by ilene - August 28th, 2014 5:24 pm
Courtesy of David Stockman via Contra Corner
That was quick! Last November Snapchat was valued at $2 billion in the private VC market; by Q1 that had risen to $7 billion; and yesterday it soared to $10 billion. Gaining $8 billion in market value in just nine months is quite a feat under any circumstance – but that’s especially notable if you’re are a company with no profits, no revenues and no business model.
And, yes, that’s not to mention the “product” either. Apparently, Snapchat’s 100 million teenage and college users mostly swap pics of their private parts which vanish after 15 seconds – or so they think. In that respect, Snapchat’s business challenge may not be lack of “demand”, but whether its exhibitionist “customers” will be copasetic with sharing their 15 seconds of fame with advertisers.
Time will tell, unfortunately. In the meantime, however, its evident that Snapchat’s spectacular valuation rise is not about how to discount the potential value stream from monetizing dirty pictures. Instead, it reflects the crazy dynamics of late stage financial bubbles. And on that score, Wolf Richter has hit the nail squarely on the head, as usual.
As he explains in today’s post, Snapchat’s spectacular valuation run-up is just a new and more sophisticated form of “pump and dump”. In this instance, the venture capital firms involved have apparently invested trivial amounts of chump change in the two recent funding rounds in order to peg dramatically higher paper valuations in preparation for an imminent IPO. In numeric terms they have invested less than $30 million since last November, meaning that they have been able to leverage an $8 billion valuation gain at a ratio of 266:1.
By strategically deploying less than $30 million, KPCB, and DST Global before it, have ratcheted up Snapchat’s valuation from $2 billion to $10 billion. With the stroke of a pen, in a deal negotiated behind closed doors, they have created an additional $8 billion in “wealth” that is now percolating through the minds of employees with stock options and through the books of the early investment funds.
To be sure, Wall Street has sponsored such market-rigging ploys since time immemorial. However, the true evil of rampant central bank money printing is that it vastly enables and amplifies such speculative ventures, while at the same time eviscerating the natural checks and balances against speculative manias which are embedded in honest…
by ilene - August 28th, 2014 2:04 pm
All over the world stocks are rising. In the US, the S&P 500 rose over the 2,000 mark for the first time in history. The Dow is over 17,000.
And if you want to buy a share of online TV network Netflix, Inc. (NASDAQ:NFLX), you will pay $144 for every dollar the company earned over the last 12 months.
If you bought the company outright, in other words, you’d have to wait until 2158 to earn your money back.
But this story is playing out from Timbuktu to Taiwan to Texas. Here’s the latest from Bloomberg:
Shares worldwide added more than $2.2 trillion in value since Aug. 7, according to data compiled by Bloomberg. Optimism that central banks will support economic growth sent the MSCI All-Country World Index up 3.8 percent from its low this month. The S&P 500 has risen for 10 of the last 13 days and the Nasdaq Composite Index is about 10 percent from an all-time high.Global markets are surmounting crises in Ukraine, the Gaza Strip and Iraq as investors renew bets that stimulus will revive growth. The Stoxx Europe 600 Index posted its biggest two-day gain since April after European Central Bank President Mario Draghi signaled policy makers may consider introducing an asset-buying plan. Japan’s Topix index is near its highest level since January, rebounding from losses earlier this year.
Put them all together, and publicly traded equities are now worth more than $66 trillion – just shy of total world GDP. That’s $12 trillion more than they were worth in the beginning of 2013… and it’s $30 trillion more than they were worth 10 years ago.
Stocks Up… Growth Down
What has happened during the last 10 years to make stocks so much more valuable?
We remind readers that shares are titles to ownership of real assets and the earnings they produce. And in a competitive economy, they shouldn’t be able to diverge too far from the cost of creating those assets.
by ilene - August 28th, 2014 1:57 pm
Courtesy of Mish.
Please consider the “official” exchange rate of the Bolivar to the USD.
Bolivar vs. US Dollar
- From 2005 to 2009 the official exchange rate was 2 bolivars to one US dollar.
- In 2009 the official exchange rate soared to 4.3 to the dollar.
- In 2013 the official exchange rate soared to 6.3 to the dollar.
