IPOs of SpaceX, Anthropic and OpenAI alone can’t fix this market
We don’t have enough money to go into the stock market to handle the three major IPOs coming our way. Of course, we can all be excited that SpaceX could be a $2 trillion company, OpenAI is raising money at an $830 billion valuation, and Anthropic is valued at $380 billion and will likely be much bigger before it launches. But I’m much more worried about where all this money will come from. Currently, our valuations of these companies are determined by institutions that appear to have unlimited money. You won’t feel any real resistance to any price. If you remember, OpenAI was valued at $500 billion and a few weeks later it reached $830 billion; Nothing real happened other than constant user growth. The numbers almost seem made up. There is no price/earnings multiplier; these companies are losing tons of money. There is no plan to make money. They can justify their unprofitable nature because they all stray from the herd in those once-in-a-lifetime moments and can only distract themselves by insisting on being profitable. The market itself does not impose any discipline. It’s all fun and games until someone gets hurt. There is a lot of work to be done for this market. We have an ongoing war in the Middle East, where the assumption is that air power can destroy the current Iranian regime and force the Strait of Hormuz to open. So far this has not been the case. We know that the market cannot rise as oil rises. It’s just axiomatic. There’s no such thing as “this time it’s different,” because there’s nothing different about a commodity that knocks everything down when it rises. You could argue that we have more oil than in the past. But then look at the price of the pump. You could say AI is creating more value, but it won’t offset the S&P 500’s earnings per share losses. With an 11.4% gain on Thursday, U.S. benchmark WTI crude for May delivery had its sixth positive week in seven, rising almost 12% from the previous four-day period. No one doubts the inflationary effect of oil. To put it even more clearly: The market cannot rise as long as the war continues. It hasn’t been hit as hard as we expected because President Donald Trump seems to be considering the stock market in some of his thoughts. He knows there will be reluctance to leave the market if he keeps saying the war will be over in 2-4 weeks. Who wants to go out and find out the war ended two days after you left? I don’t know about you, but I wish he would state his war goals at this point and achieve them no matter the time frame. The market is a false god when it comes to war. It means nothing to anyone except those who think it measures their job performance. When I hear these two to four week, no endpoint predictions, I try to understand how a war can end when you’re trying to get the other side to agree to something, not yourself. We cannot force ourselves to do anything. We can only force the Iranians to do something, and they do not have the same time period as us. This causes endless drift in the market and does not create an atmosphere in which you would want to invest in stocks. Yes, if you are already inside, you may not want to leave if the war is about to end. But no sane person, at least at this point, would say, “Let me get into this market, because the war is about to end.” This means the market is at risk of a cash crunch. Think of it this way. What demands does this market place on our money? First, he wants us to show up unseen, thinking the President has a handle on what’s going on in Iran. Maybe so. Maybe he knows your pain threshold. Maybe he hasn’t taken off his gloves yet. Maybe he really is thinking of bombing the Iranians back to the Stone Age. The term is attributed to Air Force General Curtis LeMay, who led the firebombing campaign against Japan during World War II. In his autobiography, “LeMay, My Story,” there are many fuzzy acknowledgments about LeMay and the Stone Age idiom. These days, anyone can click on Gemini and find out what LeMay did or didn’t say. Let’s put it this way: LeMay was a hawk on Vietnam, which is what the phrase means. He indirectly wanted to destroy the will of North Vietnam through intense carpet bombing. Given that air campaigning in World War II resulted in the deaths of perhaps hundreds of thousands of civilians, many took this statement to mean that he wanted the same thing to happen in North Vietnam. Three years after he allegedly made this statement to his biographer, he retracted it because it was so harsh that he did not want to be associated with it. Somewhat incongruously, we now have a president who is threatening to do to the Iranians what the biggest hawk on the Vietnam War later tried to walk away from — even while the conflict is still ongoing. LeMay ran as a vice presidential candidate alongside George Wallace in 1968 and denied saying anything in his autobiography, even though it was ghost-written. To summarize my first point: We have a president who puts no limits on his bombing campaign, except that he can win in two or four weeks, but we don’t know what