Thursday, 09 January 2014 12:32

More Doubts About "Liking" Facebook

Nearly one year ago, I warned yet again of the trend starting to turn against Facebook. For those who don't follow me, I was most bearish on Facebook - even before its IPO. This was not because I doubted the company, but because I doubted the Goldmans Sachs/Morgan Stanley snakeoil salesman valuation. To wit:

pre-IPO - Facebook Registers The WHOLE WORLD! Or At Least They Would Have To In Order To Justify Goldman’s Pricing: Here’s What $2 Billion Or So Worth Of Goldman HNW Clients Probably Wish They Read This Time Last Week!

at the IPO - The World's First Phenomenally Forensic Facebook Analysis - This Is What You Need Before You Invest, Pt 1 as well as The Final Facebook Forensic IPO Analysis: the Good, the Bad & the Ugly

and post-IPO - On Top Of The 2x-10x Return Had Off Of BoomBustBlog Facebook Research, Our Models Show How Much More Is Available... as well as...

These reports and articles saved my subscribers a ton of money and making those few braver souls another ton in shorts and puts. I cautioned about Facebook again, not so much on valuation but on future growth prospects as FB actually encountered negative subscriber growth likely caused by competitors stealing potential market share during a period where it was supposed to be experiencing rapid growth (see I Don't Think Facebook Investors Will "Like" This ...). Of course, nearly all sell side analysts and financial pundits in the media somehow overlooked this. 

Well, while on the topic, let's peruse this infographic by Finance Degree Center. Please note this is a very large graphic, so click it to enlarge and see the whole thing (it is big!).

thumb finance center on facebook 

How the Facebook story got started...

Facebook started its institutional investment life as a very popular, very well known company. Goldman took this story (private) stock and went bananas with it, as meticulously illustrated in the following blog posts:

  1. Facebook Registers The WHOLE WORLD! Or At Least They Would Have To In Order To Justify Goldman’s Pricing: Here’s What $2 Billion Or So Worth Of Goldman HNW Clients Probably Wish They Read This Time Last Week!
  2. Facebook Becomes One Of The Most Highly Valued Media Companies In The World Thanks To Goldman, & Its Still Private!
  3. Here’s A Look At What The Goldman FaceBook Fund Will Look Like As It Ignores The SEC & Peddles Private Shares To The Public Without Full Disclosure
  4. The Anatomy Of The Record Bonus Pool As The Foregone Conclusion: We Plug The Numbers From Goldman’s Facebook Fund Marketing Brochure Into Our Models
  5. Did Goldman Just Rip Its HNW and Institutional Clients Once Again? Facebook Growth Slows Pre-IPO, Just As We Warned!

I issued private research to my subscribers while publicly warning that Facebook at, or anywhere near, its IPO price was a blatant bald faced SCAM & RIPOFF!!!

  1. The World's First Phenomenally Forensic Facebook Analysis - This Is What You Need Before You Invest, Pt 1
  2. The Final Facebook Forensic IPO Analysis: the Good, the Bad & the Ugly

As the actual IPO arrived, JP Morgan, Morgan Stanley, Goldman Sachs, etc. piled on the Bullshit, basically espousing how great an investment this was at $38, screaming that this was a once in a lifetime opportunity. Basically, they took the opposite stance of yours truly. And how did that worked out??? BoomBustBlog Challenges Face Ripping Facebook Share Peddlers That Left Muppets Faceless And Nearly 50% Poorer After IPO.

Here is a full year of free blog posts and paid research material warning that ANYBODY following the lead of Goldman, Morgan Stanley and JP Morgan on the Facebook offering would get their Face(book)s RIPPED!!! Could you imagine me on a reality TV show based on this stuff??? Well, it's coming...

  1. Facebook Registers The WHOLE WORLD! Or At Least They Would Have To In Order To Justify Goldman’s Pricing: Here’s What $2 Billion Or So Worth Of Goldman HNW Clients Probably Wish They Read This Time Last Week!
  2. Facebook Becomes One Of The Most Highly Valued Media Companies In The World Thanks To Goldman, & Its Still Private!
  3. Here’s A Look At What The Goldman FaceBook Fund Will Look Like As It Ignores The SEC & Peddles Private Shares To The Public Without Full Disclosure
  4. The Anatomy Of The Record Bonus Pool As The Foregone Conclusion: We Plug The Numbers From Goldman’s Facebook Fund Marketing Brochure Into Our Models
  5. Did Goldman Just Rip Its HNW and Institutional Clients Once Again? Facebook Growth Slows Pre-IPO, Just As We Warned!
  6. The World's First Phenomenally Forensic Facebook Analysis - This Is What You Need Before You Invest, Pt 1
  7. The Final Facebook Forensic IPO Analysis: the Good, the Bad & the Ugly
  8. On Top Of The 2x-10x Return Had Off Of BoomBustBlog Facebook Research, Our Models Show How Much More Is Available...
  9. Is Time For Facebook Investors To Literally Face the Book (Value)?
  10. Facebook Bubble Blowing Justification Exercises Commence Today
  11. Facebook Options Are Now Trading, Or At Least The PUTS Are!
  12. Reggie Middleton breaks down "Muppetology," Face Ripping IPO's, and the Chinese Wall!
  13. Facebooking The Chinese Wall: How A Blog Has Outperformed Wall Street For 5 Yrs
  14. Why Shouldn't Practitioners Of Muppetology Get Swallowed In A Facebook IPO Class Action Suit?
  15. Shorting Federal Facebook Notes Are Not Allowed Today ?
  16. As I Promised Last Year, Facebook Is Being Proven To Be Overhyped and Overpriced!

It would seem that Facebook Finally Faces The Fact Of BoomBustBlog AnalysisProfessional and institutional BoomBustBlog subscribers have access to a simplified unlocked version of the valuation model used for this report, available for immediate download - Facebook Valuation Model 08Feb2012. I just nominally input some very generous numbers and the best case scenario chart (see the chart tab after your own individual inputs) is quite revealing, indeed! The full forensic opinion is available to all subscribers here FaceBook IPO & Valuation Note Update, and the latest iteration can be found here FB IPO Analysis & Valuation Note - update with per share valuation 05/21/2012. It is recommended that subscribers (click here to subscribe) also review the original analyses (file iconFB note final 01/11/2011).

 

Published in BoomBustBlog
Yahoo borrows a page from Google's book and gets disruptive for 2014. I like!!! 

The old media is ripe to be shaken up even further, and why should everyone let Google's Youtube have all of the fun. Lauren Lyster, a personality who used to interview me often on RT joined Yahoo last year as well. She's good and Yahoo is aggressively recruiting talent and investing in this space. 
Now, the old guard media, if they had any sense, would retaliate by pushing harder into the new media space. Don't hold your breath for that one to happen any time soon, though.

Published in BoomBustBlog

google buying NFL Sunday Ticket

All Things Digital ran a story today concerning Google bidding for the NFL Sunday Ticket package. CNBC hosts discussed the topic as well. James Cramer asserts that Google may charge for the NFL content if it is successfully acquired. My first thought when hearing this was... Not so fast. The AllthingsD article put it interestingly:

Here’s a fun combination to ponder: The world’s most powerful media company and America’s most popular sport. That could happen if Google buys the rights to the NFL’s Sunday Ticket package, the all-you-can-eat subscription-TV service currently owned by DirecTV.

If YouTube offers games for free and creates a premium advertising channel they can scrape the frothy ad cream off of the top. Remember the power of the NFL brand. This years Superbowl ads went for $3.8 million for 30 second spots. Granted, the NFL ticket is not the superbowl, but there's a hell of a lot more inventory to go around as well.

Google also has much more in terms of resources to bring to this pacakge. Imagine Google Glass on an NFL quarterback as he snaps the ball off to another player - giving Google unique, potentially exclusive content from an NFL player's first person perspective during a game.

By offering said content for free and monetizing it through Ads, Google has effectively cost-shifted the product in a fashion that would be a true threat to the status quo. With almost a billion Android handset activations, that's more than enough of an argument to get the establishment quaking.

Subscribers, see also... 

 

Published in BoomBustBlog

Five years ago I posed the question, "Has the Web and the Blogosphere ushered in the Death of Radio?" Lookng at radio station revenues and ad rates, while their death is not necessarily eminent, the metastatization of a near terminal disease is. Now, half decade later, is it time to pose that question for Mainstream Media in general? Methinks there is a significant opporutunity for those true entrepeneurs who can figure out how to make a better mouse trap. The infographic below says it all...

Internet Influence

Other examples...

