Facebook isn’t Google, it’s Mark Zuckerberg – excerpts from my interview with Abnormal Returns

Tadas Viskanta, the blogger behind Abnormal Returns, invited me to be a guest columnist this week to discuss Facebook on his website. Part I appears today and looks at how Facebook is and isn’t like high tech IPOs of the past. Here’s a brief excerpt:

AR: The Facebook deal is the first big game-changing IPO to come down the pike seemingly since Google. Given recent first quarter numbers how does Facebook compare to Google prior to their IPOs?

NM:  The big question people are now wrestling with is how is Facebook different from or similar to hot tech companies like Netscape, MySpace and Google.

What I find so interesting now is that when I first wrote the ebook, a lot of people asked how can you compare Facebook to Netscape and MySpace? They are too different, they said. But that perception changed overnight when Facebook revealed that for the first time ever, total revenues fell sequentially between the fourth quarter of 2011 and the first quarter of 2012. Boom! It was like a blizzard hit on a sunny day in July.

Suddenly everyone was whispering “Myspace.”

Read on here.

Credit markets signaling rough waters ahead

Barney Frank and Goldman Sachs to the rescue.

The Dow Jones Industrial Average and the S&P500 averted near disaster today all because those two wacky sidekicks of the financial world pulled a rabbit out of the hat.

The story goes that Goldman Sachs, the firm we love to hate, made a late-day comeback after Barney Frank said he’d snuff a provision killing derivatives trading at the nation’s banks in the new financial regulation bill. The Goldman rally helped the Dow to erase most of the 200+ plunge today; the S&P500 actually eked out a gain. Damn! You would think Greece, Korea, or rising jobless claims would at least get one of the major stock indexes on this side of the pond to break through critical support levels. I mean, the FTSE at least was able to drop through 5,000.

For the sake of the economy, I’d like to say that I’m relieved the market rallied back above 10,000 on the Dow — but I’m not. I was equally unimpressed when the index crossed the dix mille bournes back in October.

That’s because I prefer to keep a closer eye on the credit markets — especially when it comes to reading the tea leaves of the economy.

The credit markets are less cartoon-like than equities. But they are wicked. For the past month or so they have been heading into a slow-mo laughing fit: You thought the recovery would be smooth? Ho-o-Ho-o-Ha-a-a-a-h! The stock market should shrivel at the humiliation.

Some call the bond market denizens vigilantes — because they force everyone to think about rising deficits, higher taxes, growth, and inflation. Stocks have more individual “stories” attached: A great leader or product; a market niche or dominance. They can be long-running tales with apogees and deep valleys —  Apple or Worldcom. They inspire passions. Bond people are nerds. That’s how they get to be the leaders when its time for systemic upheaval. No one pays enough attention to their formulae and schemes. Interbank lending rates. Yawn. Credit default swaps. Where’s the remote, hon?  But credit people can be prescient story tellers. And here’s the story that I hear today :

Banks are becoming more suspicious of one another and are slowly jacking up the interest rates on the loans they extend to one another. Bloomberg reports that the London Interbank Offered Rate now stands at 0.536 percent, up from 0.510 percent, the highest since last July. Another key rate, called the Libor-OIS spread, is showing signs of strain in the banking system, edging up to 31.1 basis points from 28.4 basis points. After the Lehman bankruptcy, banks became so worried about the solvency of the entire system that the Libor-OIS spread jumped to 364 basis points, or 3.64%. (The spread measures the cost of 3-month Libor vs overnight swaps rates.)

Investors are seeking safety. Treasury securities are rallying hard as investors seek cover from the debt woes in Europe; the Korean imbroglio is just a bit more oil to the fire — not the thing itself.  The flight-to-safety didn’t happen overnight. It’s more than a month old (see chart below; click to enlarge). Indeed, Mike “Mish” Shedlock  says that this is a “solvency crisis” — not a liquidity crisis. The flash-crash of May 6 was a liquidity crisis in extremis. A solvency crisis can only be solved through a long-term economic recovery.

NB: Gold is hitting record highs as some doubt the safe-haven status of Treasurys as the US faces mounting debt and slow growth.

Yield curve flashing danger ahead

The junk bond market has turned tail as investors reconsider the “all is almost well” story. The Wall Street Journal (in an item so short I thought I was reading USA Today) reported that new offerings have slowed to $2.2 billion, a quarter of the weekly pace for March and April. Further, in the past month, yields on junk bonds have jumped by more than one third, rising 1.62 percentage points to 7.02 percentage points versus benchmark Treasurys. The Journal glumly notes: “That is the biggest reversal since the market began to climb back from its lows of December 2008, said Martin Fridson, of Fridson Investment Advisors.”

