The Hype

There were two big stories today and even if you don’t follow business news, you couldn’t possibly escape either of the stories.

They were almost like radiation. You might wish that you could escape, but you can’t. You can’t even feel safe.

Chances are pretty good that you’re a Facebook user to some degree and chances are pretty good that you’re an Amazon shopper.

ark Zuckerberg, Meet AmazonThere are reportedly 800 million Facebook users worldwide. No one really knows that much about Amazon, though, as it tends not to release very specific data regarding  itself, other than what is required by the Securities and Exchange Commission.

Sometime today Facebook is expected to announce details of its IPO. Following the model so well popularized by the likes of Linkedin, Groupon and Zynga, Facebook is only going to release 5-10% of its outstanding shares, with a reported valuation approaching $100 billion.

There’s no way you could have avoided any of that news over the past couple of days.The hype has been incredible. In fact, Herb Greenberg of CNBC did an interesting piece the other day of a “respected” broker-dealer huckster perhaps skirting regulations and hyping the need to invest in the pre-IPO ownership of the next Facebook, which now happens to be Facebook.

This one will be among the hottest IPO’s known to mankind and we’ll undoubtedly hear lots about the inequity in the process of distributing shares, as anyone that you’re likely to know will be shut out of that process.

Back when I was just getting started with my broker in the 80’s, I actually received allocations on a reasonably regular basis during a period of time that the IPO market had been heating up, after a long period of dormancy.There was no doubt that during that period a disproportionate share of my realized profits came from those “gifts”.

The funny thing was that as I became a better client and as my portfolio grew, the offer to pick up shares in the next “hot IPO” actually disappeared.

And I understood that. It’s not much different from a pimp giving his main money maker crack. Once she’s hooked, she’s yours and then you re-allocate your resources into other markets.

It’s probably not too much of a coincidence that the lead underwriters of the Facebook IPO, Morgan Stanley and Goldman Sachs have done quite nicely since the speculation began.

Happily, I own both, but will lose them on Friday to assignment, at their current prices. Yet, still happy to do so.

Since I am now an E*Trade customer and actually make a couple of thousand trades a year, I do get offers when E*Trade gets an allocation for an IPO.

It’s not much of a no-brainer, however, to realize that if E*Trade itself was part of the offering syndicate it probably would be a good idea to stay away from the offering.

What I wonder, as I look at the 100% probability of not receiving an allcoation, since Facebook is not going the Google egalitarian route, is that there must be a better way.

That better way, obviously isn’t using the TicketMaster model, as I got shut out in my attempts to buy Bruce Springsteen tickets this past Saturday. Despite being at the ready promptly at 10 AM as directed.

By 10:04 AM all tickets were gone.

Amazingly at the same time there were already 184 tickets for sale on StubHub, an eBay company.

You know, it’s actually a lot easier to complain than it is to offer a solution. I’ll bet that if Live Nation did run the IPO and Bruce Springsteen got shut out in his bid for shares, there’d be more than just a Congressional hearing.

In the case of Amazon, no one can really offer a solution in the aftermath of its disappointing earnings released after yesterday’s market close, so if you’re long the stock, you have the right to complain.

The Amazon smile logo? Turn it right upside down. You have that right.

They can’t offer solutions because no one really knows what the problem is, or whether the most recent quarter portends for anything equally onerous down the line.

Amazon, ubiquitous as it is, is as good an example of a benign dictator in charge, within the world of publicly traded companies as there could ever be.

It’s CEO, Jeff Bezos, is always smiling and has a very unique laugh.

He laughs alot, so how can you not like him?

On top of that, as a consumer, they deliver the goods and frequently without delivery costs.

Taxes? For the most part, you can forget about the burden of paying sales tax.

What a great model. They beat everyone on price, inventory and service

And so after the numbers were released for that great model, shares plunged in the after hours market and eventually opened down more than 10% in the morning.

Given that its shares always move big in one direction or another after earnings are released, no one should be surprised of the size of this morning’s move. Maybe just the direction.

Suddenly, the dictator wasn’t quite as benign as the complaints came out about the opacity in reporting and the lack of transparency that everyone loves to see in a publicly traded company.

When the sausage tastes good you really don’t want to know how it’s made, but as soon is it starts to have a hint of racidity, it’s full disclosure and nothing less.

It’s probably a good guess that those complaints came from shareholders.

That’s what Mark Zuckerberg is likely to give up if and when Facebook goes public, but he may be able to find some solace in the fact that Bezos has been able to nuance the transparency issue and as long as the numbers are good, no one really notices.

To me, Bezos reminds me a bit of that highly regarded employee who always seems to have everything under control. You know the kind. The one that never takes a day off. The one that has a year of vacation time accrued.

Yeah, the one, who when he suddenly takes ill or dies, everyone discovers the house of cards that he was busily protecting.

That’s likely an over-exaggeration, just like hype is supposed to be. No one remebers the hype if it turns out not to have been an accurate reflection of future reality.

Actually, I did end up making the straddle trade on Amazon that I anguished about yesterday and was pleased to see the big move in either direction. I unwound the put portion of the trade and am now holding on to the call piece, hoping for a bit of a rebound.

Greedy? No?

But I’ve decided to stay resistant to the hype of finding profits in these straddles. Depite opportunities coming before today’s close in both Green Mountain Coffee Roasters and MasterCard, I think that I’m ready to stay away from pleasant and unpleasnt surprises, even if the unpleasant surprises can still be parlayed into an advantage.

I don’t have very much doubt that Amazon will come bouncing back.

In fact, it fell to the price that I had my shares assigned from me just two weeks ago, yet I don’t have the burning desire to welcome the shares back home

At least that much is predictable. Regardless of how hard people try to disprove certain basic laws, gravity still seems to hold court.

That’s no hype.


Check out Recent PortfolioTransactions and Transaction Performance 


Recent Trades Security Type Action Type
February 1, 2012 ZSL Option STO Monthly
February 1, 2012 ZSL Stock Added
February 1, 2012 HAL Option STO Weekly
February 1, 2012 HAL Stock Added
February 1, 2012 MOS Option STO Weekly
January 31, 2012 AXP Option STO Weekly
January 31, 2012 BP Option STO Weekly
January 31, 2012 HAL Option STO Weekly
January 30, 2012 XLF Option STO Weekly
January 30, 2012 XLF Stock Buy
January 30, 2012 MS Option STO Weekly
January 30, 2012 FMCN Option STO Monthly
January 30, 2012 FMCN Stock Added
January 30, 2012 GS Option STO Weekly
January 30, 2012 GS Stock Buy
January 30, 2012 HAL Option STO Weekly
January 30, 2012 HAL Stock Buy
January 20, 2012 MOS Stock Buy
January 30, 2012 V Option STO Weekly
January 30, 2012 V Stock Buy
January 30, 2012 RVBD Option STO Monthly
January 30, 2012 RVBD Stock Added