Eagle Daily Investor

Why the Number of Public Companies is Shrinking

[Stock traders]

“The number of publicly traded U.S. stocks available to investors is plumbing new lows, even as their prices brave new highs.” — Barron’s (February 24, 2014)

The Wilshire 5000 Stock Index is supposed to be the ultimate measure of the U.S. stock market, but in reality there are now only 3,666 stocks in the index. Back in 1998, it contained 7,562 stocks. The employment participation rate isn’t the only number in decline.

There are a lot of reasons for this decline. The number was artificially high during the dot-com boom of the late 1990s. Since then, the dot-com boom collapsed and mergers/bankruptcies/delistings have exacted a toll. Foreign exchanges have drawn away a few U.S. listings. Companies are buying back their shares in record numbers.

SkousenListedExchangesChart030614

But the main culprit has to be excessive and unnecessary government regulation, like Sarbanes-Oxley and Dodd-Frank.

The enactment of the Sarbanes-Oxley Act in 2002 and Dodd-Frank in 2009 imposed expensive burdens on public companies and made it almost prohibitively expensive to go public. The initial public offering (IPO) market has gone from robust to anemic, despite a recent increase. Many IPOs are done across the border in Canada or overseas. Many publicly traded companies have decided to call it quits and go private, avoiding the excesses of “Sarbox.” Most recent examples include Dell, H. J. Heinz, Mervyn’s, Levi Strauss and Jo-Ann Fabric and Craft Stores.

The Fed is also responsible. By keeping interest rates near zero, zealous private equity players are making it easy for companies to raise money without going through public compliance.

You Blew It! The Terrible Snow Storm that Never Was

There are two old sayings that apply to this last weekend:

“Climate is what you expect, weather is what you get.” and “You can predict the climate, but not the weather.”

Last weekend, the national weather service and the media predicted a huge storm that had a “100%” chance of dumping rain and then up to a foot of snow in the New York City area.

I was scheduled to speak before the New Jersey chapter of the American Association of Individual Investors (AAII) on Monday, the day the “guaranteed” snow storm was to arrive. So the host canceled the meeting.

Guess what? Not only was there no snow, but no rain either. It was just another cloudy and cold day in New York. It turned out that the storm hit the Washington D.C.-Philadelphia area but never made it to New York.

Two lessons come from this story: Meteorology is still a very imprecise science. And you shouldn’t change plans for sure until you know for sure what is going to happen.

Economists predicting the future of the economy should also be aware that they are even more imprecise and uncertain of the future than weathermen.

In case you missed it, I encourage you to read my column from last week about how to determine history’s greatest economist. I also invite you to share your thoughts below.

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About Mark Skousen

Mark Skousen, Ph. D., is the editor of the monthly investment newsletter, Forecasts & Strategies, as well as three weekly trading services, Skousen High-Income Alert, Hedge Fund Trader and Fast Money Alert. He also is a professional economist, investment expert, university professor, and author of more than 25 books. He earned his Ph. D. in monetary economics at George Washington University in 1977. He has taught economics and finance at Columbia Business School, Columbia University, Grantham University, Barnard College, Mercy College, Rollins College and as a Presidential Fellow at Chapman University. He also has been a consultant to IBM, Hutchinson Technology and other Fortune 500 companies.

View all posts by Mark Skousen →

  • MoreFreedom2

    Most of government regulation doesn’t exist to ensure a level playing field. Quite the contrary, it tilts the playing field. But the real reason “regulation” (control is a more accurate word) exists, is so politicians can extract money and favors from those in the industry who seek government favors at taxpayer expense, or by the legal Mafia protection racket: “Pay us protection money, or we’ll pass legislation that will end up putting you out of business.”

    This is nothing more than government theft. It’s no surprise that the economy is declining, and there are fewer public companies in which to invest. When government steals from us, instead of protecting us and our property, what else are the productive to do but flee elsewhere where governemnt isn’t so criminal?

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