Shah Gilani Archives - Page 4 of 18 - Money Morning - Only the News You Can Profit From
The Facebook IPO Facts: The Good, The Bad and The Ugly
Face it, you want it. It seems that everyone wants a piece of the Facebook IPO.
But, can you handle the truth? Will the hyped sensationalism be a boon or a boondoggle?
I'm not going to tell you what to do, whether you should buy Facebook sooner rather than later. That's up to you.
However, I will tell you that I won't be buying it right away, but, I will be buying it if…
First though, here's the good the bad and the ugly truth about the company, the IPO and owning "FB."
The Good News About the Facebook IPO
The good news is overwhelming if you're Mark Zuckerberg, any of the company's founders, executives, or venture capital backers, many of whom own Facebook stock (Nasdaq: FB) at a dollar a share.
So far, the target range the stock is expected to be priced at–which was originally $28-$35/share– has been raised to between $34-$38.
And it could very well go higher before tonight's pricing deadline. The amount of shares to be floated is being raised too.
That's all good news for the insiders, the underwriters and the company itself.
FB is causing its own IPO hype, partly because it will be the largest IPO in U.S. history, in terms of the value it will put on the company, which will likely approach $100 billion. However, Visa in 2008 and GM in 2010 will have raised more money on their IPO debuts. (I know, calling GM's IPO a debut is strange to me too.)
Facebook will raise at least $13 billion (at the lowest end of the price and share offering range) and bank some $9 billion in cash on its balance sheet. That's good news.
But better than that, the company will now have a huge hoard of stock as currency to use to buy up companies and technology to advance its master of the social media universe status.
Mobile Wallet Technology: The New Barbarians are at the Gate
The big brand credit card issuers: American Express, MasterCard, Visa, and Discover Card, along with every other card issuer and wannabe credit extension intermediary are all already into the mobile wallet space.
Their offerings vary and competition between them will be as brutal as it always has been. And that's good for consumers.
Creating choices for consumers to drive business will lead to more innovation and more services offered at more competitive prices. At least, that's the way the free market is supposed to work.
But, traditional credit card issuers that are forcing banks to compete to offer credit to card borrowers, aren't the "disintermediators" I talked about in Part One.
They help spread banking relationships across the spectrum, they do not remove banks from the equation. And because banks are all in the present equation, pricing pressures aren't prevalent and fees and costs remain stubbornly high.
But as you'll see, that's about to change.
The Greater Fear for the Banks
What banks fear most in the burgeoning mobile wallet world are New Barbarians breaking down the gates that traditionally walled off banks from meaningful interlopers.
The biggest, baddest New Barbarians at the gate are some of the biggest names in the Internet world, the social media world, and the telecom world.
If you want to make a fortune on the mobile wallet future the giant players and Barbarian disintermediators to watch and invest in include: Google, Yahoo (yes, Yahoo), Microsoft (believe it or not), Facebook (when it goes public), Nokia, Research in Motion (yes, I am advocating buying Nokia and RIMM), Apple, Verizon, and Vodafone.
There will be other giants worth buying, but until the ground shakes from their emergence, these giants have a giant head start in the mobile wallet world of the future, starting now.
Of course, keep in mind that the scope of this series is intentionally broad.
So, it's not the place to give specific reasons to buy specific companies. My purpose is to explain to readers the extraordinary opportunities inherent in the mobile wallet future.
But, if you want to know why these specific companies will be huge winners in mobile transactions and what they are doing to warrant their own exceptional futures, as well as when you should buy them, take heart. Keep reading Money Morning.
As it takes shape I will follow this report with specific recommendations accompanied by all the reasons and metrics you'll need to make informed investment decisions.
In the meantime, here's why these businesses are primed to rake in profits on the digital wallet phenomenon.
The Gloss is Coming Off the Eurozone
Europe, Europe, Europe…
I know, you're sick of hearing about problems in the Eurozone.
But the problem with Europe is that it won't go away. And if it does go away, we'll have even bigger problems. What a mess.
Of course, I'm talking about the Euro-currency zone and the European Union, not Europe itself.
I love Europe. I love every country in Europe. I love the different cultures. I love the different languages. I love the different societal models. I love the history of Europe.
And no doubt all the Europeans love all the same things about their Europe – except maybe some of their history.
But even more than loving Europe, Europeans love their own countries. Why? Because they have different cultures, languages, societal models, and differing views of their history. Vive la différence!
So, whose bright idea was it to gloss over (with shiny promises and, later, a shiny new currency) thousands of years of differences and shove all Europeans into a funnel in the hopes that they'd all come out the other end as one homogeneous mass of humanity?
