Let's talk about the life cycle of the IPO market.
On Thursday, the new cycle began with the crowning achievement of a classically good deal with a fantastic name brand company: Levi Strauss (LEVI) . CEO Chip Bergh has taken an inconsistent machine -- one I was involved with pretty intimately in the 1980s -- and turned it, while private, into a well-oiled juggernaut with accelerating growth.
The syndicate desk handled everything perfectly. They stoked the deal. It was 10x oversubscribed. They could have easily priced it at $20. Instead they chose $17. That was ideal because anyone who bought the opening, and the big funds were there to do so, loaded with money, got a terrific $20 and change average if they played their cards right.
Now they have a nice position of a company that should have a good quarter and they can settle in knowing they have a terrific retail and apparel play. They probably enjoy watching Nike (NKE) wallow, even as I think that was a good quarter and the stock should be bought.
Next, we will begin the process of bringing some of the behemoths that people will clamor for. It starts with Lyft. This is a very good company. It is second banana to Uber, but is often viewed as a solid tech-transport play in a market that hates the autos as much as it hates the banks -- but loves fintech. It's a perfect analogy.
The brokers will, again, favor the public and price it reasonably -- not as reasonably as Levi's, because there will be too much retail demand, especially after LEVI. It will still get a very good pop -- and those who buy at the opening, including the biggest managers, will have an okay average, not great, but not bad.
The company and the syndicate desk are seeking a value of $21 billion to $23 billion, which really means $31 billion to $33 billion, because retail demand will be a deluge that lifts the price.
They will have had to sell something akin to Lyft to get the stock in, because there's no real new money coming over the transom. I can see them selling some Salesforce (CRM) or maybe some Visa (V) to take it in.
Then Pinterest and some other similar companies will line up, after Thursday night's decision by Pinterest to move up its IPO. This one's been kicking around for a long time and it might have to be the first of the "sliver IPOs," meaning that not much will be offered so as to engineer an artificial pop, because there's not as much retail interest and the big funds are already getting sated. And all of the index money, of course, is on the sidelines, because Pinterest isn't in the indices or even the ETFs that are so beloved by brainwashed, scared individuals who are under the spell of faux diversification.
We will then have some flotsam and jetsam IPOs, maybe some Chinese flops that brokers will jam down big accounts' throats because the Mack Daddy of all deals, Uber, is about to occur.
Now here's where things go terribly awry. The system will not be able to handle the flood of retail orders mixed with the colossal mutual funds who say they are owed stock because they kept Pinterest and Lyft, as well as the suboptimal Chinese IPOs and whatever else has blown in from the window.
It's going to the New York Stock Exchange. So unlike Facebook (FB) , which was handled by the Nasdaq, the NYSE is going to have a decent handle on the show. Still, it doesn't matter. Orders will keep flooding in and it will open too high, go a bit higher and then, for the first time in this lifecycle, it will come down, as those institutions that got a lot of stock are given free-to-trade instructions by the syndicate desk, in order to have some sort of remotely ordered opening.
You get that bilge throwback and it sates retail. The big accounts don't have much to sell to take in more Uber -- and you have a Facebook-like denouement -- not when it comes to the opening, which, again, will not be smooth, but at the end, when there's too much supply.
After that it is all downhill. The Johnny-come-latelies will come public, with maybe only a very small sliver of the float and the brokers will try to stoke interest. Maybe they can place AirBnB in the queue -- and there's more retail interest, but there isn't enough institutional. And it is all over except for the shouting.
The whole market now sinks from the supply, it's the summer and we are all left with the riptide of equity that has no place in the market. That's when you have to be careful. That's when the market gets hammered.
