Where Banks really Make Money On IPOs
All of these numbers are hypothetical, of course, but the bigger point is simple: if Goldman manages to get kickbacks, in terms of extra commissions, of more than 7% of its clients’ profits, then it has a financial incentive to underprice the IPO. And Goldman’s clients were desperate to give it kickbacks: they didn’t just route their standard trading through Goldman, since that wouldn’t generate enough commissions. Instead, they bought and sold stocks on the same day, at the same price. Capstar Holding, for instance, bought 57,000 shares in Seagram Ltd at $50.13 per share on June 21, 1999 — and then sold them, on the same day, at the same price. Capstar made nothing on the trade, but Goldman made a commission of $5,700. Capstar’s Christopher Rule says that in May 1999, fully 70% of all of his trading activity “was done solely for the purpose of generating commissions”, so that he could continue to keep on getting IPO allocations.
Rigging The IPO Game [more inside]
Electronic Arts allegedly in talks to sell to private equity; would "do a deal for $20 a share". [NYP
] [Int. Business Times
]. The markets appear to think there's at least some substance to the rumour, as EA shares jumped more than 7% to $14 in early trades on Thursday morning and have remained at around $13.75. [Google Finance chart
Employed by a startup
? Working long hours for little pay but lots of stock options
? When your company goes public you can finally realise the value of your options but what if the IPO is delayed or never happens? [more inside]
Invented by Charles Dow
in 1896, The Dow Jones Average
) is perhaps the most widely known metric of equity market behaviour.
Calculated as a price weighted average
of thirty stocks
, The Dow is generally eschewed by professional investors who prefer the broader S&P 500
, a so-called market capitalisation weighted index
consisting of 500 stocks.
Regardless, proponents of the Dow claim its simplicity, long history and careful design as a reliable proxy of US economic activity as points in its favour. But can they now claim predicability as well
? [more inside]
Major market indices fell almost 10% this afternoon before recovering half of that value.
Some blame the failing Greek economy
and the related loss of confidence in the Eurozone. But a lot of attention
is being paid to the role of automated trading systems
. Accenture's stock, for example, dropped from $41 to one penny
in two minutes and then recovered just as quickly. Will this trigger a loss of confidence in automated trading?
Darth Vader and an entourage of Storm Troopers rang the opening bell at the New York Stock Exchange
on December 22nd. [more inside]
All the stocks and bonds you think
you own are actually owned by a company you've probably never heard of
, a company owned by the same people who own the US Federal Reserve. [more inside]
A bottom for banking? Buying or selling shares in a company one manages - insider trading
- is legal in The United States, provided the relevant forms
are filed with The SEC
. This information is then made available to the general public via EDGAR
, Sec Form 4
, or high level aggregators
. Investors scour web sites for such filings, as purchases or sales of a companies shares by insiders are public
evidence of managements private
opinions regarding the future
prospects of the firm they are running.
Even before yesterdays relief rally insider buying in banking shares hit a two decade high
. So does this surge in buying indicate the worst is over in banking? When trading its best to pay close attention to a broad range of signals, because sometimes even the insiders get it wrong
The simple phrase "it's different this time"
are the four most expensive words in the English language. Sir John Templeton
, we thank you for this lesson and countless others. [more inside]
The rapid growth of electronic trading since 1976
has benefited equity market participants by improving competition, reducing cost and increasing liquidity while insuring better pricing.
One unexpected side effect has been the recent emergence of "dark pools of liquidity"
, or the secret stock market. [more inside]
Academic discussions of stock markets frequently reference The Efficient Markets Hypothesis
; an idea that share prices are fairly valued, their prices reflecting all available information. However folklore such as "Sell in May and go away"
, which proved prudent in 2007, clashes with this theory. [more inside]
While the US equities markets were closed on Monday for Martin Luther King Day, stock markets around the world took a nosedive, losing billions in equity
; the markets in Australia
, South Korea
, Indonesia, Hong Kong
, the UK
, and more countries
have dropped at least 5% each (Canada
only fell 4.75%), even though most of those markets had already been seriously down for several days prior. India has been hit particularly hard
, at one point down a whopping 11%, tripping their markets' automatic "circuit breakers"
for a mandatory time-out period, before scraping back up to close at 8% down.
