The Fretting Among Wall Street Gurus Has Begun

Something has to give. 

A stock market that has rallied sharply to ludicrous valuations is normally accompanied by a booming IPO market. They’re like twins. The S&P 500 jumped 13.5% in seven weeks – to bring it back up to flat year-to-date, a lofty perch, though down a smidgen from its all-time high in May 2015. But year-to-date, the IPO market is in the worst shape since 2009.

Something has to give.

“Either the IPO market is going to pick up, or the stock market is going to pull back, but it’s hard to envision both conditions peacefully coexisting,” Jack Ablin, chief investment officer at BMO Private Bank told the Wall Street Journal.

In the US, only 8 IPOs made it through the window in the first quarter, according to Renaissance Capital’s Quarterly IPO Review, dated March 31. They were all early-stage medical device or biotech companies. Two from China. Not a single one has a product or revenues.

Also three blank-check companies made it out the gate, with the idea of buying up assets as they become available, but Renaissance Capital did not include them in the above tally. The Wall Street Journal pegged the total number of IPOs at 9, including the three blank check companies but excluding the two China-based outfits, which are already publicly traded elsewhere.

This was the lowest number of IPOs since 2009. And the total amount raised – $1.2 billion for all of them – was the smallest in 20 years. Another 9 IPOs got postponed at the last minute, and one was withdrawn altogether. No Tech IPOs at all.

It was the first quarter without any private-equity backed IPOs since Q1 2009. PE firms had loaded up on LBOs before the financial crisis. After years of booming stocks, they thought it would be a good time to unload. Some did in 2014 and 2015. Most of those struggled. And this year? Renaissance Capital:

The last LBO to go public was KKR’s payment processor First Data in October 2015; since then, it has vastly underperformed its peers. A spate of large PE-backed IPOs have waited in the pipeline since the 2H15, including Albertsons, Neiman Marcus, Univision and Laureate Education.

Another big-name LBO queen waiting in the wings is US Foods Holding Corp. But for now, PE firms seem to be stuck with their LBOs.

During the quarter, when the S&P 500 index was about flat, the Renaissance Capital IPO index fell 7%. Not exactly an enticing environment.

One of the problems pre-IPO companies face is their mega-inflated “valuation,” the infamous “unicorn” syndrome where startups have to be valued at $1 billion or more, by hook or crook, to where even SEC Chair Mary Jo White made it a point yesterday to come out to Silicon Valley herself and warn power brokers and money gurus about “fraud” in these valuations that not only hits employees and others that end up with these shares directly or indirectly, but also filters through institutions to retail investors.

“The concern is whether the prestige associated with reaching a sky high valuation fast drives companies to try to appear more valuable than they actually are,” she said at one point. No kidding. The SEC is watching out for us – after the damage has already been done.

So to get out the IPO window, some companies had to discount the “valuation” they had as a private company. Square, which had a valuation of $6 billion as a private company, went public at half that last year. Despite doubling since its low in February, including a curious spike over the last few days (what is Wall Street trying to accomplish?), it’s still $1 billion short of its valuation as a private company.

And that kind of valuation markdown – 50% in some cases – is a scary thought for current investors and employees who might see that perceived wealth disappear entirely if they came late to the game.

There are now 42 companies in the IPO pipeline with new or updated filings since January, according to Renaissance Capital, including a gaggle of private-equity backed LBOs and 11 revenue-less biotechs similar to the ones that just wobbled through the gate. But so far it doesn’t look very good for them in the second quarter either.

“It’s kind of unprecedented for the general stock market to be so close to record highs and yet so little IPO activity,” Jay Ritter, professor of finance at the University of Florida, told the Wall Street Journal.

Now everyone is waiting for the icebreaker, that one big company with real revenues and preferably even earnings to pull off a successful IPO. Then everyone else can follow. That’s the meme. So who dares to be next?

