From InTrade, a look at the odds that Facebook closes above a given price.
For those unfamiliar with InTrade, each case is asking people to buy a contract that will pay off if the prediction is fulfilled. So basically, there’s a 99.8% chance that Facebook will close above $25.00.
The 50/50 mark is around $47.50 at the moment.
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Investors and analysts everywhere are warning of the fiscal cliff that is approaching at the end of 2012 that could significantly hit the American economy.
Unless Congress acts, more than $600 billion in tax and spending provisions will change at the end of the year. And this will impose fiscal restraint at a time when the U.S. economy is growing very gradually.
But what is the fiscal cliff? What impact could it have on the economy? What are the most likely scenarios? And which companies most exposed to government spending stand to take a hit?
See the rest of the story at Business Insider
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Earlier we reported on the ugly numbers behind the Philly Fed manufacturing report.
We’ve plucked out some charts to show how weak things were in some key categories of the economy.
See the rest of the story at Business Insider
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As you know, I am concerned about the valuation of Facebook’s stock, especially post-IPO.
I understand that Facebook is a great and tremendously exciting company that already has nearly a billion users and will soon have 2-3 billion users. And I understand that that could ultimately be worth a fortune.
But my point is this:
Facebook is already worth a fortune.
And Facebook’s current business simply does not support a valuation of $125 billion, or wherever the stock ends up trading after the IPO. (Some folks, like Paul Kedrosky, think the stock will close tomorrow at a valuation $150 billion. And that’s actually quite plausible, especially since a huge amount of the demand for Facebook stock is being driven by people who think it’s a great investment because they use it.)
So that means that investors who pay $125-$150 billion for Facebook today are counting on Facebook introducing new products that radically improve its business and profits.
For Facebook to actually be worth $125-$150 billion or more today, it will have to be worth, say, $300-$400 billion in a few years. Otherwise, the downside risk in ths stock simply isn’t worth taking. And to actually be worth $300-$400 billion in a few years, Facebook will have to be earning about 10X-20X as much money as it earned last year.
Why?
Because, someday, Facebook will stop being the market’s favorite “shiny new object” and will start being just another cool tech company. And when that happens, investors will probably place the same multiple on Facebook’s earnings that they place on other cool tech companies, like Apple and Google.
Apple is trading at 13X last year’s earnings.
Google is trading at 19X last year’s earnings.
Facebook will soon be trading at 100X-150X last year’s earnings.
It’s hard to be sure of anything when predicting the future, but here’s something that seems highly probable. Someday, Facebook will trade at a multiple that is similar to where Apple and Google are trading today (15X-20X earnings). The only question is “when?”
If Facebook trades at that multiple in a few years, it will have to earn $20 billion of profit to justify a $300-$400 billion valuation. That’s 20-times the amount Facebook earned last year. It’s also more than twice as much as Google earned last year. And Google is still 10X Facebook’s size. And it’s product–ads targeted to those who have explicitly expressed interest in buying the product–is arguably profoundly more valuable than Facebook’s ever will be.
(Facebook’s ad space is social. It’s like hanging ads on the wall of a party. Even if the people at the party are your exact target customers, that doesn’t mean they’re going to be receptive to your ads.)
So that’s a big hill to climb.
But maybe Facebook will be the first company in history to trade at 30X-60X earnings forever. Or maybe Facebook’s earnings will grow so astonishingly fast that Facebook will actually earn $20 billion in a few years. Anything is possible.
In that vein, I just spoke to an industry insider who has seen Facebook’s forthcoming ad products and expressed enormous enthusiasm about Facebook and Facebook’s as-yet-unveiled product line.
Facebook’s product development pipeline is amazing, this insider said. And “business is booming.“
The insider thinks Facebok’s business is going to “pop” soon, which I interpreted as “reaccelerate.”
The insider dismissed concerns about Facebook’s ads being ineffective and the transition to mobile and so forth.
In short, the insider thinks that Facebook is just getting started.
And that’s certainly the bullish thesis.
And Facebook is indeed a great company that will grow a lot and, eventually, could justify today’s valuation.
But investors should also understand just well Facebook will have to do in the future to justify its current valuation.
If you can’t map out a way for Facebook to get to, say, $10 billion in earnings in 5 years–which would justify a valuation of about $200 billion–there’s just no way you should be comfortable investing at a $125 billion – $150 billion valuation today.
