Written by Daily Bell
Pandora shares make spectacular plunge below IPO ... It didn't take long before Pandora went from music to investors' ears to the stock market's version of fingernails on a blackboard. The money-losing online music service became the latest initial public offering to "break," or fall below its offering price. The stock closed its second day of trading at $13.26, undercutting its $16 offering price, so even the privileged investors who bought into the IPO now have losses — if they didn't sell in time. – USA Today
Dominant Social Theme: It is not a trend. Stocks are a good buy and always have been.
Free-Market Analysis: The Pandora IPO came out higher than expected and then went up on the open until it was US$10 more than the initial US$16 offering. The excitement was tremendous. Bloomberg TV literally covered the price action of Pandora every 15 minutes or so for the entire day. The entire episode represented a kind of sub dominant social theme: "Stock trading is back, baby, and the action is hot!"
The Pandora IPO may have provided us with the last gasp of activity in what may soon be a prolonged bear market. The results of QE2 are fading and without more monetary inflation the US stock market is probably doomed to collapse like a gradually deflating paper bag, which is inevitable anayway BECAUSE of all of the monetary inflation to begin with. It is just a matter of WHEN the music stops, that's all.
Granted, the price action for Pandora was feverish but the desperation with which Bloomberg focused on this relatively tiny stock was even moreso. Constant interviews on the NYSE trading floor, confabs between anchors on the Bloomberg set, phone and video interviews with analysts – all created a picture of significant interest. What it also signaled, inadvertently, was that the health of stock trading in the US is questionable to say the least.
In fact, Pandora is now trading under its IPO by a significant margin; the over-enthusiasm directed at this under-reported enterprise is symptomatic of the problems that the NYSE and stocks in general are facing in the early part of the 21st century. The NYSE has merged several times lately, with the most recent merger with German-based Deutsche Boerse that will create a huge, world-spanning conglomerate
But size does not create interest. Europeans generally do not trade stocks with the gusto of American investors and thus as big as modern exchanges get, the amount of mom and pop investors involved is likely lessening, overall. In the United States it is surely true that interest in stock trading likely peaked in the late 1990s with an explosion of interest in day trading and a plethora of mainstream media available to explain different "opportunities."
The efforts of the powers-that-be to reignite stock trading have sputtered in the 2000s after an obvious uptick in mainstream interest in the markets before the financial crisis of 2007. Ever since, US markets in particular have struggled. The "quantitative easings" of the past two years have certainly boosted share prices, but now with this final easing fading, so is the American stock market, which is a kind of bellwether for markets around the world.
As the US stock market fades once again, the hype surrounding the stock market picks up. The Pandora example is a good one. Pandora is a software facility that lets the user customize his or her playlist over time, so that the music being played increasingly conforms to the exact taste of the listener.
Pandora's gross revenue was about US$140 million this past year and losses were only US$1.2 million. But it received the cherished single symbol, "P" on the Big Board and there were, apparently, high hopes that Pandora could turn around investor sentiment.
The USA Today article (excerpted above) gives us some of the context for what happened with the Pandora IPO. It seems to be a fairly predictable story. Thirty-one of this year's 73 offerings have broken below their IPO prices and 41 are trading below their first-day closing prices. IPOs are increasingly breaking below their offering prices for three reasons: Broad market woes; Lofty valuations and hype; and heightened sensitivity to risk.
According to the article: "While investors were willing to look past companies' problems a month ago, macroeconomic concerns are prompting them to take a closer look and demand lower prices now. If the stock market continues to slide, expect IPO prices to fall further and more companies to shelve plans to go public, says Darren Fabric of IPOX Schuster. 'Risk has come back into the market," he says. IPO 'prices will come down.'"
The US stock market's general malaise is already stimulating calls for a QE3. Bank analyst Dive Bove has been promoting the idea that banks should release the approximately US$1.3 trillion in reserves that they have not yet lent out. It is unclear how this might be accomplished.
Ben Bernanke, meanwhile, has indicated that a QE3 is probably not going to any time soon. According to hedge fund manager David Tepper, Bernanke might change course if the equity environment turns seriously ugly. "If the S&P500 falls 200 points ... that would be more than enough to get the Fed's attention, at which point, the oil price might be back in the $80 range with gasoline prices barreling back toward $3 a gallon and Ben Bernanke will have adequate cover in the renewed concern over deflation."
The larger issue is the one we are interested in. The power elite relies on fear-based promotions to create a constant cash flow. They create memes like global warming and then market them through an intricate process that involves think tanks, white papers, mainstream media and eventually NGOs and domestic and global legislation.
As the "problem" is marketed, the elites begin to create solutions, well funded private companies that appear to be brainchildren of alert entrepreneurs. In some cases they are; in other cases, the elites may have, initially, a direct hand in the creation of the companies; they are certainly involved in the venture capital funds and hedge funds that provide funding to these start ups.
Eventually, these companies are directed toward stock exchanges and the initial, elite partners cash out. The cash-outs is then directed toward markets where it can be swapped for more substantial assets like real estate and gold. The real estate may be held or exploited; the gold is stored in countries like Switzerland using elaborate off-the-books accounting methods. Many such banks work directly for the elites; their other businesses are just for "show." This seems to be how it works.
This methodology is well beyond the understanding of most people, unfortunately. The scale at which it operates is almost inconceivable. It involves recognizing that most companies and most exchanges are to some degree under the active control of the Anglosphere elites. One can likely confirm it, however, by tracking the ownership of the Fortune 500 and supervising bodies such as the EU, World Bank, etc.
At the top, the names often turn up in several places. There is a good deal of interchangeability among global institutions, top universities and business schools, legal firms, corporate boards and even top politicians. These individuals are not the final controllers, of course. They are intermediaries.
It is also true that securities exchanges are consolidating at a rapid rate. This is another evident plan for globalization, in which all securities instruments are eventually to be traded on only a few worldwide exchange. The profits that can be made from a single exchanges with multiple instruments are astronomical, especially if one controls the regulatory authorities that are supposedly providing oversight.
These plans along with the elite's wider efforts at globalization are in our view threatened by the rise of the Internet, which has exposed much of what is taking place now. When it comes to the stock market, America was a prized example of how to involve individual investors in the larger elite-controlled casino, but now due to the financial crisis and subsequent Internet Reformation (as we have taken to calling it) investors around the world and especially in America have begun to turn away from investing, especially equity investing.
The sovereign debt crisis may do the same thing for bonds that the financial crisis has done for stocks; sour people on paper holdings. This is a direct threat to the profitability of elite investment strategies. If the larger masses do not believe in "investing" and its outcomes, then the ability of the elites to extract wealth from the masses via the inevitable business cycle upturns and downturns is compromised. This is taking place now and it is a fundamental threat to elite control and the money-making paradigm they have come to rely on.
Conclusion: The stock market's linkage to Fed stimulation is more obvious than ever these days. But with the entire dollar-reserve system gradually collapsing, stock markets around the world are increasingly in disarray. A collapse of American markets will have a significant impact. Whether Bernanke attempts a QE3 at this point seems almost irrelevant. Numbers one and two haven't worked. So why should number three?
© Copyright 2008 - 2011 All Rights Reserved. The Daily Bell is an informative compendium of independent economic views and analysis, which is published by The Foundation for the Advancement of Free-Market Thinking (FAFMT).