On a global basis, the IPO picture was dreary too. Only 167 IPOs made it out the gate, the lowest since 2009, the Financial Times reported. Even worse: 17 IPOs were “scrapped” at the last minute, or 10% of the total, an unheard-of proportion. As in the US, stock market “volatility” got blamed.

But the past seven weeks, markets have been soaring and volatility as measured by the Volatility Index (VIX) has settled back down to historically low levels, and still the IPO drought persists.

So could it be something else?

Turns out, investors don’t seem to believe in the rally. They fear that the rally was the product of a majestic short-covering panic, a classic bear-market rally that traders rode up as far as they could – that it wasn’t in fact the beginning of a new bull market. But a bull market is precisely what it would take to dump these overvalued IPOs on a blindly exuberant public. And the IPO gurus, with all their insights and perspective, don’t seem to see that bull market.

They have their reasons. Not all is rosy. Business revenues and earnings are down, productivity is down. And now layoffs are reaching far beyond energy. Read…  Job Cuts Pile up

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  28 comments for “The Fretting Among Wall Street Gurus Has Begun

  1. Guido says:

    “So who dares to be next?”

    There are three companies waiting in the wings to go IPO. One of them is Nutanix. Nutanix is in a rush to get out and it will likely get out. As was the case with Box, they need operating capital. These companies will only release revenues or something else that shows them in good light. The writers, such as this Mitra lady, will sing paeans without any critical thought —

    The markets are being prepared for an IPO. Even Marketwatch that is blue from koolaid cannot fathom why Square’s stock cross 15$ yesterday (and they admit it —

    My reading is that the unicorns will get out and make hay for the rest of the year (at least before the elections). Some of them will also try to get into Nasdaq 50 and eat away at 401ks.

    I don’t think these companies have anything to be scared of. It is the 401k guy whose ROI is now approaching zero (especially if she invested at Dow 18000 or Nasdaq 5000) that is going to get wiped out.

    As Eva IPOron would have said, “Don’t cry for me”.

  2. Petunia says:

    You should have included the list and we could have picked thru it and given them our expert opinions on which ones would make it and which ones wouldn’t. Now they have missed a chance to really launch a winner.

    • Wolf Richter says:

      Great idea! Let me see if I can put something together on this and post it maybe this weekend.

      • CrazyCooter says:

        Oh, this is going to be fun!

        To be clear, I really dig your analysis, but if it wasn’t for the comment section I wouldn’t troll nearly as often – I sort of value others educated opinions over “SME”gals (i.e. Subject Matter Experts) – back to that 40 years experience rant that probably could have been a bit more clear cut – sounds good for all involved IMHO.



  3. You have to wonder what these same folks will be saying three- four- five years from now when the IPO ‘last hurrah’ was the 4th quarter of 2015?

    “Tomorrow, everything will be better … ”

    (“My waterfront property is five feet underwater at high tide!”)

  4. Ptb says:

    IPOs have dried up, but global capital flows seem to like blue chip equities and debt. It looks like this trend will continue.

  5. Tim says:

    And another data point in the index levels – IPO question: NYSE margin debt.

    February number is out, $435.8 B, down a little from January, ~ $477.7 B. But not really very low. So all the angst in February, but margin debt down just a little? March number will probably be up again, following the indices. So we haven’t seen a big drop yet. No prediction from me as to when a big down move could happen, but I’m not in the broader market, as it is so very over valued.

    • CrazyCooter says:

      As long as free money flows, it finds a home. Too many middle layers who feed off the fees and skim and vig. So you are mostly on target. Go upstream a bit and look for when the faucet gets turned off – then all holy hell is going to break loose.



      • Tim says:

        Corporate credit ratings are declining with the piling on of debt. So the buy back farce has a ?? possible limit ?? I have to laugh suggesting this, as the financial engineering exists in some kind of alternate universe that doesn’t seem to have any normal fundamental boundaries. “Just add some more goodwill marks to prop up valuations.” Markets by Monty Python. “Cheap corporate credit has to hit boundary some day.” But no, it goes on, and on, and on, and…. ad nauseum. And the Fed has no limits. So hard assets should go through the roof. But no, contrary land never ends.

