Daily News Roundup 2012: Wednesday 23 May

Good morning

The headlines:

1. Facebook analysts that shunned the crowd now look like heroes. Link: That's one way of putting it. The other is: "And/or the herd look like idiots". The stock is down to $31. 
2. And a Facebook investor is suing Nasdaq over delays in the offering. Link: Obviously. But - if you didn't manage to buy the stock at $42, and you bought it at $31 yesterday, then surely Nasdaq should be suing you for unjustified enrichment?
3. And Morgan Stanley says it played by the rules. Link: Even more obviously. The losers are all "you didn't put everything in the prospectus" and "you shouldn't have made us buy it at such a high price". The regulators are all "this is a concern for us". My thought is: "if Morgan Stanley managed to get that price for an IPO on a company that lost the support of General Motor's two days before the IPO and has been reporting lower advertising revenues because of people using their cellphones more - then I want Morgan Stanley to do my IPO - coz it sounds like they did their job to perfection".
4. JP Morgan losses become a tool for regulatory debate in Washington. Link: Also obviously. It really does seem like a day of stating the obvious. Big losses and big headlines are going to attract politicians like flies to a sceptic tank (pun intended). The question is whether the Volker Rule would have stopped this from happening? The answer, from what I can understand, is "no". JPM was theoretically hedging its risk exposures - not trading for its own account. It's the second that everyone is concerned about. As to how JPM managed to make such giant losses on a hedge (I mean - "making losses" is what they're meant to be hedging against...) - that I don't know.
5. SAP buys Ariba. Link: Ariba ariba, andele andele. Ariba is being valued at $45 a share, and the deal is worth $4.3 billion. Ariba is an online-trading platform for businesses - so SAP is reaching for the clouds. For those who didn't know, there is a race going on between SAP and Oracle (the business information system big boys). It may sound boring - but I'd think about putting my money in one of them. Why? One thing you can be sure of: there will always be transactions because people will always need things; where there are transactions, there are businesses because businesses will always adapt; and where there are businesses, there is always a need to account. In boom times, new businesses grow and old businesses expand - they'll need to update and revise and implement new systems. In bust times, the old businesses fall away, and new businesses start to take over - they'll need to update and revise and implement new systems. Accountants rule the world.
6. Blackrock to sell bonds to buy back shares from Barclays. Link: Blackrock'n'roll. Barclays is selling ahead of a new round of Basel rules (Basel III), which would require the bank to set aside capital against their Blackrock investment.
7. Tiger Brands prioritises African expansion. Link: It's where the money is. 
8. IMF tells the UK that it needs more stimulus. Link: And possibly some tax cuts. The answer is always stimulus. 
9. The EU leaders have their 18th Crisis summit. Link: I'd get drunk at that party. Unless I were Angela Merkel. Because if she does, she might get taken advantage of by a socialist Frenchman and/or a band of unruly Mediterraneans. 

That's all for now.

Have a good day.

Daily News Roundup 2012: Tuesday 22 May

Good morning

The headlines:

