“When Free Enterprise Dies, America Dies With It”

Public ownership has historically been the lifeblood of the American economy. Going public produced funding for growth, while providing investors with an opportunity to share in the company’s success.

Not anymore.

In the peak year of 1996, more than 1,000 companies went public.  This year, we may not have 100 initial public offerings (IPOs). To date, only 39 IPOs have been filed—a 52.4% decrease from last year. Only 20 IPOs have been priced, which is a 65.5% decrease from last year. Only $3.3 billion has been raised from IPOs, a decrease of 68.8% from last year, according to Renaissance Capital.

In January, not a single U.S. company went public. And there was no polar vortex to blame. Through the first quarter, there were only 11 IPOs, which is the worst start to a year since 2009.

So tell me again about the booming economy.

In the past, the number of newly public companies far outweighed the number of companies that converted from public to private ownership, failed, merged, were acquired or were delisted because they no longer met exchange requirements. In recent years, though, the number of companies no longer trading on U.S. exchanges has been increasing just as IPOs have been decreasing. Public Companies

In fact, the U.S. now has half as many publicly listed companies trading on its exchanges as it did in 1996. As the chart shows, America had 7,322 in 1996 and, as of last year, that number had dropped to 3,700. That’s 1,000 lower than in 1975, a date well before the boom in IPOs.

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The Fed and Facebook

On the surface, The Federal Reserve Board and Facebook have nothing in common.

But media speculation about Fed action is very similar to the speculation that preceded Facebook’s IPO.

For a year or so before the IPO, it seemed that every business reporter was writing about when Facebook’s IPO would take place.  While some of the better journalists talked to analysts who questioned the company’s valuation, there was also a great deal of hype about the impact Facebook’s IPO was going to have on the economy and on the environment for IPOs. read more

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The High Price of High-Frequency Trading

Whatever its perceived benefits, HFT is changing the way the stock market operates.

It used to be that companies went public to raise capital; investors took risks by buying company stock, and the company and investors were rewarded when the company used its capital wisely.  The principles of supply and demand dictated stock prices, creating an efficient market in which prices adjusted based on market demand.

But HFT is affecting market fundamentals.

The majority of trades taking place today are driven not by company performance, but by tiny inefficiencies that only computers can detect.  While investors are advised to “buy and hold” their investments for years, computers are trading in nanoseconds.  High-frequency traders also buy and sell options, futures, exchange-traded funds (ETFs), currencies and all other financial instruments that are traded electronically, so its impact goes beyond the stock market. read more

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U.S. Losing Edge In Stock Listings

According to The Wall Street Journal, “A combination of mergers, fewer U.S. IPOs, lower listing costs abroad and a shift in how investors and stockbrokers do their jobs has driven down the number of U.S. stock listings by 43% since the peak in 1997—all during a period when the number of listings outside the U.S. has more than doubled.”

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IPOs Making A Comeback – For Large Companies

Judging by the LinkedIn IPO, “going public” may be fashionable again.

Investors lucky enough to own LinkedIn shares (i.e., employees and a small number of wealthy, well-connected investors) saw their shares more than double in price in a single day, jumping from the initial offering price of $45 to $94.25 by the end of the day.  Investors who owned private shares, which were being traded on secondary markets, enjoyed even larger gains.

Prices dropped the next day, as some investors cashed in on their profits, but few who own shares are complaining, given that LinkedIn’s debut was the biggest since 2006. read more

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