At 15:05 02/02/2012, Arthur wrote:
(AC) 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.
(KH) Yes, you're probably right. I was making a speculative
connection between the stock market ditherings and what has been the
dominant theme (Facebook) of financial commentators in the past few
days. Mind you, I don't think it's the Fed doing the manipulation
behind the scene. Its operations are too broad and clumsy for the
sort of finesse that would be necessary. Rather, I'd put it down to a
relatively small fund within the US Treasury (the name of which
escapes me for the moment) of about $30 billion which is only
supposed to be used for emergencies and doesn't need prior approval
of Congress. (Nor is it accountable to Congress unless it makes a net
loss on any of its operations and needs topping up. Otherwise it is
highly secret and its use is probably confined only to the Treasury
Secretary and three or four senior personnel at the most. It is known
to have been used during the Latin America currency defaults,
particularly that of Mexico, during the 1980-2000 era, when Congress
might not have approved or would have been too slow.)
On the basis that some entity within the US Treasury (but not the
Fed, according to Paul Volcker -- the only person in America's elite
whose word I would trust) was interfering in the gold market up until
about 1999 (when it gave up attempts at price suppression but has
been shorting a generally rising market instead in order to buy gold,
as most other central banks have been doing) I've frequently thought
that, since then, it started to interfere with ordinary share prices
also. Given that, over the last ten years or so, ultra high-speed
algorithmic share dealing, first used by Goldman Sachs and JPMorgan
(because only they could afford the necessary supercomputers), has
now become the norm (or at least available) in most big brokerages,
big hedge funds, banks and the like, then relatively small funds can
shift the S&P 500 or the DJ index any which way it likes, albeit in
very small aliquots for no longer than a day or two (and totally
invisibly) until the larger market (guided either by endogenous
events or, usually, lemming-like sentiment) forces prices back to the
'norm' (whatever that may be conceived to be at any one instance!).
Interestingly, Wall Street share prices have been following London SE
prices in the last two years -- ever since the Eurozone started to
become fragile due to Greece, Portugal, etc. ( Before then, it was
the other way round -- London's opening share prices were copycats of
the last hour of Wall Street prices of the previous day.) But there
is no reason why a US Treasury team should not be acting via a
confidential broker in London.
Incidentally, since writing my yesterday's piece I've come across a
few comments by people eminent in the advertising world who are also
doubtful about the viability of Facebook. Also, have you read the
letter that Marx Zuckerberg wrote to the regulatory authorities by
way of describing the rationale of Facebook? (It's available via
Google search.) I have never read anything quite so vacuous in my whole life!
Keith
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
Keith Hudson, Saltford, England http://allisstatus.wordpress.com
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