In Your Face (book)

On Friday, the most  exciting initial public offering EVER is scheduled to take place.  In case you’ve been locked in Al Capone’s vault and missed the news, Facebook is going public.

The IPO is planned to go off between $35 – $38 per share.  At the high end, this values the enterprise at around $104 billion.  Instantly, the blue-framed website that gives everyone a podium from which to spew “interesting” commentary will be the 9th largest technology company in the world.

Now let’s take a minute to compare IPO Facebook with Apple.  Apple had 2011 revenues of $108.25 Billion.  Facebook’s 2011 revenues weighed in at $3.7 Billion.  Apple closed today with a market cap of $511 billion.  As I mentioned above, IPO Facebook will launch with a likely market cap of $104 Billion.

So…  Facebook, with revenues that are 3.4% of Apple’s will have a market cap slightly larger than 20% of Apple’s.  With any kind of an opening day trading pop, it’s not inconceivable that Facebook ends the day being worth 1/3 of Apple.  Oh yeah.  Apple also has over $100 billion in cash.  Facebook has about $15 Billion.

What does that all mean from an investment perspective?

I’m not really sure.  I’ve been kind of busy hitting the “Like” button on videos of dogs on unicycles, changing my profile picture, sending out Friend Requests and working on Farmville.  There are only so many hours in the day.

Friday’s Random Thoughts

Re-visiting the Robots

Yesterday I tweeted (or twittered, or whatever) an article from the Financial Times titled “Real Investors Eclipsed by Fast Trading.”  It was later pointed out to me (by both or our followers!) that the article could only be opened by those who were registered with the Financial Times.  So, in order to right that wrong, I thought I’d put a couple of bullet points from the article in the blog:

  • Trading by “real” investors (defined as buy and sell orders from mutual funds, hedge funds, pensions and brokerages) is taking up the smallest share of US stock market volumes in over a decade.  Source:  Morgan Stanley’s Quantitative and Derivative Strategies group.
  • “Real money” trades account for only 16% of buying volume and 13% of selling volume
  • The takeaway, by the authors of the study, is this:  “Matching of ‘real’ buyers and sellers is more challenging in a market where there are fewer of them.”

 Let’s just hope the bots don’t begin to gain a sense of self.  From what I’ve heard, that would be bad.


I really don’t have anything to say about Apple.  It’s just that there is a new law stating that if you’re going to publish, speak, or give hand signals regarding anything about investing, you have to mention Apple.  I think this puts me in compliance.


With the European crisis taking up the bulk of the international headlines, the Bank of Japan has quietly decided to add another 5 – 10 trillion Yen to their asset-purchasing program.  This is in addition to the 65 trillion Yen already in the program.  With this round of quantitative easing, the BOJ re-asserts itself as the central bank with the biggest balance sheet as a percentage of GDP in the world.  Congratulations guys!

With the horrible demographics in Japan, growing their way out of the crisis seems unlikely.  This is something worth watching.


  • Spain’s unemployment rate is now at 24.4%.
  • S&P has cut Spain’s credit rating by two notches on Thursday, setting it at BBB+
  • Spain’s foreign minister Jose’ Garcia-Margallo says, “Spain is undergoing a crisis of enormous proportions.”
  • In France, it appears that socialist Presidential candidate Francois Hollande has a pretty good shot at winning the run-off elections next Sunday.    His platform includes dumping the austerity program, increasing government spending and not ratifying the new European fiscal treaty.  That should do wonders in reducing France’s debt strain.
  • For the second time in two months, Romania’s government has fallen.  This morning, in the wake of the continued collapse of their currency (leu), a vote of no confidence meant that Mihai Ungureanu was getting the boot.  Austerity takes another victim.  As a result, the IMF has decided to not send Romania it’s expected 5 billion Euro aid package until a new government is in place.
  • In the Netherlands, the government quit on April 23, only to pull a “Never Mind” later in the week.  The reason…  the opposition Freedom Party refused to support the proposed austerity and tax hike program.  Later, they agreed to it and are now back in business.  I guess for a few days, you could say they were “In Dutch.”

United States

  • So far in this earnings season, 200 of the S&P 500 companies have reported.  75% have beaten their estimates, 10% have matched, and 15% have missed.
  • Across the S&P 500, the average earnings surprise was +12.1% (just for yucks, that number is 7.5% if you take out Apple).
  •  Apple.
  • Year-to-date, the S&P 500 is up over 11%

While the global scene certainly looks glum, the US remains profitable and growing at an ever-so-slight rate (this morning’s GDP came in at 2.2% versus and expected 2.5%).  $7 trillion in newly created global money, the Bernanke Put, and Apple seem to be buoying the US stock market.

It makes me wonder if we may just be the prettiest horse in the glue factory.


