Facebook IPO Best and Worst Case Scenarios

Facebook released their numbers in preparation for an IPO, showing 2011 revenue of $3.7 Billion and profits of $1 Billion. Speculation is the IPO will be valued as high as $100 Billion.

This would be a P/E of 100. That’s high, but then P/E’s are not as significant an indicator for young companies with a lot of growth potential. So can Facebook grow enough to justify a $100 Billion price tag? I’m not so sure.

The easy justification goes like this:

  • Facebook has been focused on user growth and they were still growing 100% per year. When they switch focus to revenues, they’ll make much more.
  • If they “just” double revenue and profits in 2012 and again in 2013, that 100 PE will shrink to a 25 PE.

So that would be a $100 B company making $4B per year on $15B revenue or so. (For comparison, Google has a $190B market cap and made about $10B profits on $38B revenue in 2011.) One could see the stock of a company growing like that getting a 50 P/E and basically doubling your IPO investment in 2 years. It’s plausable.

All those numbers were out my ass. It’s easy to multiply numbers on a calculator. But how will Facebook REALLY make an additional $11B in revenue and $3B in profit?

The Best Case Scenario

Facebook makes money on advertising on their site. They also make money from virtual currency sales, i.e. in-game payments in Zynga games. Roughly:

  • $3B from onsite ads.
  • $1B from virtual currency.

Both those numbers will have to double twice over two years to get to our $15B revenue target. (Same math as above.)

That’s hard to justify though. Google, who dominates the online ad market made about 1/3 of their profit from search ads or about $12B last year. We’re saying that Facebook can get to that same level of revenue in 2 years? Literally over half of the money spent on AdWords campaigns would have to be shifted to Facebook ads. I’m not that close to the ad space, but I’d love to see someone justify that.

But what the hell, this is the best case scenario after all. Ad sales grow to Google proportions and hit $12B in revenue.

Can virtual currency sales grow 200% over two years? Who’s the king in app sales? Apple. In the last quarter of 2011, when Apple made pretty much more money than any company has ever made, they made a cool $2B on “Other music related products and services”, which includes “revenue from sales from the iTunes Store, App Store, and iBookstore in addition to sales of iPod services and Applebranded and third-party iPod accessories.” (Apple’s SEC Filing)

Let’s say Apple keeps that up for the next 3 quarters. They will make $8B from app sales, music sales, books, and in-game sales. Facebook doesn’t currently sell apps, music, or books, but maybe they will start. Are they going to become half as big a player here as Apple is now? Let’s give them the benefit of the doubt. Facebook is one step away from the devices, so $8B would be a bit much. Let’s say they grow to $4B.

Facebook might add additional revenue sources. They could start making money in these ways (let me know if you have others):

  1. Sell ads on third party sites. (Google made $1B doing this.)
  2. Charge companies for their Facebook pages. (10M businesses x $10/month = $1.2B/year) (more ass numbers)
  3. Partner with Bing to launch a search engine of their own (Yahoo! made $500M doing this. Maybe Facebook can get to $1B).
  4. Get into LinkedIn’s business and sell job postings (LinkedIn had $250M revenue in 2010. Let’s give FB $500M).
  5. Get into Craig’s List’s business and sell property listings (Another $500M?).
  6. Get into Zynga’s business and develop games in-house ($2B).

We end up with $12B in ad sales, $4B in virtual sales, plus another $6.2B in new stuff for a total of $22.2B in revenue. At a 30% margin that’s $6.6B in profits. Our PE is now 15; market average. And with the growth they have, you could justify a big 50-60PE for a lot of investors. The company rises to a $300B to $400B valuation.

Worst Case Scenario

What’s the worst case scenario? Put simply, it’s that Facebook’s growth will slow down, and this IPO is just a big liquidation event for existing share holders to cash out.

Some bad things could happen:

  1. Zynga games and the like take off outside of Facebook. FB loses the games or is forced to lower their cut.
  2. FB increases the number or the invasiveness of ads on the site. People flee to Google+.
  3. FB starts charging for business postings. Businesses flee to Google+.
  4. FB Search, FB Jobs, and FB Properties all fail, costing billions in lost R&D.
  5. MySpace comes back. Diaspora takes off. Twitter gains ground.

