Public market newcomers getting crushed in sell-off | Hacker News Reader

Public market newcomers getting crushed in sell-off

gigaom.com

65 pointsantr56 comments

This doesn't seem particularly connected to the S&P downgrade, despite the kind of vague implication in the article's intro. The downgrade didn't have the effect (contrary to some predictions over the weekend) of causing any sort of Treasury selloff or interest-rate spike, through automatic selloffs or default fears or any other mechanism--- Treasuries are actually up on the day. And it didn't provide the stock market any new information that it didn't already have heavily telegraphed during trading last week. It seems more likely that this is just increasing pessimism about prospects for economic growth, rather than worries about debt serviceability. If it were the latter, you would not expect people to be rushing to buy Treasuries that they thought were going to default.

I wish I had a hundred up votes for this post. Does the author of the article really think that the market had no idea that the US was venturing into dangerous territory with its debt to GDP ratio?

Unfortunately this implied "downgrade = stock plunge" association seems to be everywhere this morning with no mention that long term interest rates for US debt have actually dropped.

Depending on the source it's probably down to ignorance, lazy re-reporting or blind economic ideology, but if you believe that cutting government spending and services during a recession/recovery is a bad idea then it's a scary thing to see.

Unfortunately this implied "downgrade = stock plunge" association seems to be everywhere this morning with no mention that long term interest rates for US debt have actually dropped.

Well, if everyone believes that downgrade --> stock plunge, or even if a sufficient number of people believe that downgrade --> stock plunge, then it's no surprise that downgrade --> stock plunge.

I think the smart money will be hunting bargains. Pity I don't have any right now.

Wouldn't a downgrade be expected to result in an interest rate _increase_, due to higher risk?

You'd think so, wouldn't you?

On the other hand, where else are you gonna put your money?

In this case I'm not too surprised at the lack of change, mostly because unlike with a little-known corporate bond or an inscrutable country nobody has info on, the S&P ratings don't really add new information that any economic analyst didn't already know about U.S. Treasury bonds. So, assuming anything remotely approaching an efficient market, any information S&P based its ratings decision on should've already been priced into the bond prices, because it was information everyone else has also had for a while now.

Could the downgrade not have led precisely, if ironically, to the treasury rally by promoting concern about the general economy, with consequent sell-off of high-risk assets and flight to safety (treasury bonds, downgrade notwithstanding, still being seen as the safest bet for a lot of people in case of general economic uncertainty)?

I wouldn't discount the effect of the S&P downgrade on these stocks. The downgrade led investors to flee from risky assets to more secure assets. Counterintuitively, this is causing the price of short-term Treasuries to go up, since they are still viewed as relatively safe investments and constitute one of the largest and most liquid bond markets in the world. The S&P downgrade puts more pressure on the U.S. government to raise taxes and/or take austerity measures in the near future, and that partially accounts for the plummeting price in stocks today, with the riskiest stocks taking the biggest hit.

Financial markets don't like uncertainty, and the S&P downgrade introduced a big dose of it. Not necessarily because people think the US is going belly up, but because the US is not going to be the white horse galloping in to save the Europeans, who are in far more dire straits.

The long term implication is that we are in the opening stages of the first big crisis that will require significant intervention from China. That's scary for a number of reasons.

Groupon is a consumer-facing company, with a large percentage of its offerings in the discretionary category. As it so happens, the American consumer is getting clobbered and has less time/money for discretionary spending.

LinkedIn is in an interesting spot, because the job market sucks so badly, and unemployment remains high (which, when you think about it, could go either way for LinkedIn).

Sure, there may be some macro factors about the set of "newly IPOed companies" that are going into their sell-off. But by and large, there are plenty of rational reasons why the market for both of these companies' shares is in a tough spot.

Doesn't the majority of LinkedIn's revenue come from recruiters? It makes sense that LinkedIn, Zillow, and Pandora are off more than the market as recruiting, ads, and real estate tend to get hit harder than the broader economy. Groupon was born during the recession, so may fare better than others. Deep discounting and coupons are counter-cyclical.

"Deep discounting and coupons are counter-cyclical"

Not if they're mostly (or even significantly) in discretionary categories and experiences, though. You could offer me 90% off a tennis lesson, or 99% off a trial run of Invisalign braces, but if I'm struggling to make ends meet on the basics, such offers are of little use to me.

In fairness, I have no idea what percentage of Groupon's offers are discretionary. (Though, anecdotally, it sure seems like a big number). But my point is that I wouldn't put it past many analysts to assume that it's a significant percentage. And that's all you need to move the price of the stock.