1. RollingAlpha is moving to a new home. Link: www.rollingalpha.com. It was time. I'll keep posting on both the blogspot site and the new site for the next few weeks, and then I'll let the blogger site go dormant. Please update your RSS feeds if that's how you're following!
2. The Fall of the Facebook Share Price - it happened. Links: MZ is $2.2 billion less wealthy; and you don't say; and fingers are being pointed (at MS). The price fell to $34 and change at the end of the second day of trading. Everyone's saying "but if you have shares - they have value!" Yes - if you had them to begin with. But not if you bought them on Friday morning at 42 bucks a pop. That's an awkward loss in two days of trading. I think most were expecting a performance a la Linkedin or Groupon. Sadly not. Now, of course, there are fingers being pointed. At Morgan Stanley, at Facebook for being greedy, at Nasdaq (frankly - they should take some blame just for being a general fail). MS is being blamed for "misreading the atmosphere" or something. I think they mean that MS overestimated the "retail interest"* and/or level of crazy by first increasing the number of shares for sale and second increasing the price range. And now people are irritated because it was mispriced? But - how did they not know that it was mispriced?! Geezlike. If THAT'S the argument and now they want MZ and MS to answer for it - then they well deserve the loss. 
3. Merkel says she won't shy away from a clash with Hollande. Link: Trouble in Merkellande. It makes sense - different viewpoints make for tense egg-shelling around the negotiation table. 
4. JP Morgan counterparties say that losses may widen. Link: I think they just enjoy watching Jamie call himself names in public. But the Hedge Funds are saying that JPM is still in those trades (Jamie Dimon is also saying that they're still in those trades) - and if the Eurozone goes down the plug-hole any time soon, JPM will join them. That's being slightly dramatic. But most likely Jamie Dimon will join them. CEOs have been fired for less. Ask that Thomson guy formerly from Yahoo! Anyway - the point is that JPM hasn't liquidated their positions. Sounds to me like they should close them out (ie. spend some money on taking opposing positions in the trade). It's either that (if they can find counter-parties) or more derivatives. Two wrongs? Let's hope, for Jamie's sake, that someone makes it right.
5. JP Morgan has suspended share buybacks. Link: But only because of International Capital Rules - not trading losses or anything. The pensioners can sigh in relief though because the dividend payout won't change. But if I was CEO, and I honestly thought that the CIO (Central Investment Office) losses weren't such an issue, I would be climbing the walls trying to buy back stock. The general consensus seems to be that Someone (ie. the Fed) told them to stop. 
6. There are more US Budget Troubles. Link: Something something "paper tiger". Wait, what? This time, President Obama is the one that wants to stop the spending (on defense). The Republicans are reacting in a turnabout fashion and saying that the US can't cut defense spending for fear that the US becomes a "paper tiger". I think that a Chinese metaphor is a bit inflammatory. 
7. Rajat Gupta "threw away his duties". Link: That is some styling english right there. Does his prosecutor speak english? Rajat Gupta was the Goldman Sachs director that was leaking the good stuff to Raj Rajaratnam, who traded on the news and got 11 years in prison and a $90 million odd fine in return. But back to the opening statement: Rajat's prosecutor may lose the case on a linguistic technicality. One of the jurors is a fourth-grade teacher - and it only takes one person to hang a jury**. 
8. End of extended benefits may decrease the US unemployment rate. Link: Makes sense to me! If you're being paid not to work - you're not exactly going to be forced to take jobs that are "beneath" you. In fact, even if those jobs are relatively well-paid. Sometimes, people just really need a kick in the pants. 
9. The US won't ease oil sanctions at Iran Nuclear talks. Link: Because you won't negotiate with terrorists? Either way - the situation won't be solved next month. Higher oil prices, here we come.

That's all for now.

Have a good day.

*BITCHES BE CRAZY.

** One of the other jurors is a "freelance beauty consultant". WTF is that?

The Facebook IPO: Bitches Be Crazy

Recently, I have been paying attention to a number of news stories. In no particular order:

1. The Facebook IPO

First, some key points:

1. Listing on a Stock Exchange is usually for good reasons - it is NOT just the next logical step in the success ladder;
2. "Retail Interest" is an investment banking euphemism for "bitches be crazy".

With regard to item 1, there seems to be the general conception out there that listing on a Stock Exchange is the business version of graduation. A "Congratulations, you've made it!" for juristic persons. Perhaps it's our human need to identify: we look on homegrown businesses with affection and despise the giant corporates for being inhuman. Sole proprietors are babies, private companies are the idealistic teenagers, and the big listed companies have grown up, sold their souls to the profiteering overlords and moved to a lush tropical island with exotic beaches and mythical tax rules.

Sometimes, this is true.

Mostly, it is not.

The reasons for listing on a Stock Exchange are roughly summarised as:

1. The world's equity markets are the largest source of financing anywhere. For the unlisted, you're mainly limited to borrowing money and/or putting in your own. But selling bits of ownership in the form of shares? Financial gold.

So that's the reason. Where it really gets interesting is  motivation. I reckon that there are roughly two motivations worth mentioning:

1. The first is that the owners want to raise the capital to expand/grow;
2. The second is that the owners want to cash in on their initial investment.

