Friday, July 1, 2011

Turkey Now Growing Faster than China

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While all the focus is usually on the big emerging (or emerged) markets such as those who are members of BRIC, there are quite a few other interesting stories out there such as Chile, Indonesia, and Turkey.  [July 6, 2010: Turkey - Where East Meets West, and Prospects are Improving]  While there are relatively limited choices to invest in these countries, they are certainly part of a secondary group of locales that are helping to boost the fortunes of U.S. multinationals.

Turkey just reported a 11% GDP figure, outpacing that if China*

*how accurate these figures are, are of course up for debate but directionally they do mean something.

Despite this strong GDP growth, Turkey's market is struggling with fears of a growing current account deficit.



Via WSJ

  • The Turkish economy grew by 11% in the first quarter, outstripping China and confirming Turkey as Eurasia's rising tiger.   Thursday's official growth figure, compared with the year-earlier period, easily beat market expectations, at a time when many of Turkey's neighbors in the Middle East and Europe struggle with political turmoil and bailouts.
  • But in what is fast emerging as a Turkish paradox, foreign investors aren't rushing to snap up assets.   A key concern in markets, economists say, is what action the new government will take to control a ballooning current-account deficit that is above 8% of gross domestic product and rising quickly—an imbalance seen as a sign of overheating, despite relatively benign inflation numbers.
  • Thursday's statistics also included trade figures for May, which saw the trade deficit double from the same month last year, adding to the current-account imbalance. Imports to Turkey expanded by 42.6%, almost four times as fast as its exports at 11.7%, according to Turkstat, the state statistics agency.

  • Turkey's growth until now has been dominated by expansion in the financial, retail and construction sectors, driven by rapid demand and credit growth, said Mr. Alkin. Turkey's banking sector is solid, but the country's consumption-driven model, as with Spain and China, no longer looks sustainable in the long term. Turkey, he said, has to lower costs, produce more, import less and move up the value chain.
  • One sign of investor nervousness is that the Istanbul Stock Exchange has been one of the worst performers among emerging markets this year, down by 9.75% since early May. Currency traders, meanwhile, have been selling off the lira, which has fallen nearly 19% since November.  
  • The central bank has tried to squeeze bank lending and consumption by raising reserve requirements for commercial banks. But at the same time, it has put its foot on the gas, cutting interest rates as it tried to deter volatile short-term investment inflows that are financing the current-account deficit. That unorthodox policy is increasingly controversial and hasn't worked. The central bank says that more time is needed to see effects and that inflation, though ticking up, is only just off record lows. 
  • Still, many economists and bankers believe monetary policy can't fix what ails Turkey. Turkey produces minimal quantities of oil and gas. Meanwhile, manufacturers face high costs relative to competitors, economists say, and so tend to use imported semi-finished goods rather than produce their own components. As a result, as Turkey produces more, it imports more—85% of Turkish imports are commodities and semi-finished products, according to Mr. Alkin.

Key ETF Performance First Half 2011

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Courtesy of Bespoke we have the performances of the major ETFs during the first half of 2011 broken out in a nice format.

[click to enlarge]



In terms of size, for U.S. markets midcaps (my favorite sector) continue to dominate although small caps did well too.  Growth continued to dominate over value.

In currency, the euro is having a great year despite all the turmoil in sovereign debt... this is a direct relation to the damage Bernanke is doing to the American saver.  Interest rate differentials and QEinfinity continue to punish Americans.

By sector, healthcare was the surprising big winner, and financials continue the upteempth quarter of being a dog.

Globally, while there is no surprise in the fantastic performance of the German market, the outperformance of France has me scratching my head.  Italy is also interesting considering they seem to be next in the corsshairs behind Spain in terms of sovereign debt.  India and Brazil continue to struggle.

Silver obviously was the star in the major commodities, although 2 months ago the outperformance was of a far better magnitude.

Nearly 65 S&P Points Gained this Week

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Now the discussion goes from breaking the 200 day moving average (down in the S&P 1260s), to reaching back to highs of the year near 1370.  (less than 40 S&P points way)  What a week....light volume or not.



Need to put in my notes to constantly err on side of bullishness ahead of holidays as volume dissipates.

All News is Good News as Market Surges on ISM Manufacturing Reading of 55.3. Bad Construction Spending Figure and Consumer Sentiment Ignored

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We just had 3 reports released but all eyes seem to be on ISM Manufacturing which came in at 55.3 versus an expectation of 52ish.  (May's reading was 53.5)  For some reason it is not yet on the ISM website so I can't bring over the table.  New orders and employment ticked up slightly.  Prices paid plunged from 76.0 to 68.5 - a good thing.  (lowest since August 2010)

The S&P 500 has jumped a quick 0.7% in response.

 Construction spending dropped 0.6% vs 0.1% drop expected (ignored)

The University of Michigan consumer sentiment figure dropped from 74.3 to 71.5. (ignored)

I think it would be safe to say the market is short term overbought as it nearly reaches a mind blowing weekly gain of 5% on the S&P 500.

x

China PMI Falls to 28 Month Low, UK to 21 Month Low, Germany 17 Month Low - Market Shrugs

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Manufacturing data from across the globe came in punk overnight but it appears world markets are taking the approach that the 'soft patch' was 'transitory' and lower oil prices + Japan rebuilding supply chains will cause a rebound in the months ahead.  The bigger question is, how much of a rebound.

That... or we're just in a moment where economic news doesn't matter much as euphoria has quickly returned.

Note ISM Manufacturing in the U.S. is released at 10 AM  today - with the market running so far this week ("best week in a year") this one might be prone to disappointment.  Normally we'd have employment figures the first Friday of the month, but that is pushed off until next Friday.

----------------------

We'll begin in China where PMI is once again dangerously close to the 50 level which marks the transition from expansion to contraction.
  • The China Federation of Logistics and Purchasing said its Purchasing Managers’ Index was at 50.9 in June compared with 52 in May.  The PMI was the weakest in 28 months and well below the 51.3 expected in a Reuters poll of economists. 
  • Meanwhile, a rival survey published by HSBC and U.K. group Markit showed headline activity at 50.1, easing from 51.6 in May, indicating factory output has now trended lower in seven of the past eight months. 

