Sometimes I wish there were such a thing as a buyers' strike. I wish there was a point of revulsion about new issues that the underwriters just say, "sorry, we aren't doing this deal."
Sadly, there almost never is. There's too much money involved to say no. Right now there are two deals staring us right in the face, and they are worrisome to the entire market.
The first? We, or WeWork, or whatever. Here's a company that, quite simply, is desperate for money. If it gets it, it can get $3 billion and also perhaps score a $6 billion loan. That's good, because the company is losing money hand over fist. The PR/corporate governance here stinks with all sorts of self-dealing by the founder -- including getting the company to pay a partnership controlled by its flamboyant CEO, Adam Neumann, for the name, The We Company, for $5.9 million. That's right -- he actually changed the great Name, WeWork, for one that makes little sense and profited from it. Fortunately, last week he returned the money to the company.
But the Wall Street Journal reported earlier this summer than Neumann has cashed out at least $700 million via sales and loans. I like CEOs who hold their stock after the IPO. I don't even know what to say about someone who sells stock before the IPO.
The financials themselves seem crazed. Nutty stuff, like "adjusted earnings before income taxes, depreciation and amortization before growth investments." Huh? If you are growing fast, as this real estate company is, how can that not be included as operating expenses.
No wonder a company, the ultimate unicorn, one that raised money last with a $47 billion valuation, may not attract takers at less than half that.
I don't really care about a company that would be worthless to shareholders if we go into a recession.
I just care that the investment bankers are going to jam this one down the throat of the market and mutual funds, hedge funds and individual investors are helpless to stop it, even though it is likely to hurt the whole field of stocks if it's a bomb.
We all would be better off, except the investors who paid too much for the darned thing when it was private, and Neumann himself, although you can't cry for the guy, given how much he has already taken off the table.
The Saudis, meanwhile, have expressed an interest to float shares of Saudi Aramco in what would be the largest initial public offering ever. After this weekend's attack, I can't think of a worse "opportunity." It, too, would hurt the overall stock market with the flood of new stock.
A postponement is the best we can hope for.
If you favored a more extended run for the market, as I do, if your deals that aren't shady or dangerous, you want the bankers to pass on these unattractive investments.
That's not going to happen, though. The best you can hope for is that they price them so low that they have a chance of making buyers money. Will they do that?
I think it's possible. But you do need a modified strike. You need the big accounts to pass on either piece of merchandise until they take into account risks of default or damage. I don't think that will happen, though, and given all the money that is indexed and therefore can't buy these two deals, you have to expect monster sales of stocks in good companies to buy the bad.
Every bit of merchandise has a price that could move them. WeWork could be priced at a level that's well through the big IPOs we have seen, the so-called unicorns like Lyft (LYFT) or Uber (UBER) . Saudi Aramco might offer an attractive yield that's in excess of the big oils.
But short of that, I expect both deals to hurt the rest of the market. But they can't be stopped; the Street makes money regardless of a deal's quality, only you, the little guy, get hurt as part of the collateral damage of a crummy, yet gigantic IPO.