 

Published in BoomBustBlog

Isn't it amazing that you can get more notoriety for showing your ass and a pretty smile than you can get for outing the scam of the decade through intellectual analysis? More money was lost through the Facebook scam IPO at $38 than Bernie Madoff could ever have pulled off. Notice that Bernie went to jail for his relative pennies, while the bankers selling and snake oil in the form of overpriced Facebook shares got paid record bonuses on the back of taxpayer bailouts!!!Often times people can see a blatant fact, a seemingly undeniable truth, and totally ignore it as if it doesn't exist. In the US, the Wall Street banks are masters of this marketing derived form of prestidigitation. Wall Street banks pay humongous bonuses (from your tax dollars) based on the dispensing of bogus advice, despite the fact that it can be proven beyond a shadow of a doubt that there are many other entities that have advised better, considerably more accurately and have done so consistently (Did Reggie Middleton, a Blogger at BoomBustBlog, Best Wall Streets Best of the Best?). Go figure...

Media celebrities are also adept at garnering significant mind share, although it's a bit more understandable why this is so. Some are beautiful, some sound good, others act well on stage - basically, they are capable of doing more than simply muppetizing clients (Goldman Sachs Executive Director Corroborates Reggie Middleton's Stance: Business Model Designed To Walk Over Clients). This article looks to counter that magic that allows those who consistently under perform to continuously be looked upon as masters of the universe, while those who have performed consistently are thought of as "alternative" or "fringe", simply because they don't garner the mindshare of the sexy celebrity or the "Masters of the Intellectual Universe Investment Bank". Well, there's a new sheriff in town! Here comes that new, "Intellectual Celebrity". One should consider me the Kim Khardashian of global finance and investment. Instead of big ass and a pretty face, I offer a massively analytical perspective, a damn near offensive intellectual honesty and an unyielding penchant for spitting the facts that few want to hear. So, it's not Jay-Z! It's Reg-G!. Here we go...

Reggie_Middleton_hunting_the_Squid_Known_As_Goldman_Sachs_GSThere's a new celebrity in town. He sports acute intellectual capacity instead of ass, is much more aggressive and aims to make the masses aware, despite who he may offend. Yes, I know... It may take some getting used to!

This article is segmented, and those who have followed me can skip my history with Facebook valuation vs the Wall Street banks and move forward to the Google+ Communities vs Facebook Groups comparison...

How the Facebook story got started...

Facebook started its institutional investment life as a very popular, very well known company. Goldman took this story (private) stock and went bananas with it, as meticulously illustrated in the following blog posts:

  1. Facebook Registers The WHOLE WORLD! Or At Least They Would Have To In Order To Justify Goldman’s Pricing: Here’s What $2 Billion Or So Worth Of Goldman HNW Clients Probably Wish They Read This Time Last Week!
  2. Facebook Becomes One Of The Most Highly Valued Media Companies In The World Thanks To Goldman, & Its Still Private!
  3. Here’s A Look At What The Goldman FaceBook Fund Will Look Like As It Ignores The SEC & Peddles Private Shares To The Public Without Full Disclosure
  4. The Anatomy Of The Record Bonus Pool As The Foregone Conclusion: We Plug The Numbers From Goldman’s Facebook Fund Marketing Brochure Into Our Models
  5. Did Goldman Just Rip Its HNW and Institutional Clients Once Again? Facebook Growth Slows Pre-IPO, Just As We Warned!

I issued private research to my subscribers while publicly warning that Facebook at, or anywhere near, its IPO price was a blatant bald faced SCAM & RIPOFF!!!

  1. The World's First Phenomenally Forensic Facebook Analysis - This Is What You Need Before You Invest, Pt 1
  2. The Final Facebook Forensic IPO Analysis: the Good, the Bad & the Ugly

As the actual IPO arrived, JP Morgan, Morgan Stanley, Goldman Sachs, etc. piled on the Bullshit, basically espousing how great an investment this was at $38, screaming that this was a once in a lifetime opportunity. Basically, they took the opposite stance of yours truly. And how did that worked out??? BoomBustBlog Challenges Face Ripping Facebook Share Peddlers That Left Muppets Faceless And Nearly 50% Poorer After IPO.

The stock debuted at $38, went up to about $44 that day, then hasn't seen the high or IPO price since, dropping to $17 or so and now trading around $27 on additional analyst upgrades (because the Muppets didn't get bent over hard enough the first time around).

All should still be aware of the primary factor in this "growth company" stock's story....

image002

These facts should not have been a surprise, and blog subscribers were made aware nearly a 2 years ago, as excerpted from our 2nd most recent forensic analysis.

 

FB IPO Analysis  Valuation Note Page 04

I want to focus on the Google+ effect mentioned in the research page above. JC Kendall of SocialMedia Today posed the question "Google+ Communities: The Last Nail In The Facebook Coffin?". Basically, he ponders whether or not the release of the Google's recent answer to Facebook's Groups product will drive Facebook the way of MySpace. I will excerpt the parts pertinent to this discussion, but I urge you to visit the full article and also keep in mind that Mr. Kendall is a socail media professional, hence may have a different perspective than that of the casual user. Here's some very interesting highlights of what he had to say:

  • Back in March of 2012, Facebook reported that on average only 16% of Facebook Brand Page posts were read on average by the fans of those pages.  For all the money spent on Facebook advertisements, they resulted in a CRT (click-through-rate) of 0.051%.
  • In May of 2012, Facebook began allowing business to “Promote their Posts” after killing off the previous “Reach Generator”, a program that GUARANTEED at launch that it would reach 75% of Facebook users that had liked a Brand Page, but only produced an average of 16% reach. 
  • In June 2012, fed up with what he concluded as Facebook blocking his ability to reach his huge audience of Facebook fans, George Takei of [Lieutenant Sulu] Star Trek fame contacted Facebook about his concerns, and was told “buy more promoted posts.”  Takei watched his reach dwindle while the number of his posts remained the same, and decided it was due to EdgeRank, the Facebook algorithm that determines who gets to see a user’s updates. ....Facebook determines who sees users posts, not the users and you get to pay for this!   In June, George Takei established a profile on Google+, where 100% of his messages would be available to his friends at zero cost.  
  • {In} Google+, all posts, no matter how large the audience, are free of charge to 100% of your followers. 

When I talk to businesses about why, in the face of such dismal advertising returns, they are still concentrating their Social Media efforts on Facebook, the answer is the same, about 90% of the time:  Facebook Groups.  

Google+ Communities is less than a week old, and its growing like a weed!

  • ... all those things you did from your Facebook Groups to develop a relevant and interested audience for your business, could be done easier, smarter, more effectively, and free of charge? Google+ Communities, because of the added services available to Google+ Users and integration with all the other benefits of the Google infrastructure, simply blows Facebook Groups out of the water. 
  • ...Here is the kicker:  All of the content from a Public Google+ Community is indexed, and discoverable through Search on both Google and Google+. This is something that Public Google+ Community Moderators need to consider when creating their destinations.
  • ... to maintain a level of real privacy, there are two options for Private Communities as well. Private Communities can be restricted to its invited members only, but remaining discoverable by search.  Or, a fully private Community can be created, similar to a private YouTube channel, where it can be found only by knowing the specific URL of the Community. 
  • Any organization can create a Google+ Community that is open and available to anyone without an invitation necessary.  To get the word out, all the moderator needs to do on Google, is share their Community to the Public Stream, which will inform not only 100% their circled followers,  but the announcement is now part of the worldwide Google Index, and available through a keyword search, along with the content of every post, every image, every video. 
  • Contrast this with Facebook, where after a Facebook Group is created, the moderator now has to determine whether or not they wish to pay.  The price is determined by the number of Facebook friends who might see it, in order to reach 100% of their audience.  Consider that this is true not only to announce the Group, but the organization must also pay for EVERY update (promoted post) they make during the lifecycle of the Group’s initiative. For any Business or Organization with their eyes on the bottom line, the choice is clear. You can spend your  budget on managing and performing your daily activities from a Google+ Community,  with its various ways to allow users to either see you or find you, or you can devote a chunk of your resources to paying Facebook for the right to let all of your friends know what you are doing, with no guarantee of a decent CTR result. 
  • If I were a decision maker for an organization migrating from Facebook to Google+,  I may pay to send a single promoted post to my Facebook friends and followers, to let them know that my charity drive now and for the future can be found  now be found on Google+.  But, if my Facebook friends have any problem finding my Community Based Charitable initiative, not to worry, because they can (duh) GOOGLE IT. 
  • It is not as though someone cannot be a member of both Google+ and Facebook at the same time, so why would an Organization of any kind, pay more for much less on Facebook?  In addition, the SEO (search engine optimization) advantages of Google+ Communities cannot be overstated, along with the Google Authorship potential for preventing fraudulent association or duplication with your Google+ Community.

