PUNISHMENT

Let’s be clear about one thing here: this is not a bear market. The Dow and the S&P are doing just fine. Ever since I removed myself from the wreckage of my high beta/momo/death traps, I’ve been able to think clearly and avoid the urge to punch holes into my walls. Having said that, I did buy a few remnants of the past (RKUS, CRTO) and they’ve certainly served as reminders of what to avoid in this market.

With about 25% cash, portfolio mostly filled old man stocks, I know what to do.

I am waiting, mind you, for an oversold signal or two, courtesy of The PPT.

Today’s action can only be described as indiscriminate punishment, without boundaries–a North Korea interrogation facility led by rogue officers of the NSA.
If you miss earnings and fall into the category of “cool”, you will regret the day you were born. Rest assured, we are merely in the beginning innings of this correction (Extra Grady).

SSNI -32%
ZU -30%
RLOC -27%
EXTR -26%
FEYE -25%
END -25% (apropos)
DTLK -24%
AOL -22%
GRPN -21%
AEGR -21%
WFM -19%

Aside from the above train wrecks, there are over 350 stocks down more than 5% today, far worse than yesterday’s junior varsity decline. Welcome to the big leagues.

Dave Dewalt, Huge Asshat Award Winner, ceo publicly traded time bomb, FireEye

I know it’s early in the year and there will be plenty of gents worthy of this distinguished award. However, it would be impossible for anyone to steal this guy’s thunder inside of the next 7 months of 2014.

Introducing, Dave Dewalt, CEO of publicly traded time bomb called Fireeye, Asshat winner.

Let’s go over a series of events that has led Dave to this post.

3/3/14– FEYE is offering 5.582 mln shares of its common stock and selling shareholders are offering an additional ~8.417 mln shares (85.64 )

3/5/14– FireEye (+3.5%) makes new all time high — FBR raised tgt to $105 this morning — co is expected to price 5.6 mln share offering THursday night (91.27 +2.98)

3/7/14– FireEye prices follow-on public offering of 14 mln shares of common stock at $82.00 per share by co and selling shareholders (89.55 ) Of the shares being offered, 5,582,215 are being offered by FireEye and the remaining shares are being offered by existing stockholders.

3/19/14– FireEye showing early weakness; note that IPO lock-up period expired today (73.50 -4.25) The stock has pulled back ahead of the lock-up expiration, -23% from its early March highs, but the stock is still up 265% from its initial IPO pricing of $20.00 (stock opened for trading at $40.30 on 9/20/2013).

4/10/14– Cyber Security stocks getting hit following Imperva (IMPV) warning as tech/momentum stocks pare this week’s bounce (29.11 -20.62) IMPV is down ~42% at a 17 month low after lowering Q1 guidance.

4/22/14– Fireeye (FEYE) field for a ~13.28 mln share common stock offering by selling stockholders.

 5/6/14– FireEye reports EPS in-line, beats on revs; guides Q2 EPS below consensus, revs above consensus; lowers FY14 EPS below consensus, raises FY14 revs in-line (37.13 -3.10) Reports Q1 (Mar) loss of $0.53 per share, excluding non-recurring items, in-line with the Capital IQ Consensus Estimate consensus of ($0.53); revenues rose 160.6% year/year to $74 mln vs the $71.66 mln consensus.

I had to document the series of events that has led us to this point. The stock, mind you, is down over 60% since March! Dave, FireEye’s CEO, bought a company called Mandiant. Very nice. Then, when the price was $82, he issued a secondary, JUST AHEAD of the expiration of shares in lock-up. This is a no-no, especially for new companies with weak shareholder bases.  Dave didn’t stop there.

Shortly after the lock up period expired, their competitor, IMPV, warned, sending the stock careening lower by 42%. As CEO of a company in a similar space, and seeing your share price getting crushed on a daily basis, one would think Dave might take steps to protect his shareholders, no?

NO.

About 10 days after the IMPV disaster, Dave announced ANOTHER secondary. Keep in mind, this wasn’t an effort by the company to raise cash. Quite the contrary. This was an offering to allow Mandiant insiders sell their stock! Unbelievable! He is truly a destroyer of shareholder confidence and value. Awesome stuff.

Hindsight is 20/20. But, as CEO of the company, Dave had to have known that his quarter was not so hot. Yesterday FEYE reported a disastrous quarter, missing EPS estimates by a football field. Did Dave announce a share buy back or offer some sort of soothing remarks in an attempt to stop the bleeding?

Of course not. He’s an asshat.

On top of the earnings miss and horrendous stock activity, Dave announced ANOTHER acquisition, using $60 million in much needed cash and an intent to ISSUE MORE SHARES, to the tune of $10 million.

This guy is totally tone deaf. These events should be bookmarked and shared across universities around the world, as a lesson to future CEOs of what not to do. The wanton disregard for shareholders, the arrogance, the sense of entitlement, operating in a vacuum, all of these things make Dave Dewalt an asshat of supreme magnitude.

Seeing the shares of FEYE down more than 20% this morning, I think it’s fair to say his job is in jeopardy, rightfully so.

