Facebook's Pressure to IPO

http://dealbook.nytimes.com/2011/11/29/facebook-may-be-forced-to-go-public-amid-market-gloom/?emc=eta1

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"It isn't what people think that is important, but the reason they think what they think." (Eugene Ionesco)

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As the folks at "DealBook" pointed out today, Facebook my have to IPO in April, 2012 whether the IPO market is good by then or not.

Two major events are causing this.

Long-time employees have been exercising their options and selling their shares in large quantities on private markets. New shareholders count toward the 500 investor threshold that the SEC uses for requiring public reporting of key data.

In addition, the January deal where Facebook arranged to sell $1.5 billion in shares through Goldman Sachs to new investors has pushed the SEC to see an implication that a vehicle created to sell to multiple investors but only count as "one" investment unit of the 500 SEC limit stretches credulity. Still Facebook is required only to begin reporting and filing information with the SEC at the end of April. The company is not legally required to go public and list shares at that time. Of course, if a company is going to be subject to much of the regulation that comes with being public, they might as well go ahead with an IPO and get the full benefits of being public.

In 2004, Google had the same problem.

Facebook should go public early next year but those who see their valuation potential at $100 billion might be disappointed.

Positive Indicators

http://jubakpicks.com/2011/11/18/economists-raise-forecasts-for-fourth-quarter-u-s-growth-and-heres-why/?utm_source=Jubak+Alert&utm_medium=email&utm_campaign=41b21cfbf6-RSS_EMAIL_CAMPAIGN

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"We throw all our attention on the utterly idle question whether A has done as well as B, when the only question is whether A has done as well as he could." (William Graham Sumner)

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Speaking of "potential," it's nice to see somebody as good as Jim Jubak writing about positive economic indicators.

Jubak's perspective is that economists continue to increase their projections for U.S. economic growth in the fourth quarter of 2011 despite the euro debt crisis. He refers to the Conference Board's Index of Leading Economic Indicators which climbed 0.9% in October. That's the biggest jump since February.

JPMorgan Chase has raised its forecast for 4th quarter U.S. growth to 3% (from 2.5%).

Actual data on building permits was much stronger than forecast at 10.8% versus the 1.5% predicted.

So, Jubak asks, why is U.S. economic growth accelerating when the EuroZone is in a crisis that is pointing to a recession in 2012? According to Jubak, it largely has to do with U.S. exports. While places like Germany export 41% of GDP, the U.S. exports 11% of GDP. As everybody knows, the U.S. economy depends on the U.S. consumer.

And, even if this is a short term thing, it's good news.

What would be good long term is to do something about the home building overhang created by the worldwide financial crisis. I'm so glad that Tim Geithner decided to save Citigroup (a monstrosity that by it's very make-up begged to be taken apart) even though he was outvoted on the president's economic council (a "vote" which included president Obama). The money that saved the banks could have been targeted at saving mortgages and tightened up a market that included multiple home buying speculators (destroy the houses if they're empty and unsold); reduce the principle in mortgages that existed in markets that cratered; engage experts in the housing area (Shiller, perhaps) to talk about "where" to spend the wasted Citigroup money. When the housing market comes back, "home equity" comes back. When home equity comes back, consumer spending comes back.

(Just a quick aside on Citigroup: we, the taxpayers, bail them out and with millions of dollars of the bail out money, Citigroup pays "lobbyists" to work on striking down any new laws that would limit their freedom to do what they do. Really.)

Now, as to 2012, just tell me how many cars are going to be sold (the auto companies project each month) for the year. Then tell me the rate of sale of previously owned homes on a percentage basis, projected. Then tell me the projected unemployment rate for 2012 (the standard, currently 9% rate often quoted and the "real", or U6 rate, roughly 16.5% right now). Give me approximations and I'll tell you what the economy is going to do.

