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Secondaries Flying off the Shelves -- Bullish Sign?

By: Herb Greenberg | 09/18/13 - 11:00 AM EDT

(Originally published on Real Money's Columnist Conversation.)

NEW YORK (TheStreet) -- IPOs are grabbing the headlines, with Twitter the latest to feed the frenzy, but the real story isn't IPOs at all -- but secondaries.

"They're outpacing IPOs at what feels like an exponential rate," says David Menlow of the IPO Financial Network. "Last Friday, we priced 18 of them against one IPO."

Menlow has been tracking IPOs and secondaries for 25 years and he says whenever there is a burst of secondaries like this, he sees it as a bullish sign for the economy.

"It's a huge indicator for corporate strength and the jobless recovery," he says.

Of course, these secondaries could also be viewed little more than insiders taking advantage of the red-hot stock market by getting out while the getting is good. And there's plenty of that. Just look at Five Below (FIVE) Tuesday, whose latest secondary represented little more than bailing by private-equity insiders. By contrast, Pandora's (P) recently announced secondary was less insider sales, more raising cash for corporate purposes.

And that's Menlow's point as it applies to the economy: Key to many of these sales, he says, is to raise cash for general corproate purposes and to pay off debt and otherwise have cash in the coffers so they can pounce on future acquisitions or business opportunities. That, he says, is a bullish sign.

"When they want to make that move, they have the money in hand," he says.

As for investors, he says, many of the deals, like Pandora, have been winners -- rising after the deal.

Reality: Of course, in this stock market, things that used to go down go up -- secondaries, no exception.

--Written by Herb Greenberg.

Herb Greenberg, editor of Herb Greenberg's Reality Check, is a contributor to CNBC. He does not own shares, short or trade shares in an individual corporate security.

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