Nevertheless, congratulations to Mr. Dewalt for this unprecedented accomplishment, in receiving an annual asshat award, even though we are only in the month of May.

Cheers!

Apparently, Putin said he’d talk about resolving the Ukraine issue. As a result, european stocks are sharply higher and US futures are indicating a +92 open for the Dow.

Back to the subject of buying internet stocks. After careful consideration, gawking at the “pin-action” in stocks like FEYE and TWTR, I’ve decided that anyone found guilty of buying these stocks should be offered the electric chair. Clearly, these people have little regard for their own money, or personal well being. I say we expedite the issue and shock them back into the graces of humanity.

How do we value these companies? What are reasonable levels to start buying? The answers are right in front of our faces, with some of the old line tech names. Let’s discuss, shall we?

We shall.

EBAY 4x sales

YHOO 8x sales (inflated due to Alibaba)

GOOG 6x sales

BIDU 10x sales

PCLN 9x sales

I think it’s fair to say the above companies have proven to be successful. While their stock prices may or may not be inflated, I believe their price to sales ratios could serve as a guideline to where some of these newer names might trade. For one, most of these newer names do not make money. However, since they’re much smaller, they deserve  takeover premiums.

The average p/s ratio of the stock mentioned above is 7.4. Let’s affix a 30% premium to that and say these new “cool” stocks should be priced at around 10x sales. Fair? Now let’s look at where these stocks are trading, post meltdown.

WDAY 29x sales

TWTR 27x sales

Z 21x sales

SPLK 21x sales

GRUB 18x sales

FB 17x sales

QIHU 16x sales

YELP 16x sales

TRIP 13x sales

LNKD 11x sales

PANW 10x sales

AWAY 8x sales

OPEN 8x sales

SALE 8x sales

TRLA 7x sales

CRTO 2.9x sales

ANGI 2.4x sales

SFLY 1.8x sales

GRPN 1.8x sales

Potentially, some of these stocks have 60% further downside–if we’re gonna go all the way. Other names are within reasonable valuations and can be accumulated, if you’re into that sort of thing. The danger lies most in the names trading above 10x sales.

All that aside, it looks like a bounce this morning. I am sure it will last for a solid 15 to 20 minutes before selling off in horrific fashion.

Why did all of those “talented” programmers choose to work at Twitter? As a matter of fact, why do any of these modern day electricians, plumbers and handymen, also known as programmers, choose to work at their respective companies?

Did they choose Twitter for the culture, innovation, moral code? Or, perhaps they felt it’d be a good company to work at for the next 30 years, build a career, retire and live happily ever after?

The answer is no.

The only reason why people work at these hot internet firms is for money. We are not talking about a little bit of money either. We are talking about hitting lotto type of money. The sort of money you do not walk away from. It’s life changing, it’s awesome, and it’s legal.

All of the early investors in Twitter were selling today. This isn’t rumor, but fact. They own it for practically nothing and know the gig is up. We all knew this day of reckoning would come, eventually. None of these tech firms were worth 10, 20, 30 billion dollars. We were chasing dollars in a dust storm, trying to grab one more hundo before we choked to death.

All of these disgusting companies, “Silicon Filth”, as I like to call them, promote of brand of vulture capitalism that can only be described as “a culture of losing.” These people never tossed a football in their lives. They do not know what it feels like to be on a team–not some sort of tech nerd team either–a REAL team. As such, they now find themselves at the top of the pyramid. It’s a house of cards, ready to fall down, and the last man out loses. They do not have allegiance to the companies they work for, only themselves. They are losers and that’s how losers behave.

Look at Twitter, how that company was forged on deceit, a giant ponzi scheme thrusted upon the masses amidst a carnivale of praise by Wall Street’s finest and smartly dressed media titans. There aren’t any loyal employees at Twitter, only opportunists.

When I founded iBankCoin, for good or for worse, I decided we wouldn’t take in outside money and become beholden to craven bloodsuckers, whose sole purpose in life was to sell to the highest bidder. Although small, we’ve been profitable from day 1 and now have 6 full time employees, all with job security because we make our own way. iBankCoin dies if no one cares. Luckily, we all care and will make sure she lives for the next thousand years.

But Twitter, in all of its glory and unprecedented growth, no one seems to care. They sold stock today and will sell tomorrow and will continue to sell, like a glutton eating chocolate cake, until they are good and fat.

That just about sums about Silicon Valley.

UPDATE: Need I say more?

QTWW -52%

AEIS -21%

ININ -19%

TWTR -18%

HDY -17%

EDMC -17%

FLDM -16%

ATHN -14%

YELP -13%

TREE -13%

VRNS -13%

ECOM -13%

FEYE -12% (these misfits just announced an acquisition after the bell. The stock is down 60% over the past two months)

MWIV -12%

SGY -11%

HGR -10.5%

CRTO -9.5%

P -9%

BNFT -9%

And there were nearly 200 other stocks down more than 5% today.

