Having herded formerly middle class American's retirement funds into the overheated over inflated stock market and over valued stocks it's just a matter of time before the next crash and predictable transfer of their remaining dollars into the protected offshore accounts of the international finanancial military industrial elites' own offshore accounts benefitting the Zionists of the City of London,Israel and the NSA and CIA agents who protect THEM but NOT U.S.!
http://fortune.com/2014/09/10/alibabas-ipo-a-wall-street-fable/
The Wall Street fable behind Alibaba's IPO
Talk of the company’s shares “popping” on the first day is all about enriching Wall Street. Here we go again…
A friend who’s a major money manager—call him Oscar—recently related a story about just how intoxicating a big-pop IPO can be. On a flight from LA to New York a few years ago, Oscar was seated across the aisle from the CFO of a California company that had just gone public. “It was fantastic!” crowed the executive, his volume rising as he downed one gin and tonic after another. “Our stock jumped 30% the first day! That’s tens of millions of dollars!” As they deplaned, Oscar remarked to the stumbling CFO, “Wouldn’t your company be worth a lot more if you’d put those tens of millions in your treasury, instead of giving that money away?” The CFO suddenly turned reflective, as if he’d never heard of that idea—though it’s unlikely the facts stopped his binge of self-congratulation for long.
It now appears that BIG POP is working its intoxicating spell on Alibaba—soon to trade under the ticker BABA . The road show for its forthcoming IPO is now in full swing, and its shares are reportedly proving a huge hit with institutional investors. Big fund managers, anticipating an overnight windfall, are reportedly requesting far more shares for their portfolios than Alibaba is selling at a price somewhere between $60 and $66 a share—the exact number will be determined on September 18, on the eve of its eagerly awaited debut.
What appears to be growing excess demand for Alibaba stock is likely to cause what it always causes: a steep rise in the share price in the first days of trading. That pop is one of Wall Street’s prized events. The term evokes images of exploding champagne corks, a sign of flush times in the markets—and if you believe what Wall Street is selling, the hallmark of a successful IPO.
In reality, a big first-day pop means that the underwriters have sold the shares too cheaply, at far below the price those institutional buyers were really willing to pay. The major beneficiaries are the famous Wall Street names and their commission-paying clients; the loser is the company that raises far less cash than if its shares had sold at market prices. What’s remarkable is that so many great companies voluntarily leave so many billions “on the table.” And it’s amazing how many supposedly sophisticated entrepreneurs are conned by the prospect. Especially since Wall Street has only the weakest rationale for selling it: Pin-striped bankers promise that those first-day price surges will make for great “publicity” for the newbie companies, and attract a coterie of loyal investors.
In reality, the only coterie it’s likely to attract is the crowd of celebrating bankers that night at Peter Luger’s.
Successful newly public companies don’t always start with a pop. Facebook’s FB shares famously dropped in early trading, meaning it raised more cash than it deserved at its 2012 debut. And it’s not certain that Alibaba’s shares will pop at all, once all is said and done. But to hear the hype surrounding what is likely to be the biggest IPO in tech history, it sure likes like Wall Streeters expect it to. Should that be the case, the amount of money Alibaba could forgo—and the size of the prize for Wall Street—are unprecedented.
To understand the jubilation among the fraternity of capital-markets types, let’s examine Alibaba’s plan, as revealed in its prospectus released on Sept. 5. The Chinese online and mobile commerce colossus is offering a maximum of 368 million shares for sale through six principal underwriters: Credit Suisse CS , Morgan Stanley MS , JPMorgan Chase JPM , Goldman Sachs GS , Citigroup C 0.08% , and Deutsche Bank DB -0.15% . If the shares sell at the top of the pricing range, at $66, the IPO would raise more than $24 billion, putting Alibaba’s market cap at $163 billion.
So what happens if the company’s shares pop 25% on Day One? They would then close at $82.50, handing the institutions that purchased them through the underwriters a gain of $16.50 a share. If Alibaba and insiders had gotten that real market price instead of $66, they would have collected an additional $6 billion. That’s right: $6 billion. As far as tips go, that’s a staggering sum. (Any waiter at Peter Luger would be thrilled to get it.) But a tip is what it is—because that’s what’s being left on the table.
