The NYSE published the Fact Book for years. That handy little reference book outlined the general trends in the industry and at the NYSE. I always found it to be a useful tool to see what direction things were moving in. When the NYSE decided to stop publishing that annual report, SIFMA stepped in and picked up the slack. This year’s Fact Book is illuminating. If you have never read it, I encourage you to do so, as it is well worth plowing through the arcane facts and figures documented in what is now a digital publication.
So why take a look at a book that has so many numbers? Well, did you know that Initial Public Offerings peaked in 2014 and fell precipitously in 2015? And only rebounded to slightly more than half the total in 2018? Of course, a big part of 2014 was Alibaba’s $ 25 billion IPO, but even taking that out of the numbers, IPO issuance hasn’t come near the 2014 peak. Do we have to ask why? In this age of entrepreneurship, more and more companies are rejecting the notion that you have to go public to truly “make it”. Start-up capital is readily available, private capital allows successful companies to go longer without officially going public, and with a robust market for M&A, there is a viable exit strategy besides going public. And while that benefits start-ups and their owners and perhaps those private investors, it denies everyone else an opportunity to commit their own capital and participate in the American Dream. And being a public company is not the prize that it once was, as we’ve seen when companies like Uber and Lyft have jumped into the public markets. Sure, there’s the “prestige” of being listed, but at what cost? They are constantly harassed about short term profits and strategies. Rarely do the visionaries who launched these companies survive the onslaught of expectations as a public company. They wind up bending to the “corporate” norms and losing that special “something” that set them apart.
If you wade deeper into the report, you will come across some charts outlining private placements in the United States. The charts start in 2004 and continue through 2018. You will notice that this market has almost completely disappeared. While I am no expert on private placements, you have to ask yourself what the heck happened there?
You will also notice a few anomalies in the charts. Almost every chart depicting the equity markets will show a deep decline beginning in 2008 and lasting through 2009. Yes, that would have been the great financial crisis. And you will not see the momentary blip in May of 2010 when the market fell off a cliff, although nine years later we are still talking about implementing the solution: The Consolidated Audit Trail (CAT). I recently read that the SEC has threatened the exchanges with financial penalties if they didn’t begin implementing in April 2020. I have a couple of reactions to that. One, the exchanges have been in technical non-compliance for some time, and only now is the SEC going to penalized them? And April 2020, nearly ten years after the event that caused the SEC to mandate the CAT in the first place, is only the first phase!
Another startling chart is the one depicting performance of the Dow Jones and S&P 500. Since 2008 the Dow has nearly tripled in value. That’s not a bad run, but it’s also not a straight line. A retirement advisor once told me. If you are betting that the Dow will be at a certain number when you need to cash out, guess again. While the trend may indicate straight up, guessing which is the up year and which is the down year is not for the faint of heart. Think of that when you make your investment decisions.
When you get to the chart on interest rates you will note that rates have been low for a long time and trended that way ever so slightly but consistently. How long can that go on? When you look at any chart related to the bond market, it’s as if none of these trends matter, because the bond market just keeps on rolling along. Now guess which market has seen the least automation, the least regulatory changes, and has remained the most consistent? That’s right – the bond market. Is there anything to learn from that? Did we really have to go through the upheaval in the equity markets? Was this the right place to experiment with technology, regulation, market structure? Did we really need to take human thinking out of the equation? Something I will be thinking about for the rest of my days for sure.
And how about trading in equities? Starting in 2010 it’s like someone yelled “shark” and everyone got out of the water, with only a slight recovery recently. The only charts where the trend is up, up, up are the Exchange Traded Funds charts. God bless the Amex’s Nathan Most. He pioneered ETFs at the American Stock Exchange and it’s been the biggest thing since sliced bread. Didn’t help the Amex or Nathan much though.
I particularly like the global charts. Being a Brooklyn-bred American, I can honestly say we are still the best in the world. You name it – bond issuance, equity issuance – it doesn’t matter, we beat everyone else hands down. But since we have all the money, it’s interesting to see where Americans invest the most: while the leading area is the EU, it is closely followed by the UK. So, watch out Europe, Brexit may not be in your best interests after all.
Then there is a whole section devoted to share ownership by American families. The report claims that 52 % of families own equities. The source is the Federal Reserve. You have to wonder about that, I mean, really? One out of every two families own equities in the US? I’d love to see how those averages were computed and how skewing comes into play. And it also shows pension assets appreciating nicely, but not at the same rate that the Dow increased from 2008. My take-away is that pension plans missed the run-up by diversifying and by trying to match assets with liabilities, thus ensuring that they will be continually underfunded. But really, what do I know? Also, it looks like total 401k assets started to decrease in 2018. Can it be that the baby boomers are starting to tap their 401k’s to live on? Of course, it looks like there was $ 5.2 trillion in assets as of 2018, so I guess that will last for some time.
I guess the most depressing statistics in the report have to do with the industry itself. While it appears that the industry is still profitable and revenues exceed expenses, there are clearly fewer firms in the industry, fewer broker-dealers, and fewer registered representatives. Having said that, there are more people employed in the industry than ever, just not here in New York, as neither the State nor the City have recovered their highs before 2007.
If there is one shining light in the report it is the map toward the end that depicts the United States and how many Broker-Dealers are in each state. Sticking out like a sore thumb are Wyoming and Alaska, in that neither have a Broker-Dealer domiciled in their state. Talk about an opportunity!
Lou Pastina is a Managing Partner at Global Markets Advisory Group, a boutique financial markets team focused on regulatory, compliance and technology issues in the industry.