In the past few years, those 100% revenue gains have come along with similar-sized user gains. But user growth has slowed. So they’ll really need to squeeze more money out of advertisers.

All this might lead to minimal gains in current revenue streams (let’s say 25% year over year) and then let’s assume they just blow their $5B raised on 1-5 above. That would equate to revenues of $6.25B – 2.5B (5/2 years) or just 3.75B revenue in 2013. That’s where they are now.

With revenues and profits stagnant after 2 years, IPO investors are tired of waiting it out and flee the stock. Facebook apologizes for the missteps and vows to focus on their core advertising which is still growing 25% per year. Still the stock tanks 50% or more if sentiment turns.

Summary

Well assuming the bullshit above stands, we got a 300 to 400% upside and a 50% or so downside. This actually might be a good investment. But I imagine I wasn’t tough enough in my worst case scenario. And I was surely too optimistic in my best case scenario.

Still, I wanted to think these things through. I wanted to focus on how Facebook will really make more money going forward, because that’s what they’ll have to do for the stock price to rise. And the money can’t come out of thin air. It has to come from some other company’s market share or from consumers and businesses purchasing something they haven’t before.

Personally, my initial reaction is that $100B is too high a market cap for this company. After doing this post, I’m actually more optimistic for Facebook… especially if the IPO price sees a little dip at some point without hindering the excitement around the company. Still, I think this is definitely too uncertain for me to be an investor or to recommend the IPO.

I’d really love to hear more feedback about this. Am I delusional? I’m especially interested in anything I’m not considering with regards to how Facebook will make money going forward. Is it more than just pushing their ads harder? Perhaps as a public company, Facebook themselves will comment on this sometime.

Treasuries May Crash, But Shorting Them Isn’t Worth the Risk

jeffrey_matuellaEditor’s Note: The following is a guest post by J. Tyler Matuella.

J. Tyler Matuella is the Publishing Manager at the University of Virginia’s Center for Politics. He also is the author of “Unsustainability in Today’s Sustainable Development” published in Development and Cooperation Magazine, Verge Magazine, and World Review of Science, Technology, and Sustainable Development. He’s majoring in International Business and Accounting at UVa’s McIntire School of Commerce.

Chasing the Next Treasure-y

Everyone has heard about the famed handful of investors-Michael Burry and John Paulson, amongst others-who saw the real estate bubble forming in the early 2000’s and purchased the lucrative credit default swaps to cash-in when the system collapsed. A couple of those investors made billions in a few months from essentially shorting mortgage-backed securities. Now it seems like there’s a new fad on the Street to discover the next bubble and short it, in hope of making record returns. Many of these hungry investors have turned their beady eyes to the U.S. Treasury market.

Record deficits, the European PIGS, and the Greek debt bailout have put sovereign solvency on the short list of investor concerns since the 2008-2009 financial crisis. Even as the world has seemingly recovered from the dark trenches of the crisis with the resurgence of the equity markets, many investors are still waiting for the real bang.

But they’re not just referring to the Eurozone debt turmoil across the pond. There has been a lot of talk recently about shorting U.S. Treasuries right here at home as sentiment about the unsustainability of the debt has reached a fever pitch.

Real Concerns, Real Consequences

The concerns are valid. Some people are worried that the U.S. government’s ballooning debt, coupled with a decreasing demand for Treasuries as the equity markets heat back up, will force the U.S. government’s borrowing rate to rise.

On a more pessimistic note, other investment analysts think that gridlock in the nation’s political system will prevent the government from passing tax hikes and spending cuts that are needed for the government to rein in the debt-the eventual implication is a Greek-like debt crisis. As Treasury Secretary Timothy Geithner warned in early January, “Even a short-term or limited default would have catastrophic economic consequences that would last for decades.”

Perhaps the best case scenario (for the United States, at least) for the fall of Treasury prices is that there’s a compelling argument for significant inflation in the near future. Massive amounts of increased government spending, tax cut extensions, and record low interest rates indicate that the economic system is flooded with cheap, pent-up money that will have to be spent at some point. When that happens, inflation will take charge and Treasury yields will have to jump to continue attracting investors. But at least the inflation will eat away the value of the U.S. national debt.

