We Have Reached The Silly Phase Of The Bull Market

The IPO market is also heating up with 8 deals priced last week, two of which were SPACs, Special Purpose Acquisition vehicles or what we used to call blank check companies. SPACs have no business, offering investors a chance to participate in an acquisition of some operating company sometime in the future. SPACs used to be things hawked by penny stock firms but after a decade long bull market, they have become respectable, I guess. You might get lucky like the people who bought VectolQ, a SPAC run by the former Vice Chairman of GM (GM). VectolQ merged recently with Nikola, a company that plans to sell pickup trucks powered by fuel cells. The stock has run up from $12 in late April to $90 before backing off a bit. The company has a market cap of about $25 billion – about the same as Ford – and – supposedly – $10 billion in pre-orders for its truck. What it doesn’t have is any revenue which it hopes to start generating sometime next year. Nikola stock is, to be generous, speculative.

Among the other new offerings, last week was Zoom Info (ZI) which priced at $21 and proceeded to double on day one. It’s now up 138% in 4 days. Zoom at least has an actual operating business with revenue of $350 million last year –on which they managed to lose $51 million. Market cap? $19 billion because, you know, they’re “building for the long term”. Growing into that market cap may redefine “long term”.

To get a real handle on the speculative activity you need to wander over to the options market. Option traders bought a stunning 35.6 million new call option positions last week with over half of that coming from small traders buying fewer than 10 contracts. According to Jason Goepfert of Sentimentrader, the last time that happened was in 2000. For those of you too young to remember, that was the top of the dot com bubble. With everyone buying calls, the equity-only put/call ratio has fallen below 0.4. Who needs downside protection when the market goes up every day?

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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