Germany, the world's second largest merchandise exporter and superstar of this recovery (unemployment just fell to 6.9%) still is solidly in expansion mode but quite far below May's levels.
  • Markit’s gauge of euro-area manufacturing tumbled to 52 in June from 54.6 a month earlier. Germany, the region’s largest economy, saw its measure fall to 54.6 from 57.7.
Of course with TRUE near term austerity unlike projections of $4B over 10-12 years ($400B or less a year) in the U.S., the economy has been stalling in the U.K. for many months.
  • The British gauge fell to 51.3 from a revised 52 in May, the lowest level since September 2009. 
----------------------------

Bigger picture, the questions facing markets in the coming 1-4 months will be (a) will Japan's rebound carry the day globally, (b) can crude oil stay 'contained', preferably below $100 on WTIC, and (c) what does China do facing an inflation problem ... and bad loan problem from their epic 2009 stimulus... but the need to keep the economy on steroids as it appears to be quickly hitting stall speed in the manufacturing sector.

Thursday, June 30, 2011

New Program: $50,000 in Fellow Taxpayer Money if You Don't Pay Your Mortgage AND (Preferably) Don't Have a Job

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In the big picture, $1 billion is a pittance (what a billion amongst friends), but the latest federal program to staunch the housing disaster is like all the others - troubling, unfair, and bemusing all at once.  Here is the kicker in this one, you only qualify if you lost income (i.e. thru job loss, underemployment etc).  Which I assume would make it hard to make the mortgage payment... but what do I know.

Essentially if you borrow $50K from the government your fellow citizen (interest free), and keep your payments on time... each year 20% of the loan is forgiven.  Make 5 years of payment and you get handed $50,000 for free, for acting like anyone else who pays their mortgage.  Step right up...

Via SmartMoney:

  • For the roughly four million homeowners who have fallen behind on their mortgage payments, the federal government is offering yet another remedy: free money to catch up on their loans.
  • The effort, called the Emergency Homeowners Loan Program, is the latest in the federal government's efforts to slow down the flood of foreclosures a necessary step to a meaningful recovery in the housing market, says a Department of Housing and Urban Development official. For people who have lost their jobs, the $1 billion program offers loans of up to $50,000 that don't actually need to be repaid, if applicants meet certain requirements.
  • Rolled out by HUD and the nonprofit housing advocacy group NeighborWorks America, the program is making loans with far better terms than anything on offer at a local bank. The loans are interest-free. Payments go directly to the lender for a portion of the borrower's monthly mortgage, including missed payments or past due charges
  • And when the assistance period -- which runs for up to two years -- ends, 20% of the loan is forgiven with each passing year. In other words, for qualified borrowers who stay in their home for at least five years after the assistance period and who don't fall behind on their mortgage again, this money doesn't have to be paid back.
Some potential downfalls:
  • If they sell their home before the entire loan is forgiven, they'll be on the hook for the remaining amount. The same holds true if they fall behind on their mortgage payments again: they'll need to repay the remaining balance of the loan when they sell or refinance their home. 
But you need not have equity in your home!
  • .... borrowers aren't required to have equity in their home to receive this money, so someone who has to repay this loan risks owing more on the home later than they do now. 
  • For homeowners who are significantly underwater now, the loan may only delay foreclosure/
Not sure how those who have lost income will pay this loan back, but hey it's only money from the fellow taxpayer ...
  • To be eligible, homeowners must have lost income and be at risk of foreclosure due to involuntary job loss, underemployment or a medical or other economic condition; details on the application process are available online through NeighborWorks America.

Never Forget your ATM Receipt. Especially in the Hamptons

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Oooops.

[click to enlarge]



Courtesy of Dealbreaker

102 Stocks Which Gained at Least 50% Year to Date

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Looks like all problems are in the past as speculators anticipate another earnings season where analysts undershoot, and companies beat and everyone sings kumbaya.  S&P is surging 4% on the week, and 1317 was 'resistance' for a whole hour or so.

On that note, as we approach the half way mark of 2011, I've screened for the best performers year to date.  Parameters to exclude some of the small fry include

  1. >$300M market cap
  2. >$10 stock price
  3. >100,000 a day trading volume
  4. >50% return YTD
102 stocks made the cut


