After much hype, Groupon had its IPO. The IPO price was $20/share and on Friday the price was around $24/share.
I’ll correct one common misconception. If shares skyrocket after an IPO, that isn’t great. It’s actually a disaster for the pre-IPO shareholders. If a stock doubles in the first few days, that means that the pre-IPO shareholders were cheated. Insiders bought shares at the IPO price, and made an easy profit.
This article had some interesting bits. There’s a lot of short sellers in Groupon. That article failed to mention a key bankster trick, naked short selling.
For a regular short sale, the short seller borrows shares and then sells them. The buyer gets shares. The share lender is knowingly taking the risk of lending. If the stock price rises quickly and the short seller goes bankrupt, then the lender could be cheated.
For naked short selling, the seller doesn’t borrow shares. The naked short seller has no intention of borrowing shares. The buyer doesn’t get his shares. Instead he gets a “failure to deliver”.
The naked short seller forces the buyer to lend him shares. The buyer who is cheated doesn’t even get informed, that he got a “failure to deliver” instead of actual shares. When you buy and sell shares, it’s just a number in a database. The bankster computers also can keep track of fails.
The stock clearing and settlement system treats fails as equivalent to real shares. This is a defect-by-design. If there’s a fail, it’s just a number in a database. If the naked short seller fails again the next day, then the position is continually rolled over.
Naked short selling is illegal. However, there is no penalty for naked short selling. Therefore, it’s illlegal. If something is illegal, but the law isn’t enforced at all, then it’s legal.
The banksters designed the stock clearing and settlement system this way on purpose. This enables them to manipulate the stock market via naked short selling.
For an IPO like Groupon, most of the pre-IPO shareholders are barred from selling their shares for 3-6 months. Here’s the official reason for that restriction. It prevents the pre-IPO shareholders from marketing a dud company and quickly cashing out.
There’s another benefit to this restriction. It enables the banksters to manipulate IPO share prices by naked short selling.
For an IPO like Groupon, there are few shares available for borrowing for legal short selling, due to all the restrictions. Instead, the banksters naked short sell.
There’s limited liquidity, due to the IPO insider share restrictions. This enables the banksters to use hype to inflate the price.
Notice the scam:
- Heavily hype the IPO. Most shares are restricted, so the price can skyrocket due to thin liquidity.
- Naked short sell the shares of the IPO. Cover later, once the insider share lockout period expires.
For a “hot” IPO, the naked short selling can be 50%, 100%, or more of the daily volume. That’s clearcut market manipulation. The banksters are robbing the people who are dumb enough to buy the “hot IPO” at an inflated price.
You should never invest in an IPO within 6 months of the offering. There’s too many shenanigans going on. Acutally, I don’t advise people to invest in the stock market at all. Gold and silver are a better investment.
Banksters manipulate IPOs. The stock market is one big scam.
Notice that the company doesn’t have to make a profit at all. All you need is good hype, and you can dump the shares on unsuspecting victims. That’s the problem with a hype-based economy instead of a value-based economy. Even if Groupon crashes and burns, the founders and VCs and investment bankers still cashed out and made a fortune. When you have really good hype, you can keep the scam going for quite some time. Some businesses, like Amazon.com, can turn into stable businesses later, after getting an initial boost from hype.
I already mentioned that Groupon is a scam. Groupon’s terms make it almost impossible for merchants to make money on the deal. Groupon typically demands that customers get a discount of 50%, and that merchants pay Groupon a fee of 50%. It’s hard for merchants to make money, when you offer a discount of 75%. It might be worth it if the Groupon users are converted to regular customers, but that doesn’t seem to be happening enough to be profitable for merchants.
Also, due to Groupon’s rapid growth, they can play funny games with accounting, even though they’re actually losing money. For example, if you operate net-60 with suppliers and have huge growth, you can be cashflow positive even when you’re losing money. You get the cash right now and it shows up on earnings, but the payout doesn’t happen for 60 days.
Groupon has no customer lock-in. My sister uses other services, saying they have better deals.
Only banksters can play the naked short selling trick. I can’t bet against Groupon. Besides, in this corruption-based economy, a hype-based business can survive for awhile. If Groupon has an inflated share price, they can buy out smaller competitors and borrow more money, prolonging the scam. Even if I could bet against Groupon, I’m still better off buying gold and silver.
I am 99%+ sure that there is a lot of naked short selling involved with Groupon. The “failure to deliver” share count is probably 50% or 100% or more of Groupon’s daily volume. With a “hot IPO”, the banksters use naked short selling to rob people who are stupid enough to buy at inflated prices.
I have used a discount service, perhaps similar to Groupon, but only for software.
Essentially the discount company ask you to market and advertise the discount day on your website. On their website they have a product page taken from information on your website. Essentially they get a 20 – 30% cut of a deeply discounted software product.
At the time I pretty much had a unique software product and the competition was way behind me. In other words, people could buy from me or not and if they really need the software they would have to buy it from my sooner or later.
The first time I did this discount I got well over 30 sales in one day, well above my normal average. But I sold at a huge discount. My actual returns weren’t that much higher.
It doesn’t take much to see that the discount company is doing very little real work and living off the risks you take.
At most these discount companies might be good for raising awareness of your product, but the way the company I dealt with worked, they relied on your to advertise the discount day on your website.
I made well over 30 sales in one day, because I already had a high traffic website!
You have exactly nailed the short selling of new issues. As a former market maker in IPOs, I can tell you that the shorts are always looking at IPOs because the underwriters and the company often try to push the price as high as possible, resulting in later declines after the initial enthusiasm. Good point on naked shorts.