I don't think the term "discretionary", captures what happens during a recession in the first world. I mean, when unemployment goes from 6% to 9%, 3% of the population stops going out for dinner, and 70% of the population cuts back on spending based on fear. That 70% of the population starts cutting coupons and buying generic products, and shops at Walmart instead of Whole Foods. Fashion industries get hit hard, but entertainment generally doesn't. I really think the "deals" or "coupon" space is counter-cyclical no matter whether the coupons are for skydiving or pickles. I personally don't have a gut instinct for this space, as I am not a customer of Groupon, but I am interested in the question "If you neighbor lost his job, would you buy more or less Groupons?".

If by "crushed in sell-off" you mean "declined roughly as much as the market as a whole", then that's true.

This is untrue on a percentage basis.

lnkd: -14% djia: -3.75%

They declined as much as lots and lots of other normally-volatile stocks that are not recent IPOs. Making the story about recent tech IPOs is uninformative at best.

The dow jones doesn't work like that. The Dow % doesn't reflect the average % downwards of its parts, nor does it necessarily represent the market as a whole.

    Citigroup -15%
    Bank of america -17%
    B&N: -11%
    GE and Cisco -5%

etc

The point is that these stocks are underperforming with respect to large cap companies and thus the market at large. The s&p is down under 5% today.

msft -3.5% aapl -3.38% hpq -4.4% ibm -2.2%

% up/down does not provide valuable data. If you have access to a Bloomberg terminal take a look at the free-float turnover. Shocking

What does the free-float turnover mean/represent?

the % of the capital/shares changing hands + if compared with avg daily trading volumes, the speed/time at which investors want to get rid off the stock

Ahhh thanks!

Well, presumably, there are just as many players who want to acquire the stock, so while it's a good indicator of unusual market activity, it's not a doomsayer per se.

the more volatility -> the higher HFT intensity (thus -> the more volatility, repeat loop ...)

LNKD has had ~22% of its float trading on average every day for the past month. What do you find special about today?

LNKD has a free float of c. 8,250,000 shares or c. 8% of FDS. Average daily trading volume up to August 3rd, and adjusted for underwriting: 1.62m. Since last Thursday (earnings call), when LNKD dipped c. 5%, trading volumes have been 102%, 90% and 67% above the average daily volume. So then, 40%, 37% and 33% of its free-float, for August 4, 5 and 8 respectively. In just under three trading sessions over 100% of the free float has changed hands. What don't you find special?

Yes, but based on the 1.62m avg volume, that is ~20% changing per day on average. So on average 100% of the free float changes hands every 5 sessions. And now it did that in 3 sessions.. But that doesn't indicate to me everyone suddenly dumped it today. It's been churning over 20% every day. If you look at P or Z there is nothing much going on there. LNKD is just crazy active to begin with, only amplified by recent events.

Indeed, 5 to 3 days might seem close/similar, but 5 days is 66% slower turnover than 3 days. IMHO, this data is representative

> The Dow % doesn't reflect the average % downwards of its parts

It does, its weighted parts that is.

You're on the right track, but it makes more sense to compare lnkd to the NASDAQ, which is the technology exchange.

Kevinpet, I don't know where you get market data from. Here are the facts (@1:59pm):

The market: NASD -4.44%, DJI -3.56% Recent tech IPOs: LNKD -14.63%, P -7.91%, Z -6.00%

Source: Google Finance

I suspect that it's a risk thing, new internet IPOs probably have the highest risk considering what they do and how new they are.

My uninformed opinion is that many of these new internet IPO stocks are “greater fool” investments: They were bought for the purpose of selling to others without a lot of regard for their underlying fundamentals.

A general decline in the stock market hits the demand for “fashionable” and “greater fool” stocks hardest, so I expect professional managers to dump them quickly.

This is my read, too. People bought them thinking that it was 1997, turns out it might be more like 1937.

In that context, GroupOn's first-day IPO performance (assuming the IPO still happens) is going to be interesting.

Makes me wonder if the "bubble" is over with all this talk of a double-dip recession and Groupon/SEC ordeal.

My take has been that good tech companies are maturely valued, and bad ones are in a bubble. I'm sticking with that.

Money has to go somewhere. I would still rather own a good, expensive, tech company than treasuries or other low to negative yield investments.

The good tech companies can be profitable with some adjustments and don't need IPOs to survive. The best hardly need outside investment. That doesn't make for much of a bubble.

The bubble has burst.

- Greece has defaulted. After that, Italy/Ireland/Portugal/Spain/Austria/Belgium will soon follow, and France will be downgraded, and Germany will leave the EU.

- Japan is suffering -5% GDP per year. 70% of the nuclear reactors are offline. Rice/Beef/Vegetable/Water radiations have been reported.