Small Upside, Large Downside

Short positions are already risky. Such is the case with any investment that has a finite upside and an unlimited downside-(although the downside of shorting Treasuries is not unlimited since most investors won’t accept large negative yields). Treasuries take the risk to a different level, however, and I will explain why it’s nearly impossible to earn a huge profit from simply shorting a bond or using a credit default swap on U.S. debt.

If bond prices fall, theoretically the return from shorting a U.S. Treasury could be anything from a few cents, to the entire value of the bond if the government defaults. To those who are convinced that Treasuries will tank because the insolvency threat is real and coming, then it doesn’t sound like a bad investment.

But there’s a key problem with that logic. Even though it may seem obvious, U.S. debt is denoted in dollars. That’s a critical distinction from Greek or Portuguese debt, which is denoted in a supranational currency-the Euro-rather that their own national currency. If investors are looking to earn landslide profits from a steep fall of Treasury prices because of rampant inflation or government default, then that very situation will correspondingly come with a huge decrease in the purchasing power of the U.S. dollar. Since U.S. debt is denoted in dollars, the purchasing power of that windfall profit from the Treasury short could drastically reduce the real return, depending on the severity of the price drop. There won’t be an opportunity to protect the profit by converting it to a foreign currency because the dollar value will simultaneously drop as the winnings are earned.

Some investors have bought credit default swaps on U.S. debt that pays in Euros. However, the exact same problem occurs in that situation as well. Large per-trade profit margins for retail investors are restricted because foreign banks will charge a premium, around the time of the crash in Treasury prices, to insure U.S. debt because they’re not only dealing with the chance of default, but also the foreign exchange risk. CDS are even more risky since they only pay out in the event of an actual default, and it’s very difficult to imagine that the U.S. government would choose to default instead of just running the printing presses more.

The chart below shows the nature of the restriction of real return per bond if an investor does a “simple” short on a 10-yr bond purchased at $100 face-value :

real_return_from_short_position_vs_fall_in_10yr

Is It Still Worth It?

Now that we can see there’s inherently only a small to medium upside to shorting the U.S. Treasuries, the question remains, is that limited potential for gains still worth the risk?

The easy answer is that it depends on investors’ risk tolerance. If you’re a big risk taker or someone with lots of cash like a hedge fund, and if you can afford short term losses and don’t mind earning smaller margins per trade, then go for it. The potential for large absolute gains from making high-volume, small-margin trades still exists on a day-to-day basis without harm to the currency. Investors take advantage of small bond price movements every day. However, as I argued before, any large drop in bond prices will be self-defeating and inherently restricting. The “big bang” of profits that investors found in shorting the real estate market in 2008 simply doesn’t exist in the bond market, in part because of the different nature of the financial instruments used.

To more risk-averse investors, trying to profit by day-trading in the bond market may prove particularly difficult, given the current state of world affairs. If the events in Tunisia and Egypt have taught us anything in the past weeks, it’s that the prices of equities and Treasuries are not governed by purely market forces. Between January 25th and January 30th, investors exited equity positions and fled to the security of U.S. Treasuries amidst fears that turmoil in the Arab world could roil economic growth and pressure oil supplies.

Even with all of the convincing economic evidence for why bond prices should have been falling, bond prices rose for almost a full week while equities fell. Once investors realized their fears had no economic grounding, bond prices fell back and equities returned to normal. If someone shorted bonds that week, they would have lost a lot of money-the problem is that every economic model in the world couldn’t predict what happened in Egypt.

A Riskier Way to Short the Treasury Market

For small-cap retail investors who are certain that bond prices will fall in the coming months, there’s an alternative to take advantage of the fall in bond prices and still earn a huge return without the currency risk. Some inverse U.S. Treasury ETFs, such as the Horizons BetaPro U.S. 30-Year Bond Bear Plus ETF (HTD), allow investors to use leverage to short the U.S. bond market. This ETF is denominated in Canadian dollars, and it hedges against exposure to the U.S. dollar every day. As long as the investor considers the denominated currency’s home country to be “debt-stable,” then this investment avenue effectively reduces the currency risk.

