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Wednesday, 30 May 2012

Zuckerberg off the Billionaires Index

Still a billionaire though if you count worthless paper, but with FB shares fallling another 10% yesterday to put them at $10 below their offer price, Zuckerberg is no longer in the top 40 billionaires calculated daily by Bloomberg.

I said the value of this stock would decline inverse exponentially like lastminute.com, and judging by the graph, so far I am not wrong.

Let me restate that for you

In a letter to the prime minister, nearly 70 university heads are warning that changes to student visas would drive bright applicants away. They urge the government to take foreign students, who bring in £8bn a year, out of net immigration counts. In the letter, senior education figures called for the prime minister to class foreign students as temporary rather than permanent migrants. In their letter, the signatories expressed concern that Britain's higher education industry could be harmed by changes to immigration policy. Britain attracts around one in 10 students who study outside their home country, generating around £8bn a year in tuition fees, they said. This, they added, could increase to £17bn by 2025.

But ministers said the policy did not stop genuine students coming to the UK. Immigration Minister Damian Green said the government was "determined to prevent the abuse of student visas as part of our plans to get net migration down to the tens of thousands. Students coming to the UK for over a year are not visitors", he said. "Numbers affect communities, public services and infrastructure." But Mr Green pointed out that the Independent Office for National Statistics was responsible for producing net migration figures, which were based on an internationally agreed definition of a migrant - someone entering the country for more than a year. "Public confidence in statistics will not be enhanced by revising the way the net migration numbers are presented by removing students", he said.

Or if I may put it another way.  University heads should realise that the economic impact of illegal migration is far greater than the paltry loss of revenue they might suffer as a result of these measures.

Monday, 28 May 2012

I give you a new verb

A friend used a word yesterday that I feel deserves wider currency, so here is my new word for the day:

      verb (transitive)

1. To own a telephone handset with a higher specification and performance than a telephone owned by another person.

2. To win at competitive telephone ownership.

Wednesday, 23 May 2012

What's the mutter with that?

David Cameron has been rebuked for unparliamentary language after calling  Ed Balls a "muttering idiot".

Don't see anything wrong with that. If it is good enough for Aristotle then it is good enough for our parliament. Idiot as a word derived from the Greek ἰδιώτης, idiōtēs ("person lacking professional skill", "a private citizen", "individual"), from ἴδιος, idios ("private", "one's own").In Latin the word idiota ("ordinary person, layman") preceded the Late Latin meaning "uneducated or ignorant person." Its modern meaning and form dates back to Middle English around the year 1300, from the Old French idiote ("uneducated or ignorant person"). The related word idiocy dates to 1487 and may have been analogously modeled on the words prophet and prophecy The word has cognates in many other languages.

An idiot in Athenian democracy was someone who was characterized by self-centeredness and concerned almost exclusively with private—as opposed to public—affairs.  Idiocy was the natural state of ignorance into which all persons were born and its opposite, citizenship, was effected through formalized education.  In Athenian democracy, idiots were born and citizens were made through education (although citizenship was also largely hereditary). "Idiot" originally referred to "layman, person lacking professional skill", "person so mentally deficient as to be incapable of ordinary reasoning". Declining to take part in public life, such as democratic government of the polis (city state), was considered dishonorable.  "Idiots" were seen as having bad judgment in public and political matters. Over time, the term "idiot" shifted away from its original connotation of selfishness and came to refer to individuals with overall bad judgment–individuals who are "stupid".

According to the Bauer-Danker Lexicon, the noun ίδιωτής in ancient Greek meant "civilian", "private citizen" , "private soldier as opposed to officer," "relatively unskilled, not clever". The military connotation in Bauer's definition stems from the fact that ancient Greek armies in the time of total war mobilized all male citizens (to the age of 50) to fight, and many of these citizens tended to fight poorly and not very well.

Just like Ed Balls.

Is this a record?

3 Trading days - now that's impressive.

San Diego, CA -- (SBWIRE) -- 05/23/2012 -- An investor in NASDAQ:FB filed a lawsuit over alleged securities laws violations by Facebook and certain underwriters of the company’s IPO.

Investors who purchased shares of Facebook Inc (NASDAQ:FB) in or traceable to the IPO from Morgan Stanley, Goldman Sachs, and JPMorgan and/ or those who purchased shares of Facebook Inc (NASDAQ:FB) and had issues with the order on NASDAQ, have certain options and for certain investors are short and strict deadlines running. Deadline: July 23, 2012. NASDAQ:FB investors should contact the Shareholders Foundation, Inc.

The lawsuit was filed on behalf of all persons or entities who purchased the securities of Facebook Inc (NASDAQ:FB) pursuant and/or traceable to the Registration Statement and Prospectus issued in connection with Facebook's IPO (including investors who purchased shares through May 22, 2012). The plaintiff alleges, among others, that the offering materials provided to potential investors were negligently prepared and failed to disclose material information about Facebook’s business, operations and prospects, in violation of federal securities laws.