- China's stock market just dropped 30%. The hidden banking crisis will finally surface and blow up alot of banks. The ugly inflation that follows will induce further unrest in a country of a billion people.

- US is about to have a series of downgrades. States and local munis will seek bankruptcies after downgrades. Hyperinflation will start. Social security, medicare will be wiped out.

All signs point to the second dip in the global economic depression.

Those are some pretty bold predictions.

What kind of bubble are you talking about? A tech bubble? Based on what -- three IPOs?

US is about to have a series of downgrades. States and local munis will seek bankruptcies after downgrades. Hyperinflation will start. Social security, medicare will be wiped out.

This sounds more like hyperbolic doomsday predictions than a likely outcome.

Germany is a net exporter and they gain by freer trade throughout the euro zone, so I doubt the will leave the EU. Will the leave the euro is another question.

Yeah, nobody is predicting the breakup of the EU, but a lot of people are questioning the value of a single currency with a multiplicity of national banks.

Rest assured, the Union itself is here to stay.

Right, and those national government banks do not have credible deposit insurance for national banks. So a bank run is possible. During the US crisis in 08/09 we had the Fed/Treasury complex insuring deposits and supplying liquidity which they can do in infinite amounts. Euro-zone nations are not sovereign and are at the mercy of the ECB. You underestimate the risk of a breakup, the Euro is broken.

I think its a good possibility. Germans feel they are subsidizing the Euro-Zone periphery countries. Now with the ECB having to continue to issue currency in exchange for bank liabilities and national government bank liabilities, Germany may perceive this as inflationary ( though it is probably not) and given German history ( Wiemar, etc) they are sensitive to this type of policy. As such, wouldn't it be much easier for Germany to leave the Euro than the reverse?

You have a cheery outlook... Can you provide sources for your points?

And I disagree with your statement of "[h]yperinflation will start":

"Treasury yields remain near historical lows. Investors are willing to accept negative real returns on American government debt out to 7 years. When it comes to perceived asset safety, few investments compare. And the worse things look, the better Treasuries look."[1]

1. http://www.economist.com/blogs/freeexchange/2011/08/american...

Austria will default? That seems very funny to me, but maybe you know more than me. I'm actually really laughing, what makes you think Austria is in any danger? I think you are being paranoid.

Greece has defaulted.

You're overstating that -- I smell a troll. Greece did not default.

China's stock market just dropped 30%

False. It dropped 3.9%, hardly a serious problem for the Hong Kong market.

After that, Italy/Ireland/Portugal/Spain/Austria/Belgium will soon follow, and France will be downgraded, and Germany will leave the EU.

Yes, and then the sea will turn to blood, the fields will be infested with locusts, the Moon will explode, and every human on Earth will break out with huge boils on their skin.

Soon we'll all be living in caves and hurling feces at each other.

China's stock market dropped 30% this year to date

So Europe's bank implodes. People will live normally, just with more austerity. Who said caves and feces?

You're overstating that -- I smell a troll. Greece did not default.

In http://www.telegraph.co.uk/finance/financialcrisis/8653634/G... I see Greece being described as having defaulted. Perhaps it is not publicly being called a default, but for all intents and purposes it is one.

Have the counter-parties insuring Greek debt paid up?

No. However Fitch put a "default" rating on Greek bonds, and there were headlines declaring a default.

The trick is that private parties are supposed to "voluntarily" forgive Greek debts. But they are negotiating with a gun to their head. And one way or another Greece won't be paying what it says it owes.

So some people call it a default. Others don't. But it is a pretty fine distinction either way.

Things are bad, certainly, but let's not overstate. This reads like a very hyperbolic list of doomsaying to me.

China did not drop 30%. Predicting Austria will default is highly negative speculation. Hyperinflation in the USA? Not anytime soon. It is still the reserve currency, especially in oil, if not by merit then by default. What else is there?

Shit's getting serious, yes, but I think your list takes it too far.

Hyperinflation will start

I bet you a trillion dollars that it won't.

Could this halt the ongoing initial public offering wave that has been building in the tech industry for several months? What does this mean for Internet companies such as Zynga and CafePress that are currently in the IPO pipeline?

I doubt it means much. At worst, it means a few months of delay while the current crisis blows over. In 1998, people were wondering whether the Asian currency crisis would halt the (then roaring) dot-com boom. Yes, there was a damper on the IPO market for a few months, but the market came roaring back in the latter half of 1998 and kept going strong right through 2000.

The numbers after the close are less dramatic, except for LinkedIn.

NASDAQ -6.9% Pandora -7.6% Zillow -7.4% LinkedIn -17.4%

The article makes too much of this. Smaller companies are more volatile. When the market goes down, smaller companies will be down more, and when the market goes up smaller companies will be up more.

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