winning is. This is not an environment where you want to invest money even when the market is oversold. Second headwind: Much of the market is on hold because we don’t know where rates will go. It’s very comfortable to be on the sidelines right now. While we don’t have any capital risk, we are paid relatively well despite some inflation. Many historically cheaper stocks will try to rise before short-term interest rates fall. Plus, we have a new camp that says we need to raise rates because of inflation. I think this is unlikely, but it has been brought into the discourse by prediction markets and commentators, so it cannot be eliminated that easily. If rates rise, it’s hard to see how we’ll face anything other than a terrible bear market. Remember, there is a ton of money that is not long and therefore does better in a bear market. Theoretically, everyone has a “vote” in predicting what the Federal Reserve will do — as opposed to actually being able to vote — so we get a percentage of people who predict a rate hike and openly support the bear. The longer the war lasts, the greater the likelihood of a permanent wave of inflation. When you read about plastic and aluminum factories being shut down in the Persian Gulf, you have to start thinking about higher prices for those using these materials, from breweries to personal computers. In this war, human lives are taken every day. It’s ruining everything. Third challenge: We’re about to run out of money. The big three anticipated IPOs (SpaceX, Anthropic, and OpenAI) are all great companies that are revolutionizing the world. Institutions and individuals want a piece of these. But let’s face it, there is no useful pool of capital waiting for these three. To buy these things, something will have to be sold. If they are added to the S&P 500 immediately, something will have to be sold to buy them. There is no pool of capital waiting for them at S&P. The pressure that these agreements can create on the market is enormous. Of course, union desks are also aware of this. Maybe they decide to limit the float to a small amount. This would theoretically increase the price of the remaining untraded stock. I have no idea how S&P will adjust to this. If the syndicate desks only allow a small fraction of the price to reach the public, we don’t know whether the price is artificial or real. Let’s assume that no matter what happens, a lot of new stocks will be created and that will not be good for the rest of the market. SpaceX is not expected to make many purchases from SpaceX. Both Anthropic and OpenAI are more likely to be zero-sum destroyers than creators. Look at what AI is doing to software-as-a-service stocks, and then to enterprise software as a whole. To summarize: First, we are faced with a war that may or may not end soon, with no clear way out and no clear set of negotiations, depending on both Iran and the United States, which looks a little more fanciful than it did a week ago. Second, we face an inflation crisis that will get worse as the war continues, reducing our chances of getting a Fed rate cut. Third, we create a lot of inventory to keep progress. Under these circumstances, could we actually see Nvidia challenge $200 per share again? Can we really invest in Microsoft thinking its Copilot initiative will rival Anthropic’s appeal? Will the retail-housing-banking complex that benefits from consumer spending somehow see pent-up demand flow back into stores and inventory? Everything is possible. And everything that has happened before is often the beginning of positive events that are not yet visible. Plus, if you want to be really fanciful but definitely possible, what if the president said, “The Iranians chose to open the Strait of Hormuz. They surrendered. We’re done here, provided they don’t try to restart nuclear weapons, and if they do we’ll go back to bombing.” And then it goes. At this point we will face the third negative: there is not enough money for all the deals. This alone is disturbing. If the syndicate desks allow too much stock trading, we will go bankrupt. But what if they don’t? Then all three negativities will disappear and you will wish you had bought it when you had the chance. Although this positive scenario is unlikely, believe me, it is why we are not below the typical 20% rate on the S&P that is always seen when oil doubles. I was hoping we would get so oversold on the S&P Short Range Oscillator that it would give us an almost artificial 20% decline – many stocks are already there. This did not happen. That’s why we wait. We sit on our hands. What else is there to do? (See here for a complete list of stocks in Jim Cramer’s Charitable Trust.) When you subscribe to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trading alert before buying or selling a stock in his charitable foundation’s portfolio. If Jim talked about a stock on CNBC TV, he would wait 72 hours after issuing the trading alert before executing the trade. THE ABOVE INVESTMENT CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, TOGETHER WITH THE DISCLAIMERS. 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