Tumblin’ Tuesday – Monday’s Gains Quickly Reversed


So much for that "rally".

We call them "Meaningless" Mondays for a reason as nothing that happens on a Monday is any true indication of market direction – it's usually a low-volume affair that can be quickly reversed.  Yesterday's volume on the S&P ETF (SPY) was 37.8M, less than what we usually have on a half-day of holiday trading.   Volumes have been low for a long time as we topped out in the market and that's very scary as it indicates very weak support below the current prices.  

Things are especially meaningless ahead of the Fed, which is geared up to disappoint the markets unless they give us a 0.5% rate cut, more than reversing December's 0.25% hike that sent the S&P down to 2,346, which is now 22% below our current level.  If your stock is not earning 22% more than it was in November – then why would it not be able to fall back to that level just as quickly?

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Beyond Meat (BYND) has been a market darling since its IPO in May at $25 and yesterday, at $222, they annouced earnings that were fairly ordinary and certainly not indicative of a 1,000% run but it wasn't the earnings that took them down 13% to $193 – it was the announcement that they would be selling 250,000 additional shares to raise $56.5M and that the CEO would be able to sell 1% of his 3,177,922 shares for $8M with lock-ups waived for some of the other big pre-IPO Investors (yes, it's optional, not mandatory – a lockup provision is there to protect the underwriters, not the ordinary shareholders, so it can be waived at the underwriter's discretion).  

Keep in mind, despite their current valuation (not value!) of $13Bn, BYND's IPO only raised $240M by selling 9.6M (16.5%) of the 58.3M shares outstanding because they didn't know it was going to go to $240 in 3 months, did they?  So it's very rational, with the stock above $200, to raise some more cash and it's very rational for the people who originally invested in the company to want to take a little off the table.  It's not usual to change a lock-up period post-IPO, the lockup is sort of a promise made to new shareholders by original shareholders that they won't be dumping on the open market for, usually, 6 months.

Obviously, anyone paying $13Bn for a company with $67.3M in quarterly sales and a GAAP loss of $9.4M ($6.9M non-GAAP profit) does not deserve your sympathy but voiding the lockups is a drastic change of narrative on the stock and that's really screwing everyone who bought the stock above $150 for sure and possibly all the way back to $75 – if they were foolish enough to leave all those paper profits on the table ahead of earnings that could not possibly live up to the hype.

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The question we have now is can the entire Market live up to the hype as many, many stocks are priced at ridiculous valuations that assume everything will be amazing going forward?  So far, 218 of the S&P 500 companies have reported and earnings are up 4.8% from last year and the index is up about 10% but, then again, we were overpriced already last year and now we are just more so.  Expectations, however, were for a decline in earnings and, so far, investors are relieved at the results.

A lot hangs on Apple (AAPL) this evening as their earnings are roughly 5% of the entire S&P 500's total net profit but none of that really matters until we get our rate decision tomorrow at 2pm and even that doesn't matter compared to what Powell has to say about it at 2:30.

Meanwhile, check your wallet while we wait as Capital One (COF) got hacked and 106M credit card holders and loan applicants now have all their personal data for sale on the Dark Web.  How did this happen, well COF stores their data on Amazon's (AMZN) Cloud Service and a single, 33 year-old who used to work for Amazon's Web Services, was able to break COF's firewall and pull their client data off the server.  The bulk of the exposed data involves information submitted by customers and small businesses that applied for Capital One credit cards between 2005 and early 2019.

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Not that any of that matters as Equifax has already lost the information of 150M Amercians (essentally, all of us) and were recently fined $700M or about $4.666 per person who's entire financial history is now scattered across the Internet.  We have a very broken system and it's exactly the sort of thing that Governments should step in and fix but, of course, that sounds like Socialism and it's better to have completely dysfunctional Capitalism than anything that even LOOKS like Socialism in this country!

And, of course, NONE of this is actually Socialism, which is defined as: "A system in which the means of production are owned by the state and there is no private property."  That is not even remotely close to what's being proposed by Democrats in America or even in Europe – or pretty much anywhere since Marx.  I know that definition sounds like Communism but Communism believes the Socialst system should be run under a Totalitarian Government – that's the difference.  

So, in order to fight fake Socialism, the Conservative Capitalists in the US (who are actually Oligarchs) are scaring you into accepting a Totalitarian Regime run by the Top 0.1% that supports their vision, which is no closer to Capitalism than Socialism is.  True Capitalism has FREE markets, which would mean no tariffs or protectionism and would mean equal opportunities for ALL citizens and ALL foreigners to compete in the marketplace on a level playing field that did not favor the entrenched corporate intersts.  NO ONE is fighting for that, are they?