Ticker YTD Company Industry  Mkt Cap 
GLBC 192% Global Crossing Ltd. Diversified Communication Services            2,311
GMCR 170% Green Mountain Coffee Roasters Inc. Processed & Packaged Goods          13,337
VRUS 154% Pharmasset, Inc. Drug Manufacturers - Other            4,112
TNAV 142% TeleNav, Inc. Communication Equipment                733
GLNG 139% Golar LNG Ltd. Shipping            2,795
ARIA 133% Ariad Pharmaceuticals Inc. Biotechnology            1,565
IPGP 128% IPG Photonics Corporation Semiconductor - Integrated Circuits            3,411
DK 106% Delek US Holdings Inc. Oil & Gas Refining & Marketing                860
WTW 104% Weight Watchers International, Inc. Personal Services            5,552
GNOM 103% Complete Genomics, Inc. Biotechnology                490
MPEL 99% Melco Crown Entertainment Ltd. Resorts & Casinos            6,781
ELN 98% Elan Corp. plc Drug Delivery            6,673
VHC 98% VirnetX Holding Corp Internet Software & Services            1,459
SCSS 96% Select Comfort Corporation Home Furnishings & Fixtures                994
MAKO 95% MAKO Surgical Corp. Medical Appliances & Equipment            1,218
GRM 94% Graham Packaging Company, Inc. Packaging & Containers            1,658
INSM 93% Insmed Incorporated Biotechnology                301
MSTR 91% MicroStrategy Inc. Business Software & Services            1,750
SODA 89% SodaStream International Ltd. Packaging & Containers            1,189
SGI 88% Silicon Graphics International Corp. Diversified Computer Systems                526
BAS 86% Basic Energy Services, Inc. Oil & Gas Equipment & Services            1,296
ULTA 86% Ulta Salon, Cosmetics & Fragrance, Inc. Personal Services            3,877
VRX 86% Valeant Pharmaceuticals International Drug Delivery          15,565
LXU 85% LSB Industries Inc. General Building Materials                996
FTO 84% Frontier Oil Corp. Oil & Gas Refining & Marketing            3,488
XG 84% Extorre Gold Mines Ltd. Ordinar Gold            1,104
ALJ 82% Alon USA Energy, Inc. Oil & Gas Refining & Marketing                602
ECYT 81% Endocyte, Inc. Drug Manufacturers - Major                415
ZAGG 80% ZAGG Incorporated Specialty Retail, Other                337
NSM 80% National Semiconductor Corporation Semiconductor - Broad Line            5,974
SREV 78% ServiceSource International, In Information Technology Services            1,467
AMRN 77% Amarin Corporation plc Drug Manufacturers - Other            1,883
AH 75% Accretive Health, Inc. Management Services            2,732
TBL 75% Timberland Co. Textile - Apparel Footwear & Access            2,226
SHS 75% Sauer-Danfoss Inc. Diversified Machinery            2,390
PKT 75% Procera Networks, Inc. Business Software & Services            1,213
COG 74% Cabot Oil & Gas Corporation Independent Oil & Gas            6,887
HS 74% HealthSpring Inc. Health Care Plans            3,135
SOLR 73% GT Solar International, Inc. Semiconductor - Specialized            1,983
WCG 72% WellCare Health Plans, Inc. Health Care Plans            2,209
REV 71% Revlon, Inc. Personal Products                879
GGS 71% Global Geophysical Services, Inc. Oil & Gas Equipment & Services                645
RRGB 70% Red Robin Gourmet Burgers Inc. Restaurants                558
TPX 70% Tempur Pedic International Inc. Home Furnishings & Fixtures            4,653
REGN 69% Regeneron Pharmaceuticals, Inc. Biotechnology            5,056
SQNS 69% Sequans Communications S.A. Ame Semiconductor - Integrated Circuits                488
PDC 69% Pioneer Drilling Co. Oil & Gas Drilling & Exploration                810
CV 69% Central Vermont Public Service Corp. Electric Utilities                485
SUG 69% Southern Union Co. Gas Utilities            5,012
HOC 68% Holly Corporation Oil & Gas Refining & Marketing            3,635
PCYC 68% Pharmacyclics Inc. Drug Manufacturers - Other                616
HLF 68% Herbalife Ltd. Drug Related Products            6,810
CBST 67% Cubist Pharmaceuticals Inc. Drug Manufacturers - Other            2,143
ELMG 67% EMS Technologies Inc. Communication Equipment                506
ABMD 67% Abiomed Inc. Medical Instruments & Supplies                616
WNR 67% Western Refining Inc. Oil & Gas Refining & Marketing            1,601
FTNT 66% Fortinet Inc. Computer Peripherals            4,117
JAZZ 66% Jazz Pharmaceuticals, Inc. Biotechnology            1,333
LQDT 66% Liquidity Services, Inc. Internet Software & Services                651
PPO 66% Polypore International Inc. Industrial Equipment & Components            3,108
VSEA 66% Varian Semiconductor Equipment  Semiconductor Equipment & Matls            4,627
BODY 66% Body Central Corp. Apparel Stores                371
FOSL 66% Fossil, Inc. Recreational Goods, Other            7,391
LOOP 65% LoopNet, Inc. Property Management                598
PLCM 64% Polycom, Inc. Processing Systems & Products            5,633
LULU 63% Lululemon Athletica Inc. Textile - Apparel Clothing            7,929
BIIB 63% Biogen Idec Inc. Biotechnology          26,333
IOSP 62% Innospec Inc. Specialty Chemicals                783
QCOR 62% Questcor Pharmaceuticals, Inc. Biotechnology            1,470
SFLY 61% Shutterfly, Inc. Consumer Services            1,895
AGP 61% AMERIGROUP Corporation Health Care Plans            3,499
MDMD 60% MediaMind Technologies Inc. Advertising Agencies                417
GTLS 59% Chart Industries Inc. Metal Fabrication            1,582
CVI 59% CVR Energy, Inc. Oil & Gas Refining & Marketing            2,084
BSFT 59% BroadSoft, Inc. Application Software            1,010
RHB 59% Rehabcare Group Inc. Hospitals                959
DPZ 59% Domino's Pizza, Inc. Restaurants            1,561
ARGN 57% Amerigon Inc. Auto Parts                388
N 56% NetSuite Inc. Business Software & Services            2,572
CRR 56% CARBO Ceramics Inc. Oil & Gas Equipment & Services            3,722
AVD 56% American Vanguard Corp. Agricultural Chemicals                365
OPNT 55% OPNET Technologies Inc. Application Software                921
DTG 55% Dollar Thrifty Automotive Group Inc. Rental & Leasing Services            2,120
SVVS 55% SAVVIS, Inc. Business Services            2,277
CSH 55% Cash America International, Inc. Credit Services            1,677
HF 55% HFF Inc. Mortgage Investment                537
IRWD 54% Ironwood Pharmaceuticals Inc. Medical Laboratories & Research            1,596
TITN 54% Titan Machinery, Inc. Specialty Retail, Other                532
BGS 54% B&G Foods Inc. Processed & Packaged Goods                991
ALLT 54% Allot Communications Ltd. Technical & System Software                429
GCOM 53% Globecomm Systems Inc. Networking & Communication                343
HANS 53% Hansen Natural Corporation Beverages - Soft Drinks            7,075
CVLT 53% CommVault Systems, Inc. Application Software            1,922
TZOO 52% Travelzoo Inc. Internet Information Providers            1,037
PRO 51% PROS Holdings, Inc. Application Software                461
VDSI 51% VASCO Data Security International Inc. Security Software & Services                464
SRX 51% SRA International Inc. Information Technology Services            1,778
NFLX 51% Netflix, Inc. Music & Video Stores          13,907
DISH 51% Dish Network Corp. CATV Systems          13,165
TLVT 51% Telvent Git S.A. Computer Based Systems            1,163
BWLD 50% Buffalo Wild Wings Inc. Restaurants            1,208
ZOLL 50% ZOLL Medical Corp. Medical Appliances & Equipment            1,225

Copper Showing Positive Signals and Oil Already Back to Prices Before Strategic Reserve Reelease

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Almost as if Goldman Sachs controls the price of copper, the red metal has begun rallying strongly days ahead of when the firm said it would.  [Jun 15, 2011: Goldman Calls for Substantial Rally in Copper Prices in 2nd Half of 2011, as Chinese Stockpiles Have Fallen Nearly 50%)]  Yesterday's industrial figures out of Japan, along with a return to the beat down of the U.S. dollar as the euro jumped on bailout infinity lit a fire under most commodities.



Oil is already back to prices before the SPR release...



EDIT 9:50 AM - S&P 500 is spiking to 1317, recall that is where both the 50 and 100 day simple moving averages converge.  After such a huge move this week (+3.9%) you would think that would act as resistance for now.

No position

MySpace Sold at Nearly 95% Loss vs Six Years Ago

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What an amazing story, especially in light of the current fervor about social networking.  Since investors love to extrapolate growth stories as far as the eye can see, if social networking firm MySpace had gone public 3-4 years ago at its peak membership, it might have fetched a $15-$25B type of valuation (many predict Facebook will come public at over $100B less than half a decade later).  Instead MySpace sold out to News Corp (NWS) for what appeared to be a paltry $580M.  News Corp sold the firm for $35M yesterday - astonishing numbers when web 2.0 companies with even a hint of social networking are going IPO at multi billion valuations.