Google Hangout is a group video conferencing and video broadcast platform within Google+. It's very handy for multi-media publishing and has no match anywhere near its price - of free!

  • Google+ Hangouts can be scheduled by event and run from within a Google+ Community, with Hangout invitations sent to all members automatically.  Members of communities do not have to be within their community to share comments and information; they can post directly to their Communities from their public streams. 
  • On Google+, users can share files from Google drive both inside and outside their Google+ Communities. Users can both link to and distribute documents of all kinds, and even HOST A WEB SITE from their Google Drive with JavaScript support built in.  Pow! 
  • Suppose two (or up to ten) persons within a Google+ Community share an interest and want to speak RIGHT NOW to each other? They have the option of starting a video Hangout together, or should one of the two not have a web cam, use Google’s Voice services to place a free international call to the other person from within the hangout itself!  Did I mention FREE, and no limit to amount of usage?
  • Google, with the introduction of Google+ communities, has essentially matched or surpassed every level of functionality available on Facebook for a Business to develop its brand, and attract a growing number of followers to its audience. The additional features of SEO, Authority, and Trust associated with a Google+ presence is a difficult thing to pass up, and I predict that the steady stream of Businesses building a Brand Presence on Google+ will soon, with the addition of Google+ Communities will soon become a flood. 

  • Because Facebook has no public search engine, all content is confined within its forums. Facebook will not be able anytime soon to emulate what Google has done with SEO, Authorship or even Hangouts.  You see, the video performance of Hangouts cannot be duplicated without an associated fiber-network between datacenters like those Google has built. 
  • Google+ users connect through this network, away from all of the latency adding routers, switches, repeaters that connect together the rest of the internet. Creating desktop video conferencing for up to 10, or (15 users with a paid Google Apps account) is basically impossible given today’s video compression standards.  Google has promised HD Hangouts in the not too distant future.  I would expect to see those first along Google’s Fiber rollout for users in Kansas City, MO. 

Whew! That's a lot of info to digest. I apologize for excerpting so much of JC's content, but he had so much of relevance to contribute I had to. This is not all of it, by a long shot, so I again urge you to read the original SocialMedia Today article. The obvious question is, "Does he actually make a valid point?" BoomBustBloggers as well as FB and Google investors really need to know. Even though Facebook Does The Reverse Gravity Thing, Defies Logic, I still had to quip  - Hey Muppets, Only Another 100% Climb In Share Price To Go Before You Break Even With MS/GS/FB Investment Advice. Let's turn to my site's stats to reveal some actual facts and stats.

 image017

As you can see from the chart above, the social network to beat for actual site referrals is Twitter. I believe that is due in large part to the nature of my site (financial analysis, which has a penchant towards real time information seekers). It is also due in part to a social media push that I have started, in which Twitter has the richest 3rd party publishing tools - something that I feel the other participants in the chart have erred in not directing significant resources. Time will tell if I'm correct.

Google search has always been a large contributor to site traffic, and when combined with Google Plus and Google.com referrals, is still number one despite the aggregate social media push. Google has integrated Google Plus into practically all of it properties, which makes the use of almost any Google product an indirect use of Google Plus. A wise move, one that (at least at this time) benefits the end user, and a move that significantly disadvantages its competitors - primarily Facebook! My Facebook account has been active for a couple of years, yet I just started a Facebook Company page last year, and it has been mostly inactive. I recently started adding content to it, along with a Google Plus page and LinkedIn Page (used to be active, then I stopped adding content and recently started again). Twitter has been active for about a year. At this point all of the major social media platforms get the same content posted simultaneously, and you can see the results. The content is formatted for Twitter, which may give Twitter an edge in this comparison.

What makes this comparison even more interesting is the fact that Google Plus is less than a year old while all of the other competitors are several years old. That makes Google Plus's competitiveness and growth appear outstanding. It is a true, clear, and credible threat to Facebook (as well as the others, and that's without considering the tech advancements) and I feel that FB investors are hardly giving this the attentition that it deserves. Google is out-Facebooking Facebook at an incredibly alarming rate!

 image019

The site stats mirror my description of the newness of my social media push. The new visits come mostly from my push onto new social media platforms. Of interest is the fact that Google Plus has a very high bounce rate, which denotes a lower quality of traffic, but the small amount of sample data being used is not conclusive. In addition, since the content is being formatted for Twitter's short form input rules, it fails to take full advantage of Facebook's and Google Plus's rich media capabilities. I will experiment with this theory by hosting a Google Plus Hangout Group Video session on my Facebook and Google research and opinion to see if this materially changes the stats. I believe it will, for the interaction in the content that I've posted on Google Plus, when there is interaction, is much greater than the other platforms - Twitter included!

 image016

The pages per visit metric is another measure of the quality of traffic. Here you see the Google search properties reign supreme, primarily because that traffic is pushed onto my site (the people are actively looking for me) as opposed to being pulled onto the site (I'm pushing content to them to entice them to come in). By effectively combining search with social media (which Google is doing) Google can convert Plus into a push versus pull scenario. Now for the most important point: Google Plus has just been launched, and it is now just launching new aspects of the platform. All of these platform aspects from Google are absolutely free. If you factor in the cost of paid advertising on LinkedIn, Twitter, or Facebook and cost per page visit, Google Plus shoots way up to the top. WAAAAYYYYYYY UPPPP!!!! Try ti for yourself. Divide the cost of advertising on these platforms plus the cost of content creation and management by the net visitor or engagment session or purchase (or however you measure success) and you will find Google Plus to end up at the top of the list - and that is despite its highly nascent state! Imagine what happens once Google actually gets the ball rolling!!!

This is going to be a problem for all of those social media sites whose business models are predicated on ad revenue. How can you charge for something when your competitor gives the same thing away (arguably on a better platform) for free? This is the question of doom that proved to be the death of the classifieds industry, soon the news industry as we know it, and the smartphone OS industry (ask RIMM if I know what I'm taking about BoomBustBlog Research Performs a RIM Job!, or even Apple Deconstructing The Most Hated Trade Of The Decade, The w 375% BoomBustBlog Apple Call!! and Deconstructing The Most Accurate Apple Analysis Ever Made - Share Price, Market Share, Strategy and All).

Google is able to disintermediate these industries through a process known as cost shifting - basically offering a competitors cash cow product for free to the end user by shifting the cost of making and delivering said product to a natural producer who must incur said costs anyway, thereby totaly disrupting the business models and crushing the margins of the established status quo. With the newness of Facebook et. al., it may be hard for old timers to consider them status quo, but in Internet Time, Facebook is old school and faces disintermediation through cost shifting if they don't figure something out, and figure it out fast! 

Here I break down Google Cost Shifting on the Max Keiser (who, after being broadcast on China TV, may very well be the most seen independent newscaster in the world) Show

So, why aren't you hearing this from those big Wall Street banks that were clamoring to sell you those Facebook shares at $38?

Well, I've Told You Before, And I'll Tell You Again - Goldman Sachs Investment Advice Sucks!!! I thought everyone would be asking the question Is It Now Common Knowledge ThatGoldman's Investment Advice Sucks?, but since they aren't I'm here to fan the flames. The reason why you don't here this from those banks is because their business model is predicated upon your ignorance. Independent investors and analysts (say BoomBustBlog) are to the extant, big Wall Street bank as Google Plus is to Facebook, a source of pending disintermediation and margin compression. As excerpted from BoomBustBlog Challenges Face Ripping Facebook Share Peddlers That Left Muppets Faceless And Nearly 50% Poorer After IPO:

I made it clear that those who lost roughly half of their capital at or near the IPO price simply forfeited those funds from not reading BoomBustBlog, and this situation was virtually guaranteed. I felt so strongly about it that I made much of my opinion available for free this time.

Here's where I broke it down on Capital Account

I also happened to do the same on the Max Kesier show...

I discussed Facebook on the Peter Schiff radio show, the Facebook excerpt is below...

Additional Facebook analysis, valuation and commentary.

On Max Keiser, go to the 13:55 marker for more on Facebook...

Double your money by shorting the Street's advice! Once Again!

Here is a full year of free blog posts and paid research material warning that ANYBODY following the lead of Goldman, Morgan Stanley and JP Morgan on the Facebook offering would get their Face(book)s RIPPED!!! Could you imagine me on a reality TV show based on this stuff??? Well, it's coming...