The first sounds like the type of share I want to consider buying. The second sounds like the type of share that I would only consider buying after getting some answers to some awkward questions.

Why would I prefer the first? Well - when the owners want to expand, I'm already beginning to think that they wouldn't have gone through all the effort (and cost!) to raise the money in an IPO if they weren't confident that they had a solid business plan in place. Obviously, I'd want to analyse that plan on my own (in case they're idiots); and see what the rest of the investing world is saying (in case I'm an idiot); and then compare the two (rolling the dice). Point is: these companies start out on the front foot.

But when the owners are looking to cash-in on their initial investment...

Instant hair-rise on back of neck. Because the question immediately becomes: why are they looking to cash-in at this particular point? And here are my thoughts:

• If I were the guy cashing in, I would be looking to sell off when everything is at its most valuable. 
• But because I'm human, and obey the standard rules of human behaviour and bias, I would be constantly weighing up my desire to maximise wealth against my emotional attachment to this company that I have nurtured ever since I dropped out of Harvard and stole the idea from those twins.
• Which means that I would only start to cash in when it became clear that I stood the risk of losing some of that wealth. 

Which leads me to the Facebook IPO.

$38 a share.

More expensive than almost ANY OTHER company in the S&P500 (although now, maybe it'll be the S&P501). It's being valued at almost 107 times earnings.

That's a PE ratio of 107.

Google's PE ratio is 18.19. Apple's PE ratio is 12.93. During the height of the dotcom bubble, the average PE ratio of the S&P500 rose to about 30. Sure, firms like Oracle had PE ratios as high as 120 - but that was during a pricing bubble that crashed chaotically. Oracle's current PE ratio is 13.48.

We must be serious.

There are 7 billion people in the world. Facebook now has 900 million users. But it doesn't have access to China*. That leaves it with around 5.5 billion. Assuming that the advertising revenue will grow with the consumer base, if Facebook is used by every single person in the world, its earnings will grow 6 times. And then what?

Someone needs to explain their growth plan with something other than "growing the consumer base".

I'm just saying.

#BitchesBeCrazy

*who no doubt will develop a version of Facebook known as Facedook that will be the same but cheaper - and the Chinese government will see no problem with it. 

G-8 says Greece should stay

The article of the day. Link: Uh huh - but what if it's too L-8. 


Mr. Obama is supporting Mr. Hollande in his pro-growth policies. And poor Angela M is finding herself the last austerity stalwart/bulwark/any-other-misunderstood-nouns. 


My question: should Obama really be dishing out the economic advice? Yes - things look to be improving in America on the face of it - but that's all eye-shadow and lip gloss. Underneath the "base" and "foundation" is an acne crisis that is desperately in need of roacutane. And the "base" and "foundation" are just making it worse. 


On the other hand, there is the Eurozone. Which is depressed and has clearly lost its Maybelline contract. Sure - it's ugly. But halfway through the treatment is no time to stop!


Grit teeth. Power through. Beauty is pain.


Economic surgery can't be superficial if it's to look good in the long term.

Daily News Roundup 2012: Monday 21 May

Good morning

The headlines:

