Tag Archives: stock crash

Will The SNAP IPO Mark The Top?

The only aspect of the SNAP IPO that was more horrifying than the media attention given to monitoring SNAP’s first trade of the day is the valuation assigned to it by investors. Janet Yellen undoubtedly was not thinking about SNAP when she happened to mention in her Congressional testimony last week that “valuation metrics do appear…stretched.” That assertion is unarguably one of the most shameless understatements in history.

SNAP is being marketed by its financial promoters as “a camera company.” In reality it’s little more than a glorified social media business model. The product empowers the user to send photos and videos to friends rather than using a text message. Big deal. In 2016, SNAP generated $404 million in revenues and but lost $514 million. That’s the manipulated GAAP number for net income. The Company’s operation burned $611 million. Note: these are the numbers prepared by the Company that were used to generate the highest possible price for the IPO, which means the numbers are likely not accurate.

At IPO SNAP was valued at 54 times revenues. That’s the kind of multiple that a venture capital company would pay for a newly emerging company with a unique product that is still embedded with largely unquantifiable risks of the investment going to zero. SNAP is a newly emerging company which offers just another “flavor” of social medial. Mind you, this is a social media tool that is primarily used by millennials and “Gen Z’ers” who quickly tire of the latest cellphone app fad du jour. In fact, new user fatigue is already showing up in the number.   Over the last 4 quarters, the quarterly growth in growth “active daily users” has slowed considerably – just 4% from Q3 to Q4 – and its flat-lined in the rest of the world outside of the U.S. and Europe.

As a social media company, SNAP’s user growth-rate curve is already significantly below that of Facebook and Twitter in their early stages as public companies.  In truth, if SNAP wants to insist on being a “camera company,” then its stock likely will follow the same path as that of GoPro.  GoPro IPO’d in June 2014 at $24.   The first trade was at $30. The stock ran up to $98.  It currently trades at $9.40.

The overarching issue here is whether or not the grotesquely overvalued SNAP IPO will mark the top of this seemingly indefatigable rise in stocks.   Since closing above the 20k holy grail level on February 3rd, the Dow has risen another 1,100 index points in just 17 trading days, while the meatheads on financial bubblevision have been mindlessly cheering on the action with drool sliding down the sides of their mouths.   27.5% percent of this move occurred after Trump’s congressional address Tuesday night.  Conspicuously absent from the speech was any new policy ideas which might have been responsible for causing the ludicrous spike up in stocks.

David Stockman has called this action in the stock market “the greatest sucker’s rally of all time.”  In today’s episode of the Shadow of Truth, we discuss the insanity that has drawn mom and pop retail investors into the “warm water” with its Siren’s call.

Guest Post: The Mysterious Guardian Of The U.S. Stock Market

Note:  Scott Rabinowitz owns Quarterwave Asset Management LLC and has been a professional investor in the precious metals sector for over 15 years.

Yes, this has all become mentally exhausting for anyone that has been around what are still referred to as “markets for the past 25 years. In fact, I’d say it has become mentally exhausting to anyone still capable of thinking on their own, not having to be spoon fed an explanation for every logical and illogical outcome that seemingly approaches at a more rapid rate as each day passes. To most thinkers, it is frustrating that fundamentals seem to be nothing more than an old pastime to everyone else. Our world has succumbed to an existence in which a mere few can and will dictate their desired outcomes as if it is a certainty and not just an experiment in which unintended consequences are nothing more than a potential nuisance.

So, when nothing makes sense anymore and every day feels like lunch with the Mad Hatter, one must seek out a potential explanation for the confounding behavior of “markets”. After all, fundamentals have clearly been deteriorating for some time now, whether it be corporate revenues (declining), earnings (declining), etc. Yet US equity markets are at all time highs – coated in as much Teflon as the political world. Oddly enough however, precious metals are having a great year despite the pullback in August. It should appear to both the casual and non-casual observer that there must be a conduit, instigator, call it what you will, mechanism, to help explain how “markets” seemingly either abruptly stop going down or up as if was magic.

The mysterious guardian of markets appears to be the USD:JPY (US Dollar:Japanese Yen). It is hard to imagine that the correlation to equity market bottoms and tops is correlated to anything other  than this magic elixir. This also includes the counter movement of precious metals to the USD:JPY as well. What am I saying? When the USD:JPY is rising stocks have been rising in lock step with it while precious metals have experienced the opposite move and vice versa.

Below are the two 4-hour charts (click to enlarge) of the USD:JPY and the S&P 500 back to December 2015 to show how there appears to be a potential mysterious guardian of markets. Furthermore, the takeaway are the dates of the “turns” in the USD:JPY because yes the decline YTD looks to be quite orderly even though the S&P 500 has moved higher.

The reason the USD:JPY appearUSDJPYs to be the chosen guardian of markets is due to the fact that it’s movement determines whether the carry trade (shorting JPY vs. the USD to buy risk assets) is turned on or off. The reason the Fed uses the yen rather than the euro is because the yen is the second most liquid currency in the world and its near-zero cost to SPXborrow efficiently enables the carry-trade mechanism – short/borrow yen and buy dollar fiat currency based assets (stocks, Treasuries). Also the U.S. has a much tighter political policy control grip on Japan than the EU.