GM IPO as Climax for the Reflation Trade

This week, probably Thursday, should see the debut of the General Motors IPO.  There are lots of angles to this story, from the exclusion of the retail “taxpayers” from IPO shares to the fact that demand is way stronger than expected and so pricing will be raised (above $30 per share).

One take I found interesting today was about what the deal may mean for equities in a broader sense.  GM’s resurgence is, after all, the epitome of the bail-out-and-reflation trade – perhaps more so than any of the banks are.

John Shipman at Dow Jones Market Talk blog sees echos of the Blackstone IPO hype at the market’s peak in 2007…

GM stock is on track to return to public trading Thursday, and the hype is ramping up, which reminds us of another highly anticipated and sought-after IPO: Blackstone Group.

Remember that one? Everybody wanted a piece of Blackstone when it first offered shares to the public in late June 2007, just a few months before US stock markets hit an all-time peak. “Shares are so oversubscribed that some Wall Street analysts fear that irrational exuberance will send investors tripping over themselves to get the first publicly traded piece of the private-equity boom,” the Washington Post wrote on the day of BX’s IPO. Some headlines wondered: “Is Blackstone the Next Google?”

And what happened? BX gained in its first day of trading, then proceeded to tank and hasn’t been close to its $31 a share IPO price ever since. In fact, from its IPO price to when markets peaked on October 9, 2007, BX fell 8%, while the S&P 500 rose 4%.

There are some severe differences that keep this analogy from fitting like a glove, notably the fact that neither GM nor the US auto industry are anywhere near some kind of peak or golden age as private equity was back then.

Where I agree with Shipman is that the hype is getting louder and the public offering itself could certainly end up as a kind of climax for the rest of the market.

Worth considering.


GM’s IPO Hype Brings Back Some Memories (Market Talk)

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