How do you like those wimpy, whiney investors? They lose money in Facebook. Do they take their losses like men? Nope.
They rush to sue everybody! The investment banks who were midwifes to the birth of FB into the public markets weren’t playing fair, they say. They gave their best clients more and better info than they fed to the public.
Well, what…you mean…could you be saying…that the insiders have an edge?
“The thing about this IPO,” said a friend at lunch, “was that the whole world was watching. That’s why this was so important. It showed everyone how Wall Street operates. Everybody got burned. And they blame Wall Street…because they can see that the pros were being only half honest. And the other half was incompetent.”
Yes, dear reader, our hunch seems to have been right. The FB launch was a disaster for shareholders…for Wall Street…and for the whole cult of equities that has ruled the investment world for the last 3 decades.
“…a six-decade passion for equities has come to an end,” reports The Financial Times.
“Stocks have not been so far out of favor for half a century,” continues the report… “with equity returns virtually flat for more than a decade, the incentive for investors to take risks by funding smaller, more entrepreneurial companies has declined — eroding a process that has traditionally given managers the flexibility they need to grow. Capitalism with less equity finance would follow a much more conservative model.”
In the US, pension funds allocated as much as 70% of their funds to equities 10 years ago. Now, they’re down to 52%.
Everyone is turning his back on stocks…at least, that’s what the FT says. And analysts are already comparing this FT article to the “Death of Equities” cover story in BusinessWeek in 1979…just before a huge new bull market began.
Relative to bonds, stocks haven’t been this cheap since 1956. That was the year when George Ross Goobey announced he was switching the entire portfolio of Imperial Tobacco’s pension fund into stocks.
Goobey turned out to be a genius. Stocks began a great bull market which continued, aside from a countertrend between 1966 and 1982, for the next 56 years!
And now a lot of people think this is another Goobey moment. Stocks are cheap, they say. Get ready for another grand bull market!
What do we say? Nah…
The problems are:
1) This ain’t 1956…this is 2012. The US is no longer on top of its game. It’s no longer in full expansion. It is slipping…sliding…burdened by high costs…zombie industries…and corrupt governments. Growth rates are low…lower than the rate of debt build-up… There is no reason to think America’s capital structure — either stocks or bonds — will become more valuable.
2) Stocks are not cheap. They are only cheap when you compare them to bond yields. But bonds yields are suppressed by a Great Correction…about which more below. In order to be absolutely cheap, US stock prices will have to be cut in half — at least. That would put yields and P/Es near where you can get a 5%+ yield and buy a dollar’s worth of earnings for $5…not $12. Then, stocks will be cheap.
3) Bond yields fall in a correction because people do not want to increase their debt levels; they want to reduce them. They also reduce spending…which lowers business sales and profits, thus making stocks less valuable, not more valuable. As the Great Correction intensifies (and it appears to be doing so now) we can expect stocks to follow the Japanese example. Japan has been in a Great Correction for 22 years. Its stocks have lost 3/4 of their value. They’re still down 75% — nearly a quarter century after the correction began.
Goobey moment? We don’t think so. It’s time to sell stocks, not buy them.
Bill Bonnerfor The Daily Reckoning
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill's daily reckonings from more than a decade: 1999-2010.
MAY 25, 2012
A Message about Facebook
From Founder Mark Zuckerberg
MENLO PARK, CA (The Borowitz Report) – The following letter to Facebook users was issued today by Facebook founder and CEO, Mark Zuckerberg:
Dear Facebook User,
Hi, it’s Mark.
As you may have heard, our IPO last week didn’t go quite as well as expected. How badly did it go, exactly? If you live in a major city, you’ve probably seen homeless guys huddled around bonfires of Facebook stock. More ominously, I just received a call from my attorney telling me that I probably didn’t need a prenup after all.
If you’re a Facebook investor, you already know what this means: it sucks to be you. But what if you’re one of the billion Facebook users in the world? Well, it also sucks to be you, because I am writing to you now to ask for your financial support to help save Facebook.
It’s only fair. Since its founding in 2004, Facebook has totally revolutionized the way you waste your life. Without it, you would find yourself in the unpleasant and awkward position of having to speak to your family. And so, to keep Facebook alive, I am instituting the following new usage charges:
– $1 per poke
– $5 for every ex you crop out of a profile picture
– $10 for every time you stalk someone from high school, college, or job you were fired from because of that HR “incident”
– $15 for every “friend” you have never met (no charge for friends you know, if any)
– $20 for every sheep, bird, or the Scrabble letters Z, X or Q
With your financial help, Facebook should be around for many years to come, providing you with hours upon hours of pointless and isolating activity. Without your help? I’ve just got one word for you: Friendster.
I am not selling mining stocks, I am buying them.
I am still pondering what was termed “the operationalization of the fatwa” (!?!?) at the Baghdad meeting. Moscow should be fun…
Maybe not time to buy US stocks, but stocks in, say, Brazil or India? It’s a big world, the DJIA is just a part of it.
The FB IPO was a success in my opinion. It turned a dying company into cash for a few insiders like Zucherburg.
Here’s how Wall Street really works:
I have been dumping on Facebook and Suckerberg for quite a while. The 2 are ONE BIG NONSENSE.
But perhaps I was a bit too harsh. The 2 have actually contributed something of value to society. From their stupid IPO, the have exposed and confirmed the racket that is Wall Street to the entire world.
There is always money to be made in stocks.
People made money buying stocks during the crash in 29.
You just need to do some work.
You can make money in wall street today, but your going to need to do more work then they want to put into the sytem
“we can expect [u.s.] stocks to follow the Japanese example. Japan has been in a Great Correction for 22 years. Its stocks have lost 3/4 of their value. They’re still down 75% — nearly a quarter century after the correction began.”
tricky, bill. so. are japanese stocks cheap yet? after 22 years? yes? no? and you expect u.s. stocks to follow the same pattern?
Well Duh-uh! That bout sums it up. Fret none,young gun! We can all go back 2 MY Space,were every 1 wuz @ i time b4 FB! HT2all! *S*
Given a choice, Bernanke will likely strangle the currency (your money)... in favor of “strengthening” the economy.
Eventually, economic reality and markets will collide -- unfortunately, the higher the market, the harder the fall.
How certain business practices wind up jacking up costs before sticking you with the bill.
The Japanese Nikkei fell flat on its face overnight.
While Bernanke Runs Wild, Let’s Talk Ponies