Twitter is the latest social media tech stock to go public. After valuing itself at $26/share in its IPO yesterday (yielding a market capitalization of a measly $18 billion), its shares shot up to about $46 this morning on the New York Stock Exchange. That translates to a $30 billion market capitalization for a company which has never turned a profit, and only had revenues of about $600 million all of last year.
The Twitter IPO is just one more scrap of evidence of the mania the Federal Reserve has infused in the markets with its relentless money printing.
Yet another crumb of evidence fell to the floor today when the GDP numbers came out announcing better than expected growth of 2.8% per year, causing the stock markets and bond markets to promptly tank. The DOW and S & P are each down about 1% as of this writing, while the tech-heavy NASDAQ is down about 1.5%. Ten year US Treasuries lost about 3 basis points, reflecting a rush to shelter from the cacophony of good economic news. Yes, I just wrote that sentence and in this bizarro financial world created by the Federal Reserve, it is unequivocally true. Twitter is listed on the NY Stock Exchange, so is a rare tech stock not captured in the NASDAQ index.
The really funny thing about all this is that everyone but everyone knows the only thing supporting current financial market valuations is the belief that the Federal Reserve will continue its money printing mania, yet everyone but everyone keeps up the charade that the values are based on fundamentally sound metrics. Everyone knows, that unless “this time is different” the markets are in a bubble, but everyone desperately wants to believe that finally, this time is different. But it’s not.
For stocks, particularly tech stocks, things are looking a lot like late 1999 or 2000, when anything with a .com after its name could float an IPO and make instant millionaires.
For bonds, things are looking a lot like 2007, when bankers were literally begging to be allowed to lend companies money, throwing risk analysis metrics completely out the window.
And for housing, things look a lot like 2006, when over a fourth of the market was comprised of flippers and investors buying homes they had no intention of living in. Guess who the buyers were in over a fourth of residential real estate transactions this year. Correct, it was investors, this time those hoping to turn a profit by renting out the houses. Did they stop to wonder where all these renters are living now?
This will end as before, quite badly. The difference between the past and present is that before, the Fed blew serial bubbles as people raced from one favored sector to another on the trail of momentum. Now the Fed is managing to inflate three market bubbles all at once. And critically different from the 2000 tech stock crash, the Federal Reserve is slated to change its chairman soon, probably about the same time as the surface tension on these bubbles reaches the breaking point.
This ought to be quite interesting.