This Froth Has to Be Reined In

 | Mar 17, 2014 | 7:25 AM EDT  | Comments
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Stock quotes in this article:

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You can't stop the froth, even in the midst of a new Cold War between Russia and the West. You can't stop it even as major stocks seem to be rolling over left and right. You can't stop it even when the established stocks in a group are getting crushed but initial public offerings in the same sector come along and roar.

Take last Friday. Castlight Health (CSLT) came public to tremendous fanfare, soaring 140% the first day. Why? Because this is a company that offers a software-as-a-service cloud-based solution for healthcare benefits. Whoop-de-do. Have you seen how badly Salesforce.com (CRM), Workday (WDAY), Veeva (VEEV) and Concur Technologies (CNQR) shares have been trading after excellent quarters? These companies are the cream of the crop, and they have been fabulous shorts for two weeks now -- and we like Castlight?

I suspect this week will be more of the same when several other names come public: Paylocity, a cloudbased payroll-and-human-capital company; Q2 Holdings, a cloud-based community­-banking play; Amber Road, a global trade cloud-based company; and Globoforce, a cloud-based social-recognition software business. (Ticker symbols will be "PTCY," "QTWO," "AMBR" and "THNX," respectively).

These are all versions of what could easily be described as existing companies. In fact, Paylocity sounds like Workday-meets-Cornerstone OnDemand (CSOD). As for Q2, Salesforce.com has a community-banking initiative -- check its site. Cloud-based social recognition and global trade businesses? I am sure Globoforce and Amber Road have something proprietary, but I have to ask: "Do you really need to come public now?" What's the darned hurry? The answer, of course, is that the public market is divorced right now from the soon-to-be public IPOs, and that is always a bad sign.

It's the same thing with biotech. Upcoming IPOs for Akebia Therapeutics, an anti-anemia therapy company and for Versartis, a growth-hormone play, presumably will dazzle (under respective tickers "AKBA" and "VSAR") -- even as Celgene (CELG), Gilead (GILD) Isis (ISIS), Jazz (JAZZ) and Seattle Genetics (SGEN) are becoming unglued.

Now, I happen to like the incumbents. I am not making a judgment about those. I think the incumbents that I have mentioned here in the cloud and biotech spaces will come back. Many are fine companies.

But the hot deal froth now stands with the fuel-cell debacle, the marijuana froth, the tiny-biotech bubble, the rampant penny-stock craziness, the anything-solar love affair, the Fannie (FNMA)-Freddie (FMCC) silliness, the Tesla (TSLA) anything-goes trading and the 3-D printing nuttiness. It's all just total bad news for what has become a bedraggled market.

Plus, you can see that we have a flood of Chinese IPOs coming and the Chinese stock market is the single biggest bear on earth. Can we really separate China's social and gaming Internet IPOs from the rest of the madness over there?

The bankers will.

We are having way too much of a good thing in certain sectors and way too little of it in others. The hatred is amazing if you call this stuff out, which I know over at @JimCramer on Twitter.

Just makes me dislike the market more and more. This froth has to be reined in. These deals need to start failing and the window needs to close. The big-volume joker names need to come down to earth and stay there, or we aren't going to get through this period without a more serious broad-market correction.

It has always been this way. It will be now if the froth isn't stemmed. If it is, then the market can resume its climb, provided we get stabilization in Ukraine and China. Without it, it'll be tough sledding. Sorry.

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