  1. Facebook Registers The WHOLE WORLD! Or At Least They Would Have To In Order To Justify Goldman’s Pricing: Here’s What $2 Billion Or So Worth Of Goldman HNW Clients Probably Wish They Read This Time Last Week!
  2. Facebook Becomes One Of The Most Highly Valued Media Companies In The World Thanks To Goldman, & Its Still Private!
  3. Here’s A Look At What The Goldman FaceBook Fund Will Look Like As It Ignores The SEC & Peddles Private Shares To The Public Without Full Disclosure
  4. The Anatomy Of The Record Bonus Pool As The Foregone Conclusion: We Plug The Numbers From Goldman’s Facebook Fund Marketing Brochure Into Our Models
  5. Did Goldman Just Rip Its HNW and Institutional Clients Once Again? Facebook Growth Slows Pre-IPO, Just As We Warned!
  6. The World's First Phenomenally Forensic Facebook Analysis - This Is What You Need Before You Invest, Pt 1
  7. The Final Facebook Forensic IPO Analysis: the Good, the Bad & the Ugly
  8. On Top Of The 2x-10x Return Had Off Of BoomBustBlog Facebook Research, Our Models Show How Much More Is Available...
  9. Is Time For Facebook Investors To Literally Face the Book (Value)?
  10. Facebook Bubble Blowing Justification Exercises Commence Today
  11. Facebook Options Are Now Trading, Or At Least The PUTS Are!
  12. Reggie Middleton breaks down "Muppetology," Face Ripping IPO's, and the Chinese Wall!
  13. Facebooking The Chinese Wall: How A Blog Has Outperformed Wall Street For 5 Yrs
  14. Why Shouldn't Practitioners Of Muppetology Get Swallowed In A Facebook IPO Class Action Suit?
  15. Shorting Federal Facebook Notes Are Not Allowed Today ?
  16. As I Promised Last Year, Facebook Is Being Proven To Be Overhyped and Overpriced!

It would seem that Facebook Finally Faces The Fact Of BoomBustBlog AnalysisProfessional and institutional BoomBustBlog subscribers have access to a simplified unlocked version of the valuation model used for this report, available for immediate download - Facebook Valuation Model 08Feb2012. I just nominally input some very generous numbers and the best case scenario chart (see the chart tab after your own individual inputs) is quite revealing, indeed! The full forensic opinion is available to all subscribers here FaceBook IPO & Valuation Note Update, and the latest iteration can be found here FB IPO Analysis & Valuation Note - update with per share valuation 05/21/2012. It is recommended that subscribers (click here to subscribe) also review the original analyses (file iconFB note final 01/11/2011).

 

Industry Leading, Subscription Based Google Research

All paying subscribers should download the Google Q1-2012 Valuation Summary, wherein we have updated the valuation numbers for Google using a variety of metrics. Click here to subscribe or upgrade

Google still exhibits the likelihood that they will control mobile computing for the balance of the decade.

Subscription research:

file iconGoogle Final Report 10/08/2010

A couple of bits from our archives...


There are currently 7 Google reports available. Select the "Google Final Report" and click the "Download" button. You will receive a 63 page analysis that looks like this on the cover...

The table of contents outlines how we have broken Google down into distinct businesses and identified both the individual business models and the potential revenue streams, as well as  valuation for each business line.

Page 57 of the analysis shows a sensitivity table which outlines the various scenarios that can come into play and how it will change our outlook and valuation opinion.

Professional/institutional subscribers can actually access a subset of the model that we used to create the sensitivity analysis above to plug in their own assumptions in case they somehow disagree with our assumptions or view points. Click here for the model: Google Valuation Model (pro and institutional). Click here to subscribe or upgrade.

Published in BoomBustBlog

Now that Facebook has actually filed for an IPO, it's time to revisit our previous analyses. BoomBustBlog subscribers are prompted to review our Facebook Forensic Analysis from this time last year - file icon FB note final 01/11/2011. I will probably review the Facebook IPO filing and update my opinions Friday and/or over the weekend to product a part two of this article. I say probably because this is competing for resources with the REIT research that we are doing, namely calculating the likelihood of bankruptcy. Yes, our opinion has been downgraded to the point where we are questioning its ability to remain a going concern. The opportunity actually has options trading on it as well. Alas, in the meantime let's look at how we got to where are now by excerpting my previous opinions and analysis on this deal.

  1. Facebook Becomes One Of The Most Highly Valued Media Companies In The World Thanks To Goldman, & Its Still Private! Monday, 03 January 2011

  2. Here’s A Look At What The Goldman FaceBook Fund Will Look Like As It Ignores The SEC & Peddles Private Shares To The Public Without Full Disclosure“ Tuesday, 04 January 2011

    Yesterday, I attempted to pull the wool from some of the more complacent eyes of news media consumers by outlining the potential goals for Goldman's half billion "investment" in Facebook while at the same time pondering the market for a different type of media concern. A media concern that is heavy on the analysis and investigation, yet light on the political correctness and conflicts of interest (see Facebook Becomes One Of The Most Highly Valued Media Companies In The World Thanks To Goldman, & Its Still Private!). I definitely don't want to be condescending, but there is obviously (at least to me) a need for such an entity amongst the mainstream rags for as I read through the comment sections of the articles written on the topic, I see such naivete as, "Wow!!! If Goldman is putting their money in this, it must be serious!" I say do myself, "It's a damn shame if that is actually a real person's viewpoint and not a Goldman equity underwriting employee".

You see, this is not about Goldman's attempt to create capital gains through investment, its about their attempt to create income through commissions, fees and spreads.

I would like you, dear reader, to let me know why or why not such a media concern as the one I intimated above should not make as much or more money than Goldman, et. al. and the financial engineering bunch, for the media concern actually imparts useful knowledge that actually adds to society, know? Am I being to idealistic in my search for the Utopian world or is there truly a market for real knowledge and insider info. I'm all ears. Now, back to the topic at hand...

Yeah, I was on a roll last year, wasn't I? That's not the gist of it either, as we reminisce even more...

Here is an excerpt for those who do subscribe to our research and services, YET!

Even with the fund taking 45%+ losses and the LP (limited partners, ex. Goldman's clients) losing every last single dime, Goldman easily pulls a 33% return. God forbid Facebook share actually do well, Goldman's numbers look... Well... Damn near illegal! Almost as if they can pump up a price without any fundamental justification or public disclosure of financials and still sell it retail to the public. Of course, such a thing could and would never occur - not with the every vigilant SEC to take our backs. Excuse me while a cough a up a lung from laughter...

You see, this is the dirty little secret of private equity funds. They are not in the business of investing money for client's maximum risk adjusted return. They are in the business of collecting fees. Those poor innocent (or not so, particularly when they are investing their clients monies, hence are in the same business) souls that actually believe as the commenter above quoted "Wow!!! If Goldman is putting their money in this, it must be serious!"simply the lamb being led to the private equity/IPO slaughterhouse. You see, there is no loss to GS - no matter how high they bid up the valuation nor how hard it comes crashing down. This gives them the incentive to shoot for the sky with the private equity deal, because when the IPO breaks, its bonuses bigger than nearly any have ever seen. Facebook makes and excellent marketing story as well. Boy Wunderkind CEO, a product nearly everyone uses and loves, and a mysterious dearth  of business model to give it a mystical effect. Don't forget the involvement of the "cream of the crop" of Wall Street banks, whose bankers, traders and analysts are all so much smarter than us guys from Brooklyn. Add this up, and you get "Wow!!! If Goldman is putting their money in this, it must be serious!".

The Anatomy Of The Record Bonus Pool As The Foregone Conclusion: We Plug The Numbers From Goldman’s Facebook Fund Marketing Brochure Into Our Models Thursday, 06 January 2011 This post which clearly demonstrated that this offering was primarily for Goldman’s bonus pool integrity and basically a ripoff for clients.

Here's is what the privileged HNW clients get to pay in order to buy the Facebook shares from Goldman with a retail brokerage price markup as opposed from the actual secondary market sites that have popped up...

To get a stake in Facebook, Goldman Sachs clients are required to make a minimum investment of $2 million by Jan. 7 in what’s described as limited partnerships based in the Cayman Islands and Delaware. Goldman Sachs is charging 0.5 percent of any capital committed to the partnership as an “expense reserve” as well as a 4 percent placement fee and 5 percent of any gains, according to the document.