        But eventually, the transfer of assets to the creditor class has to happen, it’s a credit cycle. Class war in the markets will leave the margin debt players empty. There has never been a permanently up market in history. Until now?… Ho, ho, ho…

  6. Dave says:

    Everything is beautiful. The market is going up forever. I said it first and everybody else is wrong.

  7. Bigfoot says:

    Margin debt is something I’ve tracked for many years. I also look at credit balances & free cash in the margin debt arena. In particular, I’ve been eyeing the rocket launch of margin debt from 2013 to present. Here’s a link to some data charts specific to this topic. It certainly looks like we are starting to roll over, especially when you consider the vast amount of negative economic data we’ve seen reported globally the last quarter+. Any how, here’s some charts to check out.

    • CrazyCooter says:

      But, if the fed stuffs more cash in the furnace, does it matter? Really, to be clear, if they are hell bent on inflation, they can print until the denominator is zero – it makes the gamblers whole at the expense of the producers.

      Do you see anything different ?

      That is not a good outcome, but it seems to happen over and over in history.

      See, that is the problem here. There aren’t markets anymore, just casinos – and the Fed is the house. How do you win when the rules change?

      So, the real question is … what is the house gonna do? And that ain’t gambling (or investing). You are better off fishing – at least you have odds of catching.



      • Bigfoot says:

        Having watched this show intensely for several decades, it seems to me that the manipulation in the stock, bond, & forex markets have steadily risen through the years. There’s always been some, but now it’s over the top, in your face & obvious for anybody who looks for a minute. Dark pools & algorithmic computer driven HFT systems dominate. I’ve grown so weary of hearing TSHTF soon meme which has sounded repeatedly since the 90’s, albeit with brief interludes. Only because it’s been happening all along, just at a slow incremental pace. It’s not just the financial markets. The systemic loot & pillage of our earths finite resources is also a part of it. A subject for a different time & place I suppose.

        So where is the line in the sand, the edge of the cliff in regards to printing? – Do I see anything different ? Not really, but at some point it will matter, it always has. History may not repeat exactly but it certainly rhymes. What will be the trigger point (or excuse) for the house loosing control? Probably war or a foreign debt genie that escapes the bottle & cascades through the system, or their own concocted event to crush the ones still in the game & reel the chips back into the house as they have done historically time & time again. (Hey it wasn’t our fault, we are, after all, globally connected) The handlers are certainly trying to push the day of reckoning off as far into the future as possible. The war on cash, the ongoing surveillance from every angle ‘they ‘can attain, the multitude of laws foisted upon a captured citizenry, the ridiculous rates of taxation (built into everything) are IMO all part of it.

        Ah, casinos & what is the gambling house going to do? This begs another question. What is the difference between speculating & gambling? IMO, there’s an important distinction. It’s all a matter of understanding & being able to calculate the odds. There are a number of poker & blackjack players that learned to beat the house. (card counting) They only bet heavily when they had identified that the odds were in their favor. They understood the mathematical basis of the “game”. They are speculators.There are also a number of these fellows who have gone on to be immensely successful traders because, & only because they educated themselves to understand the odds of the game & speculated when those odds were in their favor. Sadly, most people are gamblers when it comes to so called investing. They haven’t taken time to study the odds. Like most casino patrons, they plop down their money, “hoping” for a reward. They haven’t learned the difference between being a gambler & a speculator. (an educated understanding of the odds)

        For those wanting to speculate, I would recommend they read the Jack Schwager series of Market Wizzard books. Their is a vast wealth of information, trader biographies, & trading wisdom to be found. You will also realize that most of the successful traders have gone bust one or more times during their career.

        A huge & often overlooked thing is that the “game” is in a continual state of change. You may develop a system that works for awhile but it won’t work perpetually because the house is continuously changing the game. You have to see it & adapt appropriately to stand a chance.

