going into freefall. A week later, the S&P hit an all-time high and began to implode. I say it was a sobering wake-up call; everyone had been suckered and the game was over.

I am not saying Snap Inc. is either theGlobe.com or World Online, but now all the unicorns are going to come public and some will be dogs looking for suckers to finish the ‘Greater Fool Theory’ so be careful.  What really bothers me is all the millennials that would never think of owning General Mills (GIS) or any other boring non-tech name may pile IPOs into a bunch of companies with no earnings.

Ironically, maybe buying them all is the only way to get the winner, but most people are going to pick a couple and I hope they go on more than the cool factor.

Meanwhile, SNAP has sucked some of the air out of the bull market with regard to volume (there is a limited amount of money trading each session and bringing up questions of overall valuations. I am still confident in this rally long-term and welcome test along the way.

Whatever, Janet

On Friday, Janet Yellen gave mixed signals, leaving a March rate hike open but stressing a certain amount of prudence that would cap Fed interest rate increases to just three for the entire year.  The Street could live with that, although I think the Fed needs a robust jobs report this coming Friday; it’s not to be perceived as getting too far ahead and overzealous in stopping an economy that’s only just now getting out of the starter’s gate.

Major indices finished the session higher on Friday, which is also a vote of confidence that the market still believes the White House agenda gets through even with occasional distractions.  It’s a great sign going into next week.

Speaking of which, rich people are spending money, in part because they believe lower taxes are coming and they are making more money. I am working on a report on three stocks to own for the “Real Wealth Effect.” Touch base with your rep or reach out to research@wstreet.com.

Today’s Session

Its jobs report week, and that means the market will have more anxiety than normal.  Moreover, investors are bracing for major news out of Washington, D.C. on the travel moratorium, Obamacare and hints about next week’s budget.  The new #Towergate scandal is also a distraction for the market, which understands a big part of long term economic success has to include less internal fighting and more unity – even if it is everyone trying to grow their own personal economies.  

(I can only hope Congress gets to the bottom of all the lingering issues and we can move on.)

The market has been a little sloppy, even on up sessions, as internals show profit-taking and growing indecision.   This is what we need as investors…the rally needs to be tested.   

 

 


Comments
If high tech employers use the H-1B premium processing and higher a large number of U.S.Citizens and work on getting their employees green cards in the coming months. I predict that there will be a long tech boom. As well as some remarkable ideas that will put American tech industry's above the curve for the next 30-50 years.

Celeste on 3/6/2017 11:37:15 AM
 

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