Venezuela allows “very limited” trading at 50 to the US dollar in a parallel exchange called Sicad II.
On the black market today, it takes 89 bolivars to buy 1 US dollar. That is a 95% loss in value vs. the official exchange rate since 2013.
Black Market Record Low
Bloomberg reports Venezuela’s Black Market Bolivar Slides to Record Low.
Venezuela’s bolivar fell to a record low against the U.S. dollar on the black market today as the government tightens currency rationing to pay maturing debt.
A dollar fetched 89 bolivars on the Colombian border today, compared with the official exchange rate of 6.3 bolivars, according to dolartoday.com, a rate-tracking website. Two black market traders in Caracas, who asked not to be named because the trading isn’t legal, confirmed the record-low rate.
Inflation reached 60.9 percent in May, the last month for which figures are available, while according to economists surveyed by Bloomberg gross domestic product shrank 2.1 percent in the second quarter. The economic decline is pushing people to seek out dollars to protect the value of their savings, at the same time that the government tightens supply, Henkel Garcia, director of Caracas-based consulting firm Econometrica, said by telephone.
“The government has reduced disbursements of dollars at the secondary markets in recent weeks,” said Garcia, citing non-public data from the Venezuelan Banking Association. “They are trying to save up as many dollars as possible to meet obligations to bondholders.”
by ilene - August 28th, 2014 1:41 pm
Courtesy of SoberLook.com
The German business climate index tracked by the Ifo Institute declined more than expected this month, making it the 4th drop in a row.
The Guardian: – German business sentiment dropped for a fourth straight month in August as concerns about the Ukraine crisis and the effect of sanctions against Russia swept through corporate boardrooms in Europe's largest economy.
The Munich-based Ifo thinktank's business climate index, based on a monthly survey of about 7,000 companies, fell to 106.3 from 108, below the Reuters consensus forecast of 107.
A large part of the decline was of course due to the Ukraine crisis, but that was not the only cause of Germany's deteriorating private sector growth. Slowing exports to the rest of the euro area nations due to weaker demand as well as persistent economic headwinds in China (see discussion) have contributed as well.
This means that Germany is unlikely to support any further sanctions on Russia and will make a concerted effort to stabilize the situation (in spite of any pressure from the US).
The market reaction was swift, with the 10-year Bund yield hitting another record low.
Investors also piled into the three-year government notes, sending those yields into negative territory for the first time since 2012. The German government is now getting paid to hold your euros for three years.
In fact the nominal yield curve is in the negative territory all the way through the three-year point and showing signs of inversion – with the 1-year yield higher than the 3-year.
The euro dropped below 1.32, with rising expectations of diverging monetary policies between the US and the Eurozone. This was fueled in part by the Jackson Hole conference where Janet Yellen's speech was not as dovish as some had expected. The currency weakness will deliver some much needed relief for the euro area by helping the exporters and by providing some support to import prices. Currency weakness is one way to arrest deflationary pressures – the Japanese way.
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by ilene - August 28th, 2014 1:24 pm
By Dennis Miller
The American Legion sponsored a carnival every summer when I was a young lad. My dad was a legionnaire, so each year I had a job. Beginning at age 12, I hauled soft drinks and food to the various concession booths well into the night, which probably violated some labor laws.
Dad warned me about the carnival barkers, telling me to never play games where you try to win a giant teddy bear. They were rigged, he said, and no one ever wins—“So don’t waste your money.”
I questioned Dad’s advice when I saw other boys carrying giant teddy bears to the delight of cute teenage girls. So I quietly watched some of the games. Some people won silly goldfish, but few won the giant teddy bear.
Then I befriended some of the carnival workers and told them what my dad had said. To my surprise, they took his remarks personally. Each one stepped outside his booth to demonstrate just how easy it was to win by pinging ducks or knocking over little stuffed clowns with ease. The guy who shot the BBs told me to ignore the rear sights because they were off center. He also told me exactly where to hit the moving duck to make it go down. Ping, ping, ping! He knocked them down one after another.
He argued that the game was not rigged; if it were, eventually no one would play. But the odds were tilted toward those who practiced. I tried it, lost a dollar (one hour’s pay), and realized it was cheaper to buy the teddy bear than to spend the money to learn how to win consistently.
