Unfortunately, what happens in the US equity and bond markets impacts everyone around the globe. I truly wish it weren't so. I truly wish Indian markets were insulated better against what happens with FIIs, bond markets and the overall US equity markets. But the ground reality is that this is not the case. The current hot news doing the rounds is the SpaceX IPO. What an event. Everyone wants in. Valuations are sky-high, profits are . . well, there aren't any. Yet. Events like these really call into question the efficient market hypothesis. As a disclaimer, I am not arguing about the future potential at all. Far from it. SpaceX might be the Star Trek of our times. They might change the world by mining asteroids and putting up data centers on the moon. All might be legit. But it certainly ain't happening overnight. To quote Roy Amara, "We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run." Lets sum this up for a bit.
On May 1st of this year, NASDAQ changed a bunch of rules (reduced seasoning period before index inclusion, public float thresholds, amongst others). On Jun 11th, SpaceX debuted on Nasdaq. by July 7th, it capitalized on every single one of these structural loopholes to force its way into the Nasdaq-100. There's no doubt about this. Debating this point is moot. It's generally accepted the rule changes were for SpaceX's benefit.
While this is happening, the research teams of the SAME investment banks that underwrote the IPO published buy ratings that defy common sense, logic and math. For example, Raymond James published a target of USD 800 for SpaceX which would take it's market cap to USD 10 trillion which is 31% of total US GDP.
Cherry on top - SpaceX still lost 7% of its value since its inclusion in the index and 39% of its value since its post-IPO peak. Not surprising since it's not turning profits, hemorrhaging money and does not have a contract pipeline beyond its defense contracts. Rigged game if there ever was one. Nasdaq gets bullied into a mega-IPO. Passive funds get bullied into adding SpaceX in their indices. Research analysts get bullied into publishing nonsensical buy ratings.
In Ayn Rands dystopian novel Atlas Shrugged, one of the protagonists, Francisco D'Anconia, deliberately hypes up worthless, non-existent copper mines to drive corrupt politicians, looters, and parasitic investors into a speculative frenzy, only to watch the engineered bubble burst and bankrupt the very systems trying to leech off his productivity.
Looking at the SpaceX listing, it's hard not to see the parallel. Either Elon is the ultimate con artist, or he is playing the real-life d'Anconia. If it’s a grift, it’s a historic transfer of retail capital to the top. But if it’s a d’Anconia move, Elon is playing a spectacular joke on modern financial systems. Forcing captured regulators, passive indexing giants, and fee-chasing underwriters to choke on a capital-hemorrhaging physical utility they valued as a multi-trillion-dollar monopoly just because he slapped an "AI" label on it. Either way, Galt's Gulch has never looked this expensive.
But there's some hope. While Nasdaq and FTSE Russell practically tripped over themselves to change their listing rules, S&P Dow Jones Indices flatly refused to play ball. They stood firm on their strict requirement: a company must show consecutive GAAP profitability over four quarters.Because SpaceX posted a massive $4.28 billion USD net loss in Q1 2026, it remains strictly locked out of the S&P 500. It turns out, guardrails can exist when a registry actually respects financial math over transaction-fee dopamine. Nasdaq surrendered its integrity for a historic listing fee; S&P looked at the same spreadsheet and chose to act like the only adult left in the room.
I could go on and on about how the underwriters and corporate insiders earned a hefty profit and left the retail investor literally holding the bag. Mega funds like Blackrock, Vanguard, global sovereign wealth funds from the middle east . . all earned a profit. They bought in at USD 135 per share. The IPO commenced trading at USD 150 per share. Guaranteed profit. Most cashed out. Some waited for the frenzy to peak at around USD 225 per share. The mechanics of this wealth transfer are almost beautiful in the scale of their grift. But the real master stroke was the NASDAQ100 index inclusion. By forcing index inclusion in just 15 trading days, they unleashed a legally mandated wave in passive fund buying. This algorithmic, non-negotiable volume provided the ultimate pool of exit liquidity, letting the smart money (read corporate insiders) systematically dump shares without crashing the market. The net result - the retail investor, the common man is left holding the bag.
On a side-note, SEBI treats merchant banking and equity research like radioactive isotopes. While SEBI swings the other way by being too interventionist, they proactively hunt down predatory "finfluencers" and try to prevent cross-selling. It's not perfect, but SEC can really learn something from SEBI.
Ultimately though, we can't hope that financial regulators grow a spine and start looking out for the little guy. That's not going to happen. The system relies almost entirely on the financial illiteracy of the common man to swindle him'/her out of their hard earned savings. Boom-and-bust cycles will always exist because human greed is an immutable constant. But when the common man stops providing the free capital that keeps these valuation hallucinations alive, the investment banks are left choking on their own supply. The path to this financial literacy begins with mastering the basics. The very nature of money. There's a ton of good literature out there about the psychology and history of money. From Morgan Housel to Robert Kiyosaski (bit controversial). From Michael Lewis to Nassim Taleb. Point is - an informed investor can behave a bit more rationally than someone who is just "buying into the hype". It's time to understand how the plumbing works and call out the BS.
No comments:
Post a Comment