US futures markets are currently predicting a 650+ point drop just at the open Tuesday morning
, before even a single trade goes through. [more inside]
At a time when fed-up American citizens are petitioning Congress
to end the imprudent financial practices that caused the
housing bubble sub-prime mortgage crisis liquidity crisis
impending recession -- including the banning of SIV's
and refusing any bailouts
for Wall Street, banks, or mortgage companies -- the United States Treasury Department has just announced
the creation of a giant-mega-ultra SIV called "M-LEC" made up of assets from several of the largest American banks. Already unofficially nicknamed "Sivie Mae" (or worse, "the Frankenstein Fund"
), it would be an off-balance-sheet way for these banks to pool and price the ABCP
's that they've lately been having trouble pricing and thus selling -- i.e. the liquidity crisis. [more inside]
an economist who was known for his research concerning financial crises, specifically
asset bubbles based on credit cycles. [much more inside]
A New Kind of Bank Run. ...a new financial architecture has emerged that relied more on securities and less on banks as intermediaries. With the worth of [these new] securities now being questioned — and no equivalent of deposit insurance — some who financed the securities want their money out, a fact that has created the 21st-century equivalent of a run on a bank.
. It's no wonder these securities are being questioned, when some are based on Ninja mortgages
and foreclosures are up 58% from last year.
Just how bad is it Jim? Cramer
, no not Kramer
, melts down on live TV and tells a very large audience to stop trading. Is the US economy heading toward collapse?
Want to learn about investing?
Morningstar, an independent investment researcher, is offering 172 free online "classes" on stocks, bonds, funds, and portfolio building. And there's nifty quizzes at the end of each lesson where you can earn points that can be used for Morningstar products.
EarthShell, a small Maryland company that makes environment-friendly packaging (among
others) may wink out of existence
thanks to PIPEs
, or private investments in public equities. Who likes PIPEs? Hedge Funds
, mostly. Companies that take the pipe
, as it were, may be sealing their doom. 10 percent of PIPE deals done this year are 'death spirals'
, where the company's stock price plummets from short selling by the financiers who structured the deal in the first place. And of course it's legal if you don't
get caught shorting the stock naked and covering with the shares from the PIPE.
(BTW, http://www.earthshell.com appears to be on the margins now or I'd have linked it).
Why Stock Markets Crash : Critical Events in Complex Financial Systems.
Professor Didier Sornette
of UCLA has some very interesting things to say about stock markets
In his book, he explains how his
"theory of cooperative herding and imitation [...] has detected the existence of a clear signature of herding in the decay of the US S&P500 index since August 2000 with high statistical significance, in the form of strong log-periodic components."
Although his timing has been just a bit early, the theory, the predictions to date and the pictures are all pretty uncanny. This is easily the most interesting book on the stock market I have ever read and provides interesting and believable hypotheses about things I never imagined could have rigorous explanations. For an overview, here is an interview with the author
Remembering the crazy dot-com boom.
In November of 1998, a small California Internet provider named AvTel Communications announced they were providing local ADSL service to the community via a typical (and innocent, at least so it was thought) corporate press release. Business wires
completely mis-interpret the release, CNBC talks about it on air, then clueless investors hoping to get rich quick start throwing money at the stock causing the stock price to rise an amazing 1284% in one day
before trading is suspended. After several class-action suits
, and a company re-name
, the company managed to survive the hoopla, but only barely. Now they're being de-listed
like yesterday's trash. Did something like this ever happen to a company for whom you worked? Let's share! (Yeah, I worked there then.)
Someone we trust says something reassuring.
Fed Chairman Alan Greenspan, arguably the most powerful man in the world, blames "infectious greed" for the recent panic-like tail-spins on Wall Street, but says that the economy is on the way to recovery. One comment held that Greenspan was finally able to let out how he feels about what's going on, without shrouding his opinion in economic jibber-jabber.
"For once he really spoke his mind. He usually tends to obfuscate things quite a bit."
But really, how many of you expected Greenspan to say anything other than "the fundamentals are in place for a return to sustained healthy growth"? Does Greenspan actually feel this way? Could it be that he is actually majorly pessimistic, but is using his soothing sweet-song voice and obvious clout and earned respect to somehow buck recent trends? Bush's speech didn't do much for our faltering economy, but will Greenspan's? Can one man's mere words possibly change the course of history? Well?
Will the rich be nicer to the poor?
The way the stockmarket keeps plunging the rich might be asking the rest of us how to survive.