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TPW Advisory Friday Musings: The Carrot & the Stick
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Everyone is familiar with the story of the carrot and the stick – the carrot is the reward or the lure to do something and the stick is the threat of what might happen if one doesn’t.
In the financial space the IPO has usually been the carrot for the hardworking entrepreneur operating under the VC’s watchful eye, threatened with the stick of no more funding if the plan isn’t executed on.
Today it seems as if things have reversed – the private equity space is awash with money and every startup is rewarded with oodles of cash and then various funding rounds at ever higher valuations – at least till they come public.
To me the public markets are now the stick – the IPO does offer a route to cash out but it also means facing the public market investor armed with comps and a much greater sense of the ins and outs than an opaque private round where investors are often in bc they have to be not because they want to be.
Look at the Coinbase IPO as a recent illustration (down close to 50% from high) or the launch of DAPP, the digital pick & shovel ETF (down close to 40%) or the SPAC splat or this week’s Crypto Carnage – it’s been some ride – somebody should get naming rights for the Coney Island rollercoaster. Most recently Squarespace IPOd and closed its 1st day roughly 40% below its last private round in March – down 40% from a private round less than 3 months ago – talk about ouch!
Yet all the bubble talk is about the public markets – I just don’t get it. I have written about how masterful the public markets have been at pricking all the little bubbles – the FANG names, Robinhood bros, Thematic trend plays, USTs & now the Crypto Killers. We even have the first blush of a healthy pullback in Commodity land – its welcome – trees don’t grow to the sky and neither does the price of oil, copper, lithium, lumber, carbon etc.
JPM just updated its SPY EPS projections to $200 in 2021, $225 in 2022 and $245 in 2023. That puts the SPY at under 19X 2022 EPS– that’s a bubble? Bitcoin down well over 50% – that’s a bubble, ARKK down well over 30% – a bubble? Really? I just don’t get it.
I see a public equity market that runs on twin engines – Value and Growth – when rates rise Value does well, when rates ease Growth does well. I found it super impressive that Wednesday’s Crypto Carnage didn’t spill over into the growth or thematic names at all.
The key takeaway this week is from Mr. Market – regulars know I like to let the market tell me – and Mr. Market is telling me there is no more selling pressure in those names.
Jay Pelosky
Estrategista Global - TPW Advisory
Nova York, EUA
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