At $605M, with many investors giving these companies 15-20x sales valuations, you are talking $9-$12B valuation minimum .... and that's before the first day IPO spike to catch the 'next great unbeatable story'.    It's really all about timing, sometimes for better (as Marc Cuban could attest to)... sometimes for the worse (Lycos anyone?).

  • MySpace, the long-suffering Web site that the News Corporation bought six years ago for $580 million, was sold Wednesday to the advertising network Specific Media for roughly $35 million. The News Corporation, which is controlled by Rupert Murdoch, had been trying since last winter to rid itself of the unprofitable unit, which was a casualty of changing tastes and may be a cautionary tale for social companies like Zynga and LinkedIn that are currently enjoying sky-high valuations.  
  • The sale closes a complex chapter in the history of the Internet and of the News Corporation, which was widely envied by other media companies when it acquired MySpace in 2005. At that time, MySpace was the world’s fastest-growing social network, with 20 million unique visitors each month in the United States. That figure soon soared to 70 million, but the network could not keep pace with Facebook, which overtook MySpace two years ago.
  • As users fled MySpace, so, too, did advertisers. The market research firm eMarketer estimates that the site will earn about $183 million in worldwide ad revenue this year, down from $605 million at its peak, when the site introduced many Web users and many advertisers to the concept of social networking. 
  • MySpace has tried to reboot itself several times, most recently as a social destination for music, movies and other media. It has not been abandoned altogether: it still has 35 million visitors a month in the United States, according to the measurement company comScore. Facebook has 157 million visitors a month in the United States.

[May 24, 2011: BW - The Rise and Inglorious Fall of MySpace]

No position

    Wednesday, June 29, 2011

    Visa (V), Mastercard (MA) Soar on Debit Card Rule

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    Visa (V) and Mastercard (MA) have taken off like fireworks here in the last hour on news of a long awaited debit card ruling.*  The outcome (21 cents) was better then the initially floated fee of 12 cents [Dec 16, 2010: Fed Proposes 12 Cent Cap on Debit Card Transactions - Mastercard & Visa Deep Dive], and the stocks are up 10%-15% each.  Visa has the bigger debit card business so is reacting stronger of the two.  Now it would be interesting to see which firms bought calls ahead of this ruling in the past few days ;)

    *Don't believe the rumors that Visa and Mastercard announced a launch of a social network.  If they did, the stocks would be up by 50%+, not just 10-15%.

    Via Reuters:

    • The U.S. financial industry won a massive lobbying fight (what? I'm shocked) in getting the Federal Reserve staff to recommend almost doubling a proposed cap on the amount banks can charge retailers when a debit card is used.
    • Under the staff proposal to be voted on by the Fed board later on Wednesday, banks would be allowed to charge 22 cents per debit card transaction.  That is 10 cents more than the cap that was proposed in December, (Mark's note - the final ruling was 21 cents, while the recommendation was 22) and includes a one cent allowance for meeting certain fraud prevention standards.
    • In addition, banks would be allowed to charge 5 basis points per transaction to accommodate for fraud losses. 
    • Before the rule was released, some bank analysts were expecting a 20-cent cap to be the best-case scenario for the industry.  The Fed has said the average amount of fees charged by banks to retailers per transaction was 44 cents in 2009. 
    • The previously proposed 12-cent cap would have cost banks about $14 billion annually, according to card comparison website CardHub.com.
    [May 2, 2009: WSJ - Debit Card Use Overtakes Credit]

    No position

    Marketwatch: Todd Harrison - The Most Important Point in Market History

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    I wanted to highlight a story on Marketwatch by Minyanville's Todd Harrison.  While the headline is a bit of hyperbole , I've learned many times, headlines are not written by authors but by publishers (but judging from the content of the piece, Todd might have choesn the headline as well).  That said, it's a nice overview of the bigger issues behind the scenes - that of a grand transfer of risk.debt from the private sector to the public, as we focus on the day to day market environment in 'bailout globe'.  As stock speculators this handoff is a "great thing" (as evidenced by huge rallies each time governments transfer trouble from the 'markets' to 'citizens')... and will continue to be a great thing, until one day it is not.  But for now kick the can forever is the only solution 2007-present.


    A few snippets

    • Still, we’ll chew through the macro dew one more time, for this is perhaps the most important juncture of the year—if not, and I’m not prone to hyperbole, history.  Yes, history. 
    • The bulls will point to strong corporate credit markets (which suggest higher equity prices despite trading well off their best levels) and “The Misery Index,” which recently hit a 28-year high, as a contrary indicator. They’ll use technical terms like “stochastics” and “put/call ratios” to support their thesis, and in a vacuum they’re 100% right.  
    • Outside the vacuum, here in the world with the rest of us, we’re dancing on the head of a pin, and few people seem to notice how precarious our position is. Way back when, during the panic of 2008, we spoke about the lesser of two evils, about how the government bought the cancer in an attempt to sell the car crash.
    • They were “successful,” insofar that they jacked the stock market 100% and allowed Corporate America to roll its debt and issue stock. What they also did, perhaps unintentionally, is transfer risk from the private sector to an already burgeoning public sector, which has heightened tension across the geopolitical spectrum.  
    Again, there are two paths:
    • Drugs that mask the symptoms (throwing trillions of dollars at the problem), which triggered a spate of unintended consequences (such as outsized bank profits) and lead to a tricky trifecta of societal acrimony (over the likes of Goldman Sachs and BP), social unrest (from Greece to Libya), and geopolitical conflict (yet to be determined).
    • Medicine that cures the disease (debt destruction and reorganization) will be a bitter pill to swallow. But once we traverse that process, it’ll pave the way to a legitimate outside-in globalization (the US won’t lead, but will participate). This, in my view, is where the market was heading before the synthetic stimuli, and it’s where the market will ultimately go whether we like it or not. The question, of course, is,“From where?”

    HomeAway (AWAY) - Today's Hot IPO

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    HomeAway (AWAY) is an interesting little medium sized company, that IPO'd today.  I've actually used the site quite often for comparison sake, although never booked through them - but I love the concept.  Essentially, it's a very fancy craigslist of sorts but focusing solely on vacation rentals.  When perusing the site the past few years, I always wondered what the revenue stream was, and more important how profitable it was.   Judging from the financials, it was significantly larger in revenues than I assumed (but it has far more than the flagship site), but less profitable than I thought.