1. Mark Zuckerberg got married. Link: Improving Facebook Relations with China. His new wife is Priscilla Chan. MZ managed to wear a suit. He designed the ring himself. They got married in a garden. When you social highlights become a Bloomberg news item, you KNOW that you're IT royalty. 
2. Trade disorder caused some awkwardness with the $16 billion Facebook IPO. Sure. "Trade Disorder". Firstly, trading started half an hour late (apparently - the NASDAQ struggled to price the first transaction). Then it couldn't confirm the trades (ie. it couldn't allow a trade to be completed). Now they have to take appeals or something. But seeing as the share price opened at $42 and ended at $38 - anyone purchasing shares will have won by saving $4 a share. But still - when the eyes of the world and twitter are on you - being a fail is such a fail. Oh - and did I mention that other shares (ie. Zynga) had trading suspended? The NASDAQ comes with circuit breakers - if your share price falls by more than 10% in five minutes, the system cuts it. No one is sure what happened - but it seems that it was all part of the same problem. Oi vey. Link: Oh NASDAQ.
3. NASDAQ blames poor design. Link: But you designed it, surely? Something something "not designed to handle this kind of activity and/or cross trade". What they mean by "cross-trade" is that the share price being asked by sellers was higher than the share price being bid by buyers. When I want to buy for $42.50 and you want to sell for $42.99 - that creates some awkwardness on the price front. NASDAQ naturally concluded that the opening price would be $42.05. Which looks like nothing natural to me. Until the share price dropped almost immediately back to $38.01; at which point, vindication (see below). Nasdaq's CEO Robert Greifield admitted that this was not their "finest hour", but he "certainly hope[s]" that his job is safe. Bungling the biggest IPO, like, ever? Hope may be all you have. Because a technology fail for a technology IPO has poetic irony - an irony begs for a scapegoat's head on a platter. A silver platter that can be sold to pay off all the folk that are going to be suing this morning. Ha ha ha ha ha.
4. The Undertakers Underwriters step in to save Facebook IPO price. Link: Not as wonderful as hoped for. Which means that every time the share price dropped to $38.00, they stepped in to buy up shares, boost demand, and maintain the price. A meager gain of $38.23 by close of trade. Baited breath to see what happens when they let it all hang loose. My feeling is: "Drop it like it's hot". 
5. Alibaba is rebuying its shares from Yahoo. It's repurchasing Yahoo's 20% stake for $7 billion, which it's been trying to do for over a year; and the pressure really has been on since September. In that time, Yahoo has been through two CEOs and is now on its third. Some say that Three Point and/or Daniel Loeb are to blame. From what I recall, I think that DL is quite the fan of the Alibaba sale. So is Alibaba. Amazing how not even a week after Mr Thomson left the building, Alibaba is delighted to announce its repurchase. The Chinese are saying that Yahoo can use the cash to turn Yahoo around. That, or give all the cash back to its shareholders (which is exactly what Yahoo is planning on doing). I remember when Yahoo was awesome. Now? Now I'd rather buy Facebook shares at any price*. Link: Taking back China for the Chinese. 
6. Iranian minister expects oil prices to rise. Link: Oh yes! The Iranian oil sanction crisis. It's still ongoing. July 1 is D-day. Can you imagine an oil crisis on top of a Euro crisis on top of an American Debt crisis? Maybe the Mayans were a touch optimistic with their predictions. December 21st seems too far away.
7. Luxury homes bidding wars in California. Link: You just can't keep good Americans down. The sellers are surprised. 
8. China to speed up approval of qualified foreign investors. Link: Red tape? So not only are there quotas, it's also super painful to get onto them. It really makes you feel wanted. The Chinese always strike me as super-cautious. They'll help the Eurozone out with aid just as soon as the Eurozone has sorted itself (and no longer needs the aid). They won't change rates to boost the economy, they'll just change reserve ratios to allow people to borrow more at the current rate. They won't ease foreign investor restrictions, they'll just make the current restrictions easier to navigate. Maybe caution is not such a bad thing in the current climate...

That's all for now.

Have a good day.

*Yes, that's an ironic lie - because I'd rather buy Greek bonds. Which is also an ironic lie: actually, I'd rather be Robert Greifield this morning. But then, that's an ironic lie as well. No. If anything, this morning I'd like to be Priscilla Zuckerberg nee Chan - because she got in there just before MZ "created" the FB. She's put up with him for over 9 years. Respect. But mostly, can you imagine what her divorce settlement will look like? 

The Facebook IPO Stories!