TWTR is down more than 15%! today because its lock up period expired. If that makes sense to you, well then, you are a very intelligent martian–because you’re not from this planet. Stocks don’t trade down 15% because their respective lock up periods expire. That’s patently absurd. This isn’t an illiquid stock or even an up stock for that matter. Quite frankly, the computers have gone mad, selling everything remotely related to high multiple technology–grinding them into the ether.

Look at CRTO. The computers must be confused with this one, trading at a touch over 3x sales. They just smashed earnings and guided higher with a BIG beat on the top line. Early going, the stock had climbed 10%. Now it’s down 5% and rapidly taking on water.

Inside of The PPT, I built a bubble basket of my own. It’s down 3% for the day, led by losers such as FLDM, TWTR, YELP, ATHM, FEYE, PLUG, RUBI, MKTO, ECOM etc. It’s just more of the same, relentless selling into a black sea of uncertainty.

This is what I do know, however: these stocks are the plague. They should be avoided at all times. In the case of CRTO, I insist this isn’t a bubble stock and its shares should rebound shortly. As for everything else, falling by the wayside, I offer you a eulogy in 140 characters:

The bubble was great fun. It was invigorating and we all got to experience the essence of youth, to be gratuitously rich, careless–perfect.
-Fly, May, 2014

UPDATE: David Einhorn’s short ATHN to single digits presentation from yesterday.

Remember this moment boys, for as long as you live, for it is the exact moment in time when Wall St said “enough is enough.” The moment animated candies stepped onto the NYSE to mingle with the cynical alcoholics on the floor, all hope for extending the bubble died.

This is the tipping point in stock market history. It must be documented here– for the children– so that future generations learn from our mishaps.

TO HELL WITH KING DIGITAL AND MAY TWITTER BURN IN THE HELL IT WAS FORGED IN.

Try to explain to me how Italian 10 yr yields (Italian debt to GDP is approaching 130%) are now under 3% for the first time ever? Is it Russian oligarch money in search of safe haven? Are equities that unattractive that people would rather invest their money in insolvent governments? It’s not just Italy. All of the PIGS are enjoying record low yields now. Here at home, our yields continue to compress, which is a boon for governments, by the way. We tend to view these things as canaries in the proverbial coal mine. But what about the benefits?

Surely these governments benefit from having to pay less interest income on their insane amount of debt, no?

The only thing that is supremely messed up with this market is the flight out of high growth, money losing ventures, into old man stocks. Why the change in risk appetite now? Did the bubble just pop because time took its toll and people woke up and learned what a price to sales ratio was after years of ignorant bliss? Or maybe there is something insidious lurking beneath the surface?

For the most part, earnings are coming in better than expected– for the momo names. However, most of them are trading down anyway. This morning my CRTO posted much better than expected results and offered a BIG guide up. These guys aren’t valued crazily, at just a tad over 3x sales, so the stock should do well. However, if you own stocks that trade more than 10x sales and they are due to report, WATCH OUT.

I’ve only begun investing again because I felt I had to. The market demanded–so I obliged in kind. I bought a basket of stocks, some value– others beaten down momo–with the intent to make a “little bit of money.” I’ve been in ruts before and I tend to get very stubborn after being on the wrong side of a trade.

As I type this annoying blog, my G, H, J, K and L keys on my laptop barely work. It is driving me nuts, so I am going to cut this short.

I am convinced that I am cursed by devils. These same devils have afflicted me in the past and I’ve become accustomed to their evil ways. I must cleanse myself of the rot and negativity that has permeated my brain. I cannot sail these waters rudderless and I am in great need of purpose.

Once upon a time, I was an oil man, a coal man, a man of gold, leisure, tech nerd etc. Now I am just some guy with BIG ASS LOSSES (BALs) trying to make it back, wholly pathetic and I know it. There can be no swagger without imposing my will upon the markets, with extreme force and savage ferocity. That’s something that emanates from passion, not luck or technical analysis.

I might have to go on a journey, travel to distant lands to “find myself” and come back a new man, one who has seen the future and isn’t afraid of mushroom clouds or the Four Horsemen of the apocalypse.

ODF DAMN IT TIS APTOP SUCS!!!!

Fuckers.

The market plunged at the open, down more than 120 points, only to snooze the remainder of the day, quietly drifting higher–led by old man stocks. I spent the better part of my day stuck inside of the dealership, repairing a flat tire. As I type this on my laptop, I see the keyboard isn’t working as it should, so I will be making an appointment at the local Apple store shortly.

Speaking of Apple: it is Wall Street’s piggy bank, once again. No one is concerned with the lack of innovation anymore, because Samsung seems to have stalled themselves. What we are left with is a commoditized company, with a dominant market position and cash reserves that make the US government jealous.

All of my peers are keenly interested in the Ira Sohn conference today, a charitable event where narcissistic hedge fund managers get to aggrandize themselves, all for the sake of charity.

I couldn’t care less, truly.

Into the bell, I have some up stocks, some down, nothing too exciting. I will look to invest the rest of my cash this week, completing my journey from degenerate stock gambler to a person with a reasonable portfolio of stocks that can be expected to preserve my capital, if nothing else.