However, there are some salient problems with investing in inverse ETFs-especially levered ones-from a risk-return standpoint. The returns on a daily basis of HTD, for example, range from +200% to -200% because of the leverage. As a result, holding onto these types of funds for more than a few days can be deadly. Treasury prices may fall for four straight days, earning the inverse ETF investors massive returns with leverage, but only one or two days of small to medium-sized losses later can negate multiple days’ gains, even to the point where the net return on investment is negative. While market fundamentals exhibit compelling evidence for why Treasuries should consistently fall, a little political turmoil around the world could cause Treasuries to rise again short-term and severely hamper the returns from inverse ETFs. Since investors really shouldn’t hold onto these levered inverse ETFs for more than a few days at a time because of the compounding high risk of doing so, investors will have to keenly get into them just before the debt crisis in order to earn massive returns-that is, if a U.S. debt crisis occurs at all.

If You Do It, Do It Right

Going short on bonds probably isn’t the best way to take advantage of a debt downgrade or rising inflation in the U.S. vis-à-vis going long on metals. But for investors who insist on taking the risk, the best way that I have heard to do so is to short the bond, take the money gained from the sale of the borrowed bond, and immediately put it in a forex Euro futures contract. That way, the investor locks in the exchange rate and preserves the purchasing power of the initial investment. Even if the dollar greatly depreciates in the meantime, the investor will still walk away with a solid gain. Depending on how far the bond price falls, the investor could still earn 60-70% per trade, though that size return is highly unlikely. In addition, the risk of betting against the world’s reserve currency over the course of an entire yearlong contract makes it an even riskier position, and perhaps more apparent why shorting Treasuries may not be worth the risk.

Playing the Game Requires Knowing the Risks

The dollar still holds strong as the world’s reserve currency, which could prove an obstacle in the future to investors who short bonds amidst political turmoil in the Middle East. And since large profits (per trade) from shorting bonds are very unlikely even in the event of a debt crisis, it doesn’t make sense for most small-cap, retail investors to play the high risk, low return game that characterizes the bond market. However, for those who insist on profiting from shorting the potential debt crisis in the United States, doing a regular short and putting the initial payout in a forex Euro futures contract may be the best way to produce solid returns with minimal currency risk.

Paul Krugman

PRINCETON, NJ - OCTOBER 13:  Princeton Profess...

Image by Getty Images via Daylife

I’ve been reading Paul Krugman’s blog at NYTimes.com daily. Paul won a Nobel Prize for economics, so obviously a smart guy. He’s very thoughtful and always bases his opinions on research and current economic thought.

I basically defer to this guy on all economic issues like finance reform, the Greek Economy, the Euro, and the economics of Health Care Reform.

Make sure you also check out his larger “columns” which are featured elsewhere on the site. There is usually a list of current/popular ones in the right sidebar of his blog.

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Interview with Herb Greenberg at KirkReport.com

There is a great QA with Herb Greenberg over at TheKirkReport. A few snips from the article:

Kirk: For good or for ill, how do you see financial journalism evolving with the use of blogs and other social media?

Herb Greenberg: The good: Leveling the playing field with an enormous amount of information. Bad: Zero accountability. Beyond traditional journalists, anybody can say anything under any name – real or assumed – and in the end those same people can disappear.

Kirk: In all of the research you’ve done, what are the names of some of the companies you think are managed well and you also think deserve shareholder praise?

Herb Greenberg: Good question. Apple is an obvious. So is Starbucks, despite its problems. But there are plenty. You know who I really like? The guys who run P.F. Chang’s. For years, when I would write critical commentary, they would take my calls and answer my questions. They never took it personally. They were very non-promotional. They understood that the restaurant business is the restaurant business, which means success is not guaranteed. Regardless of the stock price, Dick Federico and Bert Vivian are great operators.

Kirk: Are there any books or other resources (websites, etc.) you’d recommend for those who wish to learn more about how to undertake forensic financial analysis and investing in general?

Herb Greenberg: Anything by Charles Mulford, the Georgia Tech accounting prof. Ted O’Glove’s classic, “Quality of Earnings.” And keep an eye out for Howard Schilit’s latest revision of his “Financial Shenanigans” book. I’ve reviewed it; it’s very good.

Read the full interview at thekirkreport.com.