There’s a price for everything. And there’s a price at which Facebook would be an absolutely screaming back-up-the-truck “buy.” But the price you’re going to have to pay for Facebook tomorrow is likely to be much, much higher.
SEE ALSO: DEAR GIDDY FACEBOOK BUYERS: Are We Looking At The Same Numbers?
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The Economist is at it again, this time poking fun at the deposit exodus from Greek banks.
(h/t @LemaSabachthani)
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After that weak Philly Fed report, the market instantly falls.
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Goldman Sachs lost the Facebook IPO, but that doesn’t mean it’s not going to make boatloads of cash from the offering.
On share sales alone, Goldman Sachs will bring in $1 billion, Christine Harper at Bloomberg reports. Last year Goldman bought shares of Facebook at $50 billion valuation, which means it will double its money.
And it’s only selling 44% of its stake. Down the road it can make even more money in share sales.
Goldman will bring in additional revenue by managing the underwriting of the IPO, and down the line, hopefully winning some business from the new millionaires coming out of Facebook.
So, even when Goldman loses, it still wins. It does not suck to be the Vampire Squid.
Don’t Miss: The Inside Story Of How Goldman Sachs Blew The Facebook IPO
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JCPenney stumbled in the first quarter of its turnaround attempt under former Apple retail chief Ron Johnson, and things aren’t going to change any time soon, according to a note from UBS.
UBS says there’s little reason for traffic to improve significantly in the near-term.
Why not? Well, JCPenney’s traffic took a beating in the first quarter, plummeting 10 percent. Marketing initiatives have been lackluster so far, and the big shop-in-shop changes are still three months away.
Johnson was adamant in his defense of the strategy to rid the chain of coupons in his Q1 presentation this week, and said that he’s now altering his marketing strategy to help wean people off of them. Aside from that, not much will be changing at JCPenney until those shop-in-shop changes occur.
UBS also says that JCPenney has the opportunity to defend by amping up its “Month Long Value” offering to kick sales up a bit.
Still, everything hinges upon getting people to buy into the “Everyday Value” idea and ditch their beloved coupons.
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UPDATE:
Manufacturing in the country’s mid-Atlantic region fell from from its rapid pace of growth in May, new data out of the Philadelphia Federal Reserve shows.
The headline business activity index declined to -5.8 during the month, from a reading of 8.5 a month earlier.
Sub-indexes measuring new orders, prices received, and delivery time all fell into negative territory.
Perhaps the worst reading in the report came in the employment sub-sector, declining from a positive 17.9 to -1.3. Employment had remained positive for eight consecutive months before today’s report.
Below, key output from the report.
ORIGINAL:
The Federal Reserve Bank of Philadelphia is minutes away from releasing its monthly survey of business activity, a key gauge of conditions in the mid-Atlantic region.
Economists polled by Bloomberg forecast the index will increase this May, gaining 150 basis points to 10. If that holds, it would represent a healthy outlook for businesses activity.
The Federal Reserve Bank’s Third District covers eastern Pennsylvania, southern New Jersey, and Delaware.
The announcement is scheduled for 10:00 a.m. EST.
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Morgan Stanley Smith Barney is out with its latest Asset Allocation and Strategy Weekly report to its clients.
Adam Parker, Morgan’s top U.S. equity strategist, might be the most bearish name on Wall Strategist. Parker is calling for the S&P 500 to fall to 1,167 by year end.
So, it’s no surprise that the firm’s list of reasons to be bullish/bearish on stocks tilts bearish.
But they do have some positive things to say about stocks as well.
Equity Bullish Factors
Equity Bearish Factors
The ongoing deleveraging in the major developed-market (DM) economies will take several years to run its course; historically, the byproduct of this has been sluggish growth for a long time.
Is Europe the next Japan? The continent is at risk of slipping into a “lost decade” triggered by lack of leadership and institutional inflexibility at the European Central Bank and elsewhere.
Global growth is overwhelmingly dependent on EM policymakers. Many are not as seasoned as DM policymakers.
Sovereign debt burdens are too high in several DM countries. Hard political choices need to be made or currency values are at risk.
Falling US home prices—the first time since the Depression— continue to be a drag on US consumption.
The benchmark 10-year US Treasury yield remains near a multi- decade low. As it rises in the years ahead, it could be a headwind for expansion of P/E multiples.
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