It’s not that the punchlines aren’t there.
Rather, it’s that the punchlines are so obvious as to be barely worth delivering. Is a joke funny if it writes itself? Is the crowd supposed to laugh if they already know precisely what’s coming?
Those are the questions I routinely ask myself when deciding whether to dedicate any space to clips like the one below, which finds Goldman’s David Solomon explaining to CNBC’s Joe Kernen how Fed policy may be creating froth in an IPO market that, thanks to technology, is now conducive to instantaneous speculation by retail investors.
"A bunch of these are great businesses but obviously the market at the moment the market is pricing in perfect execution and enormous growth for a very long period of time. My guess is there will be a rebalancing of that over time," says Goldman Sachs CEO David Solomon on IPOs. pic.twitter.com/ZI4S0qIYYb
— Squawk Box (@SquawkCNBC) December 15, 2020
“Do you think that there’s some asset price inflation?”, a curious Kernen wondered. “‘Cause of all the cheap money?”
“The cheap money has an impact, Joe,” Solomon remarked. “Some of what’s going on when you translate to the IPO market is obviously directly related to that,” he continued. “There’s a lot more retail participation in these IPOs.”
Over the weekend, I talked a bit about the kind of “euphoria” Solomon mentioned during his comments to CNBC. Airbnb more than doubled in its debut last week, valuing the company in excess of $100 billion. Average first-day returns are the highest since the dot-com bubble.
At the same time, the percentage of IPOs from unprofitable companies (which has been elevated for years) hit 80% in 2020. According to Jay Ritter, at the University of Florida Warrington College of Business, that figure has been higher just two times: In 2018 and 2000.
“I do think we’re in a moment in time where there’s a lot of euphoria. I personally am concerned about that,” Solomon went on to say.
Again, I’m not at all sure whether the myriad punchlines are even worth delivering, obvious as they are. CNBC, while superfluously editorializing around its own segment, noted that,
DoorDash closed its first trading day last Wednesday higher by more than 85%. Goldman Sachs and JPMorgan were the lead underwriters for the food delivery app’s IPO. Airbnb soared more than 112% the following day. Morgan Stanley and Goldman Sachs were lead underwriters for the home-rental platform’s offering.
“Personally concerned” though he may be, Solomon isn’t worried enough not to bring these things to market, that’s for sure.
“Retail investors drove a lot of the early activity around Airbnb,” Bloomberg wrote last week, citing the ubiquitous “people familiar with the matter,” which in this case could have been just “anyone with a brain” who watched the open. “In the hours before Airbnb started trading, there was an influx of small, likely retail orders, with eight to nine buyers for every seller,” the sources said.
Commenting further on the “euphoria” he sees in the IPO market, Solomon said “I don’t think in the long run that’s healthy.”
Neither are illicit drugs. But as any dealer will tell you while rationalizing their own role in distribution, “If they don’t get it from me, they’re just going to get it from somebody else.”
Those Robinhooder’s in for a big shock someday……
The headline I missed is the one from a NY tabloid saying, “You’re Fired!” to Trump after the electoral college vote.
I was sure there was going to be one of them that used that one….
The recent IPO explosions aren’t because of the Fed; it was because of the damned underwriters. It was their job to ascertain the demand and appropriate price level to maximize their clients’ equity raises – ideally balancing that desire with the opportunity for retail investors to actually make a profitable investment. Instead, they waited and waited and waited for the number of market orders to increase with the ever rising limit orders to guarantee a first day pop so that they wouldn’t be left holding the bag on any shares. Leaks and rumors and innuendo swirled all morning and afternoon until the first shares were traded, and DoorDash and AirBnb left billions on the table and paid for the privilege, and it could take years for the new investors to get back to even. Everybody loses here except for the underwriters.