Facebook has more than 600 million monthly active users, of whom more than 230 million access the site on mobile devices, the document shows. Statistics available on Facebook’s website indicate it has more than 500 million monthly active users and more than 200 million access from mobile devices.

A letter addressed to “potential investor” that introduces the Facebook investment profile ends with a two- sentence paragraph. The first asks potential investors to contact a Goldman Sachs representative for further information. The second says:

“Do not contact Facebook.”

Is it me, or is this deal expensive as hell? We are not even taking into consideration the markup on the shares that Goldman is guaranteed to make, which will probably trump all of the numbers above. For those who don't agree with my assertion that this is a RIPOFF tad bit costly, let's plug said numbers into the online private equity model that I made available to subscribers in my last posting on this topic.

Basically, 'nuff said.

Facebook Registers The WHOLE WORLD! Or At Least They Would Have To In Order To Justify Goldman's Pricing: Here's What $2 Billion Or So Worth Of Goldman HNW Clients Probably Wish They Read This Time Last Week! Tuesday, 11 January 2011

Goldman warns, 'We’re probably going to dump this load, but we may also need you to remain behind to hold the bag!'

In its offer for the $1.5bn stock sale of privately held social-networking company Facebook, Goldman Sachs disclosed that it might sell or hedge its own $375m investment without warning clients. Under the deal, private wealth-management clients would be subject to “significant restrictions” limiting their ability to sell stakes while Goldman Sachs own holding can be sold or hedged at any time, and without warning. One would hope that astute clients and investors would be put on guard by such conflicting and restrictive liquidity measures! In addition, it appears as if Goldman Sachs failed to disclose its clients that it had offered Facebook shares to its internal investment group, Goldman Sachs Capital Partners, headed by one of its star fund managers, Richard A. Friedman.

Thus, it is highly unlikely one can legitimately factor in the type of growth needed to justify the current Goldman $50B valuation - particularly when you consider that Facebook's growth is already slowing!

 

Is It Now Common Knowledge That Goldman’s Investment Advice Sucks??? Tuesday, 25 January 2011

It's official, the mainstream media has turned on those "doing God's work" and come to the side of BoomBustBlog.

I must admit, I was shocked when I first read this headline and saw the accompanying cover. After all, Bloomberg was the organization that published a story lavishing adulation upon a young Goldman analyst that had a 38% win rate throughout the credit crisis and (faux) recovery. I see those results as mediocre at best, and downright horrible from a realistic perspective. To make matters even worse, I believe I ran circles not only around that analyst, but the entire firm, see Did Reggie Middleton, a Blogger at BoomBustBlog, Best Wall Streets Best of the Best? The next thing you know, this heavy nugget of truth is dropped, and all I can say is.... Damn. Let's excerpt some juicy tidbits from Blankfein Flunks Asset Management as Jim Clark Vows No More Goldman Sachs:

On Jan. 2, Jim Clark, a founder of such technology icons as Netscape Communications Corp. and Silicon Graphics Inc., was at home in Palm Beach, Florida, when he got an e-mail from an executive at Goldman Sachs Group Inc.’s private wealth management division. Goldman was offering Clark a chance to invest in the closely held social-networking company FacebookInc. The deal -- through a fund overseen by Goldman Sachs Asset Management -- was being offered to other Goldman investors at the same time, Bloomberg Markets magazine reports in its March issue.

The firm would levy a 4 percent placement fee on clients, plus a half percent “expense reserve” fee. It would also require investors to surrender 5 percent of any profits, known as “carried interest,” according to a Goldman Sachs document.

Clark turned Goldman down. In June, 2009, he had yanked most of the roughly $400 million he had invested with the firm due to what he considered bad advice and poor performance, including a big hit from GSAM’s Global Alpha hedge fund. This offer, he says, just irked him further. A few months earlier, he had purchased a stake in Facebook through another firm for a lower price, he says, and without the onerous carried interest.

“I don’t think it’s reasonable,” Clark says. “It’s just another way for them to make money from their clients.”

Jim Clark is a smart man, and I don't think he needs me to assure him of that. For those who may not be as hip to fees and valuations, I published The Anatomy Of The Record Bonus Pool As The Foregone Conclusion: We Plug The Numbers From Goldman’s Facebook Fund Marketing Brochure Into Our Models which clearly demonstrated that this offering was primarily for Goldman's bonus pool integrity and basically a ripoff for clients. In the following post, I declared "Here’s A Look At What The Goldman FaceBook Fund Will Look Like As It Ignores The SEC & Peddles Private Shares To The Public Without Full Disclosure"

Did Blogs Exercise Enough Influence To Alter Goldman's Facebook Plans Or Did The SEC Decide To Get Serious?

After hearing of Goldman's plans to allow investors to skirt SEC guidelines and issue private shares of Facebook to the public, I had a plethora of warnings and admonitions. Once I (and my best analyst) took the time to parse the numbers and the logic behind the deal, I concluded that Facebook Registers The WHOLE WORLD! Or At Least They Would Have To In Order To Justify Goldman’s Pricing: Here’s What $2 Billion Or So Worth Of Goldman HNW Clients Probably Wish They Read This Time Last Week!

In a nutshell, not only is the offering unlawful on its face (although probably lawful due to the financial engineering cum law splicing from the wizards at Goldman), the valuations were simply stuff of fairy tails and dot.com implosions.

I offered a detailed and illustrative valuation exercise to the professional/institutional (read as, HNW) blog subscribers (File Icon FB note final) and as was usual included a material dollpp for the public blog to chew on. I think many found it quite the engaging read, at the very least.

Well, it appears as if maybe someone at the SEC may have gotten pissed off enough to say "I've had it and I'm not going to take anymore!!!!" From the Wall Street Journal: Goldman to Exclude U.S. Clients From Facebook Deal...

For some background into my work on Facebook's offering, go to 13:55 in the video to see me discussing Goldman's Facebook offering that never was.

{qtube vid:=8a6NdwORK5g}

The next installment in this series will incorporate what I've found in the most recent FB IPO filing, and parse that through BoomBustBlog analytics for my subscribers, with the usual smart ass, opinionated commentary for the free blog readers as well.

 
 
Published in BoomBustBlog

This is the 3rd installment of my controversial rant against the American education system - this time in video. If you haven't been following me, it is recommended that you read through the first two (admittedly lengthy, yet well worth the time) posts:

  1. How Inferior American Education Caused The Credit/Real Estate/Sovereign Debt Bubbles and Why It's Preventing True Recovery
  2. The Biggest Threat To The 2012 Economy Is??? Not What Wall Street Is Telling You...

I fully expect plenty of comments on this one! I come in at 3:40 in the video, but the first three and a half minutes may be worth viewing as well for those in the education industry.

laurynlister_Reggie_on_RT

Published in BoomBustBlog

Some rather hard hitting reporting and analysis on the Vampire Squid...

Start at 2:20 into the video.

I have much more on this...

Yes, The BoomBustBlog Forecast Pan-European Bank Run Has Breached American Soil!!!

The Ironic, Prophetic Nature of the MF Global Bankruptcy Filing and It's Potential Ramifications

The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs!

MF Global ran into a liquidity squeeze while betting on the European debt that I have warned my subscribers for two years to avoid like the plague. Goldman is doing the same thing, no?

As excerpted from the model that powers BoomBustBlog subscriber document Goldmans Sachs Derivative Exposure: The Squid in the Coal Mine?

goldman_balance_sheet_risk

As you can see, Goldman traded its derivative book risk for sovereign risk - just in the nick of time to catch the tail end of a derivative crisis  & the start of a sovereign debt crisis. Excellent job fellas! Goldman has literally doubled its sovereign assets, starting the exact year that I started warning in the Pan-European Sovereign Debt Crisis series. BoomBustBlog subscribers covered this scenario over a year ago.

Go to the 26:40 marker in the video...

Published in BoomBustBlog

Note: This will probably be the last post until after Thanksgiving, after which I will delve into insurance industry shorts for my subscribers. In the meantime, I have compiled a very meaty post to keep reades and subscribes alike stuffed to the gills like a turkey. If you haven't noticed, I tend to be a bit spicier and considerably more eccentric than the average financial pundit, commentator, analyst or investor. I think because of that, I've been left out this year's Wall Street bank Christmas party invitations. I ask that anyone who wishes to add a little "spice" in additional to some intellectual discourse and fun to their Goldman, JP Morgan, Morgan Stanley, etc. Christmas party shoot me an email and invite me along. It'll be fun - really!