I think about those carnival games often, when friends and readers ask about market makers, brokers who help keep markets liquid and profit in the process. Do they just hold a unique position, or is something fishy going on?
24 Men Make History Under a Buttonwood Tree
Let’s take a step back to answer that question. The history of what would later become the New York Stock Exchange began in 1792, when 24 brokers and merchants signed the Buttonwood Agreement outside 68…
by ilene - August 28th, 2014 12:41 pm
Courtesy of The Automatic Earth.
NPC Robey Motor Co., 1429 L Street, Washington, DC 1926
More accusations fly across the media, like so many flocks of Canada geese, of direct Russian involvement in Ukraine. Much is made of an interview with Donetsk National Republic leader Alexander Zakharchenko, in which he “admits” there are Russian volunteers fighting on his side.
To the west, that’s all the proof they need. There are 1000 Russians in Ukraine, cries NATO. That doesn’t make them the Russian army though. If there are only 1000, that would be disappointing. These are people who are seeing their family just across the border shot to bits.
That Zakharchenko also said there were French and other nationals fighting on the same side is not deemed worth reporting. Just like not much has been made of the many thousands of German, British, French, Belgian, Dutch, Canadian and American nationals fighting in Syria and Iraq, mostly on the side of the IS. Other than the British guy in the beheading video, and the US citizen who got killed.
So the Commerce Department really just raised its Q2 US GDP estimate to 4.2%, one day after the CBO lowered its 2014 estimate to 1.5%? Oh my. What’s next?
I’m still thinking that even if Russia were involved in Ukraine, why would that make Putin a devil? After all, we know where the Ukraine army gets its financing from, and it too has many – foreign – mercenaries on its payroll.
Does anyone still think Putin is going to call uncle on this one? You should have been reading the Automatic Earth over the past year. He won’t, and he can’t.
Can we truly deny Russia, and Russian family members of east Ukrainian Russian-speaking people, the right to help out their people when they’re attacked by bombers and swastikas, while they have exactly zero planes themselevs? On what basis exactly? And what gives Kiev the right to bomb its own citizens?
But let’s not get into that again today. In the slipstream of the talks this weekend in Minsk between Putin and Poroshenko, a precious little detail seems to have escaped the western press entirely. But I think all our fine journalists will soon have to address it.
by ilene - August 28th, 2014 11:39 am
Courtesy of Pam Martens.
Pam Martens and Russ Martens discuss The Cleveland Fed’s Puzzle on Future Economic Activity. The Fed is trying to predict where the economy is headed. With a weak labor force and flat wages, the Fed is aware of the danger of raising interest rates too quickly and triggering an economic downturn. But labor markets and wages are only one piece of a complicated picture.
Jane’s Defense Caught With Pants Down: Ukraine Admits Rebel Counteroffensive, Including March to the Sea
by ilene - August 28th, 2014 3:27 am
Courtesy of Mish.
Jane’s Defense vs. Colonel Cassad Take II
In response to Jane’s Defense vs. Colonel Cassad: Someone Seriously Wrong, a close friend wrote …
Jane’s has been in business giving good advice for a century and could only do so by giving good advice. Everything I have read suggests that the rebels (who include a lot of Russian paramilitary) would have been about finished this past week, but for supplies coming in through Russian interference. The captured Russian soldiers two days ago day only make the interference look more like direct assault. Colonel Cassad, on the other hand, appears to be a complete whack job who idolizes Joseph Stalin and thinks Putin is to weak.
The political views of Colonel Cassad, whether you like him or despise him are irrelevant. His military analysis, denied by Kiev for the past two weeks, took precisely one more day to prove correct.
March to the Sea
For several days, I have been commenting on a rebel “march to the sea”, and the meaning of that march. On Wednesday, mainstream news verified the accuracy of my reports.
For no other reason than Ukraine could no longer hide the truth, Ukraine finally admitted what it could have and should have admitted a week ago: Rebels extend fight against Kiev to Ukraine’s south coast
Pro-Russian rebels entered a new town in southeast Ukraine on Wednesday while Kiev accused Russia of sending more troops into its territory, dispelling hopes of political progress after talks between the two countries’ presidents.
