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Things you need to know.

  • Earnings do not disappoint – just in case you were wondering.
  • All the banks making history – as the economy recovers.
  • Coinbase & Nasdaq also making history….
  • What is a Direct Listing- we will tackle that?
  • S&P moves further orbit going where no man has gone.
  • Try the Angry Lobster

Stocks rallied early on…..the excitement over US bank earnings, European earnings and ‘less inflation’ igniting part of the fire, and then the excitement over a ‘historical’ listing event….only added to the euphoria…….buyers tripping over themselves as they fought and fought to pay higher and higher prices…..the S&P trading up to 4151 – before failing….(recall that my trendline on Monday – suggested that level….) and closing down 16pts at 4124.  The Dow rose 234 pts to 33,911 before backing off to end the day up 53 pts, the Nasdaq was the biggest loser….at first rising 38 pts only to get kicked in the gut at 10;56 sending it lower throughout the day….to end the day down 138 pts and the Russell rose 43 pts only to succumb to selling pressure to end the day up 18 pts.

JPM, GS, BBBY, WFC, – all smashing records…JPM beats by 50%, GS beats by 80%, BBBY beats by 17%, even WFC beat by 54%!  It was nothing short of amazing – but then we knew this……and then the conversation turned back to the slightly stronger CPI report and possible FED rethinking, but by now, you know that the CPI was not strong enough to elicit any change of policy….and it was off to the races…. Earnings season has begun….and the excitement is building…

And then all eyes focused on what was happening at the Nasdaq……Coinbase – nothing more than ‘an exchange’ was going public in a historic ‘direct listing’ at the Nasdaq – the first such listing that the Nasdaq has sponsored – as it is very different than the tradition IPO process and this obviously needs explaining since there appears to be much discussion and distrust around what exactly happens during this style of IPO.

An IPO is an Initial Public Offering – it is when a formerly private company suddenly becomes available for public (retail & institutional) investment.  For this presentation we define two different styles of IPO.  1.  The traditional process and 2. The Direct Listing process.  While both results at the end of the day are the same – the process is very different.

First you need to understand that when companies are private – they need to raise capital to grow. It starts with ‘friends and family’ and then if successful moves onto ‘venture capital guys’, angel investors’ and then second, third and fourth stage investors.  Each playing a specific role in the funding process, but all committing their money in exchange for stock – to an idea that needs to be nurtured to grow.  Investors at any stage along the line – are at risk.  They have no way to get their money back – it has been committed to the private company – that is until the company goes public – that is what is known as the ‘payday’. This is the day when they ‘monetize’ their investment.  This is the day that they all wait for – and that wait can be a long time.  In Coinbase’s case it began on June 20, 2012……So the original investors have been waiting 9 years to ring the cash register…. other later stage investors have also been waiting, just not as long.  All good?

Now – when the time comes to go public – the traditional option is to go the route of the IPO…. where the company now issues NEW stock – not the existing stock that is held by the investors – this is completely new stock that is to be sold to the public.  The company now hires an investment banker – think GS, JPM, MS, C, all the way down the line to smaller regional boutique investment banks…. They may hire 3 or 4 – but there is ALWAYS a lead investment banker that drives the process, arranges the roadshows, and builds the book of interest. The book of interest is the institutions that have expressed or committed to participate and buy some of this newly minted stock….and price will determine the level of interest….so for instance – the institutions will say – At $30 we will 5 mil shares, at $25 we will buy 7 million shares, but at $35 we will only buy 2 mil shares…do you see how price affects volume?  You are willing to buy less shares the higher the price goes and more shares the lower the price goes….it is simply demand and supply 101.

At some point – the investment bankers lay it all out on an excel spreadsheet to determine investor interest at a range of prices and then figures out where the two intersect. (there could be hundreds of institutions that want in on this latest IPO – so the process takes time).    So, if the company is bringing 100 mil newly minted shares to the market – the investment banker must figure out at what price demand meets supply?  In most cases – demand will outstrip supply, so buyers get paired back to accommodate as many institutions as possible to diversify and spread the risk and all this does is assure that there is still decent demand to help support the IPO in the ‘aftermarket’.  They then determine the price and sell that new stock to the institutions…so there is a transaction at say $30/sh.  The IPO price was $30 share….it is fixed and public.  XYZ company sold 100 mil shares at $30 – period. That transaction happens at 5 pm on the night prior to the very public listing on an exchange the next morning….so everyone knows it!  Period – there is nothing secret – it is public.

(The original insiders are not part of the selling group – their shares are locked up for X amount of time and then when that time expires – insiders can then sell their stock.)

Now – a direct listing is different because there are NO newly issued shares.  The shares being sold to the public are the insider shares…the guys who committed their money years ago and made a bet.  This is the time when they get to monetize their ‘investment’.  So, there is no roadshow, there is not assessing of price and interest, there is none of that…. all there is – is the company and their accountants and lawyers and investment bankers that will ‘determine what they all think the company is worth’ and there is a model to do this – it is not just throwing a dart at the board. It is an estimate of a range of issues – that suggest a price that seems reflective and appropriate at the time…. No money changes hands, no one got to buy stock.  But it does lend itself to interpretation….so it is fluid…. In the Coinbase case – the valuation that the company and professionals placed on it was $63.5 billion – or $250/sh X the outstanding shares which is this case is 254 mil shares.  ($250/sh X 254 million outstanding private shares = $63.5 billion).