In looking through this morning's MSM headlines I see what is tantamount to a mandate for BoomBustBlog subscriptions. Let's walk throught CNBC's front page.

msm_11-23

Starting at the top. The latest German bund auction flopped!

The day before yesterday, and throughout the year, I warned that Bunds would make a good short and Germany was next on The Next Stop On The European Bank Flu Express. There's no reason to believe that Germany, as a net export nation, will not get sick as ALL of its EU neighbors sneeze recession in its face! Nearly two years ago, I posted the following prescient pieces:

  1. What Country is Next in the Coming Pan-European Sovereign Debt Crisis? – illustrates the potential for the domino effect

  2. The Pan-European Sovereign Debt Crisis: If I Were to Short Any Country, What Country Would That Be.. – attempts to illustrate the highly interdependent weaknesses in Europe’s sovereign nations can effect even the perceived “stronger” nations.

  3. The Coming Pan-European Soverign Debt Crisis, Pt 4: The Spread to Western European Countries

  4. The Depression is Already Here for Some Members of Europe, and It Just Might Be Contagious!

Then we have the Asian markets down on weak China PMI. What else was there to expect? Does one really think China to be the 23 year of growth packed into 3 year miracle that the sell side and the media make it out to be? I've been warning on China since 2009 as well. See China Is In a Self-Imposed Bubble That Has Nowhere To Go But Bust! You Don't Get Something (Growth Through Stimulus) For Nothing (No Economic Consequences), as exceprted:

I have not had a chance to revisit my China thesis in a while, but it is coming once I round off the European recap and finish up my US technology thesis. China will most likely play a key portion in global financial and economic contagion that is simmering over in Europe. A commenter on another popular blog had this to say of my most recent post regarding Ireland (Erin Gone Broken Bank: The 2nd EMU Nation That Didn’t Need a Bailout Get’s Bailed Out Within Months, Next Up???):

Mr. Middleton,

Although I have no connection with financial investing or services, I read your analyses, and those of others, to be informed of events and topics of great economic importance.  What strikes me as odd, is that in all the stories on European Contagion I find no mention of China's position.  Given China's significant economic connection via trade with the European Union, it is puzzling we don't see more overt action from China to protect/affect the health of it's export recipient's economies.  Am I to infer there is covert action (via GS, Central Banks, IMF for example), China is simply not concerned about the economic stability of the European Union, or it's just waiting for the appropriate time for action/influence?

We definitely know where China stands on U.S. trade and Fed's policies, and it's relations with the other BRIC countries.

Is there a story here that I've missed?

I replied:

I believe China's ability to alter its own course is grossly exaggerated. As a net exporter with relatively minimal internal consumption as a source of economic activity, it is basically at the mercy of importing nation's ability to buy their goods. Any attempt to stoke the ability of these nations importing will be ancillary at best. The "reported" success of their bubble blowing is showing only one side of the equation - the bubble blowing. Signs of a traditional bubble (such as the one whose bursting the US and Europe are struggling to escape from) are everywhere, yet the mainstream media has not focused nearly as much attention on such. Unless the laws of basic human nature has changed, expect to see China suffering from the effects of profligate excesses just as the others that tried to inflate their economies the quick and easy way did.

Less than an hour after typing said reply, Bloomberg reports: China Inflation May Be Too Hot for Controls Amid Cash Glut.

Now, it didn't take a genius to figure out this would happen. As a matter of fact a slight dose of common sense (when was the last time you got something for nothing, really?), a little historical perspective or a BoomBustBlog subscription would have sufficed.

  1. BoomBustBlog China Focus: Inflation? Thursday, May 20th, 2010
  2. Can China Control the “Side-Effects” of its Stimulus-Led Growth? Let’s Look at the Facts Wednesday, February 3rd, 2010
  3. What Are the Odds That China Will Follow 1920’s US and 1980’s Japan? Wednesday, March 10th, 2010
  4. BoomBustBlog China Focus: Interest Rates Thursday, May 20th, 2010
  5. My China Ruminations Have Come to Pass As the Country Enters a Bear Market Tuesday, May 11th, 2010
We also have MSM headlines stating Franco-German manufacturing stalling as Belgium and France bitch about Dexia. Well, I warned all that France was the fulcrum point for the EU fall, not Italy and not Greece. Remember, France was supposed to be a savior, along side Germany bailing out with both buckets of water (I mean liquidity). As for France, referrence French Banks Can Set Off Contagion That Will Make Central Bankers Long For The Good 'Ole Lehman Collapse Days! Then please see When The Duopolistic Owners Of The EU Printing Presses Disagree On The Color Of The Ink!, as excerpted:

BoomBustBlog readers and subscribers saw this coming a mile away. The Duopoly that ruled the economics of the EU have divergent needs now, hence divergent interests. Expect this to get worse in the near term. The reasons have been spelled out in Italy’s Woes Spell ‘Nightmare’ for BNP - Just As I Predicted But Everybody Is Missing The Point!!! You see, France, As Most Susceptible To Contagion, Will See Its Banks Suffer because stress in the Italian bond markets will be a direct cause of a French bank run - with the largest of the French banks running the hardest BNP, the Fastest Running Bank In Europe? Banque BNP Exécuter. For those who don't follow me regularly, I warned subscribers on BNP due to the Greco-Italiano risk factor causing a liquidity run born from imminent writedowns. No one from the sell side apparently had a clue. Reference the series:

Let's not forget that obvious headline, "'The Sky Will Fall In' for Europe". Where were you two years ago when the sky started falling? See our Pan-European sovereign debt crisis and notice the dates.
You also have the not so prescient headline akin to a fireman ariving at a smolding pile of ashes, brandishing his brand new fire hose waiting to put out said house fire - Two Thirds Chance of 2012 Europe Recession: Survey. Subscribe to BoomBustBlog, my friend (early 2010) The Depression is Already Here for Some Members of Europe, and It Just Might Be Contagious!
Now, speaking of Europe, particular Dexia (France, Belgium Wrangle About Dexia Deal: Reports), this brings to mind another highlighted headline focusing on the oft quoted sell side banking analyst US Stress Tests Not Worrying: Bove... Dick Bove is one of the, if not most oft quoted sell side bank analyst in the mainstream media. I disagree with him, regularly. As the uber independent investor/analyst that I am, I will never be accurately accused of kissing [up to] Dick - regardless, let's grab Dick by the base [of his assumptions] and see if we can yank something usable out of it, shall we?

The Federal Reserve announced Tuesday it plans to stress test U.S. banks—including the six largest—against a hypothetical market shock, such as an escalation of the European debt crisis.

Dick Bove
cnbc.com
Dick Bove

But noted banking analyst Dick Bove said there is nothing for investors to get upset about because the stress tests are pro forma and are not an indication that the Fed  has any particular concerns about the state of American banks.

“It was really required by the Dodd-Frank law that they have a stress test,” the Rochdale Securities analyst told Larry Kudlow. “So every year at about this time you have the Fed setting up a new stress test for the banking industry.”

The six big banks to be tested are Bank of America [BAC  5.37    -0.12  (-2.19%)   ], Citigroup [C  24.46    -0.54  (-2.16%)   ], Goldman Sachs [GS  89.40    -1.90  (-2.08%)   ], JPMorgan Chase [JPM  29.41    -0.50  (-1.67%)   ], Morgan Stanley [MS  13.52    -0.08  (-0.59%)   ] and Wells Fargo [WFC  23.93    -0.25  (-1.03%)   ].

While the Fed's stress tests will see whether U.S. banks can withstand any further deepening of the European debt crisis crisis, Bove isn't worried about contagion from the EU.

“If [the European banks] run into significant difficulties, it is not going to create a massive crisis in American banks,” he said. “American banks are benefiting meaningfully as a result of the European banking crisis and it’s showing up in their earnings.”

Will someone buy Mr. Bove an Insitutional BoomBustBlog subscription. Of course it won't create a massive crisis in American banks... The 8th largest bankruptcy in this country's history doesn't even scratch the radar, right??? The Ironic, Prophetic Nature of the MF Global Bankruptcy Filing and It's Potential Ramifications

That’s because European banks are selling American assets to American banks at discounted prices.

However, Bove thinks it’s highly unlikely that the European banks will collapse. He believes the European Central Bank will ultimately bail them out.

Okay, where do I start? Well, I must admit, I don't look, speak, think nor act like any of the sell side analysts. If you are into convention, and not into hard hitting analysis and outspoken brothers, then I'm just not your man. If that's the case, I suggest you simply get you some Dick. For those who (like me) don't favor dick, I have a slightly different flavor to offer in terms of analysis and perspective.