        I spent a lot of time in the 90’s developing my own trading system. I bought a slew of books & many trading courses while trading a small account. Most of the courses were rudimentary but a few were very good. Incidentally, a few books about the psychological aspect of trading were just as helpful as the best trading courses were. After 5 years of swinging up & down trading, I finally developed a system that won about 70% of the time, used proper risk/reward metrics as well as money management principles. I consistently made money. I’ve tried to paper trade this system in the last few years & guess what, it’s not profitable now according to my back testing. Market dynamics have changed as they always do.

        Now, I have zero faith that any funds in the “system” are remotely safe. I have pulled everything out (couple of years ago) that I could without incurring yet another tax liability. I have mentally written off what’s left captive, a good place to be from an investment standpoint as human psychology (fear/greed) plays such a huge role in a persons chance of success. Last year I made a 300%oa return on 2 trades. This year as I previously posted, I bought TVIX at 8.11. I’m currently down almost 50%. Here’s a chart. – I have a long range perspective & believe some time this year, volatility will kick in regardless of their control mechanisms & think I’ll “make” an overall 100% return by years end with the chance for much more. The main thing is I’ve already written this $ off psychologically so being down 50% doesn’t bother me & taking a long range view has always worked best for me. I don’t concern myself with the daily ‘noise’. I don’t like the odds I see currently see. This isn’t advice for anyone, just a snapshot of what I’m doing.

        My philosophy regarding investing is simple. The best investment you can ever make is in yourself ! Increase your knowledge base & skillset. Employed ? Want to make more coin? Invest in yourself & increase your perceived value. Want to start a business ? Expand your knowledge base, maybe work for someone in that endeavor, capitalize, & go for it. Learn to repair your own stuff so you don’t get conned. It worked for me decades ago & I’m currently kicking around different ideas. NEVER stop learning! Still have excess funds looking for a home?, invest in continuity of services for you & yours.

        Enjoy the day !

        • Life is good says:

          “The best investment you can ever make is in yourself ! Increase your knowledge base & skillset”.
          I’ve been saying same thing over and over again and some low lives here tried to ridicule me. It doesn’t bother me. I know who I am and I know my place in this world.
          I don’t give flying **** about when SHTF because it will not affect me at all. I use my head and make moves accordingly.
          Made fortune fixing and flipping houses long before TV shows on the same topic become popular.
          Started buying and selling stocks (sometimes same stock up to 5 times per day) long before they announced frequency trading to public. Made small fortune every day in mater of minutes ( I know this is going to cause outrage but hey do I care).
          Today in my 40ies I enjoy life with my family and my kids.
          No more flipping, no more stock craziness.
          Life is good.

        • CrazyCooter says:


          Thanks for your post. Been stepping and fetching lately, so haven’t hit WS in a number of days. Busy is good – blogs are for fun over a few beers in the evening.

          I have wanted to start my own business from a young age, but to date I haven’t felt the BS (i.e. the admin, HR, sales, taxes, etc) are worth the time/effort. To be clear, I ask myself the following question:

          Next year I am going to bag seven major clients, I am going to grow 300% – what does that look like?

          I never like the answer. Chew on that. Most folks focus on revenue – I am always worried about operations. In my line of work, which is really engineering with an artistic angle of some sort, quality control is really paramount – for that great employees on the same sheet of music is required – and it just doesn’t happen easy. Growth has to be organic and culture is really important – otherwise the output is crap.

          If that wasn’t true, any of the major tech consulting companies (that exist because of insider relationships/sales) would suffice – but they don’t deliver RESULTS.

          I know how to do things in the technical space for a fraction of the overhead where most folks can’t do the same (right situation for right company – I can post major efficiency) … lots of years in insurance and other industries that were very “data/business process oriented”. Crazy amounts of data, lots of business rules – no problem. This is really standard business process stuff – but too atypical to be off the shelf as far as IT goes – this is just the next “shifted phase” of the KWave to become a commodity (if you followed my old comments).