This price is called a REFERENCE PRICE.  It is just a starting point….so that public investors have a sense of what the valuation is…. No one said it was right or wrong, but it is a starting point – the market will now make its assessment.  No stock has changed hands at this price – there has not been a transaction.  And that is key…. There is no transaction the night prior – all there is – is a reference price to start from….it is now the public’s job to determine the price – not the investment bankers or the company or the lawyers…This is capitalism at its best…. this is where the rubber hits the road.

And yesterday – that price was $381/sh…. some $131 MORE than what the company valued themselves at…. how does this happen, easy – The market opens to the investing public and they decide what they are willing to pay – and $381 was the price – and so the real IPO price for Coinbase was $381 – not the reference of $250……the first public transaction in this case was $381 – not $250.  – No one that sold the stock yesterday bought it at $250/sh – No one…. Their cost basis depends on the funding round that they got in on…. some are in for 0.01 cts/sh while others are in at different prices that were reflected at the time of the funding round that they participated in…. Is that unclear to anyone?

And then – once it goes public then it trades like any other stock….it goes up and down…and yesterday it traded as high as $429 and as low as $328.  Today is a new day – and it is being quoted in the pre-mkt at $365/$366……and so it goes…

It was a moment in history for the Nasdaq, for crypto currencies and for DEFI – decentralize finance……. Imagine what this NFT is going to sell for…. (but that is another issue….)

So – If you put your house on the market at $250k on Wednesday because that is a fair price – it is the reference price – based on a number of factors at the time…that might include, size of house, condition of house, recent sales in the neighborhood etc.…..that is the price that you chose to put it up for sale at…and then on Thursday 5 people come in and want to buy your house…..(this is known as a bidding war) – and so THEY bid the price UP, not YOU….so when the final best bid is $381k – what do you do?  Sell it at $250K????  And remember- you did not buy it for $250k, you paid 65k 20 yrs. ago……….and now you sold it at $381k.

US futures are up this morning…. Dow up 145, S&P’s +18, Nasdaq +70, and the Russell up 25…. Earnings are the story….and more earnings due out. BankAmerica – just reports and guess what?  Yup – more of the same…. blew the walls off the house…and the stock is up $2 this morning…. UNH, PGR, SCHW, RAD, BLK, DAL, USB, C……all due out later this morning.

Eco data today – Empire Manufacturing, Initial jobless Claims, Cont. Claims, Retail Sales m/m of +5.8%, Ex autos and gas of +6.4%, Philly Fed, Industrial Production, Capacity Utilization…all of which are important but will take a back seat to the earnings show.

European markets are up – inflation data coming out from all the countries…. Germany reports +0.5% m/m, while France reports +0.7%.  and earnings are also in focus….at 6 am – all markets are up about 0.25%.
Oil – oh guess what????? Up again….at $62.83.  inventories down by 5.9 mil barrels – more than double the expected 2.9 million barrels.  So much for that weak demand story……Need I say anymore.
Bitcoin is trading at $63,000 and Ethereum is trading at $2450….

The S&P closed at 4124….  The broader trading channel is 3930/4150….and it feels like we will test 4150 early this morning….so will we push up and through or will investors back off and stop pushing?  We are about to find out….and if that happens – you could make an argument for 4400 – which feels rich…. I mean rich…. but it is becoming harder to define the further we move into unchartered territory…. So go with it….

Remember – stay focused….do not get caught up in the hysteria of it all…. take the time to trim a bit in names that have clearly outperformed or if you do not want to do that – then just add money to those sectors or names that have underperformed….

Text INVEST to 21000 to get my digital business card – give me a call if you want to discuss what I can do for you.  You can now get a video version of this note on my IG (Instagram) feed – my handle is Kennyp1961 (
Take Good Care

Chief Market Strategist, Consultant

Angry Lobster

For this you need: 1 (2 pound) whole Maine lobster, cup olive oil, minced garlic, chopped fresh basil, lemon zest, red chili flakes, minced red onion, and lemon juice.

You must prepare the lobster for marinating – so to do so you will need to break the claws off the body and crack them open.  Then slit the underside of the body.  Mix all the ingredients together to make a nice marinade…. put the lobster in a large bowl and pour the marinade and let sit in the fridge for at least 4 hrs.

Light the grill…. let it get nice and hot.

Now when ready – remove the lobster – and place on the grill – allow to cook for 3 mins…. turn all the pieces just once…claws and body…. cook for about another 4 mins…. just an fyi…a good rule of thumb for grilling lobster – is about 7 min/lb.  So, a 2 pounder would cook for 6 mins and then 8 mins…capisce?

Buon Appetito.