I usually reserve the tongue-in-cheek blog posts for Fridays.  Most people are usually doing interesting things on Friday;  generally reducing the amount of people who read our attempts at wit.  As it is, tomorrow looks to be pretty busy here at Altair, so this week’s post arrives on a Thursday.  I apologize in advance.

Today’s theme:  Big Things that are Smaller than Apple.

Apple’s market capitalization has now surpassed 1/2 trillion USD.  Arguably, that’s pretty large.  What follows is a list we’ve compiled of things smaller than this tech juggernaut.

  • The Gross Domestic Products of: Switzerland, Poland, Sweden, Norway, Saudi Arabia, and Taiwan.  Upon hearing the news (honestly), Poland felt the need to respond by stating that GDP is only a measure of one year’s production.  That said, the country of Poland is actually worth more than Apple (I guess they used some kind of NPV calculation or discounted cash flow model).  So… “Take that” Apple.
  • Worldwide lottery sales
  • The entire US retail sector’s market cap
  • The value of all NFL franchises combined, then multiplied by 10
  • All the gold at the New York Fed (which happens to be the world’s largest holder of gold)
  • The entire US bank bailout multiplied by 1.25
  • The entire US meat industry
  • The total revenues of the global mobile phone market
  • 2010 US corporate tax receipts, multiplied by 2.5
  • The combined cost of the Space Shuttle Program plus the Apollo space program
  • Every home in Atlanta, GA…  combined

Yet, despite its size, there are still a handful of things larger than Apple:

  • Political rhetoric
  • Central bank hubris
  • Poland’s self-image
  • The monthly number of high frequency trading “orders” that are withdrawn without being executed
  • 6 months of US deficit spending
  • The number of Republican primary debates held in 2011-2012

Who knows, by next week Apple may be bigger than those.

While compiling a list like this, I can’t help but get nostalgic for the past decade.  Names like Cisco Systems and Applied Materials were the objects of similar comparison.  For the 200+ hedge funds now holding Apple, it’s been a great 2012-to-date.  Let’s hope that the story ends differently this time than it did last decade.


Confidence versus Consumption

As I was getting out of my car this morning and crossing the parking lot to my office, our landlord flagged me down.  Now, I’ve only seen this guy five or six times in my life, and each time the news wasn’t good.  “You’re office got flooded last night, ” “stop bringing your dog to work, ” and “don’t block the chiropractor’s reserved parking space” are the typical conversations he and I have had in the past.  Today, though, he seemed concerned about me.  Genuinely concerned.

“How are you guys holding up in the market these days?  Still making money?  I heard a lot of hedge funds are losing a lot of money this year.”  I assured him that we’re doing just fine and thanked him for asking.

As I continued across the parking lot it occurred to me that he might…  just might… not really have a humanitarian concern about our financial well-being.  Apart from our rent-paying ability, that is.

It must be tough out there.  Even tougher than I imagined.  What difficult economic times are these when landlords have to stand in the parking lot to gauge the rent-paying ability of their lessees!

About two hours later, the Michigan Sentiment of Consumer Confidence numbers were released.  Looking at the report, I better understood my landlord’s angst.  The index was expected to print at 62.5.  It came in at 54.9.  To give that number some context, the index hasn’t been that low since the third year of Jimmy Carter’s term.  With consumer confidence this low, angst is just part of the landscape.

What strikes me as odd about the Consumer Confidence number is that it came only 90 minutes after retail sales numbers were released.  Overall, retail sales were in line, and retail sales ex-autos beat expectations.  How is it that consumers feel as badly as they did way back when mortgage rates were at 12% (1980), but are spending their money faster than expected?

Maybe the answer lies in how Apple and Exxon Mobil keep trading places as the largest company in the world.  Despite high unemployment and lack of overall confidence, every consumer needs an IPhone, an IPad, and gasoline.  It seems that our economy has become bifurcated.  On one hand, high-end and fashion stores are doing quite well.  Look at Tiffany’s and Apple.  On the other hand, those selling necessities are holding there own (although I’ll concede even Wal-Mart is beginning to see declining traffic).  In the middle, the pain is being felt.  Restaurants are suffering as more people opt to eat in, for example.

Maybe it’s a reflection on how the middle class is disappearing in our country.  The rich shop at Tiffany’s and the poor eat at home.  Or, maybe it’s a reflection on shifting priorities.  “I have to have an IPad, so I’ll skip this month’s car payment.”  While we’re not in the business of making either political or sociological statements, I wonder about the investment implications.  It wouldn’t seem that these patterns could persist over long periods of time.  Can firms like Apple continue to pull discretionary income from an ever-more-cash-strapped consumer?  Can the rich continue to conspicuously consume as society becomes more polar in terms of wealth?

In addition to the usual macro factors we watch, the seemingly irrational spread forming between confidence and consumption has now been added to the mix.  The odds may be higher that consumption will come down to meet confidence rather than the other way around.