Hopefully in the future we will not have to talk central banks any more. But…right now…they are front and center with no end in sight to the trillions that are being printed. As the markets were swooning into a bear phase, a coordinated effort was hatched around the globe. By no coincidence, at the same time the fed sent out 3 fedheads to say there would be more QE if necessary, Japan ramped up QE to who knows how much, the ECB ramped up QE and promised “whatever it takes” and surprise surprise surprise, China announces a surprise rate cut even though they are supposedly growing north of 7%. My friends, there is no doubt in my mind that central banks are scared crapless of what markets might do if they were left alone. Since the fed admits buying trillions in bonds,we have to believe they are doing what Japan has admitted they are doing…and that is buying up not just bonds but stocks via the futures market. I would love to see Yellen answer that question under oath.
But that’s all noise. Markets continue to be pushed higher by central bank announcement after announcement. Friday was all about China. Maybe Albania is next. Markets remain stretched and extended way beyond the norm. At the same time, bullishness is off the charts which is usually a less-than-thrilling scenario. But easy money is easy money. We suspect maybe not this week as we have seasonal holiday strength but maybe into next week, we are due for a breather. The only other negative to bring up which has been out there forever is the small caps continue to lag badly. Again, that is a theme that has been going on for more than three quarters and expect that when markets do correct, it will be the small caps that lead down again just like they did in October.
I don’t even know what to say about this!
There was no doubt we were headed into a bear market as we had a classic topping pattern leading to the October plunge. This was no coincidence as the U.S. was winding down (for now) it’s printing of money. The last 2 times the U.S. stopped, markets dropped 17 and 20% respectively. It should be obvious, fedheads knew about this and were worried about it. They had something up their sleeve. Little did we know there was a coordinated effort on a global scale that increased this morning. First, it was our Fedheads trying to calm things down by saying we would have another QE program if need be. Then, the BOJ not only increases but increases markedly. Then you got Bernanke Jr in the ECB dude…and now surprise, surprise, surprise, China lowers rates leading to a stretched, extended, overbought and overly bullish sentiment reading market to gap up this morning. Wait a minute, did you say China? That can’t be. China is growing 8%/year. Why would they need to ease? Well according to the accounting firm Dewey, Cheatham and Howe…maybe, just maybe the numbers in China are not what they are cracked up to be. At least, China is worried.
I remember the charts from 1999 well. Stretched and extended became more stretched and extended which became more stretched and extended. This occurred because of easy monetary policy. Well…we now have the mother, father, sister, brother, aunt, uncle and long lost cousin of an easy monetary policy which makes Greenspan look like Volcker…and it is causing all this. The SEMIS are poised to break out of range. The BIG FINANCIALS may just do the same. We already know about the major indices notwithstanding the small caps.
Enjoy the day. Since we have been asked a few times already this morning…we do not predict reversals but we recognize when a market can be ripe for reversals off of news-driven gaps. Just realize the few men and women that run the trillions that have been printed and that will be printed in the future…remain in control as this massive coordinated effort grows larger and larger.
Firstly, the small caps are again underperforming with the Russell 2000 rolling over. As we have told you, market is waaaaay overdue after the easy money-induced move higher. The only sign we need to look for is the small caps as they have shown the way when the market is ready to correct. We think the overdue correction is at hand but have no clue yet as to size and duration. Just keep in mind, things that haven’t rallied with the market will roll over first.
Now…a word to the wise.
Neothetics priced its upsized 4.65 mln share IPO at $14, the mid-point of the $13-15 expected price range, raising total gross proceeds of $65.1 mln. Neothetics (NEOT) is a Phase 3 ready specialty pharmaceutical company that is developing therapeutics for the aesthetic market with a primary focus on localized fat reductions and body contouring. Their lead product candidate, LIPO-202, uses salmeterol xinafoate to reduce bulging in the abdomen due to subcutaneous fat through an injectable formulation. Salmeterol has been proven to reduce fat and shrink fat cells when injected. The company has completed six trials to date with over 800 patients to test the efficacy and safety profile of LIPO-202. In the Phase 2 trial already completed, their product demonstrated a statistically significant reduction in central abdominal bulging while being well tolerated and delivering a safety profile almost identical to that of a placebo injection.
As with most clinical-stage pharmaceutical companies, Neothetics has no meaningful source of revenues and is therefore strictly running at a consistent operating loss. For the nine months ended September 30, 2014, the company reported a net loss of $7.9 million, down from $12.2 million for the same period in 2013.
DO YOU SEE THE SECOND PARAGRAPH? “NO MEANINGFUL SOURCE OF REVENUES AND IS THEREFORE STRICTLY RUNNING AT A CONSISTENT OPERATING LOSS.
We mention this because in the past year, there have been dozens of Biotech ipos foisted upon an unwary public at valuations that are off the charts considering these dozens all had one thing in common…NO SALES! Yes…NO SALES. We did not say NO EARNINGS…we said NO SALES. Some of the companies have billion dollar market caps…some less. We bring this up because not only have these companies come public, but many have doubled in price because of the sector strength. Investment banks know how to read the public’s greed and appetite and do not care about the ultimate outcome. Here is what we think the outcome will be. From our studies of bear markets, companies that lose money will drop a ton…usually 50% or more. Companies with no sales will most often drop 75% or more with some going bye-bye because of their clear lack of sales and massive losses.
When we started in this business, we sold penny stock IPOs with more sales than these companies and came out with $3 million market caps at 5-10 cents/share. You get the hint. So maybe we will never have a bear market again. The Fed is doing their darndest to make sure one never occurs. But just in case, we have made a list of all these “no sales Biotech IPOs and will be watching closely. In bear markets, the carnage never fails as the curtains always come down on valuation when fear is back into the equation. Just a word to the wise.
Bottom line, there just continues to be very little in the way of selling leading to a grind higher. Markets remain stretched and extended to the upside off of the recent “v-shaped” move. Bullishness is back to being off the charts. But until price action changes, it is folly to think otherwise.
Recessionary news from Japan and some areas in Europe are a good thing as the money spigot opens wider.