Oh, that would be the bankers and financiers who wanted a United States of Europe so that the free flow of goods and services payable with a common currency would make everyone better off, and make themselves better, better off, by a lot of betters.
And now, what a surprise! There are differences all across Europe about, well, Europe and what it has become and where it has to go to get out of the mess it's created for itself.
How that's going to end is playing out right before our eyes.
The JPMorgan (NYSE: JPM) Losses: Here’s What Happened
Yesterday's announcement by JPMorgan Chase & Co. (NYSE: JPM) that it lost $2 billion on a "hedge" position is not only surprising, it's frightening.
I'll try and make this short and easy to understand, but the truth is that it's complicated. If we have a decent idea about what happened (and I do), it's bad. And if it's a tip-of-the-iceberg thing (which I don't believe it is), it could be really, really bad.
Investors put on hedges all the time. In fact, in our investment services like the Capital Wave Forecast we put on essentially the same type of "economic" hedges that JPM CEO Jamie Dimon is saying blew up on them. The economic hedges we put on are essentially hedges against long positions we hold.
For example, if I see some potential danger ahead, then I recommend we buy some protection, like buying the VIX in anticipation of rising volatility, or buying puts on broad market indexes.
The broad protective measures we take are economic hedges because they are not specific hedges designed to hedge potential loss in any one position. For example, if we owned JPM stock and we wanted to hedge our position, we might buy puts on JPM, or sell calls, or employ another specific hedge against our long position.
Mobile Wallet Technology Will Make You Rich
Your future is calling on your mobile phone, and the ringtone sounds like a cash register.
The proliferation of affordable mobile phones has created a global paradigm shift that will give investors with vision innumerable investment opportunities.
As I discussed in an earlier article, you don't realize it but there's a fortune in your wallet right now. Mobile wallet technology will make you rich.
Let me explain.
Traditional wallets and purses are being replaced with smartphone "mobile wallets" that incorporate cameras, Internet connectivity, thousands of "apps" and increasingly, banking, credit and payment transaction technologies.
Knowing who the winners and losers will be in this world of tomorrow is the stuff investors' dreams are made of.
This report is the first in a series of four articles. Consider it your first reality check. Or better yet, your wake-up call.
From it you'll learn why the world is moving to mobile wallets, how we'll all get there, and when.
More importantly, you'll be primed for making investment decisions on hardware device makers, on network providers, and on what software solutions will be most in demand.
You'll be able to weigh the future of banks and banking, credit and debit card issuers, and their love-hate relationship with powerful non-bank commerce facilitators.
You'll be able to picture how some merchants will profit more than others, and what impact social media will have on commerce and payment schemes.
You'll understand what the singularly most important question is that hangs over our digital future: who will own, control and profit from the data that drives everything.
You will be able to glimpse what the big security issues will be and how to profit from them as well.
You will recognize who the giants are now, who are the up-and-coming giants, and who will be the likely giant killers.
You'll understand the importance of interoperability and what that means to creating economies of scale.
And you will be able to see how an evolving regulatory environment will change fortunes.
Above all, you will be tuned in and abreast of the changing dynamics and investment opportunities in this brave new world.
At its core, it is about change.
To continue reading, please click here…
The Views from Near and Far
There are always two ways (at least two ways) to look at everything, including the market. In fact, whether one looks at the market from near or far makes a big difference in what you see.
Like most complex equations with multiple inputs, synthesizing the different inputs is critical to what comes out on the other end of your equation.
In this case, I'm talking specifically about two inputs – the perspective from near and from far away.
And I am talking about how they affect one's view of what's happening in the market and where it's likely going to go next.
Thursday was a good example.
Early in the morning (in my travels), I saw that the Dow futures were up 82, and I thought, it could be a good day and we might finally tip the scales resting on the pivot point fulcrum we've been teetering on for a couple of weeks now.
As the morning rolled on, before the open, company after company reported earnings, and they all handily beat consensus estimates – some by huge margins.
From a distance, if that's all you saw, you'd be inclined to think, as I did, that the market was headed for a great day.
But that was just the far view…
Closer to the action (which I wasn't always seeing, because I was in transit), as one after another earnings report came out, again before the opening, the futures ticked down, lower and lower.
I didn't catch the open, so let's pretend I still don't know what happened at that moment.
The opening is important because sometimes it sets the tone for the day, especially if the futures are up big and the market opens up strong and rises steadily from there.
Of course, that's not always true, especially these days. But stay with me.
Later in the day, I'm walking past a TV monitor that has CNBC on, and I see the Dow down 116. That's a far view, again.
We ended up rallying towards the end of the day, and the Dow closed down only 68 points.
But again, that was the view from afar.
Sure, I see all that, and take the far view. But, I also take the near view.