The losers would divide into two categories. Large shareholders including Yahoo! and founder Jack Ma are selling as many as 219 million shares, so their portion of the foregone cash comes to about $3.6 billion. The company itself is selling the balance of the shares. Hence, it’s leaving around $2.4 billion on the table. It’s reasonable to assume that the same company with $2.4 billion more in cash is worth $2.4 billion more than the same company sans that cash. It’s therefore likely that Alibaba would sacrifice about 1.5% of its potential market value by allowing its shares to be 25% underpriced.
So who are the major winners? No surprise here: the Wall Street firms and their high-roller clients who get to buy the underpriced shares. It’s not in banking fees where the big money resides. “The underwriters wanted higher fees but Chinese companies and those outside the U.S. pay less for a given sized deal,” says Jay Ritter, a professor at the University of Florida. “This is also a high-profile deal that put Alibaba in a strong bargaining position.” The investment banks are garnering around $350 million in fees, or only around 1% of the proceeds, well below the norm on most IPOs.
No the cash payout to the bankers travels in a more circuitous route. These fabled Wall Street firms are handing their favorite clients $6 billion in quick profits. That’s around 10% of the total amount left on the table in the entire tech boom from 1999 to 2001. Investors, in turn, are very likely to repay the firms with big trading commissions in the days and weeks to come. The biggest such payers tend to be hedge funds, so hedge funds usually get the meatiest share allocations. Mutual funds that pay low commissions have less favored status.
The rule of thumb, says Ritter, is that Wall Street recoups 30% of the total windfall in commissions. That’s $1.8 billion. So including fees, Wall Street’s potential take mounts to well over $2.1 billion.
Of course, we don’t know if Alibaba will pop at all—or if so, by how much. But this is one of the great spectacles in the financial world. Wall Street is trying to work its intoxicating magic once again, and they’ve got folks who should know a lot better believing a tale no more believable than the Arabian Nights: the fables that brought us the first Alibaba.
401(k) fail: Expert sees 'totally unexpected' drop in accounts
According to a new study, the 401(k) accounts of workers closest to retirement actually shrunk from 2010 to 2013.
Even one of the greatest bull markets in history can’t improve the sorry state of 401(k) accounts.
According to a new report from the Center for Retirement Research at Boston College, the 401(k) accounts of workers closest to retirement actually shrunk from 2010 to 2013. The study found that the average combined balance of the retirement accounts of a household headed by someone aged 55 to 64 was $111,000 in 2013. That was down from $120,000 in 2010. The data in the study, which looked at both 401(k) and IRA accounts, came from the Federal Reserve’s Survey of Consumer Finances, which was released earlier this month.
Alicia Munell, the author of the Boston College study and one of the nation’s leading experts on retirement accounts, called the decline in 401(k) balances of near-retirees “totally unexpected.” Why? Because the drop comes at a time when the market has had an amazing run. Stocks, as measured by the S&P 500, gained 56% in the same period the study examined. That means the average 401(k) account during that period should have at least risen to just over $187,000, a gain of $67,000. Instead, the average account dropped by $9,000.
That drop would have happened if you had done nothing. But that’s not what most people do. No, it’s worse. Most people regularly contribute to their retirement accounts, especially people nearing retirement. The study found that the average 401(k) holder contributed 9.2% of their salary to their accounts every year. And yet the accounts still dropped.
Munell says she doesn’t have an immediate explanation for why the drop might have occurred. Her study looked at employed people with both a 401(k) and an IRA. So households with no one working, or those who are unemployed, but transferred all of their money to an IRA, would drop out of her data set. That might have affected the numbers. What’s more, as baby boomers retire, they have begun to take their larger on average 401(k)s with them. Munell also says that rising fees on retirement accounts, particularly with IRA plans, could partly explain why these accounts have performed worse than expected. But fees alone should not create such a big dip.
A federal law passed in 2006 that was supposed to up 401(k) contributions among average workers has not achieved the desired effect. The law encouraged many companies to auto-enroll employees in 401(k) plans at a 3% contribution rate. But most plans don’t increase that contribution rate. So many workers just stick to their to their company’s default rate of 3%, which is actually lower than what the average contribution rate was back in 2006. A relatively weak economy could have dragged down contributions as well.
A few years ago, I wrote a story saying it was time to retire the 401(k) as our nation’s go-to retirement account. The evidence continues to build.
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