rob zdravevski's blog

What Gravity Looks Like After A Visit To The Stratosphere

My latest newsletter is about the savage pullbacks seen in selected stocks following their frenzied climb.

https://mailchi.mp/karriasset/there-is-gravity-in-the-stratosphere

Privately Held Unicorns add little value when Public

The problem with past adoration for those privately-held unicorns is they added most or all of their shareholder value and market capitalisation whilst they were a private company and leaving little capital appreciation for their publicly listed life.

In other words, many of those companies used the stockmarket to provide liquidity and an exit for their powerful shareholders, rather than using it to raise capital for the company’s expansion and growth purposes.

One example (and there are many), shares in Uber are lower than its IPO pricing of $45 nearly 2 years ago.

The chart below shows you the ride it has been on and while there is an argument for buying it at $21 and watch it triple to $63….

My message is to highlight the disappointment for the shareholder who was sold on their ubiquitous position in the market and their fully-priced valuation, while the financial press lauded their stratospheric rise under the fog of being a privately held company.

Well done to the bankers who priced and sold the stock to punters.

Oh well, onto the next deal for them, I guess !

The next chart below show the humble chart of Google.

As a private company Uber raised $25 billion over 33 rounds while Google raised a paltry $36 million over 4 rounds.

Google then raised $1.7 billion in the IPO giving it a market cap of $23 billion.

Uber raised a further $8 billion in the IPO giving it a fully diluted market cap of $84 billion.

Caveat Emptor!

January 20, 2022

by Rob Zdravevski

rob@karriasset.com.au

Macro Extremes (week ending January 14, 2022)

The following assets (on a weekly timeframe) registered an Overbought reading or traded more than 2.5 standard deviations above its rolling mean.

Extremes “above” the Mean (at least 2.5 standard deviations)

Portugal 10 year government bond yields

Overbought (RSI > 70)

U.S. 2 and 5 year bond yields

Australian 2 and 5 year bond yields

Russian 10 year bond yields

Australian Coal

Coffee

Lumber

Tin

The Overbought Quinella – Both Overbought and Traded at > 2.5 standard deviations above the weekly mean)

Japanese 10 year bond yields

Assets (securities) which touched the other side of the extreme, being Oversold (where the RSI is < 30) or were at least 2.5 standard deviations below its mean are;

Extremes “below” the Mean (at least 2.5 standard deviations)

None

Oversold (RSI < 30)

Sugar

The Oversold Quinella – Both Overbought and Traded at > 2.5 standard deviations above the weekly mean.

None



Notes & Ideas:

The big news in global markets was the relative quiet action in equity indices.

Equally, bond yields were more subdued this past week, except for the Australian 2 year government bond yield, which soared from 0.46% to 0.76%.

With the Australian 10’s unchanged for the week, the Aussie government 10 year minus 2 year bond yield spread hit a new weekly low, not seen since August 16, 2021 and February 1st, 2021.

Those moments signalled the beginning of a rally in the ASX 200 equity index.

Last week, I wrote that the German 10 year bonds moved from (0.18%) to (0.04%) and from a price of (0.38%) 3 weeks ago. Alas, the German 10’s didn’t turn positive closing unchanged at (0.037%).

Seeing Japanese 10 year bond yields double last week from 0.07% to 0.14%, they continued their rise to 0.165%. More about JGB’s later.

Additionally, the Japanese Yen rose from its multi-year low.

In other news and observations, Soft Agricultural’s were weaker, Coal, Gas and Oil were higher for the week as were some base metals, Hot Rolled Coiled Steel rose 1.6% and moved out of Oversold territory. The Russian equity index is nearly Oversold, the Nikkei 225 looks like like commencing a new decking trend, the Nasdaq 100 and the CRB (Commodity) Index is nearly Overbought while the mean reversion in assets such as the Japanese Korean Marker (JKM) is on its way.

The larger advancers over the past week comprised of; 

Aluminium 2.7% (up 7.5% in 2 weeks), Australian Coal 4.1% (up 12% in 2 weeks), Rotterdam Coal 9.8% (up 27% in 2 weeks), Bloomberg Commodity Index 2.2%, China Coal 4.9% (mimicking last week’s return), WTI Crude 6.2% (up 11% in 2 weeks), Gasoil 5.2% (up 12% in 2 weeks), Heating Oil 6.1%, Lumber 6.6%, Tin 3.8%, Natural Gas 8.8%, Nickel 4.1%, Orange Juice 5.3%, Gasoline 5.2%, Silver 2.3%, CRB 3.2%, Brent Crude 5.5%, HSCEI 3.9%, Bovespa 4.1%, Istanbul 2.9%, Singapore Strait Times 2.4%, SOX 2.8% and India’s Sensex rose 2.5%.

The group of decliners included ;

Baltic Dry Index (23%) (having fallen from a October 4 high of 5,650 to 1,764), the Japan Korea Marker “JKM” (26%), Palladium (2.3%), Oats (8.9%), Wheat (2.2%), Soybean (2.9%), Corn (1.7%), Rice (1.4%), Urea (2.4%), CSI China 300 (1.6%), DJ Transports (2.2%), MOEX (4.2%), Swiss SMI (2.1%), Shanghai Composite (1.6%), Stockholm 30 (1.8%), Helsinki 25 (1.8%), Copenhagen 25 (2.8%) adding to last week’s 5% decline.



January 16, 2022

by Rob Zdravevski

rob@karriasset.com.au