    Either way, the stock is up nearly 50% so this $2 billion+ market cap is now roughly $3 billion.  If they only had a social network arm, we could instantly add a 1 in front of the $3 billion....

    Like Linkedin, the company only floated 10% of the shares, which seems to be the fashionable thing to do, to get that big first day pop.

    Via WSJ:

    • Online vacation rental website HomeAway Inc.....shares opened at $36.10 a share on the Nasdaq, up around 34% from its initial public offering price of $27. A total of eight million shares were sold at the high end of its expected $24 to $27 range. 
    • Based in Austin, Texas, HomeAway says it operates the world's largest online marketplace for vacation rentals, with more than 9.5 million unique monthly visitors on average, according to comScore Media Metrix, and more than 560,000 paid rental listings.
    • Since its launch in 2005, it has grown both internally and through 17 acquisitions, and in 2010 almost 38% of its revenue came from outside of the U.S., primarily from Europe. It operates 31 websites in 11 languages with rentals located in more than 145 countries.
    • Vacationers can browse the site's listings for free, while property owners and managers pay annual listing fees to put their rental properties on the site. Property owners can also use an array of paid and free software tools to manage their listings.
    • Annual revenue and net income have been on a steady increase in recent years, with the company reporting total revenue of $52 million in the first quarter, up 44% from the same period a year ago, as it increased the number of new listings and increased revenue per listing. Net income during that time was $1.5 million compared to a net loss of $803,000 in the first quarter of 2010. 
    • In full-year 2010, total revenue increased 40% to $168 million on more listings and higher per-listing revenue, and net income more than doubled to $16.9 million compared to 2009 results.
    • The company says it has historically generated strong cash flow and predictable revenue because it operates on an advance-payment, subscription-based model, with annual listing renewal rates of about 76%. But its quarterly results can fluctuate due to the seasonal nature of its business and variable expenses such as advertising, acquisitions and technology licensing. 

    TheStreet.com has a relatively in depth piece on the company here, if interested.

      No position

      S&P 1317 Next?

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      The monster week continues; after the initial sell the news reaction to Greece, the markets have reversed and are back off to the races.  It has already been a 3.1% advance in two and a half days.   For the 95%+ of Wall Street money that is long only, it has been a fiesta!

      Technically, in the exponential world I focus on, the S&P 500 has jumped back over all key resistance areas.  But it pays to look at the simple world as well.  In that arena S&P 1317 is standing out for obvious reasons.



      This should be the last day of paint taping as "they" don't like to do it on the last day of the quarter (or month).

      As I do every May, Jun, July I am giggling at all the euphoria over the "improving" housing data.  This is the 3rd year running we'll hear calls of housing bottoms as the SEASONAL strength (that happens EVERY year in late spring/summer) reappears.  Wake me up in September for the SEASONAL downturn.
      • "The persistent weakness in the housing market is frustrating, and we have noticed a growing tendency of many observers to jump on any bit of good news, or even not so bad news, as a reason to declare we are near a bottom," said Mark Vitner, senior U.S. economist at Wells Fargo. "We wish this were true."

      Zynga Could File for IPO as Early as Today

      TweetThis
      Of the "Big 4" proposed "web 2.0" IPOs - Facebook, Zynga, Twitter, and Groupon* - only the former 2 are showing the potential of big gains in profits at this time.  Not that it will necessarily matter when they come public in a country starving for high growth stories.  While I like Zynga the company, Zynga the proposed valuation is already troubling.  Riding the back of Farmville, the bankers are proposing bringing this name out at $15-$20B.  At the latter price point, Zynga would be worth as much as Electronic Arts (ERTS) and Activision (ATVI) COMBINED.  (Those 2 companies have revenue of $8B+ versus under $1B for Zynga)

      And we know whatever the IPO price is, the stock will jump 30-50%+ on day one, so Zynga will certainly surpass the 2 giants in the video game market combined.  At these price points this looks like a name that in the short run is going to be a winner for insiders, and those granted shares by the investment bankers - and a lot more difficult investment for the retail crowd which will be paying sky high premium once the name publicly trades.  Reid Hoffman (CEO of LinkedIn) and Peter Thiel look to be "winning" again with Zynga.

      Once more amazing wealth being created - Groupon is about 3 years old and asking for similar valuation, Zynga is 4 years old.... we're talking $40-$50 billion in valuation among the two.  

      Via WSJ:

      • With Internet valuations surging and bankers circling Silicon Valley, online-games maker Zynga Inc. is preparing to test investors' appetite for an initial public offering that values the young company as high as $20 billion.  That would be double the price tag the San Francisco start-up, which makes "FarmVille" and other simple games played on Facebook's website, fetched just a few months ago when it sold shares to venture capitalists.
      • But since then, several Web companies have raised money at eye-popping valuations. Others have filed for multi-billion dollar IPOs. Shares of LinkedIn Corp. gained 80% its first day of trading last month, and the professional social network now sports a market value of $8 billion. Groupon Inc., which has racked up losses, has filed for an initial public offering that could value the online coupon site at more than $20 billion.
      • Zynga expects to raise as much as $2 billion in its IPO and it could file its paperwork as early as Wednesday, said people familiar with the matter.
      • That could value the game publisher, which had about $850 million in revenue last year, at roughly the same as the two biggest videogame publishersElectronic Arts Inc. and Activision Blizzard Inc.—combined.
      • The rush of Web IPOs, coupled with a frothy start-up investment environment in Silicon Valley, has fomented fears that the Internet sector is reaching a frenzied level not seen since the late 1990s dot-com bubble.
      • Unlike LinkedIn and Groupon, however, Zynga is expected to generate a profit this year. Nitsan Hargil, an analyst at GreenCrest Capital Management LLC, a research firm that analyzes private companies, estimates Zynga will have revenue of nearly $1.5 billion this year and be profitable. 
      • Founded four years ago by Internet entrepreneur Mark Pincus, Zynga offers its games free and generates revenue mostly through the sale of virtual goods—for example, a tractor that helps FarmVille players harvest crops. While the vast majority of players never spend a cent in its games, some players pay up so they can accelerate their progress in the game and enhance their status in the eyes of other players.
      • Still, Mr. Hargil says there are concerns about Zynga's dependence on Facebook. While the company has sought to diversify its business through mobile games, its greatest successes have been on the 600 million-member strong social network.  Zynga's games collectively have about 271 million active monthly players on Facebook, an audience nearly eight times the size that of the next biggest Facebook app developer, according to AppData.com, a firm that tracks activity on Facebook.
      • So far, Zynga has turned its early success on Facebook into a formidable barrier to competition from other game developers. The company heavily promotes new games, like its recently released strategy game "Empires & Allies," to its huge audience of existing players, giving the company a marketing advantage its rivals lack.  "Empires & Allies" is now the second most popular app on Facebook, with about 42 million average monthly players. Zynga's "CityVille," with 88 million monthly players, is the first.

