The Visa IPO was a big success and Cash McDash was right in the thick of it. Sometimes it’s better to pay a higher price than a lower one. Cash explains. What’s next for this crazy market, and how does our hero plan to profit?

JL: So, the markets have been reminding me of my life lately.

CASH: How’s that?

JL: I’m getting into a little routine. Every Monday I start out thinking, “Okay, things have been pretty wacky. How could this new week possibly top the last one?” And then, somehow it does.

CASH: Hold on a second. If you’re referring to the sweet turnaround action in financials we just saw, you had no reason to be surprised. Didn’t I call the play-by-play there in our last little chat? Where’s the trust? Where’s the love?

JL: Yeah, yeah. Credit where credit is due. That was a pretty nice call you made.

CASH: Why, thank you. Thankyouverymuch.

JL: Riddle me this though, Elvis. What about all the remaining uncertainty out there? Bear Sterns is still a smoking wreck. Standard & Poor’s is lowering its outlook on Goldman and Lehman. (A bit late, but still.) And I just read in the Financial Times that, in spite of all the helicopter money from the Fed, cash hoarding is still a problem with the banks. The same FT piece talks about stuff like “consumers at their most pessimistic in 35 years” and “house prices falling at the fastest rate on record”… not exactly zippidy-doo-dah, you know?

CASH: Hey buddy, you and I both know that the news always looks worst at the bottom. And besides, whether the recent turnaround is a short-term inflection point or a major long-term low, I don’t really care. I’m getting ready to rack up gains over the next few weeks and months. That’s what counts for me. This newly buoyant market is set to make investors pay up.

JL: Speaking of paying up, how did the Visa IPO turn out for you? We all heard how big that deal was. I even read that China’s sovereign wealth fund grabbed $100 million-plus worth of shares. Were you able to get a decent allocation yourself with all those whales in the mix?

CASH: When it comes to the really good ones, you never get enough shares. Visa was no exception in that regard. However, you know I worked pretty hard to get the underwriters in my corner… and this time the effort paid off. I put in a bid for tens of thousands of Visa shares with several different firms. While I only got a partial fill, the total still came out to several thousand. That’s gonna help my performance a lot.

JL: No kidding! Several thousand shares of one of the hottest IPOs on record? Better than a poke in the eye with a burned stick, if you ask me. I do have another question about the Visa IPO, though.

CASH: Sure, go ahead.

JL: What was the deal with the opening price? The publicized range before the offering was $37 to $42 per share. And yet, from what I heard, the stock was sold to the public at $44 per share. Can you explain how that works?

CASH: The funny thing is, I got an e-mail the night before stating that Visa was likely to price higher than the initial range — possibly as high as $45. Despite the fact I would be paying more for every share, I was elated. That e-mail was fantastic news.

JL: Ah yes, that old trading conundrum: “The worse the fill, the better the trade.” I think I grasp the logic there, but the concept might be a little confusing to our readers. Can you explain why you were happy to be paying more?

CASH: No problem. When an IPO prices above its range, you are practically guaranteed to turn a profit.

JL: How so?

CASH: For starters, the “offering range” publicized before the deal goes to market is

simply an estimate. It’s kind of a best guess as to where the underwriters expect to offer the stock. It isn’t a legally binding price by any means. The actual price is set based on discussions with the underwriters’ largest clients — the ones who will be buying in huge size.

JL: Like that Chinese SWF who snapped up $100 million-plus worth. So, basically, it’s back to the laws of supply and demand then? Higher demand means a higher offering range, which in turn augurs well for future demand?

CASH: Bingo. That’s when I want to be long and strong when demand is exceptionally high. Statistically speaking, when an IPO prices in the high end of the range, the odds of a sustained bull move are much better.

JL: Gotcha. But also, wasn’t there an issue with the total number of shares sold? I thought I heard something about the underwriters screwing up, and additional shares needing to be approved.

CASH: Nothing gets by you, does it?

JL: I’ve got ears like a hawk.

CASH: Say what?

JL: You know what I mean.

CASH: Don’t be too sure about that! But yes, what you heard is correct. The underwriters were so excited about this offering, they wound up getting a little too excited. With the feeding frenzy of demand out there, the i-bankers lost track of the numbers. They wound up selling more shares than they were authorized to give out!

JL: You mean like a trading floor mistake? Where a trader wants to sell 500 contracts, and gets so worked up in the heat of the moment he sells 800 contracts instead?

CASH: Yes, something like that. To fix the problem, Visa had to actually issue additional shares the day after the offering. This was to cover the “over allotments,” the extra shares sold to clients. And, in fact, I think I was one of those clients who got extra shares….

JL: Nice!

CASH: It’s all in how you play the game. Shortly before the deal went down, I got a morning call from one of my contacts. This was a guy I’d been especially friendly with over the past few months. We’ll call him John. Unfortunately, John was calling to tell me that his office didn’t have any shares to give me. I could tell he hated to make that call.

JL: And of course, you weren’t about to take no for answer.

CASH: Of course not! Even though I like John, and he and I will probably do business for many years to come, I let him know in no uncertain terms that this was unacceptable. After explaining to him that I get calls every day from the competition, I asked him to take another hard look around. You know, to see if there were any solutions to our little problem he might have “overlooked.”

JL: The Don Corleone routine eh?

CASH: Welcome to the jungle, baby. That’s just how Wall Street works sometimes. If I don’t make sure my clients get a fair shake, no one else will. Anyway, about 10 minutes later I get a call back from John. Surprise, surprise… after taking an extra hard look, he just happened to “find” a nice allotment of Visa shares with my name on them. Persuasion works wonders sometimes.

JL: Beautiful! Remind me not to wind up in negotiations with you. And congrats on the Visa play.

CASH: Thanks!

JL: Putting Visa aside, where do you stand on the broader market now? You made some pretty bold statements last week.

CASH: I’m sticking to my guns. I think getting Visa out the door was one of the primary keys to getting this market turned around. The successful pricing and the good follow-through should give investors confidence, and potentially lead to a more stable environment over the next few weeks to months.

JL: And that means more IPOs coming to market?

CASH: You can bet on it. Liquidity seems to be coming back around. In addition to new issues, there will be some great opportunities in smaller names that have come public in the last two years. These are companies that have already gone public, but still need to raise additional capital or issue more stock. Even companies whose shareholders are filing to sell stock could get a lift, as investors become less fearful of an illiquid market. It’s just amazing how liquidity drives the wheels of commerce — and often results in higher prices.

JL: So what’s your game plan?

CASH: Well, first of all, I don’t think it makes sense to be heavily short here. The shorts are running scared for now, and when they pile on top of each other in an effort to “cover” losing positions, that drives stocks higher. My short-list names will stay on the radar, but we may have to wait to pull the trigger until this rally gets tired. That could be a while.

JL: Interesting. Sounds like you’ve got a “second of all” coming.

CASH: Yes indeed. Second of all, you want to look at quality names that are beaten up right now. We talked about Blackstone last week as a great buy if it can pick up some momentum and cross $17. Some of the solar companies look primed to run higher too. You have to be careful which names you pick in solar, though. We talked about First Solar as one to keep on the short radar, but others such as LDK solar and JA Solar look more likely to cover lost ground now.

JL: I sit in quiet awe, contemplating the depth of your skills.

CASH: Are you mocking me now?

JL: Yes. But only because I’m a friend who cares. If I gave you too much outright praise, your ego might get all puffed up. Then you’d have trouble getting in and out of taxicabs.

CASH: Always looking out for ol’ Cash — the sign of a true pal. Catch you next week.