Top Finance RSS Feeds

I haven’t touched an RSS feed/reader in over a year, but I’m getting back into Google Reader… trying to bring interesting things to your attention.

Anyway, this guy emailed us a while ago with his list of the best 100 Finance RSS feeds. Obviously link bait, but the list is decent. I’ll add some of these to my reader.

Brief Note on Goldman Sachs

Goldman Sachs Tower in Jersey CityI wanted to comment briefly on the whole Goldman Sachs thing. The accusation, if you aren’t familiar, is that Goldman, with the help of or on behalf of John Paulson, created these mortgage CDOs that were basically setup to fail. That would allow John Paulson and Goldman to short the CDOs while at the same time Goldman sold them to their clients.

It’s all a lot more complicated than that of course. Goldman Sachs is a big company that does a lot of stuff. They have clients on different sides of the market all the time. Which is why they may be able to use some kind of “client duty” argument as written about on businessweek.com here.

There is a middle ground here, between two knee-jerk reactions… anti-Goldman voices saying “it’s so simple” and pro-Goldman voices saying “it’s so complicated”. Goldman can’t be held responsible for everything they do on behalf of clients. True. However, they can’t just use stand ins and subsidiaries to manufacture the illusion of a separation of interests. If there really is some person or hive-mind that knew the whole story as we know it now and let it happen, or worse engineered this to happen… then that person or those persons need to be dealt with.

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Has Mike Carson Disproven Efficient Market Theory Using Inspectd.com?

On March 23, Mike from UglyChart.com announced that he had “Absolute proof that the Efficient Market Hypothesis is incorrect, that Technical Analysis works, and that I wasted too much time on inspectd.com“.

Here’s a bit of a time line before and since:

March 20, 2008: Inspectd.com is listed in the “links for” post at UglyChart.com.

March 21, 2008: TechCrunch posts an article about a new “Time Waster” called Inspectd.com, and the rest of us notice this site that “has been around for a while”.

March 22, 2008: Ugly posts How to turn $100,000 into $6 Billion+ on inspectd.com, including this video:

Mike gives these 3 tips:

1) I hit the skip button A LOT.
2) I only went long (bought) – and never shorted (sold).
3) I simply waited for a chart with an uptrend before buying

March 22, 2008: Later that day, Mike posts that he broke inspectd.com – can’t go over one trillion.

March 23, 2008: Mike creates a new account on Inspectd and takes that to 1 Trillion+, claiming victory in a post entitled Absolute proof that the Efficient Market Hypothesis is incorrect, that Technical Analysis works, and that I wasted too much time on inspectd.com.

I thought by doing it again, I would show anyone that might have thought I was just lucky on my first trillion, that it wasn’t just luck – it was technical analysis. Technical Analysis really works. A lot of us traders already knew this.
Q.E.D.

Some Arguments

No more fun and games. We’re talking serious economic theory here. And so comments on the Uglychart blog bring up some counter arguments.

Brad says, “To invalidate the efficient market hypothesis, you would have to show that randomly selecting the points would have done significantly worse than your selections.”

Ugly says, “I’ll make a few accounts and make the exact number of trades as I did to make a trillion, but make them totally random – without looking at the chart. I am sure the performance will be much worse. Will that then invalidate the efficient market hypothesis for you?”

I commented:

Do you know how many charts Inspectd has? Do you think you either consciously or unconsciously recognized charts from earlier Inspectd runs … or even real life?

Ugly replied:

I think inspectd just pulls random charts from aol – random timeframes. I never noticed it repeating once…

…I did not recognize any charts from real life. Even if it was a stock I traded, you have to remember that it is only pulling a certain timeframe out. So even if it were HANS or something, I probably wouldn’t recognize it, because it would be a snapshot of a random time on HANS…

…The thing people need to remember is that this is not meant to replicate real live trading. Yes, there are a lot of other factors that come into play with real live trading. It is a practice tool. BUT, in my opinion, it proves that the efficient market hypothesis is wrong. And that TA works.

JZYCRZY points out what we all know about how trading $100,000 differs from trading $1Billion, commenting “Do you really think it will be possible to invest 100% of, lets say, a $5 million portfolio into a single stock without massively affecting volume and causing a huge price change/mkt reaction?”

