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GrahamAnderson

GrahamAnderson
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  • Why QE Is Not Inflationary [View article]
    Darturtle is spot on. We have monetary stimulus and fiscal stagnation at present. Lower credit-worthy businesses (i.e. almost all of them) and the overwhelming majority of individuals are de-leveraging at this part of the credit cycle. The Fed cannot control exactly where the money goes as it pumps credit into the financial system. The credit created by QE is being funneled into our financial system into financial assets via banks. This trend helps support and augment the prices of financial assets which are more liquid. It supports housing prices as well as long as financial buyers (they are the marginal real estate buyers today) are willing to buy these assets and securitize them. Heaven help us if big institutions decide en masse to start liquidating because they feel the market has topped.

    The CPI measure of inflation is heavily based on housing and the owners' equivalent rent of primary residence that has been held down for some time. Other CPI measures keep the lid on manufactured goods' prices while everyday staples increase steadily. This is why the inflation figures look low, but for the majority of US consumers are not low and lead to real reduced incomes.

    There simply are not enough people affected by the wealth effect of increased financial asset prices at present to buy goods and services to help drive the economy forward in a meaningful way. The situation can only be turned around when borrowers and lending institutions have decided to stop deleveraging in a meaningful way. That day is coming, but I don't know exactly when. Until then, the Fed actions can prop up financial assets unless and until the animal spirits of big financial players change their tune.
    Nov 2 11:42 AM | Likes Like |Link to Comment
  • The Decline In Stock Listings Is Worse Than You Think [View article]
    Nate, I am not sure that the bulletin boards and pink sheets have enough street cred and real market makers to provide research, active trading and liquidity that small investors feel they need in order to participate more fully. I think you are correct that some investors are willing to participate in these markets and play roulette, but the vast majority probably believe the game is rigged against them and so just stay on the sidelines.

    Others have tried to establish a new exchange and provide credibility and liquidity for issuers -- e.g. AIM -- but these efforts take a long time and it is still unclear whether they can become successful. I wish I had great answers to solve this problem because I believe the situation that Guardian on this board is describing is a correct depiction of reality today.
    Oct 1 03:57 PM | Likes Like |Link to Comment
  • The Decline In Stock Listings Is Worse Than You Think [View article]
    I agree that with the author that this is a very worrisome trend. With current trends, in a few decades, the only listed companies may be the S&P 500 companies. I think there are several reasons for this movement, however. Like the author, I believe the regulatory environment in the US is one of the causes, but not the primary one, to explain this phenomenon. Sarbanes Oxley and other regulatory changes in the US have made it significantly more expensive to list on an exchange as a smaller company, but this is only part of the problem.

    The overwhelmingly likely exit path for entrepreneurs today is M&A and not IPO. Moreover, there are insufficient numbers of IPOs to counteract the number of acquisitions that take companies off exchanges. The M&A situation is reinforcing the trend that the author describes. As the number of companies diminishes and as companies grow larger and find internal growth more challenging, acquirers have looked to more M&A to grow faster than the overall rate of the economy. The trend mentioned by the author has also grown more pronounced with two significant collapses in public market valuations since 2000. These collapses have made private investors much more cautious to invest in the market (they are scared) and when they invest, they go with the tried and true bigger companies and not more speculative issues. That is one of the reasons why NASDAQ has not approached its former peaks whereas other indeces have done so.

    In addition, with a worldwide trend toward decimalization (and in the US paying for investment banking research out of trading revenues), there is much less of an incentive for bankers to promote and trade in smaller issues. So small investment banks focus on M&A and not IPOs further increasing this trend. Also, pensions funds and institutional capital have grown dramatically in size over time. Huge institutional investors cannot easily move in and out of positions in smaller cap companies. Hence, they look only to invest in more established, larger entities. For equities, they trade ETFs and mid and larger cap stocks. Thus, the smaller IPO simply does not exist in any meaningful way today. An Intel, Microsoft, Oracle or Google of today would have to wait significantly longer to be able to get public than it did in the past. And there are too few Facebooks and Twitters being created to overcome this trend. In fact, these companies today often go on acquisition binges before going public to increase their own scale for when they are public entities.

    I am not sure I now what the solution is unless we gravitate to a "minor league" exchange with different rules specifically designed for smaller investors to enable small companies to go public and then "graduate" to a "major league" exchange. Perhaps there would be relegation to the minor leagues for poor performance in the majors as well? But I think we should try to do something or over time acquirers will have difficulty clearing Hart Scott Rodino issues and we can look forward to serious "cooperation" (read collusion) on many M&A opportunities in the medium and longer term.
    Sep 30 11:58 AM | 1 Like Like |Link to Comment
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