Should have said
I think that there has been some behind the scenes support by the Fed. Keeping share prices from tumbling might be seen as a way to keep things going through a potentially unstable time. If share prices were allowed to fall (as many objective indicators show they might) already shaky confidence could be further eroded. From: Arthur Cordell [mailto:[email protected]] Sent: Thursday, February 02, 2012 10:03 AM To: 'Keith Hudson'; 'RE-DESIGNING WORK, INCOME DISTRIBUTION, EDUCATION' Subject: RE: [Futurework] We don't need another catalyst Keith Indeed, I think it has been Facebook alone which has caused shares generally to rise in the last couple of days. Me I think that there has been some behind the scenes support by the Fed. Keeping share prices from tumbling might be seen as a way to keep things going through a potentially unstable time. If share prices were allowed to fall (as many objective indicators show they might) helps to maintain confidence. From: [email protected] [mailto:[email protected]] On Behalf Of Keith Hudson Sent: Thursday, February 02, 2012 5:07 AM To: RE-DESIGNING WORK, INCOME DISTRIBUTION, , EDUCATION Subject: [Futurework] We don't need another catalyst There's no doubt that the stock exchanges in Asia, America and Europe have been in a dither for the past few months, and particularly in the last couple of weeks. Share prices have been expected to double-dip to new lows by the economic-pessimists, or to rise exuberantly by the optimists who see economic growth ahead of us. Both sets of opinionaters are agreed, however, that we are presently poised in a very dangerous situation. Consumer sales and house prices in America are still sinking. Eurozone problems are still unresolved. China is precariously balanced between making a soft or a hard landing from high inflation. With one or two small exceptions, all advanced governments are seriously in debt, and China probably also if the true balance sheets of its largest city governments were known. In my opinion, the final straw may be the fate of the largest public flotation ever by an Internet company, Facebook. Now that Facebook has suddenly brought forward its expected 2013 share offering to May this year, hysteria has been growing. Indeed, I think it has been Facebook alone which has caused shares generally to rise in the last couple of days. Consensually valued at $100 billion, a small tranche of its shares is expected to realize between $5 billion and $10 billion and its founder, Marc Zuckerberg, with 24% of its shares, is likely to be able to tuck at least $2 billion into his bank account. So far, there is every reason to believe that the initial offering will be wildly successful. Large hedge funds and other big investors might be making large purchases and the initial price of the shares might go sky-high. The crucial point, however, is whether they will be buying the shares because of their long-term income prospects or whether they intend to sell their shares fairly quickly afterwards and make a big profit. If I were a hedge fund investor I would be guided by two facts already known about Facebook. One is that although it is receiving a huge and growing advertising income from, it is said, a million companies, they are mainly banner ads. Few of them are specific product ads as they are on Google which are there as immediate byproducts of specific searches for information by individuals. Furthermore, if any of the billion or more Facebook users want a specific product then they'll go to specific product websites or to Google, or Amazon or EBay or their equivalent in their country. Because of this lack of specificity, Facebook has a very low ClickThroughRate (CTR) for its ads. Whereas Google has a CTR of 8%, Facebook's is 0.04%. Moreover, Facebook's previous Online Sales Manager, Sarah Smith, says that the CTR from even the most successful banner ads falls within two weeks of their initial appearance. I would also note that since its saturation coverage of America and Canada, Facebook lost 7 million users in 2011. How many will it lose in 2012? I suspect that the reason why Facebook's Initial Public Offering was brought forward from its expected launch in 2013 was because it will undoubtedly lose even more users from these two countries during this year. I would regard this as ominous. Even though Facebook may still grow in leaps and bounds for a year or two in the rest of the world (though not in China, where it's prevented), its users might well follow the American pattern. For these two reasons, if I were a hedge fund investor I would want to learn a great many more up-to-date details from the documentation that Facebook will have to lodge with the regulatory authorities. And, if these don't fully allay my fears then I'll not apply for shares in the first place, not only because of the risk I'll be taking but also because many more potential investors may have come to the same conclusion and the shares may flop from the start. In short, despite all the fantastic razzmattaz which is now gearing up in the media, Facebook's launch may well be a disaster for Marc Zuckerberg. Indeed, it's possible that the present hysteria will start declining in the course of this month and possibly even more so during April when more facts emerge. The Initial Public Offering may never take place at all. It might already be happening. The mini-exuberance in share prices of the last two days has already subsided. Maybe a few thousand key investment managers and hedge funders have, like me, decided to read more about Facebook on Wikipedia in the last day or two and their mood has already fallen back to their previous ground-state of indecision as to where to invest next. A repeat version of the 2000 dotcom crash is not going to happen until at least the 2008 credit-crunch is finally out of the way. There could still be a world-wide currency catastrophe due to an as-yet unknown trigger without Facebook needing to be the catalyst. Keith Keith Hudson, Saltford, England http://allisstatus.wordpress.com <http://allisstatus.wordpress.com/>
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