Wednesday, May 23, 2012

It's Somebody's Fault. It's Nobody's Fault.

For the price of Facebook, you could buy the entire Ford Motor Company, nearly three times over.  Ford produces profits at nearly 50% of share price, while Facebook is at 0.5%.   Which stock is Wall Street drooling over, and which is in the tank?   Funny how that works.

The idiot media is at it again.   They spend months - years - selling us on the idea that Facebook was the greatest thing since water was invented.   They presumed we would have already forgotten about their similar pronouncements about Gold, Housing, MySpace, Second Life, AOL, Housing, Gold, and so on, all the way back to the days of the Railroad stock hype of the 1800's.

So, the marketplace, in a rare act of rationality, took one look at the Facebook IPO and said, "No Thanks!" and Morgan Stanley, already in hot water for losing three Billion dollars in a "botched" hedging scheme (hedging - a word people like to toss about without knowing what it means) is now on the hook for more Billions, as it bought up Facebook stock in a desperate attempt to prop up the price.

What does the idiot media take away from this?  That perhaps investors are looking for real value and security instead of speculative, casino-like investments?

No, that would be too easy.

Instead, the narrative is told to us like a Fox News Talking Point, that there was nothing wrong with the Facebook IPO per se, other than the NASDAQ and Morgan Stanley "botched" it ("botched" being another word of the hour, look for it to pop up soon, as in "Budget Negotiations Botched" or "America's Idol Judging Botched".   The idiot media finds a word it likes and throws away its Thesaurus).

But no one seems to be talking about the elephant in the room.   And that elephant is the basic value of the company - which was hyped to the point where its market cap exceeded that of many "real" companies with real products and profits.   At $104B Market Cap, the Facebook cheerleaders are saying that this company, which makes about 6/10ths of a Billion in profits (or did, until recently) is three times more valuable than Ford Motor Company.

(Ford, by the way, has a P/E ratio of 2.16, earnings per share of $4.71, and a share price of a little over $10.   And today, their bond rating was just upgraded from "junk" to AAA.   Funny thing, ain't it?  A company that has physical factories, hundreds of thousands of employees, and makes nearly 50% of its share price in profits, struggles to get a good bond rating, while some website run by an overgrown teenager is deemed to be worth three times as much.)

And maybe, just maybe, other people have noticed this as well.   Investing in companies that pay regular dividends (Ford cranks out 2%, not stellar, but better than what my bank is offering) just might be a better deal that speculating in a hyped stock that has no profits and nowhere to go.

Maybe that is the answer?   Naaaah!  It has to be that someone "botched" an otherwise perfectly good deal!  Because there is nothing fundamentally wrong with Facebook, right?  They have 900 million active users!   Or do they?  How many of those "active" users are truly active?

The narrative we are being sold is that Facebook is still a good deal, and it would have sold, but for trading glitches on its first day, and if Morgan Stanley hadn't priced it wrong.   Both of these arguments are bullshit - utter bullshit.   Why?  Because the market determines prices, not Morgan Stanley.   Yes, you can try to manipulate and hype stocks, and in the short-term you can spike a stock price.   But the key to stock price manipulation is that you have to be subtle about it, and with the four-year buildup to the Facebook IPO, all subtlety was lost.

This delay gave everyone time to think long and hard about the last "dot com" bubble and how much money they lost on that.   Moreover, many folks are still "upside-down" on their houses, and remember, every month, when they make their mortgage payment, how foolish it is to invest in over-valued things.

And with gold loosing its allure, people are wondering whether they were sold a bill of goods there as well (No, couldn't possibly be!  The Odious Glenn Beck and "Gee, Gordan Liddy(?)" would deceive us?  Never!).

In fact, the Facebook Face-Plant seems to be a refreshing indication that perhaps the market is maturing and that people are "growing up" about investing.    After losing so much being hyped by these speculative deals, most folks are realizing that trying to "strike it rich" is about the only sure-fire way to go broke.

Of course, there are Raging True Believers out there - or are there?   You go on some of these financial discussion boards, and it seems that everyone is trying to out-troll the other fellow.   Everyone is hyping a stock, or gold, or something, and is probably being paid to do it.   There are few people on such boards that are actually real users - the rest are paid professionals. 

And just maybe, people are turning away from the financial channels and the shouting guy and the guys in clown suits (who lately have all the charm of a carnival barker).

No, the Facebook IPO was not "botched".   In fact, it went perfectly.   They went on the NASDAQ and offered a steaming pile of dog shit for sale, and the market said a resounding "No Thanks!"   Morgan Stanley didn't "overprice" the offering - at least not by a little bit, but by a lot.  The stock just wasn't worth anywhere near $38 a share.   And I suspect it will slide lower than $31 a share, as more and more insiders start to cash out in the coming weeks.  According to one report, 57% of the stock sold on the first day was sold by insiders cashing out.   Clearly, they think the stock has a future, right?

Rationalism triumphs over Hype.    We should not be worried about this, or trying to lay blame.  We should all be breathing a sigh of relief.

Because let's face it - it doesn't happen often!