          I just don’t have a success vector yet – but maybe I will one day – or not LOL. Until then, I invest in myself – as it were.



          P.S. I will look for your posts in the future. Wolf has my email, if you have an interest in contacting me.

  8. human says:

    It can have to do with the way the IPO has to be sold.
    first they sell about fourthy procent and split the rest at two or three sells.
    usually this means that the first stocks sold will be driven up and a lot of short is going on.
    About the time where the IPO are allowed to sell again the stock is driven down to buy cheap from the IPO.

    of course there can be examples where the IPO has earned enough; that they can get a bit more for the stocks.

    (you can see examples were they had sold so low due to this method that their stocks surge 500 % or more short after the IPO is out of the company.
    so this is off course not the ideal way to get a company to the stock market

    • Petunia says:

      In my day the insiders who were lucky enough to get an allocation of a hot IPO bought it at the open and sold it at the close. The profit from the first day was thought to be the most money you were going to make on it the whole year. I think this is still a good rule.

  9. Chip Javert says:

    Of course it’s possible the IPO market is just gagging on the “financial engineering” required to value product & profit-free “unicorns”.

    If it looks like a cow pie, smells like a cow pie, and feel like a cow pie, it’s probably a cow pie.

    • Dave says:

      Chip what does a cow pie feel like. Actually I dont want to know.

      • CrazyCooter says:

        The funny thing is – when you step in one, you TOTALLY know it.



      • Chip Javert says:


        From a unicorn investing standpoint, it’s when initial investors (the smart guys) rig their investments in a knowingly highly over valued dot-com such that even if things go to hell, the later investors (the IPO investors) get double-screwed if the stock price goes down – once on the market decline and once on the dilution so that initial investors (the smart guys) are protected.

        That’s a cow pie.

        PS: if youre a dot-com investor and you don’t know what a cow pie feels like, you undoubtedly soon will. Put your money into index mutual funds.

  10. TheDona says:

    First of all, the fact we still call them Unicorns sums it all up.

    Regarding Neiman Marcus: Debt, debt, and debt. Guess who is on the hook? Canadian Pension Plan Investments.

    Regarding Albertsons: Debt.

    Albertsons’ debt pile more than tripled in a year, primarily because of Albertsons’ purchase of Safeway. Total debt increased to more than $12 billion at the end of fiscal 2014, from just under $4 billion a year earlier. Proceeds from the delayed IPO would have been used to repay more than $1 billion in debt.

  11. Bead says:

    What invariably gives are the shorts. Line them up and blow them down. Some people just can’t give up the old worries about scarcity.

  12. Bigfoot says:

    Hey, Life Is Good

    Bravo brother! Let the morons throw stones. When I lost my biz after 20 years, I would have been really hurting had I not taken the time to learn all the things I had previously. For me, it’s a general curiosity about nearly everything.

    Funny thing about the house flipping. I knew a couple back in the 80’s that flipped houses for years. He was a working musician that I would jam with occasionally, she was also self employed in arts & crafts. They averaged 1-2 houses a year. They would buy something that was livable, renovate it while living there, & then put it on the market once they found another livable fixer upper. They made a wonderful living & enjoyed the freedom of self employment to boot.

    I did some day trading using 1/3/10 minute charts but most of my trades were mid to long term position trades as I was running a small business simultaneously & ya gotta be in front of the screen(s) to day trade. I had a relative that talked to me about trading for some time & finally decided to give it a whirl. He bought a few books on option trading, opened an account with 7K, started trading & ran it 60K in a month in a half. Very few people he told this to believed him. They just couldn’t wrap their heads around it. The potential is there. Thanks for chiming in.

  13. Bruce Adlam says:

    You would have thought when the feds went bank on the 4 interest rate risers for this year that would have been so negative for wall street meaning the economy is in trouble

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