STAFF NEWS & ANALYSIS
IPO Market Taking Off, as Predicted
By Staff News & Analysis - November 06, 2013

Private Equity Played Large Role In Rush Of Initial Public Offerings (IPO) So Far In 2013 … Initial public offerings (IPO) in the United States have taken off this year, with October seeing the most IPOs since 2007, as 33 companies raised more than $12 billion, the Wall Street Journal reported Monday. – International Business Times

Dominant Social Theme: Ain't capitalism grand?

Free-Market Analysis: We've often written about directed history and how elites put in place historical justifications for war, political movements, economic episodes and, of course, market movements.

The current convulsion of stock market activity is very much a kind of directed history, from our point of view, though that doesn't mean you can't profit from it. But you have to know what you're doing.

And you have to accept reality.

The reality is that the Wall Street crowd, central banks and top regulators and big buy side facilities are all in the same game. What began hundreds of years ago as a market-based evolution of securities investing has turned by now into a slick, pre-planned promotion designed to suck cash out of investors' pockets.

Buyer beware … The real money is often made long before companies are brought public. Various rounds of funding are either repaid or are leveraged via shares and other advantaged deals. And when the IPO is offered, further games are played.

Wire houses, the ones that are left, will often promote the offer and then cease to market it for a time and even buy the stock back at a lower price. Once the stock has moved down, the squawk box tells thousands of brokers that the stock is recommended once again and ready for resale. The firm does very well with this yo-yo-like approach, and that is but one tiny example of how the market offers substantial and almost risk-free profits to selling syndicates.

The key is to set up a frothy market with lots of IPO product, and the key to THAT is the money that the central banks print. Money from nothing has driven every great stock boom in the US – where consumers are most apt to be stock buyers – since the 1920s. But the system has been refined over decades to reward insiders. Here's more from the article:

A key player is the private equity industry. Many private equity firms received money from IPOs to pay back debt that debut companies owed them, and 41 percent of U.S. offerings this year have involved private equity-backed firms, according to Dealogic.

In a recent report, global consultancy Ernst & Young Global Limited noted that private equity firms are holding onto their companies for longer than usual, but added that the global IPO pipeline has grown rapidly.

… Even as fears over Federal Reserve tapering mounted in September, investors remained relatively confident. The $21.7 billion raised from April to October this year represented a 77 percent boost in funds raised by private equity launches, compared to the same two quarters in 2012.

Although American IPOs dominated, Europe's IPO market picked up its pace, with 16 more deals in the first nine months of 2013, relative to last year, with total deal value more than quadrupling. That's a surprising level of turnaround, according to Ernst & Young (E&Y).

Europe has seen a slow recovery from economic weakness this summer, but many investors are still wary of the continent. "The second quarter was really very, very strong in the developed world," said Michael Rogers, a private equity specialist at Ernst & Young, in a video interview, though he flagged weakness in the third quarter.

The pipeline isn't drying up anytime soon, too. E&Y said more than 110 companies prepared for IPOs by filing paperwork in the second and third quarters of 2013, doubling the rate from 2012. About 70 companies are in active registration, and could raise more than $17.7 billion. "The opportunity is there for a very robust 2014," added Rogers.

This excerpt points out in the first graf what we mentioned previously, that one big insider payoff comes when stocks go public. And though US markets have proven problematic in the 2000s, there are obviously lots of participants willing to invest nonetheless. We can see how the groundwork is being prepared now. Double the number of companies are ready to bring IPOs to market in 2014.

There's a confluence of events that is setting up this next great wave of equity activity. We've written about it before. The JOBS Act that allows private promoters to advertise their opportunities broadly to the public is the beginning of it.

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Additionally, there is wave upon wave of freshly printed super-money drowning the markets. And the ascension to positions of further power by bankers like Janet Yellen, a woman constitutionally predisposed to printing cash, means that the taps will remain open regardless.

To ensure that freshly printed money finds its way into equity environments, top central bankers are pursuing a two-track policy. They are both printing money and restricting its outflow. They are doing this by retarding economic growth; banks are being paid not to lend and capital requirements have been raised again and again so that the ratio of bank capital to loans is higher than ever.

As a result, money trapped in banks and financial firms eventually heads to places where it can find a yield. US stock market averages have about doubled since lows in 2009. This is no accident. IPO product is selected and nursed into a position where it can generate large returns. Markets are primed by central bankers and "winners" are promoted by the mainstream media via "investment pornography."

Gradually the hysteria builds. Market averages go up and up. Articles and interviews reveal how the "smart money" is making a fortune by being in the right place at the right time.

Even people who have lost money before eventually succumb, with the ones that have lost the most money being the latest to the party. And unfortunately, last in usually means first out. Just as people capitulate and waves of "dumb money" hit the markets, the proverbial plug is pulled for one reason or another.

The insiders with their private deals have been well rewarded. And those who are not insiders but understood the way markets worked and had a sense of the timing are also in the black. But as usual, the little guy has been hurt. Last in, last out. They hold all the way down, looking for that surge that their broker promises them is still to come – but never does.

The best way to play a market like this is to find products that are not on the open market but that are primed for IPO status. Or find a trusted advisor that understands markets and has a long- or short-term strategy that can be utilized in a disciplined way. One thing is certain: Modern markets tend to operate the same way time after time. It's been a long evolutionary process, and a nasty one. It's designed to separate you from your money and it can do so efficiently.

You need to understand the promotional elements of the business cycle and be able to step back to appreciate the bigger picture. In this case, we may have painted it for you. We've predicted just what this article has told us, that the IPO channel is already crammed with private deals.

Now we await word that most of these deals have something to do with climate change or global warming. We're way ahead of this trend, and if you've been reading our articles, you are, too. We can recognize a promotion when we see it.

After Thoughts

The next step is profiting from it. Stay tuned.

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