Tuesday, July 28, 2015

Twitter Fritter v.7

Ah, another quarter rolls by and Twitter burns another $136,000,000 using generally accepted accounting principles.

Are you a Twitter shareholder, hanging on to those shares "worth" $36.54 each? The company issued a fresh $175,000,000 worth of shares this quarter to pay employees and executives. Who slurped up all those new electronic shares of a company that has never earned one penny in profit? Lucky Twitter shareholders. Smart move!!

If you want to hitch your wagon to a hot Dot Com 3.0 company, I have a digital start up called projectile-vomit-shares.com. Here's the idea. Anyone can login to my server and post some text (limited to 160 characters), then everyone else can see their post. Meanwhile, the company will digitally projectile vomit roughly five million shares a quarter that lucky investors can buy. I only plan to issue $100,000,000 in shares each quarter to pay for my living and operating expenses and I promise I will lose less than $136,000,000 each quarter using GAAP. Note: This is not investment advice. Management makes no claims on forward looking vomit or projectile vomit.

See also: Twitter spends 35% of revenue on stock-based compensation

Monday, July 13, 2015

July 13, 2015 - Greek total surrender

After all the bluster and referendum, Greece gave in to total and utter surrender to their creditors. The details of the deal are horrific for Greece, supposedly mortgaging airplanes, airports, islands, and other assets to secure the third bailout. They will also be forced to pass specific legislation on a tight timeline. All humiliating, much like the loser of a bloody war.

The punchline is that the math of the deal will not work for long. The Greek debt will head up toward 400 billion euros, nearly double their GDP. Good luck squeezing more taxes out of an economy where the banks remain closed. The pain for the Greek people will be extreme and it would have been had they left the euro. The difference is that this crisis will be back again until and unless there is a large write down of the debt. There is no hope and no future in Greece. Only the grinding Euro boot on their face. Oh my.

Saturday, July 11, 2015

July 10, 2015 - Greek capitulation day

Less than a week after the Greek people voted against the latest EU bailout ultimatum, the Greek government caved completely and approved what amounts to the very same harsh bailout terms. Tspiras and the "radical left" were too afraid to actually listen to their own people and act to take their monetary future back into their own hands. They are good at talking but not doing.

With cooing noises from the IMF and some Euro leaders, markets thought this meant a new Greek deal was as good as done for this weekend. Some in the Eurozone see the need for a serious debt haircut for Greece to recover, Germany, Finland, the Netherlands, and a few others don't see it the same way. Germany has now floated a 5 year suspension of Greece from the Eurozone to "get their shit together", while allowing it to stay in the EU.

Their were all kinds of uncertainties after Greece voted No on the referendum. These continue to unfold over the weekend and I am sure will continue throughout the next week. This situation can still spin out of control in many different directions. Each kick of the can for Greece gets more expensive and this next one, priced at around $80 billion, may have reached a threshold where it overwhelms the political desire to keep the Eurozone dream alive. Fascinating, isn't it? Everyone knows that a new deal only makes the problem worse -- unless there is giant haircut which causes other kinds of big problems right now. There is no way out.

My friend Mr. T has one prediction...Pain!

Sunday, July 5, 2015

July 5, 2015 - Greek independence day

The news coverage is thick on the Greek referendum where the population rejected the Troika ultimatum. This was a big game of chicken and the Greeks just won not only the game but potentially their independence from the death grip of the horribly flawed Euro monetary union design. I've been expecting this since 2010, it only took 5 more years for the Euro system to break.

Still, there are mostly unknowns ahead for the EU, IMF, ECB, and Greece. A lot of different scenarios can unfold, including Greece staying in the euro while defaulting on the debt. They could end up out of the euro eventually. What they can't do is repay their outrageous debt in euros. This also sets a precedent for other members to turn their backs on the smart people running the EU experiment. It is going to be difficult and painful for the Greek people in the short run, but I hope they make the adjustments they need to right their economy. A big step forward is to dump their debt or at least give it a big fat haircut.

Monday, June 15, 2015

Twitter Fritter v.6

I have been heckling Twitter (the stock) since November 7, 2013. It looks like investors are finally getting the fact that Twitter only knows how to lose money, then make it up with stock diarrhea. They fired their CEO and are searching for a new one. After the IPO, Twitter had a market cap of $24.93 billion. Today, it is $23.51 billion. Still an amazing number considering they haven't made their first dollar of profit.

