Market’s temporary footing amid the muck
August 29, 2012 4:48PM
Updated: October 1, 2012 4:52PM
Dear Mr. Berko: Two months prior to Facebook’s going public, I believed I was fortunate to buy 1,000 shares in the “pre-market” arranged by J.P. Morgan at $49.25. In spite of all the months of enormous hype, media frenzy and enthusiastic support from those “Big Box Brokers,” you told me to sell the stock. I thought you had lost it, and after 38 years of reading your column, I believed you were becoming senile and wrote to tell you so. Mr. Berko, I apologize. I wrote in anger, and your very nice email reply made me feel like a heel. It’s an enigma to me — and to two colleagues who also bought Facebook shares in the “pre-market” — how you could possibly know that Facebook would bomb. Meanwhile, dare we ask for your thoughts on the Dow Jones?
— RC, Cleveland, Ohio
Dear RC: Sometimes I step on sacred cows; sometimes I insult well-meaning folks; sometimes my comments are too forceful when etiquette demands subtlety; often my perceptions of events around us seem to derive from a different universe. But there’s no malice in my comments — just pure incredulity that humors me every day and makes me smile.
My Facebook (FB-$23) conclusion was simple as Simon. First, I got so sick of the hourly media coverage of Mark Zuckerberg that I wanted to pull the kid’s eyebrows out. Then I figured there are 6.7 billion people in the world, and only 3.1 billion are literate. Of the 3.1 billion literates, I reckon 2 billion could afford to hook into the Internet. Then I reasoned that of the 2 billion who can afford an Internet connection, half are of above-average intelligence and the remaining half possess below-average intelligence. And since none of my teenage grandkids has the slightest interest in Facebook, I logically concluded that the overwhelming number of Facebook users belong to the lower intelligence group.
Today, there are 945 million Facebook subscribers, reducing optimal growth to a trickle. But over the years, as the two groups (the smart and the dumb) assimilate, Facebook’s membership should grow as the values and tastes of this new majority become the tribunal of opinion.
The Dow Jones is just as easy to figure out. First, recognize that the stock market always does what it’s expected to do — but seldom when it’s expected to do it. Never in any period of history has there been such a confluence of negative events as we have today. Italy, Spain, Greece, Portugal and sovereign nations across the pond are flat-on-their-back broke and getting “broker” by the day. Trillions of new euros are being flushed through the economic sluices of Europe, propping up economies whose infrastructures are banded together by common corruption, spit, chicken wire, mud and bubblegum.
Meanwhile, 22 percent of American GDP is annually exported to Europe by American manufacturers, and that number is declining, some say to 17 percent in 2013.
Then consider that the EU’s ridiculous solution to save Europe’s failing countries is to lend them more money so they can borrow their way to prosperity. Then there’s the LIBOR scam, J.P. Morgan’s $9 billion trading scandal, our trillion-dollar deficits and lower earnings for U.S. Steel, Amazon, Apple, DuPont, UPS, Starbucks, Cisco, Chevron, Netflix, United Airlines, Groupon, Facebook, Zynga, Whirlpool, Marathon and Sprint to name a few.
Into this brew of news we stir a U.S. GDP sinking to 1.5 percent, a drought that will force food prices much higher next year, lower auto sales expected for the second half of 2012 and for 2013, unemployment holding above 8 percent, a dead housing market, weak consumer spending and an epochal increase in the U.S. money supply that screams hyper-inflation.
Considering these bleak events and that 2012 is an election year, it’s likely the Dow will continue to rise, possibly reaching a new high a couple of weeks before or a couple weeks after the election. The market has found a temporary footing -- but not its faith.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at firstname.lastname@example.org.