      *note: Groupon is not really a web2.0 company in these eyes, but is getting thrown in with the rest.

      [May 25, 2011: Sources - Zynga Ready to File for IPO]

      Best Two Day Rally Since Early February, with More to Come & Japan Industrial Production Surges

      TweetThis
      While volume has been poor, the market has put on the best 2 day rally since the beginning of February.  For the cynical, this has been the best quarter end mark up in quite a long time.  For those who have been around a while, you know by now that the old rules of volume confirming moves has been thrown out for much of the rally since March 2009.  In the new paradigm, big rallies on light volume are the rule, while most selloffs now come on heavy volume.  It's strange ... and suspect... but seems to be the new normal.

      As the Greeks go to vote to accept more money that they will never pay back this morning, futures are surging once again and bulls have a great chance to push the S&P 500 over key resistance at 1300 and 1303.  We will see if there is any sell the news reaction once the vote actually comes in, but for now the bulls have taken the ball as much of Wall Street is in early holiday mode.

      Lost in the focus on Greece, is a very good industrial number out of Japan.  For those of us who believe a fix to the supply chain in Japan should help the economic figures a few months from now in the U.S., this should bode well circa August or so.  One wonders if the auto sector is going to get a nice bounce in the coming weeks/months.
      • Japanese factory output made its biggest jump in May in almost 60 years, as manufacturers restored supply chains damaged by the earthquake and tsunami in March.  The data provided the latest evidence that the economy was headed for a “V-shaped” recovery from the disaster.
      • Industrial output rose 5.7 percent in May, above the median market forecast for a 5.5 percent increase and a 1.6 percent gain in April, the Ministry of Economy, Trade and Industry said Wednesday.  It was the second-biggest increase on record, after a 7.9 percent rise in March 1953.
      • Automakers led the overall increase, with the output of transport machinery up a hefty 36.4 percent as they quickly mended supply chains hit by the quake. But the output of chips and other electronic parts fell 0.6 percent, a sign that the recovery was still patchy.

      Tuesday, June 28, 2011

      Yoga Apparel, Watches, and Mexican Food Continue to be Where It's At

      TweetThis
      As mentioned last week, we have a small group of "go to" names that are bought almost every day, rain or shine.  Lululemon (LULU) and Chipotle Mexican Grill (CMG) are 2 of those names and are sporting lovely breakouts.




      Watch and accessory maker Fossil (FOSL) which I highlighted about 6 weeks ago, is also teflon at this point.



      FIO - which I mentioned yesterday, is also having yet another excellent session.




      No positions

      Carbon Copy

      TweetThis
      The moves between 1260s and 1290s on the S&P 500 have been remarkably consistent the past few weeks.  The move the past session and a half is almost a perfect mimic of the 2 day rally we saw about 7 sessions ago.  That one ended in the upper 1290s, and so far we are at the lower 1290s.  All eyes remain on the 1300ish level.




      We've had 2 days of light volume and calls of the typical quarter end 'tape painting' but it is what it is.

      [Video] Kudlow Interviews Peter Thiel

      TweetThis
      Interesting interview with Peter Thiel last night on the Kudlow show - while it starts with a focus on the education (cost) bubble, he is an investor in many of the hottest brands on Earth, and the conversation expands from there.

      9 minute video - email readers will need to come to site to view





      [Jun 2, 2011: [Video] Peter Thiel Offers $100,000 for Some Bright Minds Not to Go to College]

      Monday, June 27, 2011

      Chasing Our Tail; 16th Day in this "Box"

      TweetThis
      For all the news developments the past few weeks, the S&P 500 has been stuck in a 'box' for over 3 weeks now.  Roughly S&P 1260 on the bottom and upper 1290s on the top.  Bears can claim that the market is working off an oversold state by churning, rather than rebounding.  Bulls can claim the 200 day moving average is holding.  So a little something for everyone.



      Usually the longer the market goes sideways, the more powerful the ensuing move.  But there is little to get excited about right now until we break out one way or the other.  Until that point selling/shorting at the top of the box, and buying/covering at the bottom has been the no brainer trade.  It is working yet again today.

      CNNMoney: My Degree is Not Worth the Debt!

      TweetThis
      Quite interesting slideshow on CNNMoney.com showcasing different people and their views on the debt they incurred to gain their college degree.  I think this topic is only just beginning to hit the national limelight and should be growing ever more prevalent as our universities continue to offer 5-10% annual cost increases, while wages stagnate for the great middle in America.

      Go here for slideshow.

      ------------------------

      [Jun 2, 2011: [Video] Peter Thiel Offers $100,000 for Some Bright Minds Not to Go to College]
      [May 20, 2011: NYT - Nearly 50% of 2009 College Graduates are Either Jobless, or Working in Degrees that Don't Require a College Degree]
      [Feb 7, 2011: BW - The Youth Unemployment Bomb]
      [Dec 21, 2010: Video - CNBC, the Price of Admission - America's College Debt Crisis]
      [Dec 14, 2008: WSJ - K-12 Schools Slashing Costs, College Bills Wallup Families]
      [Dec 5, 2008: NYT - College May Become Unaffordable for Most in US]

      Fusion-io (FIO) - Not a Disappointing IPO

      TweetThis
      Unlike some of the IPO crop of late, Fusion-io (FIO) has delivered, despite coming public in a rough patch for the overall market.  After the traditional intraday run up on the first day of trading, the stock actually closed near the low of the day in the mid $22s.   It flopped around and fell a bit as the market was selling off sharply, but during the past 7 sessions has notched a gain of some 40%.  Indeed each day it has made a higher closing high, in impressive fashion - regardless of what the overall market has done. 



      While it is now officially very pricey, and I'm worried about the market reaction to its first earnings report considering the company already warned the Facebook revenue would regress - the price action is hard to argue with.  Even those poor souls who bought at the height of the day one frenzy are now at least break even.


