IPO market
Interview: Erin Burnett
>> welcome back, i’m brian sullivan. overall, 2003 was one of the worst years for an i.p.o. market in a generation. but december may actually end up being one of the best months in more than four years. erin burnett has more.
>> in 2004, motorola is expected to raise $2 billion by selling a stake in its semiconductor unit. general electric plans to sell 30% of its mortgage and insurance business for an estimated $3 billion and online search engine google may launch the biggest internet i.p.o. ever. these are among the the biggest and most-anticipated i.p.o.’s in a year when investors expect as many as 200 companies to go public, the most in four years. analysts say the i.p.o. market’s rebound depends on continued gains in the nasdaq, already up more than 40% this year.
>> give us the reaction to the market already taking off. the i.p.o.’s won’t define the market. the i.p.o.’s are the reaction. this is the fire that’s already burning and google and others could add fuel to that fire.
>> investors say many companies planning i.p.o.’s are in better financial shape than during the late 1990’s. google will earn an estimated $200 million this year on revenues of about $1 billion. in the late 1990’s, about 20% of companies going public were profitable. today, analysts say half the companies doing i.p.o.’s have earnings.
>> the i.p.o. investors are selective and they are more interested in companies with track records and earn money and we’re not very interested in companies that you had to wait for three or four years to see revenue and earnings.%
>> of the 55 companies filing to go public in 2004, 30% are technology companies, including memory chip maker stack tech holdings, profitable since 1999. biotech is the second most popular i.p.o. segment where most businesses lose money. rounding out the top three, energy and power companies, including el paso energy management. erin burnett, bloomberg news.
>> the signs point to a sustained u.s. economic recovery. third-quarter gross domestic product grew at its fastest pace in 20 years and business investment picked up. still, the federal reserve kept interest rates at a 45-year low. what gives?
>> as we close this year and look forward to next year, we’re repeating what we saw in the last couple of years. in early 2002, there was a general feeling we would have rate hikes because the economy was recovering. actually in that year we ended up getting a november rate cut. last year, this year, if you recall, at the beginning of this year, a lot of the forecasters were looking at the fed beginning to raise rates by the middle of this year and we got a june rate cut. one of the key reasons is the labor market performance has been miserable. it’s improving now but we suspect it’s only growing at about a 100,000-per-month pace, not enough to use up the spare capacity that the fed is talking about. at the same time, even though the fed is moving towards a more balanced inflation risk, we suspect the risks still are that it will fall further. for example, we suspect that in the next non-farm payroll report we might find that average hourly earnings falls to just 1.8% and with strong productivity, that will push inflation lower.
>> i very much agree with the view that the labor market right now is not strong and i also agree with the view that the labor market will be slow to turn around.
>> but isn’t that the key to a sustained economic recovery here? if that’s not going to turn around and quickly, doesn’t the rest fall by the wayside?
>> i do not believe that is the key to economic recovery. if you look at the behavior of consumer spending, that has been very well maintained and i think will continue to be maintained. the key to this recovery is what happens with business investment spending and we see activity turning on that front with two consecutive quarters where business investment spending is up and we see a nice pick up in orders for capital goods at this time, as well. if you look at industries that were overinvested in the late 1990’s, they seem to be absorbing much of their excess capacity. we have a brighter outlook for business investment spending than before. i agree with the view that we’ve had false dawns before but that’s because we’ve had faltering and business investment spending and that situation seems to be changing for the better.
>> recently those investment numbers have been good. i think to some extent it has been propped up now by the productivity strength because of aggressive cost-cutting. now, the other issue, too, has been consumption. and consumers have kept spending. we suspect that might stop soon.
>> there is the idea that you’ve got even more tax incentives becoming in 2004 that may help the consumer.
>> tax refunds will be good but we suspect that will be dwarfed by the depressive influence of lower cash-outs from mortgage refinancings and other forms of mortgage equity withdrawals. this is the wild card and might be the elephant in the room that some people are choosing to ignore. now, i suspect that the drag from that could overpower anything and it may already be happening now. i get consumption in q-4 growing by less than 1% after obviously a strong third quarter. and it may not bounce back to 4% in q-1, but only 2% or 3% and if that’s the case, the market have to shift out when the fed begins raising rates.
>> coming up, we’ll continue with our focus on the economy.
