We are past the point of farce on Greece, but the story line just keeps getting weirder.» Read More
The IPO business: the buyers push back. A very mixed report card for the busiest week of the year for IPOs. Did I say mixed? How about crummy.
Eight were scheduled to price overnight, and so far only six have made it.
Thursday's IPO scorecard
1 Above range (Glaukos)
1 Middle of range (TransUnion)
1 Bottom of range (Millacron)
1 Postponed (Wayne Farms)
1 MIA (CNX Coal)
Wow. That is a pretty poor scorecard. An IPO bubble? Not on your life. In a bubble, everything prices above the range. That sure is not happening.
What is happening? The tape is telling you that IPO sellers are force-feeding the market. Buyers are pushing back, they are telling the sellers that there is too much product and they don't want a lot of it, or at least not at the prices being floated.
That is a good sign. That's the best protection against a bubble forming.
For those who want the details:
1) The big winner: Glaukos (glaucoma treatment products), is the clear winner. They raised terms yesterday, to $16-$17 from $13-$15, priced at $18, and they added more stock, opened at $29.11.
2) Doing OK: TransUnion, the credit reporting company, priced 29.6 million shares at $22.50, at the high end of the $21-$23 price talk, opened at $24.62.
3) Bottom of range: Milacron Holdings, which makes plastics processing equipment. The company has emerged from a 2009 bankruptcy filing. Priced at $20, low end of $20-$22 price talk, opened at $19.50.
4) Below range: Catabasis Pharmacuticals (technology for improving drug efficacy); priced at $12, below the price talk of $13-$15;
Lantheus Holdings (diagnostic medical imaging agents) priced at $6, well below the price talk of $8.50-$10.50, and added more stock, opened at $6.12;
Gener8 Maritime (seaborne crude oil transportation) priced at $14, well below the price talk of $17-$19, opened at $12.75 (ouch!)
5) Postponed: Wayne Farms, a broiler chicken processing company that supplies chickens to Chic-fil-A, Costco, and others. Why the postponement? Not clear, but may be concerns about chicken prices and exports due to avian flu.
6) Day to day: CNX Coal Resources (Coal MLP, with 10 percent dividend!)
The bank rally continues. It may have been a lackluster trading day, but once again banks rallied to new highs, including money center banks like Morgan Stanley (MS), Citigroup (C), JPMorgan (JPM) and Goldman Sachs (GS), as well as large regional banks like SunTrust (STI), Huntington Bancshares (HBAN), KeyCorp (KEY), Comerica (CMA), Wells Fargo (WFC) and Fifth Third (FITB).
Large-cap banks have significantly outperformed the S&P 500 this quarter.
I noted last week that this week is the biggest of the year for IPOs. Fourteen are expected to price, and more than $2 billion is expected to be raised.
But one space that has escaped market watchers' attention is the secondary market, which dwarfs the IPO market.
For example, there were 10 secondaries announced last night. Think about that: 10.
And here's what's important: Much of the proceeds are being used to buy things.
That's right—to buy things. Companies. Hotels. Pipelines. Retirement centers.
Not surprisingly, many are in the energy and real estate fields.
"These are people with very deep interests in their field, and they know when assets in the their fields are cheap," David Menlo of IPOfinancial.com told me. He added that it is generally cheaper to buy than to grow organically.
"To buy a pipeline, for example, is a tremendous capital expenditure. Building new hotels, or senior citizen centers, is more of a risk than buying what's already there because you have a track record with the existing properties. There's verifiable cash flows."
European markets went into the close at the highs for the day as yet another comical round of "What? Me, worry?" plays out in Europe.
The Greeks sent the wrong proposals to the negotiations?
No problem! They eventually got the right one out! What's a day or two when you're on the verge of default?
No agreement because the finance ministers didn't get the correct proposals in time to examine the details?
No problem! The summit of eurozone heads of state will still take place this evening.
The eurozone ministers also can't make a deal because there is no technical agreement?
No problem! The meeting will be used to prepare the ground for another Eurogroup meeting later this week.
We have a problem with the details of the agreement and can't come to an agreement at the Eurogroup meeting?
No problem! There's another meeting, somewhere. And another extension...
Is it safe to go back into Europe again? Euro leaders are dangling the ultimate carrot: a third Greek bailout deal.
European stocks are in sold rally mode, with most bourses up 1 to 2 percent, as EU leaders are scheduled to meet at 1 p.m. ET to attempt to hash out a deal with Greece. Bond yields are down in Greece, Italy, and Spain, and up slightly in Germany and France.
The Greek leadership has presented a slightly different proposal in an effort to end the stalemate. Whether it is good enough is unclear. There is less emphasis on cuts in pension spending and increases in value-added taxes and more on closing tax loopholes and raising taxes on corporate profits. Greece is also reportedly offering to raise the retirement age to 67, well above the average retirement age of 63 for men and 59 for women.