The Facebook IPO stories:

1. Facebook has raised $16 billion in "record" offering. Link: And it starts trading today. They sold at the top end of the range ($38 a share), which is crazy. 421.2 million shares. That values the company at $104.2 billion. But, I suppose, even though I think that price is unjustifiably high (and I really don't have a justifiable reason for feeling that way - apart from "gut feel"*) - market sentiment doesn't really have such a strong hold on fundamentals. The euphemistic phrasing for this is "the banks feel that there is a lot of retail interest". The price gives FB a market value half that of Google. And, interestingly, if you take the market value as a multiple of sales, FB is more expensive than every single company listed in the S&P 500. And all this for a company that's losing out on its Advertising Revenues because we're all logging on via our cellphones. Eyebrow raised. 
2. US-deserter, Singapore-resident, Facebook-co-founder Eduardo Severin will still pay "hundreds of millions of dollars" in taxes to the US Government. Link: Because that's how you finance a deficit. That's what he says. In a shameless display of vote-mongering, many legislators are getting hyped and trying to impose more taxes on people surrendering their US citizenship if it seems that they're doing so only to escape taxes - but Eduardo gave his citizenship up, like, eight months ago. Doesn't it feel a little late to be leaping on him specifically? One particular senator, Charles Schumer, is trying to get a new bill passed that (obviously) imposes higher taxes, but also a permanent barring from the US for the rich kids leaving. His quote: "Eduardo Severins wants to de-friend the United States of America just to avoid paying taxes. We aren't going to let him get away with it." Guy? I think he already has. How are you going to make him subject to a law that you haven't passed yet and that definitely won't have existed at the time of him leaving? 
3. Facebook trading to test a rule. Link: The Volatility Trap Avoidance Clause. The idea is to avoid the volatility that generally accompanies the launch of a share with no previous trading history. And, well, general embarrassment for NASDAQ if it all goes pear because the "Retail Interest" (see 1. above) second and third guesses itself before trading begins. The rule is: no buy orders to be accepted before trading begins. Mostly because these are "buy at the lowest possible price" orders. What is the lowest possible price if the share hasn't traded? Chaotic, is what.
4. Goldman Sachs and its funds sell nearly half their facebook stock. Link: Raising $1 billion in the process. It sounds like a hedge, doesn't it? If the share price goes up, they make on the half that's left, and don't lose of the half they sold. If the share price goes down, they don't lose on the half they sold, and lose on the half they kept. But the fact that they're selling almost half the investment - doesn't really bode well for future increases, eh?

Conclusion: Bitches be crazy.

*Which is really a redundant way of saying "my justification for feeling that way is because I feel that way". Disclaimer - I gave it.

Daily News Roundup 2012: Friday 18 May

Good morning

The headlines:

1. Facebook IPO News! There's so much of it. See here for the summary.
2. Jamie Dimon agrees to testify to Senate on JPM trading loss. Link: Meanwhile, back at the opposition camp. Awkwardly in the face of Goldman's facebook score... And back to the Volker Rule debate. 
3. Fitch cuts Greece's credit rating again. Link: "Surprise". The surprise was the re-rating upward after the debt restructuring. Anyway - it's back to CCC.
4. US Insurer costs relating to Dog Bites increase to $479 million. Link: Bitch please. 
5. Large trades in Junk-bond ETFs attract attention. Link: Speculators are out Whale-Watching. For the record, Exchange-Traded Funds are a little like buying shares in a basket of investments rather than going through the expense of buying each of the underlying investments*. Anyway - it seems that some of the largest transactions ever recorded were made on two ETFs that compose of investments in Junk bonds; and these transactions were completed just hours before Jamie Dimon announced that hugely awkward $2 billion loss moment. For example, Invesco Ltd ETF had a one-day inflow that boosted its share price by 25%. That's not normal. In fact, it sounds a lot like a Bruno-Iksil-scare. The markets are looking for the tell-tale signs!
6. Human Genome in talks to avoid a hostile takeover. Link: GSK? I d(o)n(t)a wanna. They're trying to ward off a hostile takeover from GlaxoSmithKline. On May 9th, GSK directly offered shareholders a cash price 81% higher than the closing share price on the day before GSK's interest was made public (April 19th). Human Genome has taken advantage of a "poison pill" clause in their shareholders' agreement (is that the right term?) - which gives them a year to search for alternative investors.  

And that's all for now!

Have a great day.

*It's similar to a Unit Trust investment. However, ETFs trade constantly on an exchange, where Unit Trusts are usually priced once daily (anyone who's worked in an Asset Management firm will know that there are some people who do NOT get disturbed at repricing time - at the risk of death - so even if you're dying...).