Tuesday, 22 May 2012


As speculation mounts over whether FB could set the record for the shortest period between IPO and class action lawsuit, Reuters reports:

Massachusetts Secretary of Commonwealth William Galvin has issued a subpoena to Morgan Stanley over an analyst's discussions with investors on Facebook. 

"The Securities Division has put out a subpoena to Morgan Stanley in connection with the analyst's discussion with certain institutional investors about the revenue prospects for Facebook," a spokesman for Galvin's office said.

Word on The Street is that Goldman and Morgan Stanley revised down their opinion of FB just before the float, presumably after reading my tip. They may have told institutional investors, but left retail buyers out to dry. Allegedly.

Biggest faller on Friday amongst majors US stocks:  FB fell from $42 at opening to $38, the initial offer price
Biggest faller on Monday  amongst majors US stocks:  FB fell from $38 at opening to $34, down 13%
Biggest faller on Tuesday amongst majors US stocks:  FB fell from $38 at opening to $31, down 8.9%.

Not really a chartist but I think I see a trend.

Monday, 21 May 2012

Picture = 1,000 words

Last Friday was price support day from the underwriters who kept the price at $38 a share.  But this is a brand new week, price support is off and FB share price is down 13% in the first 45 minutes.  That's a $13.5 billion loss of theoretical value.

There goes nothing. Hope you all took my tip last week and shorted.

Saturday, 19 May 2012

You couldn't make it up #94

It's been a pretty busy week here at the Financial Crimes with a lot of incoming readership from Zero Hedge, all because of a post I made a few years ago about Matt Zames, rising star at JPM.

Well it seems that not a lot of people spotted that Mr Zames was fingered in a court deposition as having suspicions about Bernie Madoff 18 months before the NY District Attorney got wind and closed him down.  Zames' suspicions were strong enough for him to mention them to a JPM risk officer, but obviously not strong enough to go to the authorities.

Anyway, the reason that Mr Zames, who incidentally is chairman of the Treasury Borrowing Advisory Committee (not bad going for a trader who worked at LTCM, the hedge fund whose failure was so large that it was bailed out to the tune of $3,625 million by US banks under the supervision of the Fed), is now in the news is that he has been but in charge of the $70 trillion derivatives book in the Central Investment Office at JPM.

Between Madoff, LTCM, the stinking carcass of the London Whale and telling the US government how much to borrow, something doesn't smell right.

Friday, 18 May 2012

They just keep coming

It's pretty hard for a bank to lose a billion all of a sudden, but when, like JPM, it is hiding a hedge fund amongst its federally insured businesses, it happens very quickly as the $2 billion loss of less than a week ago seems to have doubled.  A billion here, a billion there and pretty soon you are talking serious money.  much more of this and JPM will be looking for a new CEO.

Sell Facebook

Facebook is going public with a valuation of $104 billion, although they are only selling $16 billion worth of shares. Here's a tip. At that price avoid it like the plague. In fact, short the plague. Put all your assets into shorting the stock.  The price won't last, just like the radioactive decay that was Lastminute.com. And here's why:

Capped Revenues
Facebook makes its money from selling advertising space based on the information supplied by users. And it says it has a lot of users, about 845 million. So far, so smart. Facebook is currently valued at 100 times earnings, which sounds fine for an internet startup that has been around for a few years, but not so smart for a company that claims to have 70% of internet users signed up.  There isn't much room for growth there, and certainly no way to grow the revenues to bring up the "e" in the p/e ratio so that it hits the 8 to 12 expected of a mature company. Expect the "p" to fall.

Ever growing cost base
Unlike many internet companies, Facebook does have financial data, but the picture it shows is not that great.  It is profitable and it is growing fast, but the problem is that Facebook is not like most internet companies where the fantastic profits come because of the incredible scalability of the internet. At Facebook the rapidly increasing revenues are closely followed by rapidly increasing expenses.

That is not how it is supposed to work.  The idea of an internet venture is that you invest all your money up front in development and then you sit back while your fixed cost base produces an ever increasing revenue stream.  The trouble with Facebook is that this year's cost base is higher than last years revenues.  Eventually the revenues will stop growing and this year's bright star will become next year's dog.

New Entrants
Give me $104 billion and I can build a rival product that will eat into Facebook revenues. Easy.  In fact give me $104 *million* and I can do the same. So give me $1 billion and I can build a rival product, hand over $1 to every Facebook user who switches to my system and pay them $1 in cash, which is roughly all you would have to pay to get people to switch.

Existing Competitors
Actually, you don't need to worry about any new businesses because there are plenty of other companies that can advertise in your face while online and they have better business models.

Nobody gets onto Facebook to go shopping.

Ebay, Amazon and Google know what I want to buy because I search for it on their websites.

Facebook knows my favourite colour.

Ebay, Amazon and Google know that I want a 5V micro USB power supply, solid oak gate posts, hard to find cupboard hinges and a new satnav.

Facebook knows that I like the bands whose CD's I already own, and where I went on holiday last year.

I probably want to go somewhere else this year. I will check out that somewhere else on Google, thank you very much.