Ugly correctly replies:

thanks for your comments, but I think you are wrong. I think it is a perfectly acceptable argument against the efficient market hypothesis. I know it is not the same as real live trading. As I have said many times before, there are a lot of other factors that go into real trading. HOWEVER, it provides clear proof that future prices CAN BE predicted from past prices. And that alone is enough to disprove the efficient market hypothesis. Do you not agree?

To be clear here, I agree with Mike that it doesn’t matter that trading $1Trillion dollars on a penny stock for 100% profit isn’t something that is possible in real life. However, the fact that he can consistently make +E/V bets is. The question (to me) is to figure out if his bets are more +E/V than someone simply buying everything and holding forever. That’s harder to tell. We’ll get back to this…

I wanted to also highlight a comment by Mike that puts the “can’t trade so much money” argument on its head by turning a statement like “TA doesn’t work because investing super large sums of money will impact the market” into “TA works because folks investing super large sums of money impact the market and I can take advantage of that with my less than super sum of money”. Something like that…

TA is logical if you think about it for a minute. If Warren Buffet is buying up shares of a company because it is a good investment – don’t you think that will have an impact of the chart? If Warren Buffet is selling shares because he thinks a company is overvalued, don’t you think that will have an impact on the chart? Don’t you think this kind of inside information on Warren Buffet’s trades would be valuable? This is why TA is logical.

March 25, 2008: Ugly gets to 1 Quadrillion dollars.

March 27, 2008: I missed the Zimbabwe reference when he posted this video of him making loads of fake cash at 3x speed.

April 1, 2008: Mike’s up to $1 Sextillion. No fooling.

April 6, 2008: Last post at Uglychart as of this writing this article. Mike’s now at $1 Septillion, a number Inspectd doesn’t recognize. (Inspectd usually abbreviates your earnings to something like 1.6 Trillion, etc, but shows all the long de dong digits on Ugly’s entry in the leader board.

Some More Arguments

Okay, back to the “is this better than a buy and hold strategy” issue. The reason this question comes up is because Inspectd.com allows you to make a trade that takes place over 20 days in about 2 seconds. And so when Ugly was up to $1 Septillion dollars, he had been pretend trading for about 250 years. Compounded over 250 years, any return would get big… but how big.

I pointed this idea out in a long comment. I roughly calculated:

Even so, 100k compounded annually at 13% would turn into only $174m in 100 years. I think you trounced that number pretty good in your first 100 “years” of Inspectd trades.

Sam Sanders from Inspectd chimed in saying that the charts were from a period between 1987-2007. So we all

Oracle used that info to get a little more precise:

You have actually proved that TA does not work. You have traded 70,120 days on the market and since there are roughly 250 trading days in the market this means you have traded for a total length of 280 years. Compounding for 280 years with 12.8 percent which is the average yearly return of DOW your account would have been worth 303868671812220900000. A DOW index fund would have over performed you 68 times to 1, my friend. Stop wasting your time

Ugly thinks the return during that period was a little lower: “If my calculations are correct, the DOW has returned an avg of 10.53% during this time period (1987-2007), while my annual yield on inspectd.com would be 11.8%.”

Then Mike closes out with this comment:

And I’ve come to conclude that the average return of the DOW really plays no part in the argument that I was trying to make (i.e. TA works and the efficient market hypothesis is wrong).
But I’m glad oracle brought it up because the power of compounding does make my results (now up to $30 quintillion) looks a lot more impressive than they really might be.

Is Your Head Spinning Too?

It’s obvious that this math is tough. We’re talking about big numbers. So any discrepancy in the inputs, no matter how small, has a huge effect on the output. And so knowing what the exact rate of return was during that time period… or specifically for the stocks in the Inspectd database is important. Also, I still think there’s something to the fact that Mike was able to skip charts that may have come up in a bear market. This could explain his outsized returns, due to his ability to sit out bear runs when in real life his would have missed out for 20 days. However, this would imply that he’s able to detect a “bear market” or a -E/V stock to skip and so proving TA works. Don’t we say that “there’s always a bull market somewhere”, meaning even in bear markets there are nice stocks setups.

You must prove that TA techniques beat the index funds.

