We're Now At The Threshold Of A Notorious Bubble Indicator

If you think the US Fed and the European Central Bank are inflating a stock bubble with their extended period of zero interest rates — 0% interest makes money cheap to borrow, cheap to invest, and propels money out of savings and bonds and into stocks — then you’re going to love this next chart.

Jay R. Ritter, a professor of finance at the University of Florida, has been keeping track of all the IPOs since 1980. And his numbers show that this year we’re already within a hair’s breadth of the record set in 2000 when 80% of companies that filed an IPO were losing money. (For context, the NASDAQ only needs to put on about 9 more percentage points of growth to hit 5,000, the barrier we last saw in 2000 during the dot-com bubble.)

In 2014, 72% of IPOs so far and 64% of IPOs in 2013 featured “negative earnings,” his database shows. The “normal” level of IPOs without profits is 30% to 50%. Here’s what that data looks like:

And 2014 isn’t even over yet.

There are a couple of HUGE caveats to the numbers, which suggest the market today is very different from 2000.

  • Back in 1999 and 2000, 78% and 69% of companies going public were tech stocks, respectively. Only 27% are tech companies now.
  • And in 1999 there were 476 offerings. So far this year we’ve only seen 112.

That would imply that IPOs are more broad-based throughout the economy than they were in 2000. It would also imply that companies, banks and investors are being more selective about making stock offerings.

But still. Most companies going public today have no profits. And they’re all hoping to enjoy the lift of a market that is again inching toward the 2000 peak.


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