Rebels entered Novoazovsk, a strategically important town on the Sea of Azov 10km from the Russian border, the town’s mayor announced. It is on the road linking Russia to Crimea, the peninsula Moscow annexed in March, and is some distance south of the existing rebel strongholds of Donetsk and Lugansk.
The fighting around Novoazovsk creates a de facto new front in the conflict, close to Mariupol. This coastal city has been used by Ukraine as a logistical base to support its campaign against the rebels further north in Donetsk and Lugansk.
It could also signal that Moscow is seeking to establish a direct land link under its control between Russia and the seized Crimean peninsula nearly
by ilene - August 28th, 2014 1:15 am
Courtesy of Mish.
Every day, the cost of a plane ticket out of Venezuela goes up. That assumes you can get a plane ticket, and you probably cannot, even if you booked three months ago. Delta Air Lines, American Airlines, and Lufthansa cut the number of flights. Air Canada stopped all service.
Economy class tickets to New York city cost as much as $3,000, if you can get them. And you probably can’t. Instead, people take five-day rides to Lima, Peru as a means of escape. And that takes money as well.
The result is best described as Trapped in Venezuela
With the cash-strapped government holding back on releasing $3.8 billion in airline-ticket revenue because of strict currency controls, carriers have slashed service to Venezuela by half since January, adding another layer of frustration to daily life here.
The lack of flights is complicating family vacations, business trips and the evacuation plans of Venezuelans who want to leave the country, which is whipsawed by 60% inflation, crime, food shortages and diminishing job prospects. Steve H. Hanke, a Johns Hopkins University economics professor, says Venezuela tops his so-called “misery index,” which takes into account inflation, unemployment, economic stagnation and other factors in 89 countries.
“In Venezuela, you have the sensation that you can’t leave,” says Virginia Hernández, a Venezuelan who is studying orthodontics in Argentina. During a recent trip to see family in Caracas, she wound up marooned. The Venezuelan state-run carrier Conviasa had no plane available to fly its scheduled Caracas-to-Buenos Aires route, and other airlines servicing Argentina had sold out their flights.
The Caracas polling company Datanalisis found that one in 10 citizens—most of them middle- and upper-class Venezuelans between 18 and 35—are seeking to leave the country, more than double the number who sought to abandon it in 2002, which was marked by an unsuccessful coup attempt against then President Hugo Chavez and a paralyzing oil strike.
Travel agents are swamped with requests but turn customers away because there are no tickets to sell. Some travelers are left taking the bus, with trips to Lima, Peru, a five-day journey, now packed with middle-class Venezuelans who used to fly.
Many Venezuelans who want to leave the country simply can’t. Tickets for short flights to other transit hubs in the region, such as
by ilene - August 28th, 2014 12:04 am
Business Insider, St. Louis Fed, GDP growth.
The U.S. economy is still sputtering. (See GDP growth chart above.)
Why is growth so slow and weak?
One reason is that average American consumers, who account for the vast majority of the spending in the economy, are still strapped.
The reason average American consumers are still strapped, meanwhile, is that America's companies and company owners — the small group of Americans who own and control America's corporations — are hogging a record percentage of the country's wealth for themselves.
In the past five years, American corporations have boosted their profits and share prices by cutting costs (firing people) and buying back stock. As a result, unemployment remains high. And wage growth for the Americans who are lucky enough to be working has been pathetic — the slowest since World War II.
Meanwhile, America's corporations and their owners have never had it better. Corporate profits just hit another all-time high, both in absolute dollars and as a percent of the economy. And U.S. stocks are at record highs.
Even Scrooge would be appalled.
Many people seem confused by this juxtaposition. If corporations and shareholders are doing so well, why is the economy so crappy?
The answer is that one company's wages are other companies' revenues. Americans save almost nothing, so every dollar we earn in wages gets spent on products and services (including, in some cases, those of the companies we work for). The less that American companies pay their workers, the less American consumers have to spend. And the less American consumers have to spend, the slower the economy grows.
This isn't a complex concept. We're all in this together. People make it complicated by casting it as a political issue and inflaming partisan tensions. But it has nothing to do with politics.
Importantly, it doesn't have to be this way.