Facebook Reminds Me of Enron

Keith Fitz-Gerald

Editor's Note: This story was sent out to Keith's Total Wealth subscribers on Friday, July 27. To learn how you can receive all of Keith's Total Wealth research as soon as it's released, click here…

Facebook Inc.'s (Nasdaq: FB) stock has dropped more than 20.2% since Monday, with its plunge on Thursday marking the single-worst one-day drop for any stock in recorded U.S. market history. And, as I write, that’s at least a staggering $128+ billion buzzcut for shareholders and $16 billion for CEO Mark Zuckerberg personally.

Wall Street, of course, is falling all over itself, and I’d be laughing my asteroids off if the situation weren’t so predictable. The situation reminds me very much of Enron.

If you’re new to the financial markets or you don’t recall, here’s a quick primer.

Nearly 20 years ago, the company (Enron) was a Wall Street darling because of its ability to seemingly create profits out of thin air based on staggering energy trading profits. Executives were widely praised for their visionary leadership, ambition, and innovation. Fortune, in fact, named Enron “America’s Most Innovative Company” six years in a row from 1996 to 2001.

At the turn of the century, the company was processing nearly $350 billion in trades, and its stock had hit a peak of $90.75 a share per share on Aug. 23, 2000. Shares were worth $0.26 – no that’s not a typo; twenty-six cents each – when the company declared bankruptcy on Dec. 2, 2001.

Here’s what really stinks and why I’ve a monster case of déjà vu…

More than half of the 15 Wall Street analysts following Enron rated it a "buy" even after the company announced it was restating earnings years in arrears and after the company's stock had fallen from $84.87 to $4.14, according to CNN at the time.

Adding insult to injury, the stock dropped further from those levels to close at $0.61 per share on Wednesday, Nov. 28, 2001, and four analysts still rated the company a "buy," according to First Call.

The company was a smoke-and-mirrors operation fueled largely by FOMO – Fear Of Missing Out – and individual investors who couldn't be bothered to look beyond their own greed. Which ought to sound familiar today.

That's why I could only shake my head when I came across a headline the day after Facebook's drop on CNBC trumpeting "what every major Wall Street analyst had to say about Facebook's plummeting stock."

I warn you though… you better grab a stiff drink or Alka-Seltzer… or both. It's not pretty.

According to CNBC, here's how "every major Wall Street analyst" saw things heading into Facebook's announcement…

… J.P. Morgan – Overweight (a fancy way of saying "buy")

… Barclays – Overweight

… UBS – Downgrade to neutral from buy

… Bank of America – Buy

… Morgan Stanley – Overweight

… Goldman Sachs – Buy

… Deutsche Bank – Buy

… Nomura Instinet – Downgrade to neutral from buy

… Evercore ISI – Outperform (another $5 Wall Street term for "buy")

… Raymond James – Downgrade to outperform from strong buy

That's 10 "major" analysts who were bullish on Facebook ahead of earnings and 10 analysts who still cannot bring themselves to say "sell." Somehow, "here we go again" seems to sum things up.

At least UBS and Nomura had the guts to downgrade the stock, but after a 20% drop, "thanks a lot of nothing" is probably appropriate.

You, on the other hand, have enjoyed a very different experience.

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I am not beholden to Wall Street's conflicts, which means I can give you the best, most accurate analysis I can produce. I'm not hiding behind fancy ratings nor sequestered in an ivory tower.

I put "it" out there in public 100% of the time, and that's what makes Total Wealth such a great place to be and why, I suppose, we've got several million readers in the Total Wealth family as part of our larger publishing group, Money Map Press.

Last March, I said on FOX Business Network that the Cambridge Analytica data breach was Facebook's "Equifax Moment."  Host Stuart Varney had me repeat that several times because it ran so contrary to Wall Street's darling mentality.

At the same time, I advised paid subscribers in our sister service, the Money Map Report, to sell shares in Facebook and plow the profits into Alphabet Inc. (Nasdaq: GOOGL) and Amazon.com Inc. (Nasdaq: AMZN).

Anybody following along as directed had the opportunity to capture at least 67% on the former and is in the running for a whole lot more money given how the latter two companies continue to climb – and, at a fraction of the risk, I might add. Anybody trading more accelerated options plays is well ahead of the game.

In April, I mentioned that CEO Mark Zuckerberg had a "calculated naiveté" when it came to the way the company treated user data. I also voiced concerns about the opinion that he was the right guy for the job, the very same concerns shareholders are raising this week for the very same reasons.

After another privacy issue in June, wherein 14 million users' private posts were actually made public on the website, I told viewers, yet again, that the company's rise is a "false rally." That it will catch millions of investors by surprise when the time came to show earnings and prove themselves.

This Monday, as that moment drew near, I said explicitly to "avoid" the company during an appearance on "Varney & Co." and again on Wednesday – just hours prior to earnings ­– when I called Facebook a "bug in search of a windshield" on "Cavuto: Coast to Coast."

You know what happened next.

Before we go any further, let's be clear.

I am NOT telling you this to brag. I make plenty of mistakes, but the difference between what I do and what Wall Street's analysts tells you is very clear – I own up to them.

My research and your subscription depend on it.

My entire team and I have strict policies in place that explicitly prohibit us from trading against our subscribers – meaning you. Wall Street does that all the time, and they go to great lengths to keep that a nasty little secret.

I have no investment banking relationships to cloud my judgment. Wall Street firms make hundreds of millions – even billions of dollars – flogging stocks they've acquired for pennies as part of dubious public offerings, warrants, or special situation investments you couldn't access if you tried.

I receive no compensation whatsoever from the companies I recommend and never will. Wall Street makes billions recommending companies in exchange for favorable "ratings" that are supposedly independent. That guarantees that the firms engaged in this nefarious practice have still more access to the next public offerings and special allotments of shares for a fraction of what you'll pay for them.

Net net, Total Wealth is a great place to be because you make it that way – free of conflict and free to play the "A-Game" for maximum profits every single day with every single recommendation.

Speaking of which, let's continue.

Here's What I See Next for Facebook

Keith Fitz-Gerald

About the Author

Browse Keith's articles | View Keith's research services

Keith is a seasoned market analyst and professional trader with more than 37 years of global experience. He is one of very few experts to correctly see both the dot.bomb crisis and the ongoing financial crisis coming ahead of time - and one of even fewer to help millions of investors around the world successfully navigate them both. Forbes hailed him as a "Market Visionary." He is a regular on FOX Business News and Yahoo! Finance, and his observations have been featured in Bloomberg, The Wall Street Journal, WIRED, and MarketWatch. Keith previously led The Money Map Report, Money Map's flagship newsletter, as Chief Investment Strategist, from 20007 to 2020. Keith holds a BS in management and finance from Skidmore College and an MS in international finance (with a focus on Japanese business science) from Chaminade University. He regularly travels the world in search of investment opportunities others don't yet see or understand.

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