For those not familiar with Mr. Bove, he made an interesting call on Bear Stearns which was essentially antithetical to my research. I will copiiously (I apologize Karl) excerpt a post from the Market Ticker which explains the story explicitly: Dick Bove, Bear Stearns, And Controversey

  Apparently Mr. Bove does not like my ticker from last night, and believes that I have been in some way "unreasonable" in my characterization of him, specifically this paragraph:

"The Truth: The "powers that be" (including the media, The Fed and The Banks) are absolutely beside themselves with the possibility that stocks, especially bank stocks, might decline in value. For "why" see the top of this blog entry. If you fall for this you will be wiped out. DICK BOVE PUT A MARKET PERFORM RATING ON BEAR STEARNS STOCK ON MARCH 11th - JUST THREE DAYS BEFORE IT BLEW UP AND (THE FOLLOWING MONDAY) WENT TO $2! You have NOT and you WILL NOT see CNBC or DICK BOVE take responsibility for the wipe out of SEVERAL BILLION DOLLARS IN SHAREHOLDER WEALTH - when he could have preserved YOUR MONEY if he had told you the truth about our financial institutions and that YOU SHOULD SELL ALL OF THEM AS THERE ARE AND WILL BE MORE EXPLOSIONS, ALTHOUGH NEITHER HE OR I HAVE NO WAY TO KNOW WHICH ONES AND NEITHER DO ANY OF THE ANALYSTS SINCE WE CAN'T SEE HONEST BALANCE SHEETS!"

He was kind enough to send me a copy of the full report which I have edited to remove his email address and phone number (at his request), but which is otherwise reprinted here with his permission. You are urged to read the report in full and draw your own conclusions about whether the market performrating was reasonable or not. Links are at the bottom of this post. There apparently is one word he can legitimately complain about in my original ticker - the word "PUT". In fact, he maintained a "Market Perform" rating on the 11th of March; the upgrade to Market Perform from SELL appears to have occurred in February.

You can find an archived copy of that story here. It says among other things, in reference to Bear and Lehman:

"He said private equity may once again be able to fund activities in the high yield markets, while adding that credit derivatives markets were unlikely to go lower, and that the mortgage business may actually be quite strong this year.

New York-based Lehman will likely recover faster than its peers due to the expected strength in mortgages, Bove said."

Ok, I apologize for the error in not noting that the actual upgrade apparently came a month earlier, not that I think its material, but when you're wrong, you admit you're wrong. Mr. Bove, of course, didn't bother to mention when the rating was issued by him during our phone call, nor that when he issued the rating the price of the stock was even HIGHER (by nearly $20!) than it was in March when the rating was "maintained" (even though he claims it really wasn't if you read the narrative.) Now let's get to the meat of the matter and why I raised a stink about it in The Ticker - the rating. Dick claims that "anyone who read the report in full would see that I had told them to stay away from the stock."

After reading the report in full, I agree - the stock, by the narrative of the report, is indeed a sell - albiet a sell $20, or 25% of your money, too late!

But here's the problem - the report clearly cuts the price target from $90 to $45 (a 50% haircut!) and further is a reduction of 25$ (from $59 to $45) from the closing price on the day the report was issued.

The report is intended only for institutional clients who pay his firm, but it, like the report yesterday, was picked up and widely quoted in the media. Take a look at the second page of that report, directly above Mr. Bove's certification, under the definition of "Market Perform":

"Common stock is expected to perform with the market plus or minus five percentage points."

Since I took the liberty of excerpting so much, I urge all who are interested in this story to read Karl Deningers full post on his page - Dick Bove, Bear Stearns, And Controversey. In regards to me, let's contrast my opinions of Lehman and Bear in January of 2008, as opposed to Dick's - Is this the Breaking of the Bear?

Bear Stearns is in Real trouble

Bear Stearns will soon be, if not already, in a fight for its life. It is beset with the possibility of a criminal indictment (no Wall Street firm has ever survived a criminal indictment), additional civil litigation, and client defection and alienation. Despite all of these, the biggest issues don't seem all that prevalent in the media though. Bear Stearns is in a real financial bind due to the assets that it specialized in, and it is not in it by itself, either. For some reason, the Street consistently underestimates the severity of this real estate crash. If you look throughout my blog, it appears as if I have an outstanding track record. I would love to take the credit as superior intelligence, but the reality of the matter is that I just respect the severity of the current housing downturn - something that it appears many analysts, pundits, speculators, and investors have yet to do with aplomb. With a primary value driver linked to the biggest drag on the US economy for the last century or so, Bear Stearn's excessive reliance on highly "modeled" and real asset/mortgage backed products in its portfolio may potentially be its undoing. This is exacerbated significantly by leverage, lack of transparency, and products that are relatively illiquid, even when the mortgage days were good...

Book Value, Schmook Value – How Marking to Market Will Break the Bear’s Back

Okay, I’ll admit it. I watch CNBC. Now that I am out of the confessional, I can say that when I do watch it I hear a lot of perma-bulls stating that this and that stock is cheap because it is trading at or below its book value. They then go on to quote the historical significance of this event, yada, yada, yada. This is then picked up by a bunch of other individual investors, media pundits and other “professionals,” and it appears that rampant buying ensues. I don’t know how much of it is momentum trading versus actual investors really believing they are buying on the fundamentals, but the buying pressure is certainly there. They then lose their money as the stock they thought was cheap, actually gets a lot cheaper, bringing their investment down the crapper with it. What happened in this scenario? These investors bought accounting numbers instead of true economic book value...

Level 2 and Level 3 Assets – Model Risk

Model risk, or the risk of the bank living in a spreadsheet in lieu of the market, has already reared its head in the summer of ’07 with the blow up of two of BSC’s hedge funds, which have left them in litigation with their own customers. Basically, many of the assets of the fund were levered highly, and valued based upon modeled cash flows from assets, and not from the actual tradable value of the assets. This is fine, until you need to liquidate by selling assets. As luck would have it, they found no market they felt was acceptable and were forced to market value down significantly, approaching zero. It has also manifested itself more recently in the recent announcement that they will be moving at least 7 billion dollars to the level three (the most BullSh1+) category. Bear Stearns has recently announced another hedge fund blow up, which doledout significant losses to investors and is attempting liquidation. For my laymen’s plain English take on level 1, 2, and 3 asset accounting, see the Banks, Brokers and Bullsh|+series (Banks, Brokers, & Bullsh1+ part 1 for model risk,).

Level 3 Assets at 231% of Total Equity; Amongst the Highest on Wall Street

Weighted average price (US$)
Methodologies Weight assigned Fair Price Weighted average price
Fair price using P/Adj. BV approach 50.00% 33.84 16.92
Fair price using P/E approach 50.00% 39.00 19.50
Weighted average fair price     36.42
Current price     87.03
Upside from current levels (US$)     -58.2%

 

The book value numbers are after our economic marking and adjustments, of course. The “E” portion of the P/E ration is quite conservative, since the we built model incorporated BSC doing much better during the next 4 fiscal quarters than their peers are reporting for this quarter, and in my opinion BSC will not only fail to match their peers, but underperform due to the loss of their primary value drivers – mortgage derivative and related fixed income products – not to mention their asset management, legal, and litigation distractions as well as client and talent retention issues.

Am I right about the Bear?

Despite the Bear Stearns negative developments, and my opinion of its value, Bear Stearns has managed to find investors as was mentioned earlier in the insider transaction section. These are accomplished and wealthy investors to boot. My concern is that so many astute, accomplished and economically powerful investors have failed to realize and fully appreciate the depth and breadth of the current real asset recession, burst bubble, and quite possibly asset depression we have recently entered. This has destroyed the value of many bottom fishing value investors, both intitutional and retail.

image018.gif

And this is a summmary of my takes on Lehman Brothers from a similar period:

(February through May 2008): Is Lehman really a lemming in disguise? Thursday, February 21st, 2008 | Web chatter on Lehman Brothers Sunday, March 16th, 2008 (It would appear that Lehman’s hedges are paying off for them. The have the most CMBS and RMBS as a percent of tangible equity on the street following BSC. The question is, “Can they monetize those hedges?”. I’m curious to see how the options on Lehman will be priced tomorrow. I really don’t have enough. Goes to show you how stingy I am. I bought them before Lehman was on anybody’s radar and I was still to cheap to gorge. Now, all of the alarms have sounded and I’ll have to pay up to participate or go in short. There is too much attention focused on Lehman right now. ) | I just got this email on Lehman from my clearing desk Monday, March 17th, 2008 by Reggie Middleton | Lehman stock, rumors and anti-rumors that support the rumors Friday, March 28th, 2008 | May 2008

Now that we've established a small base of potential credibility when it comes to bank failure, back to today and Dick's proclamations on CNBC, let's start with Bank of America, who Dick says won't be affected by European malaise. This is Reggie's take...