Since I see no sign that anything is going to happen beyond the short term euphoria that Jim Jubak and I share, I could easily see another 4 or 5 years of slow or no growth in the U.S. economy. By that time, Tim Geithner will be "presiding" as vice chairman of Citi and pontificating about important banking issues.

The Keystone XL Pipeline

http://online.wsj.com/article/SB10001424052970204323904577040430486060086.ht

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"You will never change your life until you change something you do daily. The secret of your success is found in your daily routine." (John C. Maxwell from William Tansey)

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There are two very interesting articles in the WSJ today. One is by Peggy Noonan on the seriousness of a president (or presidential candidate). The other is by Daniel Henninger on the president abandoning labor (by delaying the Keystone XL pipeline). The Henninger article is attached (although, with the WSJ, I never know whether their ace "member policy" is going to limit the reader's view - I'm a "member" but the articles I attach from them are sometimes not complete because they are capitalists, or incompetent).

The Henninger article refers to president Obama's decision to delay building the Keystone XL pipeline as an abandonment of private labor. It's interesting that the state department delayed a decision on the new pipeline for three years and then, only after Keystone agreed to 59 modifications to their plan, agreed to support it. I believe that the president has delayed the pipeline decision to 2013 (year end? I don't really know).

In any case, the promise of blue collar jobs (Henninger names numbers/others name other numbers) is now out the window for two reasons: first, the jobs will at least not be there for another 18 months, and two, they probably will not be there at all because no private company is going to wait on such ridiculous delays. All Keystone has to do is direct the oil to Canada's west coast and sell it to China. To quote Henninger: "Meanwhile the American president shores up his environmental base in Hollywood and on campus. Perhaps our blue-collar workforce should consider emigrating to Canada."

What happened to our quest for more energy independence, or less dependence on unfriendly foreign sources? At 171 billion barrels (roughly) of oil reserves, Canada now ranks up there with Saudi Arabia. And, of course, Canada is right here and is (or was) friendly.

So, blue collar jobs (those that would be building the pipeline and, of course, the significant number of indirect jobs that would be created by that spending) are not important to president Obama. And, adding to our oil supplies is not important to the president. Then, it must be "votes." That's it, "votes." But here I must suggest that a responsible president would not be thinking about a second term and it appears that president Obama is. If so, has he looked at the Republican contenders? Enough said.

So, we have the wrong decision there. Peggy Noonan, who is really writing today about Herman Cain, starts off with a wonderful digression on Steve Jobs talking to Walter Isaacson about president Obama. Jobs starts with a theory of decline of American businesses (basically, once a company becomes a great success because of a great product(s), they then begin to value "salesmen" because they need to defend market share, and the decline starts). And, the theory applies to our "politics"because we've elevated "salesmen," people good in the room, facile creatures with good people skills - above people who love the product, the product in this case being good government.

Quoting Peggy Noonan: "You might say that the rise of Barack Obama was the triumph of a certain sort of salesman. He didn't know the product, but he was good at selling an image of the product ... Jobs supported him but was frustrated by him. He met with the president last year and urged him to move forward on visas for foreign students who earned an engineering degree in the U.S. Mr. Obama blandly replied that this was covered in his comprehensive immigration bill which Republicans were holding up. Jobs: 'The president is very smart, but he kept explaining to us reasons why things can't get done.' He does that a lot. Nothing is ever shovel ready with him. But leaders tell us how things will get done, how we can move forward. They can tease a small element out of a large bill, and get it passed."

I'm sure that Peggy Noonan was thinking about Lyndon Johnson or Ronald Reagan who could both do that very thing.

But, what we have here is a president looking to buy votes on an issue that calls into question even his own political judgement: does he really think the Republican party is going to put forth a candidate who can beat him? And, does he really think he can save some of the Hollywood support who (like Jobs was) are already disillusioned?

As Daniel Yergin has pointed out in his new book ("The Quest"), the U.S. has gone from importing roughly two-thirds of it's oil 30 years ago to about 50% now thru all sorts of positive programs. And, the largest source of U.S. imports now is Canada, a far less hostile provider that didn't even exist (as a major oil producer) 30 years ago.