To be honest, I’m not entirely sure how Mike is disregarding the “does it beet the index” argument now. Sure he could prove that TA works, but because of the upward bias in the stock market, you should have to prove that it works better than an index fund. Never mind the fact that if you are actively trading, you’ll want it to outperform a zero-work strategy like buying an index fund… otherwise it’s not worth the effort.

I’m kidding. TA Works.

For what it’s worth, I do believe that future prices can be predicted based on charts. Charts are just a compacted way to describing the market emotions at a given time, and experts can read them with greater than 50% accuracy… all that’s needed to be a profitable trader. It is very intuitive to me. It’s intuitive to me that doing this won’t be overly easy, and only top traders will be able to outsmart the competition out there.

From what I can tell, I’d give Mike credit for proving by example that TA works and EFT is bullocks. It’s very fascinating and should be making bigger waves in mainstream media. That means you, Erin Burnett.

Zimbabwean Inflation. New Site.

That clever dude Ugly is at it again. With the Zimbabwean dollar reaching a record exchange rate of around $20 Million Zimbabwe Dollars per $1 US Dollar, Ugly has decided to repurpose a web classic by launching the Million Zimbabwean Dollar Homepage. I used it to launch an ad for my newly created MoneyShui.

Wasn’t this done before?
If you spend any time on this internet, this probably sounds familiar. However, this time around, pixels are practically free at 900 pixels for $0.01 USD vs. $1 USD per pixel for that other site.

I bought the maximum 9000 pixels, and it came out to $3.60 USD after PayPal’s fees. And at the rate of inflation in Zimbabwe (about 100,580%), Ugly may have to give away the entire site soon.

Check out the Million Zimbabwean Dollar Homepage.

What’s MoneyShui?
MoneyShui is a little social network for folks who read investing books. (That’s you.) We are trying to build a large collection of ratings and reviews on investing and finance books, so hop on over, create an account, and share your knowledge.

If you see mention of something called “DietShui” in the site, this is because the site is basically a copy of DietShui.com (another Stranger Studios site) featuring a collection diet book reviews. (We still need to get some cleanup done.)

We’re launching a bunch of these sites over the next year. Some more for other book categories, and some more in completely different domains. I’ll let you know how it works out.

Check out MoneyShui now.

Quick Look at China’s Currency Policy Position

As we all know there has recently been pressure on China to appreciate their currency because of the trade imbalances seen in Europe and America. As well, other East Asian countries are running into problems with their markets because China’s currency is doing so much better then theirs. Here is a quick run down of the problems, which can help you to analyze the situation.

The biggest problem is that China’s currency is undervalued by as much as what some people think is up to 35% given them a huge advantage in the global marketplace. Over the past years the United States has lost over 2 milllion manufacturing jobs to China.

China’s holding of US treasuries is especially dangerous sitting at over 1.4 trillion US, because overtime we have given up control over our long-term interest rates to foreign nations. The amount of US treasuries held by foreigners has hit a startling number of almost 40%. This is one of China’s big techniques for currency and exchange rate manipulation, and could possibly continue to even higher numbers.

While China may not fold to foreign pressures, they also run into problems in their own country. Some of these problems include inflationary pressures because they cannot accumulate foreign reserves at the same pace as their growing economy, decreased consumer spending which is already a very small percentage of their GDP compared to net exports, and loss of manufacturing production and wage pressures for these jobs if appreciation continues.

Treasury Secretary Henry Paulson will be in Beijing next month to discuss many of these factors that has put China in this position. We will have to wait till next month to see if we may see what happened in July of 2005 when China first appreciated their currency. Articles can be found anywhere online on this topic and I think it is a great idea that if you invest in China to look into learning about China’s currency situation.

Ken Fisher’s Website

I don’t usually post links from link requests emailed to me, but I got one from Ken Fisher’s team… and I think Ken Fisher is pretty cool. I like his book. He writes for Forbes, which I should start getting since Business 2.0 went under. He’s pretty smart and has been right about the market more often than not. I like the way he thinks.

Check out my review of The Only Three Questions That Count.

And then checkout Mr. Fisher’s website to find more stuff by him. Learn about Kenneth Fisher and his contributions to the world of finance at KennethFisher.com.