Mish notes on his blog that seven junk bond offerings have been scrapped. Ouch.

Bailing out Nantucket one estate at a time: a first person tale

This could have been mine.

On a winding road, down a white shell driveway, sits a rambling gray-shingled home with a view of the harbor, where beige lounge chairs ring an amoeba-shaped swimming pool and the living room is filled with pristinely white sofas, plumped, pillowed — ready for the next owners.

via New York Times, “Living with Less”

For a brief moment, I thought that one of those owners could end up being me and a consortium of family members I assembled to bid in an auction unusual not just by Nantucket standards — but by almost any standards: the seller must accept any bid, no matter how low.

But before I share my personal adventure in high-end vacation real estate I would like you to meet the owner of the property, a man the New York Times deemed exemplary of  its high-end recession era series “Living with Less:” Paul C. Steinfurth.

Steinfurth is a rather private Miami real estate executive with properties aplenty in Nantucket and the southeast: rental units, storage places, a beauty salon — nothing the NYTimes would typically bother writing about. But it’s a living. According to the Times account of hard times in Nantucket, Steinfurth bought the unwanted 5-bedroom home, known as The Second Glance, for $5.4 million in 2004, just as the real estate market was bubbling up.

But cyberspace reveals very little else about the well-tanned man staring back at you from the Times photo gallery. In fact, that’s what’s so striking: Steinfurth is pretty low key. He is not emblazoning his name on self-storage warehouses or any of the numerous real estate companies he owns. He travels below the gossip radar warranting nary a mention in the Times 2005 feature “Old Nantucket Warily Meets the New,” an exhaustive piece detailing the fault lines between New England blue bloods and the brash, much better-heeled newcomers like Google CEO Eric Schmidt and former Goldman Sachs investment banker Rick Sherlund.

Living With Less brings us back to the ocean-sprayed playground of the rich and hyper-rich, as the Times called its residents in 2005, and to the marketing genius of Grand Estates Auction, which is running the current sale of The Second Glance.

Once practically invisible, Steinfurth has suddenly become a selective publicity hound. In interviews with both the Times and Nantucket Independent, he maintains that he’s not suffering as such despite owning a property that has sat on the market for a year. No sweat marks on the white couches. He’s simply not all that interested in carrying costs for two homes on Nantucket and auction is the most expedient form of disposing of the property. In other words, the Steinfurths will not be spending the dog days of summer in Florida, a fact that doesn’t become clear until the very end of the Living With Less story when we learn that  they have bought a home for $7.8 million on Nantucket. The Second Glance, Steinfurth says, wasn’t big enough for him, his children and grandchildren.

Aha! I think. It is probably big enough for our clan; we don’t mind doubling up.

“Honey, our ship has come in!”

Blogger rigs Google to catch Goldman code seekers

Homeland Security, shame on you! Internet savvy blogger Cryptogon has rigged Google to catch cyberthiefs with their hands in the Goldman Sachs cookie jar. Seems the feds have been spinning the search wheel on the Goldman proprietary trading code illicitly uploaded to a server in Germany.

You would think Homeland Security might be busy trying to hunt down the hackers who recently infiltrated US government computers , fumes one commenter on the blog of Zero Hedge, which had picked up Cryptogon’s work.

For those of you just entering the story, Goldman is now starring in the role of victim after Sergey Aleynikov, a former employee, uploaded proprietary program trading code. Aleynikov says it was all a misunderstanding; he only intended to take open source software from his former firm before joining Teza Technologies of Chicago. He has been suspended from work at the high-frequency trading technology start-up.

Goldman has claimed in a criminal court case that the code could enable ne-er-do-wells to manipulate the market. Well, if that isn’t open invitation to try and find that code.

Other snoopers include Goldman Sachs (natch). Also on the list: Citadel Investments, the former employer of the trading genius who launched Teza; the New York City Police;investment manager Batterymarch, and InfoNGen, a business and finance intelligence group.

Cryptogon explains how he hunted down the cybertracks of “Goldman Sachs torrent code” seekers:

In short: I gamed Google and tricked people who were looking for the stolen Goldman Sachs software to come to my site… So I could see which organizations they were involved with. It’s a mystery to me why more organizations don’t hide what their people are doing online (ask any 12 year old computer enthusiast how this is done if you don’t know), but for whatever reason, many of them don’t.

via cryptogon.com » Archives » Goldman Sachs Code Torrent. (h/t Zero Hedge)

Damn, wish I’d taken more computer courses.