      [Jun 7, 2011: Fusion-io Ups Pricing from $16 to $18, from $13 to $15]
      [Jun 2, 2011:  The Hot IPO of Next Week? Data Storage Company Fusion-io

      No position

      WSJ: China's 'Twitter' Has Big Dreams

      TweetThis
      It's about 6 months late, but the Wall Street Journal finally wrote an in depth piece on Weibo.  Of course a huge run in the stock was missed if you focus on the 'old news' outlets solely.  But with the big selloff [May 16, 2011: Sina Breaking Down so Tread Cautiously], I suppose one saunter in hoping for another run.


      This pieces focuses on the next leg of the transformation of Sina, and specifically Weibo (becoming more "Facebook-like"), and sizing up the competition, mostly focusing on Tencent.   [May 11, 2011: Tencent - a Real Chinese Internet Juggernaut - Delivers Outstanding Earnings]
      • Charles Chao has built Sina Corp. into a Chinese Twitter. Now he wants it to be a Chinese Facebook, too.  Mr. Chao, Sina's chief executive, has led the company's transformation from an online portal focused on news and blogging to China's most talked-about social-media company. 
      • Since he launched Sina Weibo—which lets users send short, Twitter-like messages to their followers—less than two years ago, the service's popularity has exploded, with more than 140 million users as of March, by Sina's count. RedTech Advisors LLC, of Shanghai, estimates that Sina Weibo has 57% of China's microblog users and 87% of its microblog activity
      • But in the ultracompetitive world of China's Internet industry, such leads are hard to keep, and Sina faces pressure from rivals, who are pouring resources into the social-networking sector. Chief among them is Tencent Holdings Ltd., an industry giant with a big pile of cash that has been aggressively promoting its own microblogging site.
      • In an interview, Mr. Chao laid out a series of changes he is making to Weibo (which literally means "microblog") to broaden its offerings and attract more users.  A new version of the site, now being tested, will change its look with prominent sections recommending users of interest and offering games and other applications. Mr. Chao is trying to make it easier for users to define their relationships with other users—such as by labeling those who are real friends, as opposed to those who are just "fans." 
      • ....unlike many other markets, China—which has more than 450 million Internet users, more than any other country—isn't dominated by big U.S. companies like Twitter Inc. and Facebook Inc. In fact, China's government blocks access to those two sites for users inside the country.   
      • Instead, a host of domestic Chinese companies are competing to fill the space.  RenRen Inc., which runs one of the biggest Facebook-like sites in China, raised $743 million in a U.S. initial public offering in May that it is using to beef up its offerings. Rival Kaixin001, held by Happy Networks Ltd., also operates a social-networking site similar to Facebook. Chinese search giant Baidu Inc. is trying to turn its popular message board, Baidu Tieba, or Postbar, into more of a social network, and had its own microblogging service, Baidu Shuoba, or Baidu Talk, which failed to gain traction against Sina and now has been suspended. Sohu.com Inc. and NetEase.com Inc. offer microblogs.
      • Tencent has a successful online-game business, but executives say they are focusing their efforts on social networking and on their Weibo site in particular, including efforts to have third-party developers make applications for it, as Sina is doing. Tencent's challenge lies largely in Sina's users, generally a cosmopolitan set of social "influencers" from which Sina can expand outward and downward, compared with Tencent's younger users in China's lower-tier cities, from which it is harder to move up, analysts say.
      • Weibo won't be turning into Facebook, Mr. Chao said, but will have more Facebook-like features to allow for "stronger social relationships based on our new applications."
      • Analysts say the transformation will be a challenge. Tencent has significantly more resources to spend on marketing, with $1.7 billion in cash as of March, compared to Sina's $577.6 million.  In addition to the more than 200 million users Tencent claims for its microblogging site—it's hard to compare the companies' user counts, with their different methods of counting—Tencent has legions of users of its flagship product, QQ, China's most popular instant-messaging platform, and runs a social-networking site called Qzone.
      • Although Sina is known for its heated discussions, at times over controversial issues such as local government corruption and soaring property prices, most talk on the site isn't political. When sensitive topics arise, the company can be creative in limiting conversation without cutting it off altogether—for example, by blocking searches of sensitive keywords but not stopping people from publishing them on their own microblogs.
      • When asked if he was concerned a government crackdown might affect the outspoken nature of Weibo, Mr. Chao said that Sina had years of experience in dealing with content regulations while maintaining its websites and that he was confident the company could handle it.

      [May 13, 2011: Sina Misses EPS Targets Slightly as it Invests in Weibo, Guides Down Slightly for Q2 Revenue]
      [Mar 8, 2011: Forbes (SINA) Weibo]
      [Feb 18, 2011: BW - A Twitter Knock Off has China Talking
      [Jan 11, 2011: Word is Getting Out on Sina's Secret - Weibo]
      [Dec 9, 2010: The Twitter of China - Weibo]

      No position

      Need Panic

      TweetThis
      Despite being the second longest selloff since the March 2009 bottom, there has not been significant emotion to this selling.  Aside from one day I can't recall much panic at all.  Do we 'need' panic to create a bottom.  Not always.  But it sure helps.   As we sit right above the 200 day moving average (yet again) another rule comes to mind - the more times you test a level (support or resistance) the more likely it breaks.  We have been testing this 200 day quite often the past few weeks.  I still believe it breaks, and we finally get our panic and people throwing in the towel.  Then I'll be interested in a tradeable intermediate bottom.



      This morning's consumer spending numbers, in a word, suck.  But as gas prices tumble, we should see a rebound in the coming months.  Also auto production should bounce back August-ish so for once I might be somewhat more bullish than others ;).  At least for a while.  [Obviously this assumes Greek gets its bailout and the Greek people and government are happy to bail out German and French banks]

      Talk in D.C. is the Dems want another stimulus program as part of the debt ceiling negotiations.  The patient needs its constant steroids, and the last batch is wearing off.

      Reinvestments of Bonds aka QE2.5 Will Still Yield $300 Billion in Annual Fed Purchases

      TweetThis
      As is well known by now the Fed will not be 'expanding' their balance sheet any further (for now), but will continue to keep the balance sheet constant in size, by purchasing new bonds to replace those which have run off.  After some 2+ years of QE measures the Fed balance sheet has now expanded from some $800B to nearly $3T in size, so simply reinvesting run off, is a QE onto itself - estimates are $300B over the next 12 months, or approximately $25B a month.  While not as huge as QE1 or QE2 on a monthly basis it's still a very hefty support... and if my prediction for QE3 comes to fruition (perhaps "operation twist") by next winter you'll have the $25B a month (QE 2.5) running concurrent to QE3.

      As for claims the Fed is not monetizing the debt because "eventually" they will sell the bonds back into the market, one wonders how the Bernank can say that with a straight face when short term bonds are obviously being held to duration and expiring - requiring the Fed to replace them on the balance sheet.

