The Facebook IPO has, for
the first time in many months, created the situation where the supply of stock will
outweigh demand, so it has helped to push prices down. Once the IPO is out of
the way there should be a “relief rally” although this is unlikely to last
long, he told Family Wealth Report.
“I have sold some stock to buy Facebook”, he said in a telephone interview from San Francisco yesterday.
Between June 2011 and March this year, firms were buying up to $1.8 billion of equities a day, set against money leaving equities – outflows from institutions -- of around $800 million per day over the same period, meaning a net removal of $1 billion per day. This shrinkage of free-floating stock has underpinned the market, he said.
The weight of supply has been a factor depressing prices, although the Greek debt debacle has also been a force, Biderman said.
But while the shrinkage of stock has – until recently – been a supportive factor, markets may struggle to progress even after any Facebook-induced bounce, given economic uncertainties, he said. By contrast, he remains a fan of gold, despite the odd recent wobble. (Spot gold today traded around $1,536 per ounce; that contrasts with a record high of more than $1,921 in 2011.)
Biderman’s comments about how the volume of stock in a market can drive price levels carries echoes of how, prior to 2008, equities were said to be supported by firms buying back stock and engaging in leveraged buyouts. However, unlike that period before the credit crunch, firms are now buying their own stock using hard cash.