Is It A Bubble Yet?

Includes: DIA, IWM, QQQ, SPY
by: Acting Man

Warning Signs Proliferate Again

One of the best illustrations that we are in an unmitigated and absolutely frantic financial bubble is the recent rally in fuel cell stocks. Yesterday, Plug Power (NASDAQ:PLUG), a stock that traded at a mere 15 cents last year, finally fell sharply from its high above $11,70 (yes, it has risen by about 77 times in a few short months) after Citron Research remarked that nothing – absolutely nothing – has actually changed at the company.

According to MarketWatch:

“Plug Power shares traded at their highest in five years, and the stock was the second most active in U.S. markets in early trading Tuesday.

Then Andrew Left of Citron Research came out and said Plug Power PLUG -1.16% shares would be fairly valued at 50 cents. Shares of Plug were recently down 25%. “It’s a casino stock, “the lowest form of speculative moonshot,” Left said in a note Tuesday. There are no profits, no unique technology, and the end of government subsidies looms, he added.

Nothing has changed in the year since the stock traded at 15 cents. “Revenue for the 9 months ended September 30, 2013 was $18.6 (million), vs $20.2 (million) for the prior year. Nothing more needs to be said.”

(emphasis added)

The PLUG mini-bubble.

Not only is this type of action highly reminiscent of the spring of 2000, it also turns out that the reason behind the moonshot is the fact that various companies are trying to avail themselves of federal subsidies by engaging in what are plainly uneconomic investments (if they were economic, they would not require subsidies):

“The contracts that have propelled Plug Power to stardom? Big companies such as Wal-Mart and FedEx are after the federal tax credits for renewable energy, Left said. That particular punchbowl, however, is likely to be taken away in a couple of years, he added.”

(emphasis added)

That particular punchbowl is indeed likely to be taken away. For one thing, it is unaffordable and for another, global warming has stopped 17 years and 5 months ago (and counting). This is notwithstanding the fact that the political and bureaucratic elites continue to propagate the "climate change" meme sotto voce at every opportunity.

Leveraged Loans, Penny Stocks and Profitless IPOs

SentimenTrader has posted a few updates recently that show that financial froth is quite out of bounds by now. For instance, the share of IPOs of money losing companies over the past six months has soared back to the highs last seen at the top of the technology mania in 2000. A full 74% of all IPOs issued over the past half year were in companies that are making losses. The securities of such companies bereft of income of course all tend to soar right after they hit the market.

In another update, it was pointed out that the value of trading in penny stocks has soared to a multi-year high:

Penny stock trading soars.

Admittedly, a similar spike in 2013 subsided quickly and didn't turn out to mean anything, but since then there have been several intermittent spikes, and their frequency has clearly increased. At some point, it will mean something (just because something has not had meant much so far does not mean it never will).

However, the soaring issuance of leveraged loans really takes the cake. This is a chart to make even hardened bubble-heads dizzy. It is especially noteworthy how the current surge compares to the surge in 2007, shortly before the last bubble peaked. Nothing remotely comparable has ever been seen before. It is a mirror image of record junk bond issuance and the mania for high yielding debt in general (whereby "high yielding" these days actually means "not yielding very much").

Leveraged loan issuance goes bananas.

So we ask again: Is it a bubble yet? Perhaps Ms. Yellen knows.

Charts by StockCharts, SentimenTrader