LinkedIn, not consumer-directed sort-of-rival Facebook, is filing for an IPO. The move may be a sign of confidence in the markets for early 2011, a sign of lessening confidence beyond the first half, or simply another indication the financial markets are eager to make a quick buck. One interesting thing about the move is that one of our Wall Street friends calculated that the market capitalization (total stock value) of Google and Yahoo, when combined with the hypothetical value of LinkedIn and Facebook, would exceed the world’s ad revenues from all sources. Go figure.
Staying with financials (it’s earnings season after all) Amazon shares dropped after the company reported 36% higher sales and 8% higher earnings but lower margins. One must wonder how the Street believes that online retailers would be gaining sales versus other retail models without discounting, and how discounting could be equated with anything other than lower margins.
Bringing these two themes together we have the results of the commission impaneled to investigate the 2008 financial crisis; the report has lots of bad things to say about regulations and greed and other factors, but in my view it’s light on the real problem. Wall Street wants to create wealth faster than the economy creates value. Many of the stocks we’d see as being untainted by financial scams are still objectively priced above traditional market justifications of P/E multiple (which would be about 14 in the real world). That says they’re being bid up, and being bid up simply means that somebody is promoting the notion that they’re going to keep going up despite fundamentals. To me, that’s a bubble no matter how you try to disguise it.
Microsoft turned in an interesting quarter, with good numbers and good stock response coming not out of blazing success in its traditional spaces but from good Kinect reception by the market. This clearly illustrates the dilemma even in fundamentals—the consumer is now the engine of technology rather than business, and that means that fads and not plans drive the markets. Microsoft is being praised (through its stock) for coping with the changes, much as IBM has benefitted from its ability to reinvent itself periodically to cope with the transition from mainframes through minis to PCs, and from hardware differentiation to middleware.
In the broad economy, we seem to be seeing a continuation of the division between countries doing better and those doing not so well. Debt issues cloud the Eurozone, Japan’s debt has now been downgraded, but China is coping with runaway growth and the US is showing signs of greater economic strength and improving employment. GDP growth in the fourth quarter came in a bit under expectations (3.2% versus 3.5%) but consumer spending was up 4.4%, which bodes well for the coming year. Interestingly, the US’s position is likely due to aggressive stimulus and rescue actions, and these are now under political pressure. Presuming that the anti-debt posture of Washington these days is more than just theater, you’d have to wonder (as some economists are already wondering) whether we might not risk slipping back into stagnation by trying to cut debt too quickly and cutting programs too much. Loss of confidence and jobs created by debt-reduction-induced economic declines would hurt the deficit more by increasing pressure on social programs and reducing tax collections, something the states are already finding out. Hopefully the national planners will do so too.