If a deal is reached, there have been reports the leaders are willing to discuss debt relief as part of a third bailout.
If there is a deal on Greece, even a "kick the can" deal that would extend the bailout for a few months ahead of a new bailout deal, will that cause a resumption of the European stock rally that started in January and fizzled in April on Greek exit fears?
The initial response would seem to support the idea. Germany is more than 10 percent off its April highs, but it has rallied about four percent since the bottom on Thursday on just such hopes. The Vanguard FTSE Europe ETF, a basket of European stocks, has rallied roughly 2 percent in that time period.
Perhaps more importantly, this will reinforce the idea that central banks will always bail out market participants.
The IPO market is finally starting to get going, and next week will be the biggest week of the year. Roughly 14 companies are slated to go public and will likely raise north of $2 billion.
It's been a lackluster start. There's been 82 IPOs this year, about 40 percent below where we were last year.
Why is the market finally heating up? The single most important factor is positive returns for investors. With the overall market relatively healthy, IPOs have also done well. The Renaissance Capital IPO ETF, a basket of roughly 60 recent IPOs, is approaching its April historic high.
For others, there may be a simple calculation that now is the time to take the company public, before the Fed begins raising rates later this year.
The upshot: June could be one of the biggest months for IPOs in years. Perhaps as many as 34 will price, the most in a single month since 1999.
"It's like somebody pressed the IPO reset button," Kathleen Smith from Renaissance Capital said.
What's impressive about next week's crop of IPOs is the breadth of the offerings. There's something for everyone.
Why aren't the markets worried about Greece?
I have said for some time that the consequences of Greece leaving the euro zone may be far greater than anyone realizes, but the market thinks otherwise.
The German stock market is rallying today, and is flat on the week. European markets are down only about 1 percent for the week. European bond yields are up, but not too dramatically. The S&P 500 is up 1.3 percent this week, and the CBOE Volatility Index is near the lowest levels of the year.
I've had many discussions with analysts and traders about this seeming indifference. Opinions vary, but there are four factors that show up in everyone's list to explain the phenomenon:
1) Fatigue: After five years of crisis, everyone is over it.
2) Complacency: Most feel that a deal will be made, even if it is just a "kick the can" deal.
3) No contagion: Traders believe the European Central Bank when it said it would do "whatever it takes" to keep the euro together.
4) Containability: Finally, even if Greece leaves the euro, many have now convinced themselves the damage could be contained. Peripheral bond yields are only modestly elevated, with Spanish 10-year yields, for example, is at 2.24 percent.
Stocks rallied and Treasury yields declined as Janet Yellen maintained a dovish outlook in her press conference, emphasizing that even if the Fed raises rates it will be "gradual."
The Fed statement was almost a carbon copy of the April 29 statement. The only change came in the first paragraph on the economic outlook.
The Fed has:
1) modestly upgraded the economic outlook: "has been been expanding moderately after having changed little during the first quarter."
2) modestly upgraded the assessment of the labor market: "The pace of job gains picked up while the unemployment rate remained steady."
3) upgraded its view on housing: "Growth in household spending has been moderate and the housing sector has shown some improvement"
4) left in the key inflation line: "The Committee continues to monitor inflation developments closely."
5) left in the key statement on fed funds rate: "economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run."
6) downgraded their 2015 GDP forecast to 1.8-2 percent from 2.3-2.7 percent in March.
What happened to the recovery in oil stocks?
The pricing and volume action are telling me that investors are doubting the hoped-for 2016 recovery in production volumes.
Yesterday, Chevron hit a three-year intraday low.
The main Energy ETF, a basket of the energy stocks in the S&P 500, has staged three separate attempts to rally since hitting lows in December and January and is again fading, essentially moving straight down for the past six weeks. Volumes have also faded.
And the rally in crude has stalled. Since bottoming in the low $40s in early March, West Texas Intermediate, the main U.S. benchmark, has staged an impressive rally (over 40 percent) to trade between $58 and $61, but has been stuck in that range for the past six weeks as well.
Here's the problem: Everyone bought energy stocks aggressively in early 2015 on the theory that oil production would bounce back in 2016.
It's human nature. The optimists are focusing on a bounce.
But many are starting to realize that, while oil prices may stage a modest comeback, oil production may not, at least any time soon.
Bill Gross thinks conditions are ripe for a crisis, and he points a finger at Pimco to be at the center of the storm.
If there was ever an argument for owning a broad portfolio of stocks, the first half of 2015 is Exhibit 1.
Monday's violent selloff could be the prelude to a more volatile second half, but strategists still expect the S&P 500 to gain.