Malt Liquidity 15
In which we discover ICE is not very liquid
Stop, Collaborate and Listen
For the third straight day, I have to mention that the NYSE has yet again changed their mind on whether to delist a few Chinese Telcos.
The New York Stock Exchange will move forward with delisting three Chinese telecommunications companies targeted by an executive order from President Trump, reversing course yet again after the NYSE said earlier this week that it wouldn’t delist them.
I suppose “yesterday” is technically earlier in the week.
It’s really been a rough few days for ICE’s CEO, Jeffrey Sprecher. Pretty much everyone is mad at him - the Chinese are upset, naturally, for firing the first shot in the exchange listing war (for access to capital, even indirectly, is dependent on liquidity and demand for ADRs and shares), the US is upset because they bungled the execution, the American shareholders are upset because they have to liquidate at lows (just think about what happens to demand for shares when one group of shareholders desperately needs to liquidate), and I’m upset that I have had to spend 3 straight intro sections on this relatively mundane story correcting the previous day’s note. Well, at least he has a loving wife to go home to, surely she can cheer him up… oh?
The old dog utilizes some old tricks
A common platitude in the flush-with-funding era has been “private markets are the new public markets”, and for a while, you had an ironclad case with startups staying private longer than ever before due to the number of potential funding rounds blowing past the number of frames in a bowling match. SpaceX, for example, had their series M funding round recently and has an active secondary market where stakes are traded, much like Uber did back in the day. You could easily argue that the capital public markets would provide was no longer necessary, that the traditional purpose of the IPO was no longer relevant, and that public markets really just existed for employees to cash out their equity when they felt like it, which is what led to the direct listing becoming more popular. However, with capital markets so flush and money piling into equities at higher and higher rates, if you’re running a company that isn’t exactly a VC darling, seeing all this cash piled into overvalued IPOs indicates that the timing couldn’t be better to go public yourself. Thus we have Petco finally returning to the public markets:
Petco plans to offer 48 million shares at $14 to $17 each. Goldman Sachs and Bank of America Corp. are leading the IPO, which could give Petco a market valuation of $4.4 billion at the top end of the range. It aims to list on Nasdaq under the symbol WOOF.
For every Toys R Us, Sears, JC Penny, Radioshack, Radioshack again, Sports Authority, and more, we get a hedge fund/private equity buyout that doesn’t go to complete shit where the business is turned around and makes it to the IPO pond. While hedge funds and private equity outfits catch a lot of flak, it’s heartening to see businesses that are otherwise going to go under get a shot. While venture capital subsidizes the market cost of a service to appeal to the consumer, private equity subsidizes the business so they can continue to provide a service at market rate and hopefully become profitable. Either way, the consumer wins - they are getting a service or good much cheaper than it should be, or they get a valuable service from a business that deserves to keep operating that got a second ‘leash’ on life. Even in the infamous Blackstone-Codere CDS case who really lost here? The investor made money, the troubled business got a second leash on life, and the accredited investor counter-party learned that they should probably be more careful when structuring an OTC deal. The calculus has shifted - VC now provides more money than a company needs because everyone wants to get in on the action, and PE allocates money to distressed businesses that could still provide a massive return if they crawl out of the hole. SPAC or SPEC? that’s for you to decide.
For the love of god, someone explain emergency liquidity to Andrew Cuomo
I can’t overstate how lucky we were in 2008 to have the exact man who made an academic career out of researching the Great Depression in charge of the Federal Reserve. Much of Bernanke’s actions in that time can follow from a couple key points:
There is a very limited window to provide emergency liquidity before the market demand overwhelms the supply (this is what caused bank runs)
If you are providing emergency liquidity, speed is of the essence. Adding conditions to make sure it gets to the right place defeats the purpose of providing emergency liquidity. You don’t want to be selective and make sure it goes only to where it is needed, you want the tide to raise all ships.
The same principle applies whether it is bank bailouts or PPP loans (while some businesses may not need the liquidity and might even just take advantage of it) because the time spent making sure a business actually needs the money is counterproductive to helping that business survive, as what they can’t afford is the time to relief.
You don’t need to be an expert in health policy to understand why Cuomo’s policies of million dollar fines for vaccines going to the wrong place and $100k fines for not utilizing every vaccine in a 10-pack are extremely counterproductive - you just need to understand emergency liquidity. Cuomo is too concerned with where he deems the vaccine is imperatively needed - in this case doctors, nurses, and other healthcare related providers - to the point where he disincentivizes the spread of the “emergency supply” by violating both of the principles of emergency liquidity. If you want to use your vaccines as efficiently as possible, you can’t be extremely selective about where they go, and putting a financial disincentive on top of that if you don’t follow these rules will pretty much ensure your emergency liquidity of vaccines gets rolled out at a glacier-like pace. Harsh restrictions make it harder for resources to be allocated where they need to be. Please, just, stop doing things.
On that note…