Up close, earnings look great, and the U.S. looks like it's "basing" and laying the groundwork for reasonable growth.
All that is tentative, however, when we look closer.
Subprime Student Slaves: The Lowlife Trap of Higher Education
"And the strong to seem to get more
While the weak ones slave
Empty pockets don't ever make the grade
Mama may have, and Papa may have
But God bless the child that's got his own
That's got his own."
We can thank the late, great Billie Holiday for those lyrics. And we can thank our higher education system for giving "the child that don't his own"a chance to get some.
Some debt, that is.
Students, many of them adults looking to gain new skills, are being systematically ripped off and enslaved by schools and lenders, blinding them with hope about what a higher education can do for them while bilking them for billions in the process.
It's a dirty game, and a big one at that. You probably know, because you probably owe.
First, let me offer some insights on the market before I get to my indictments…
Why the Doom and Gloom?
So far, so good…as far as earnings season, that is. Three quarters of companies reporting, so far, have beaten Street expectations. And 81% have offered up better than expected revenue forecasts for the future.
So… why all the doom and gloom?
Turn Your Digital Wallet into a Money Machine
You don't realize it but there's a fortune in your wallet right now.
What? You don't see it? That's because you're looking in the wrong wallet.
Take out your cell phone. In your hand right now is your financial future if you want to get rich.
Your smartphone is about to become your new "digital wallet."
When it comes to your credit, your investments, your banking relationships, how you shop, how you are marketed to and how you pay for everything, your new digital wallet will be at the center of it all.
Understanding what kind of hardware your wallet takes, who delivers your digital services, and understanding your relationship to digital money will be the keys to making a bundle off of it all.
In fact, as the race to shape the future of e-commerce and e-payments develops, fortunes will be made by investing in the companies destined to be big winners in this fast-growing trend.
With that in mind, here's a snapshot of what's here now, where the trend is headed and how you can ride this phenomenal wave all the way to your own private beach.
The Rise of the Digital Wallet
First, you have to realize that you don't use a lot of cash-even though you think you do.
The truth is the whole world is using less and less cash.
On the low end, Swedes transact commerce in cash only 3% of the time. Europeans pay with cash 9% of the time. And Americans pay in cash only 7% of the time.
The rest of the time we're using credit cards, debit cards, prepaid cards, checks, coupons, the Internet, and increasingly, cellphones.
There are several reasons why we're using cash less.
The Housing Market's Biggest Hurdle
Forget about optimistic headlines on the housing market.
Whether it's record low mortgage rates, improvement in the Case-Shiller Index, higher housing starts, or any other report, the headlines don't tell the whole story – and the story matters.
The real story is that the housing bubble was inflated by cheap and abundant mortgage financing and a sustainable recovery is only possible if that story has a second chapter.
But, that's not happening.
In fact, structural changes in the mortgage industry are about to make buying a home loan a lot tougher than it has been in the last quarter century.
Let's start with the premise that no matter how cheap a house is, and no matter how low interest rates go, nobody is buying anything if they can't qualify for a mortgage.
Or, if lenders decide to charge too high a rate because they're either not constrained by competition or they can't offload the mortgages they underwrite, how can there be a housing recovery?
The Changing Landscape in Mortgage Finance
Let's look at what's happening in terms of buyer qualification standards, competition in the mortgage industry, and lenders' ability to package and offload mortgages.
Lenders have been consistently raising standards for borrowers. Long gone are the days of the famously named NINJA loans, as in: no-income, no-job, no-assets, no-problem.
The primary reason standards have risen is that buyers of securitized loans crammed with mortgages have "putback" rights that force mortgage lenders to buy them back.
Fannie Mae and Freddie Mac, who ultimately bought hundreds of billions of dollars of mortgage-backed securities, have been forcing lenders to buy-back billions of dollars of non-performing mortgages.
In 2011, Fannie and Freddie demanded $33 billion in mortgages be bought back. That was a 10% increase over what they putback to lenders in 2010.
Basically, the standards by which lenders were supposed to judge borrowers were overlooked or fraudulently misrepresented. Other factors, like faulty appraisals, are also a factor in accessing the covenants that lenders have to abide by when they sell mortgages.
I'll come back to higher borrower standards in a moment, but the standards issue flows immediately into what's happening on the competitive landscape today.
Big banks not only got heavily into the mortgage origination business during the boom, they also bought mortgages that were already underwritten from "correspondent" lenders.
Correspondent lenders have contractual relationships with bankers that allow them to sell the mortgages they make to the banks, thus freeing up correspondents' invested capital to underwrite more loans.
Correspondent lenders are not depository institutions.
They are usually private companies that have their own capital to make loans or borrow money through what's called a warehouse line of credit.
Here's how it works.