The World Moves On
Facebook started as a desktop system, but the world is going mobile. The IPO prospectus mentions the word "mobile" 123 times, and 425 million of the 845 million monthly active users (MAUs) at December 31, 2011 are mobile users. Mobile users are growing faster than other users, and expect that trend to increase if Facebook breaks into China where mobile phone usage far exceeds internet connections.

Facebook do not make any money out of mobile users.  The prospectus says "We do not currently directly generate any meaningful revenue from the use of Facebook mobile products, and our ability to do so successfully is unproven".  Worse still the prospectus says that the company's revenue growth could be harmed if it cannot "successfully implement monetization strategies for our mobile users".

Could? Make that will.

Crap Management
Zuckerberg. Say no more.  He actually says he doesn't really care about advertisers.  Do you really think he will care about shareholders once he has your money? Dream on.

Falling profits
To justify such a high p/e Facebook needs to be growing its profits. Sadly they fell 32% between Q4 2011 and Q1 2012. And revenues were down 6.5%.

At $104 billion this is a no-brainer. And if you want a feel for how screwed you would be, the shares on offer are "A" shares, which carry one vote per share, as is normal, but the current owners' shares are "B" shares, which carry 10 votes each. Zuckerberg will own less that 50% of the shares, but 56% of the votes. Go for it suckers.

Thursday, 17 May 2012

Never mind, there's always another time

We note from the Court Pages of the national newspapers that Queen Sofia of Spain has been ordered to down turn an invitation from Queen Elizabeth to a Diamond Jubilee lunch for the world's sovereign monarchs because of Spain's persistent niggling over Gibraltar.

Queen Sofia had earlier accepted the invite to tomorrow's (Friday's) celebration at Windsor Castle, but in a last minute snub by Spain's government she has been told not to attend because it would be "inappropriate in the current circumstances".

Never mind, perhaps she would like to come back next April to celebrate the 300th anniversary of the Treaty of Utrecht.

And of course, it could all be just a ploy to divert attention from the massive cost of borrowing for the Spanish government in today's news.

Monday, 14 May 2012

Yahoo! CEO! quits!

The Chief Executive of Yahoo! Scott Thompson has  resigned two weeks after it was revealed that he did not have a Computer Science degree as claimed, but an accounting degree. Which is a shame, because his CV is filed as part of the corporate filings with the SEC and that is a bit bad.

His real crime of course was to have such an appalling moustache. It takes a certain panache or dress sense to carry off the modern business-suit-with-no-tie look.  It rarely works, but your chances of success with a '70s style Mexican dollop of fluff on the top lip is never going to work.

The funny bit about this story was that Mr Thompson was not alone in his misdemeanours. Patti Hart,  chief executive of International Game Technology and a Yahoo director since 2010, who was tasked with finding a new CEO, had her own qualifications come under scrutiny. An investor alleged in a letter to the Yahoo board on Monday that she had exaggerated her academic background in claiming a bachelor’s degree in marketing and economics from Illinois State University, when she had in fact gained a business administration degree.

Personally I don't see much of a difference.

Friday, 11 May 2012

JPM make the case for Glass Steagall

The content and tone of JP Morgan chief Jamie Dimon’s telephone call to analysts explaining JP Morgan Chase’s regulatory filing to the Securities and Exchange Commission reporting a $2 billion loss in derivative trading demonstrates that the true cost to the bank should be measured in ideational and reputational terms.

The trading loss was an “egregious” error, the result of ‘self-inflicted’ mistakes that ‘violate our own standards and principles’ and which “plays right into the hands of a whole bunch of pundits out there,” he conceded.

The reputational damage is magnified by the fact that the losses reflected poor risk management within what the firm terms its Chief Investment Office. Buried within the filing (page 9), the firm notes that the “CIO has had significant mark-to-market losses in its synthetic credit portfolio, and this portfolio has proven to be riskier, more volatile and less effective as an economic hedge than the Firm previously believed.”

The frank admission of “sloppiness and bad judgement,” and determination that the firm would “admit it, we will learn from it, we will fix it, and we will move on” was an exercise in damage limitation.

Or in other words, banks that take government guaranteed deposits cannot be trusted to trade the funds they hold. If JPM, source of Value at Risk and the credit swap can mess up to the tune of $2 billion, what are the chances of the 1st Investment Bank of Mudville not making the same mistake?  It is hard to see a $2 billion loss arising on a portfolio of secured loans to medium sized industrials.  At least, not as an "egregious error" that pops up overnight.

Meanwhile, JPM directors have effectively overstated prior trading profits by $2billion and trousered the ensuing bonuses and LTIP payouts.

Tuesday, 8 May 2012

A word of thanks

to all the French voters, who have cut the cost of this year's summer holiday.

In a move that I think in fairness one would have to call courageous, the French electorate have decided that the solution to an over-borrowed state sector that already amounts to 56% of the economy is to spend more money that they don't have and will need to borrow.

This has of course had the obvious effect of reducing the value of the euro, making French holidays that much more enjoyable in sterling terms and possibly reducing the cost of my next German built car, albeit that that has raw materials and components priced in dollars.