Twitter is going public. Shhhhhhhh!
Four days after the social-media network tweeted that it registered to list its shares on a stock exchange, we’re no smarter about the company. Twitter didn’t tell us when it filed with the Securities and Exchange Commission. It didn’t tell us if it is profitable. It didn’t tell us how it plans to grow.
In fact, the only thing we learned about Twitter is that its annual sales are less than $1 billion.
That’s the cap for companies going public under a 2012 law that lets them keep financial and executive-pay information under wraps until closer to trading day. So, don’t blame the 140-character limit for Twitter’s lack of detail. It’s just following the law.
The law is the Jumpstart Our Business Startups (JOBS) Act. As the name suggests, the goal is to create jobs by making it easier for small companies to tap financial markets so they can grow faster – and hire more employees.
Under the JOBS Act, a company can file its IPO registration confidentially, allowing the SEC review to take place without public scrutiny. The IPO document, including disclosure of any changes demanded by the SEC, is released later in the process, at least 21 days before investment bankers start marketing a company’s shares to investors.
More than 250 companies have filed for IPOs under the “regulation-light” JOBS Act. The SEC says it doesn’t track how many complete the process and go public. Some quietly withdraw.
The JOBS Act was designed for so-called “emerging growth companies,” a phrase that conjures up images of scrappy young firms. Yet the vast majority of companies that offer shares to the public qualify as based on sales of less than $1 billion.
“The ostensible purpose was for young entrepreneurs to go public, but fewer small tech companies have gone public since the JOBS Act was passed,” says Jay Ritter, a University of Florida finance professor who tracks IPOs.
You might be surprised at some of emerging-growth “start-ups” that have taken advantage of the JOBS Act. Here are five:
Manchester United: Unlikely to generate American jobs and hardly a start-up, the British soccer team was founded in 1878. Its American owners took it public on the New York Stock Exchange in August 2012, raising about $234 million, mostly to pay off debt rather than expand. The IPO share price was $14. On September 13, MANU closed at $17.18, a 23 percent gain in 13 months.
Fairway Group: Also not a newbie, founded in 1933, but this venerable New York-based grocery chain went public to grow. Its share price jumped 33 percent the day it began trading on the Nasdaq last April. As of September 13, it had gained 72 percent.
PennyMac Financial Services: Founded by former Countrywide Financial President Stanford Kurland and other Countrywide executives, this residential mortgage lender raised about $200 million on the New York Stock Exchange in May. But its share price has risen less than 5 percent.
Intercept Pharmaceuticals:The New York-based developer of treatments for chronic liver disease was 10 years old when it went public on the Nasdaq in October 2012. Since then, Intercept’s losses have mounted as it invests, but its share price has more than tripled. The company had 25 employees as of March.
Marin Software: The San Francisco company manages cloud-based digital advertising systems. It filed a confidential IPO registration and later disclosed several amendments requested by the SEC. Its revenue is growing quickly, but the seven-year-old software firm is still in the red. So is Marin’s stock. Since its IPO on the New York Stock Exchange in March, its shares have fallen 14 percent.
Floodwaters have washed out roads and made it difficult to get to many people. Bad weather grounded helicopters on Sunday. Though more rain is expected, authorities think the rescue flights will be able to resume Monday. Hundreds of people remain unaccounted for.
We get inflation figures for August on Tuesday. Back in July, the Consumer Price Index was up just 0.2 percent. Economists expect inflation to have remained modest in August, with a 0.2 percent increase in CPI month-to-month, and a 1.7 percent increase year-to-year. Similar increases are expected for the core CPI, excluding more volatile food and energy prices. Producer prices rose in August by just 0.3 percent month-to-month, and are up 1.4 percent since August 2012.
All of these recent inflation measures fall below the Fed’s currently stated target of 2.0 percent annual inflation.