Then there's Goldman Sachs, the bank where Reggie is just so loved...

After all, I'm sure there'll be no volatility in the markets if Europe blows up. Then again, even if there is volatility in the markets, Goldman's prop desk can handle it, right? I sure hope you guys don't think I'm being a Dick, do you?

What Was That I Heard About Squids Raising Capital Because They Can't Trade? Well, you guys know where I stand on this, and I have warned you ad nauseum...the Squid Can't Trade!

 

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After all, eventually someone must query, So, When Does 3+5=4? When You Aggregate A Bunch Of Risky Banks & Then Pretend That You Didn't?

I'm Hunting Big Game Today: The Squid On A Spear Tip

Summary: This is the first in a series of articles to be released this weekend concerning Goldman Sachs, the Squid! In this introduction (for those who do not regularly follow me) I demonstrate how the market, the sell side, and most investors are missing one of the biggest bastions of risk in the US investment banking industry. I will also...

Hunting the Squid, Part2: Since When Is Enough Derivative Exposure To Blow Up The World Something To Be Ignored?

Welcome to part two of my series on Hunting the Squid, the overvaluation and under-appreciation of the risks that is Goldman Sachs. Since this highly analytical, but poignant diatribe covers a lot of material, it's imperative that those who have not done so review part 1 of this series, I'm Hunting Big Game Today:The Squid On The Spear Tip, Part...

Hunting the Squid Part 3: Reggie Middleton Serves Up Fried Calamari From Raw Squid

For those who don't subscribe to BoomBustblog, or haven't read I'm Hunting Big Game Today:The Squid On The Spear Tip, Part 1 & Introduction and Hunting the Squid, Part2: Since When Is Enough Derivative Exposure To Blow Up The World Something To Be Ignored?, not only have you missed out on some unique artwork, you've potentially missed out on 300%...

Hunting the Squid, part 4: So, What Else Can Go Wrong With Goldman Sachs? Plenty!

Yes, this more of the hardest hitting investment banking research available focusing on Goldman Sachs (the Squid), but before you go on, be sure you have read parts 1.2. and 3:  I'm Hunting Big Game Today:The Squid On A Spear Tip, Part 1 & Introduction Hunting the Squid, Part2: Since When Is Enough Derivative Exposure To Blow Up The World Something To...

Hunting the Squid, Part 5: Sometimes Your Local Superhero Doesn't Look Like What They Show You In The Movies

On to the next Banque de Dick... You'd think with Dexia in the news, one would know to either stay clear of JP Morgan or at least subscribe to the BoomBust, eh? CNBC reports today (as highlighted in the introductory graphic) France, Belgium Wrangle About Dexia Deal: Reports. Why is this important? Well, look at why Dexia's in trouble in the first place. In the (must read) post Dexia Sets A $5.1bn Provision For Loss On Trying To Sell The Same Residential Real Estate Assets Upon Which JP Morgan Has Slashed Provisions 83% to $1.2bn from $7.0bn you will find..

...Similarly, many sell-side researchers award stocks “buy” or “overweight” ratings even as their internal asset-management units unload shares, presenting a conflict of interest and ethical dilemma. Goldman’s most famous front-runs to date were the Abacus transactions, through which the bank allegedly postured for high ratings for its mortgage-backed CDOs, sold them to clients and then shorted them.

According to research from the Street.com, Goldman put a Conviction Buy Recommendation on JP Morgan Chase shares and issued it to their clients, and then sold 4,200,009 shares of JPMorgan Chase. At an average of $45/share,  that means that Goldman had a lack of conviction in its own "Conviction Buy" recommendation to the tune of $189,000,405. I'd hate to see what the company would do if they recommended clients sell, or worst yet short sell, stock. Oh yeah! We already know, don't we.

Bloomberg reports: Dexia Takes 3.6 Billion-Euro Charge on Asset Sales

That charge taken by Dexia was more than necessary, and most likely not nearly enough. But wait a minute, why did JP Morgan do the exact opposite regarding the exact same asset class?

Do you remember my recent missive "There’s Something Fishy at the House of Morgan"? Well, in it I queried how it was that JP Morgan can continuously pull risk provisions and reserves to pad quarterly accounting earnings at time when I not only made clear that we are in a real estate depression but the facts actually played out the same. As excerpted from the aforementioned article:

I invite all to peruse the mainstream financial media and sell side Wall Street's take on JP Morgan's Q1 earnings before reading through my take. Pray thee tell me, why is there such a distinct difference? Below are excerpts from the our review of JP Morgan's Q1 results, available to paying subscribers (including valuation and scenario analysis): File Icon JPM Q1 2011 Review & Analysis.

'Nuff said! Let's move over to Morgan Stanley... The Truth Is Revealed About The Riskiest Bank On The Street - What Does That Say About The Newest Bank To Carry That Title? You know, I'm still quite bearish on Asian, European and American banks. Just look at the facts as they're laid before you...

There's another headline with Cramer's opinion on RIMM, which brings me to mind of all of the flack that I got when I said RIMM was bust as it traded in teh 60's and 70's (currently quoted at about $17). See As Forecast Last Year and Clearly Demonstrated This Year, Research in Motion's Problems Are Far From Over:

Research in Motion has been one of the most successful tech shorts of this blog's history (thus far). We first recommended a short last year and reiterated it in the fist quarter of this year. Reference:

    1. BoomBustBlog Research Performs a RIM Job!

    2. BoomBustBlog's Fundamental/Forensic Analysis of Research in Motion Has Returned 2x-3x Original Investment This Year!!

This is a snapshot of RIMM as of the writing of this article...

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As you can see, the results have been spectacular, particular if well timed puts have been put to use. In January I posted:

I don't want to pick on just the Dicks on Wall Street. I'm willing to challenge the entire sell side as a whole. I hit hard...

We believe Reggie Middleton and his team at the BoomBust bests ALL of Wall Street's sell side research: Did Reggie Middleton, a Blogger at BoomBustBlog, Best Wall Streets Best of the Best?

 Feel free to subsrcibe to BoomBustBlog or follow me via the following channels...

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Published in BoomBustBlog

20111005_235005This is the BoomBustBlog view of the "Occupy Wall Street" protests, the view that you just won't get through the MSM... It's ironic that the police came out in force to protect the institutions whose massive bonus's were derived, in large part, from raping and pillaging professional sheeple pools such as police pension funds. That's the sound of the beast...

Here's some more evidence of the risks of journalism when cops are out to defend those who pillage their pensions...

It appears as if I may have went over the head of a few skeptical readers with the "rape the police pension" bit, so here's an indepth tutorial of how it works for those so inclined to learn...

The Conundrum of Commercial Real Estate Stocks: In a CRE "Near Depression", Why Are REIT Shares Still So High and Which Ones to Short?

Key excerpts... 

 

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Let’s take a look at another big bonus development exercise, marketing push they made into residential MBS a few years ago…

Apathy and the need to masochistally follow name brand investors is what enables this malarchy, and is what has allowed CRE prices to be artificially elevated this high for this long. Believe you me, reality will reassert itself and will do so in quite the destructive fashion. Again, For Those Who Chose Not To Heed My Warning About Buying Products From Name Brand Wall Street Banks, and “Blog vs. Broker, whom do you trust!”

Believe it or not, very few institutional investors are interested in seeing the mechanics of how they have been bilked to fund Wall Street bonuses. I have been very generous with the CRE analysis on BoomBustBlog, but there have been relatively few takers for custom analysis. For those institutional investors who actually care about making money, or at least not losing 91% of it, I suggest you go through the public version of the model designed to create the analysis above. You can download it here: Real estate fund illustration & Interactive model Real estate fund illustration & Interactive model 2009-12-23 12:54:21 174.50 Kb. For those with even more interest, you should download our 2010 CRE outlook: CRE 2010 Overview CRE 2010 Overview 2009-12-16 07:52:36 2.85 Mb and our CRE consulting capabilities statement: CRE Consulting Capabilities CRE Consulting Capabilities 2009-12-17 14:17:01 655.48 Kb. I must say, any client of mine would have been very hard pressed to lose 91% of their money in a Goldman or Morgan Stanley fund.

Published in BoomBustBlog
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