      Via Bloomberg
      • The Federal Reserve will remain the biggest buyer of Treasuries, even after the second round of quantitative easing ends this week, as the central bank uses its $2.86 trillion balance sheet to keep interest rates low.  While the $600 billion purchase program, known as QE2, winds down, the Fed said June 22 that it will continue to buy Treasuries with proceeds from the maturing debt it currently owns. That could mean purchases of as much as $300 billion of government debt over the next 12 months without adding money to the financial system.
      • A total of $112.1 billion of the Fed’s government bond holdings will mature in the next 12 months, 7 percent of the $1.59 trillion in Treasuries held in its system open market account, known to traders as SOMA. Replacing those securities will require the Fed to buy an average of $9.4 billion of Treasuries a month through June 2012.
      • The Fed also held $914.4 billion of mortgage-backed debt and $118.4 billion of debentures, the debt of government sponsored enterprises Fannie Mae and Freddie Mac, as of June 22. UBS AG, Citigroup Inc., Bank of America Corp., JPMorgan Chase & Co. and Royal Bank of Canada say $10 billion to $16 billion will mature each month, depending on the pace of prepayments.
      • The Fed began its first round of quantitative easing in November 2008 after the collapse of Lehman and the central bank’s $85 billion bailout of insurer American International Group Inc. with a program to buy $500 billion of mortgage securities and $100 billion of agency debentures. In March 2009 it boosted planned purchases to include $300 billion of Treasuries and raised its target for mortgage debt to $1.25 trillion and $200 billion of government agency bonds.
      • Asset purchases, even at a smaller scale, “still promotes what the Fed was trying to accomplish,” said Tony Crescenzi, a money manager and strategist at Newport Beach, California-based Pacific Investment Management Co., which runs the world’s biggest bond fund. “Even with the stoppage of QE2, the fundamental forces remain intact.”

      Friday, June 24, 2011

      Irony

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      As a great fan of irony, I could not help myself from getting a grin out of 2 competing Bloomberg news items this morning.

      #1) Italian Banks Plunge on Debt Concern

      • Italian banks slumped in Milan trading amid concern the European debt crisis may spread just as lenders face scrutiny from regulators over capital levels.  UniCredit SpA (UCG), Italy’s biggest bank, and Intesa Sanpaolo SpA (ISP), the second-largest, led lenders lower, tumbling as much as 8.9 percent and 7.2 percent respectively.
      • Moody’s Investors Service said yesterday it may downgrade 13 Italian banks because they are vulnerable to a cut in the government’s credit rating.
      • Prime Minister Silvio Berlusconi said today the country’s banks are “well capitalized.” 8

      (*well if there is one bank analyst I trust, it's Silvio Berlusconi!)


      #2) Italy's Mario Draghi Wins Top ECB Post


      • The European Council on Friday appointed Italian Bank Governor Mario Draghi as the next president of the European Central Bank.  Draghi will replace the current ECB president, Jean-Claude Trichet, when his term expires on Oct. 31, according to the European Council. Draghi will serve as president until Oct. 31, 2019.

      -----------------

      It appears, much like in the U.S., good stewardship of your own banking system as a chief central banker, has little impact on your potential for either keeping your job and/or being promoted.

      BW: The Rise and Inglorious Fall of Myspace

      TweetThis
      The fall of MySpace over the past 3-4 years has been stunning in nature, probably only rivaled by that of Yahoo (YHOO) mid decade.  Both were usurped by a competitor who has become a household name - in MySpace's case we are speaking of Facebook, while Yahoo was taken out by Google (GOOG).   BusinessWeek's cover story details the rise and fall of MySpace who 4 years ago was the dominant social network.

      • At its December 2008 peak, Myspace attracted 75.9 million monthly unique visitors in the U.S., according to ComScore. By May of this year that number had dropped to 34.8 million. Over the past two years, Myspace has lost, on average, more than a million U.S. users a month
      • Because Myspace makes nearly all its money from advertising, the exodus has a direct correlation to its revenue. In 2009 the site brought in $470 million in advertising dollars, according to EMarketer. In 2011, it's projected to generate $184 million
      • In February, News Corp. (NWS), which bought Myspace and its parent company, Intermix, in 2005 for $580 million, started officially looking for a potential buyer at an asking price of $100 million, according to a person familiar with the sale process. Yet even in the midst of a frenzy for social media that has seen LinkedIn (LNKD) valued at $6.4 billion ... barely anyone wants to buy Myspace.
      • Mismanagement, a flawed merger, and countless strategic blunders have accelerated Myspace's fall from being one of the most popular websites on earth—one that promised to redefine music, politics, dating, and pop culture—to an afterthought. But Myspace's fate may not be an anomaly. It turns out that fast-moving technology, fickle user behavior, and swirling public perception are an extremely volatile mix. 
      • Interviews with more than a dozen former Myspace and News Corp. insiders reveal how a rocky six-year marriage ultimately undercut Myspace's once-dominant social media position, leaving the field wide open for Facebook's rise and potentially squandering billions of dollars of future revenue along the way. According to two former News Corp. executives, Murdoch, who was initially enamored of his new digital plaything, lost interest in Myspace as his pursuit of the Wall Street Journal, which News Corp. bought in 2007, consumed his attention.
      • While developers at Facebook, Tumblr, and Twitter—startups backed by venture capital—were more free to design their products without the immediate pressure of advertising goals, Myspace managers had to hit quarterly revenue targets. That pressure increased dramatically in the summer of 2006, when Google paid $300 million a year for three years to be the exclusive search-engine provider on Myspace on the condition that the social network hit a series of escalating traffic numbers.  In retrospect, DeWolfe says, the imperative to monetize the site stunted its evolution: "When we did the Google deal, we basically doubled the ads on our site," making it more cluttered. The size, quality, and placement of ads became another source of tension with News Corp., according to DeWolfe and another executive. "Remember the rotten teeth ad?" DeWolfe says. "And the weight-loss ads that would show a stomach bulging over a pair of pants?"

      Jeez... even in this story on social networking Detroit takes a beating!
      • Myspace's inability to build an effective spam filter exacerbated the public impression that it was seedy. And that, says Boyd, contributed to an exodus of white, middle-class kids to the supposedly safer haven of Facebook—a movement she compares to the "white flight" from American cities in the second half of the 20th century. Myspace was becoming Detroit.


      [Jun 16, 2009: MySpace Axes 30% of Staff - News Corp (NWS)]


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