Twitter is seen as a valuable news source by millions of people, but as a company that can make profits, I concluded long ago it was not in their DNA. To make profits, they would probably need to tweet ads at people in about a 3:1 ratio to real tweets. The last time I tried to use it, I got mostly ads tweeted at me from news sources like the New York Times instead of news. I lasted one day before I quit. Good luck growing that user base if it turns into an ad spamming service.

Unlike Facebook, which has the richest set of user demographic data in the history of man, Twitter doesn't know very much about its users and I think will have a harder time with targeted ads. They also have to compete with Google for ads. Finally, there is evidence that millions of accounts are fake and that followers can be bought rather cheaply.

I think it is possible that Twitter could be scaled back and run profitably if they were made lean, focused on their core service, and stopped with the stock diarrhea. Maybe a new CEO will figure out how to do that, but the current culture is live large and poop stock certificates. A very dotcom bubble version 1 attitude that might be impossible to fix.

Tuesday, April 28, 2015

Twitter Fritter v.5

It's been awhile since I updated my chart on the corporation that specializes in hemorrhaging money, otherwise known as Twitter. They have continued their losing ways since they were incorporated, and since they went public. Today's earnings press release shows a loss of $162 million on revenue of $436 million. It costs a lot of money to handle 140-character text messages in this day and age. They also lowered projected earnings for the rest of the year.

The stock crashed after earnings (like it does after every miserable release), but the company is still valued at over $26 billion!?! Twitter is an amazing machine and while they have never and probably never will make any profit, they have mastered this sleight of hand:

1. Issue hundreds of millions of worthless stock shares
2. Sell stock to stupid investors
3. Pay employees with (temporarily) valuable stock
4. Lose hundreds of millions of dollars each quarter
5. Rinse, repeat

How do they do that? In DotCom 1.0, it was all about eyeballs. Twitter uses the term "Monthly Active Users (MAUs)" which is the same as, well, eyeballs! The more snake oil changes, the more it stays the same. Twitter stock owners can take solace in the ringing endorsement 4 days ago by Jim Cramer. Cramer thinks Twitter has room to run. Bet the farm, go all in, this is easy money. If you already own Twitter, now is the time to BUY MOAR. Hahaha.

Saturday, April 11, 2015

Amateur Economist Says It Might Be Time to Abolish Citibank

Would this save the world economy?

The world has a problem.

When economic conditions worsen, central banks react by reducing interest rates in order to trick stupid people to part with their savings. But, as has happened across the world in recent years, there comes a point where those central banks run out of room to cut — they can bring interest rates to zero, but reducing them further below that is fraught with problems, the biggest of which is they don't have absolute control over every human being in the economy.

In a new piece, Citi's Willem Buiter looks at this problem, which is known as the effective lower bound (ELB) on nominal interest rates. Fundamentally, the ELB problem comes down to theoretical gobbledy-gook that academics use to justify destructive economic policies. According to Buiter, the ELB only exists at all due to the psychedelic trips taken by economists in their early college years of drug experimentation.

An amateur economist, Billy Biter, claims that big banks and their poorly reasoned policies are the biggest threat to the world economy. Biter suggest three ways to address this problem:
  1. Abolish Citibank
  2. Tax commercial banks at 99%
  3. Remove the fixed exchange rate between currency and bank employee paychecks.
Yes, Biter's solution to evil banks is to abolish them altogether. (Note that he's far from being the first to float this idea.)

Biter is aware that his idea may be somewhat controversial, so he goes to the effort of listing the disadvantages of abolishing Citibank.
  1. Abolishing Citibank will constitute a noticeable change in many people’s lives and change often tends to be resisted.
  2. Citibank use remains high among the uneducated, poor and some older people.
  3. Citibank owners and creditors would lose revenue.
  4. Abolishing Citibank would inevitably be associated with a loss of campaign donations to government.
  5. Switching exclusively to credit unions may create new security and operational risks for oligarchs and their congressional cronies.

Biter dismisses each of these concerns in turn, finishing with:
In summary, I therefore conclude that the arguments against abolishing Citibank seem rather weak.