Anthony Peters, SwissInvest Strategist
As you read the press and listen to the pundits on the wireless or the telly, you’d have to think that they all knew that Facebook’s earnings would never stack up to the IPO price of US$38, that it still looks too expensive, especially in light of the impending expiry of the second round of lock-ins in November and that it was all down to irrational exuberance on the part of private punters. I beg to differ.
How many hundreds of millions of dollars did the lead managers of the IPO garner in fees? They go on about the Libor scandal which is, let’s face it, the closest you’ll ever come to a victim-less crime and the US authorities are having a field day fining naughty foreign banks but what about the fraud which has been perpetrated on hardworking American families who have seen $5bn wiped off the value of the 10% of Facebook they bought.
“Haven’t we been here before? Didn’t we learn anything back then in 2012?”
If all of us professionals knew that the issue was overpriced, why did we do it? Does the fact that hundreds of millions of people smoke make it less unhealthy? On trading floors we have nearly reached the point where we need approval from compliance to pop out to the loo – in case we overhear something we shouldn’t – but we can completely mis-price the year’s largest IPO on the basis that it was at a price people were willing to pay.
That most of those people think that P/E is what you do at school in shorts and a singlet is beside the point. Was it irrational exuberance on the part of the punters or of the fee-garnering ECM desk? My vote is that it was the latter.
The Facebook fiasco is being compared to events during the dot.com bubble. The rally of the NASDAQ began at the beginning of 1999 with the index at around 2,000 pts. It peaked in March 2000 at 5,132 pts, bottomed in October 2002 at 1,108 pts and has now, finally, recovered to close last night, just under 10 years later, at 3,062 pts. But how much did we learn?
Well, just to have been a graduate trainee when the bubble burst, one would have to be in one’s early to mid 30s today. That would mean that, in order to remember the issuance of the German 10yr Bund with the 9% coupon – it was the 9% 1/2001 issue – one would have to be ten years older than that.
While on the subject, you’d now have to forty-five or over to remember staring incredulously at little black and green Reuters screens during the “Crash of ’87”, the 25th anniversary of which is upon us this very October. Those with memories of other seminal events like the failure of Herstatt or Penn Square or of the secondary banking crisis here in London are mostly either retired or writing fatuous columns.
To a young undergraduate today, the first abiding memory of markets will probably be the Facebook IPO. He/she may possibly look back in twenty years time when some smooth-talking snake-oil salesman is flogging stock in the greatest fail-safe sub-oceanic gold mining company to all and sundry and think: “Haven’t we been here before? Didn’t we learn anything back then in 2012?”
Of course we didn’t. All the while, some previously unknown American regulator with political aspirations will be trying to fine all the European banks for breaking South Dakota state law by shorting the dollar.
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Alas, it’s that time of the week again. All that remains is for me to wish you and yours a happy and peaceful week-end. Should you be amongst those who’s offspring have received exam results this week, may you have the pleasure of celebrating with those who achieved what they set out to achieve but also have the love and care to celebrate those who didn’t but who gave their very best.