The inflation picture is part of the background to a much-anticipated meeting of the Federal Reserve’s Open Market Committee (FOMC) this week. Policymakers are expected to decide when they will begin 'tapering' their current round of quantitative easing, in which the Fed has been purchasing $85 billion/month in assets -- government bonds and mortgage-backed securities.
The debate among economists: should the Fed begin ratcheting down its monetary stimulus and let credit start to tighten? If not, could the economy eventually overheat, sparking runaway inflation?
It’s a scary prospect for some, who live with memories of speeches like this, by President Carter in 1978: “The most serious problem that our nation has is inflation. And it’s getting worse.” By the late 1970s, President Carter would face double-digit inflation, topping 14 percent in the volatile election year of 1980.
“You’ve still got the generation of economists who came of age in the 1970s, when inflation was a serious problem, who are still fighting that war,” says Bruce Bartlett. He served in senior White House and Treasury positions in the Ronald Reagan and George H.W. Bush Administrations.
Lately, in columns on the Economix blog at The New York Times, Bartlett has been criticizing what he calls “inflation-phobes,” including some top policymakers at the Federal Reserve.
“Many of these bank presidents are inflation hawks,” says Bartlett. “Not that they have prevented inflation from happening” -- he points out that inflation has been tame throughout the post-recession recovery, generally falling below the Fed’s own 2.0-percent annual target. “Rather, they have kept growth slower than it would otherwise be, by preventing the Fed from taking additional actions that would have increased economic growth, because, they keep arguing, we must always fight inflation first, and not worry about unemployment.”
And how could more inflation spur more growth?
Dean Baker at the progressive Center for Economic and Policy Research, also a self-described inflation dove, explains that businesses, anticipating higher prices in the future, would likely invest more now in plant, equipment, and labor.
“The logic here is that if a firm sees that it’s able to sell its products for more money in the future, it’ll be more willing to hire more workers today, and to pay more,” Baker explains. He says that wages generally keep pace with rising prices. He says that’s true even without strong labor unions negotiating inflation-indexed contracts (or at least, contracts with steadily rising wages), as we had during the 1970s.
And, Baker points out, modestly higher inflation (he advocates around 4 percent annually) could help young people and homeowners, by allowing them to pay back today’s debts in tomorrow’s dollars.
“Insofar as people have debt—mortgage debt, student debt—that debt becomes less of a burden as prices and wages rise,” Baker says.
“I think it’s a lousy idea,” is the reaction of John Cochrane, professor of finance at the University of Chicago’s Booth School of Business.
Cochrane argues that, even if the Fed wanted to drive prices higher, it has little leverage to do so at this point. He says the Fed has already set short-term interest rates at near-zero, and the Fed’s quantitative easing effort has had only limited impact.
Meanwhile, Cochrane argues that “inflation doves” have the growth equation wrong-way-round.
“A little more inflation is usually the sign of an economy this is recovering, but not necessarily the thing that helps the economy to recover,” says Cochrane. “You know, rich guys smoke cigars, but smoking cigars isn’t going to make you rich.”
And Cochrane says that once inflation does begin to increase, as the economy gradually improves, the Fed will fight it, as it is mandated to do, because a healthy economy depends on keeping prices and wages in check.
“The whole game that’s being prescribed here,” says Cochrane, “is that the Fed should promise now to have more inflation later, than it will want later, once the economy recovers.”
Amid pushback from a handful of Democrats over his possible nomination, former U.S. Treasury Secretary Lawrence Summers has withdrawn his name from consideration to replace Ben Bernanke as chairman of the Federal Reserve. In a letter to President Obama, Summers said he felt the possible confirmation process would have been too "acrimonious." Summers has also faced criticism from women's groups stemming from comments he made in 2005 about the ability of women to succeed in math and science. His response to the 2008 financial crisis has also been criticized by some on Capitol Hill.
And international markets are responding in a big way to the news. Global stocks are near five year highs and bond yields across Europe and Asia have fallen. The BBC's Andrew Walker joins Marketplace Morning Report host David Brancaccio to discuss.