This is a business school blog and I don't like to talk about politics but when a president intervenes in an oil situation to the detriment of supply, it helps no one. Three years and 59 changes to the new pipeline from Canada, and it still can't get approved?

Really?

$100 Oil

http://www.nytimes.com/2011/10/28/business/global/shell-earnings-double-in-third-quarter.html?scp=4&sq=Oil%20Prices&st=Search

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"More gold has been mined from the thoughts of men than has ever been taken from the earth." (Napoleon Hill)

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As of Friday evening, oil was at a little over $99 per barrel (Brent Crude @ $114 plus). In the past, my thoughts were always about the negative side of prices hitting triple digits per barrel but now I'm reading continually about oil prices going back up because there is "confidence" that
something will be worked out in Europe (and I hope that's true). Or, we're avoiding a "double-dip" recession here in the U.S. (meanwhile, we never got out of the first recession!).

So, if I understand this, oil prices are going back up because "confidence" is going back up. Now it used to be that oil prices went up on a supply/demand basis. So, any potential or actual "shortage" caused prices to rise. Some "Peak Oil" advocate proving a point about potential oil shortages might spike the price. Heavy demand increases from a country like China, same thing. War in the Middle East, same thing.

Here's a thought: speculators are bidding the price of oil per barrel up because they're betting demand won't be interrupted by any issues, at least in the short term. In Nymex Oil Contract Trading (1,000 barrels per contract), the average number of contract trades before reaching a producer or consumer is "50." That's right, 50 trades before the oil reaches its destination.

Let's talk about oil use rates. According to OPEC, the final worldwide oil use rates for 2008 thru 2010 were: 86 million bpd (barrels per day), 83.5 million bpd, and 85.59 million bpd. OPEC projects 86.64 million bpd for year end 2011. This doesn't look to me like a "run on the bank."

Yet, we are approaching $100 per barrel.

Some oil analysts feel that gasoline will hit $4 at the pump by spring. Those same analysts believe that $100 per barrel oil is a key milestone, usually indicating that the economy can afford to pay those prices.

So, "happy days are here again" because oil prices are about to hit $100 per barrel? This just as Libya is coming back on line with, perhaps, 700,000 barrels per day by year end on their way back up to 1.3 to 1.6 million bpd at their max production. Libya has a somewhat disproportionate impact on oil because their light sweet crude is valued for its minimum refining costs.

Somebody wake me when oil hits $150 per barrel and we're all still positive about it.

"Poor Economics"

http://knowledge.wharton.upenn.edu/article.cfm?articleid=2871#.Tr1mMAI2Dow.email

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"Vision begins with one person, but it is only accomplished by many people." (John C. Maxwell)

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The K@W interview with the authors of "Poor Economics" provides an insight into the kinds of things that can work to raise people out of poverty around the world. Their book has just been named the 2011 Financial Times Goldman Sachs Business Book of the Year. The authors are baffled about how a book about finding and thinking of ways to end global poverty gets a business award. I'm not.

The interesting central point of their book is that there isn't a single answer to alleviating poverty. There is no single action that is going to solve the problem of poverty. However; there are some crucial steps. Educating children is one of them. Health care for the poor is another.

So, for example, if a child doesn't learn to read or acquire basic math skills by age 13 or 14, then the entire effort is worthless.

"Poverty" itself has different definitions depending of the country or the goals for alleviating it. The Indian Planning Commission has set the poverty line at 65 cents a day. But, versus Purchasing Power Parity, that number becomes $1.72. However; measuring poverty financially is not what's important to the authors - fixing poverty is. What works is what the authors want to find and chronicle.

Overall, the "three villains" of efforts to eradicate poverty are: ideology, ignorance and inertia. And the three problem interfaces are the expert, the aid worker and the local policy maker. In India, there are many good NGOs doing excellent work. So, some things work and some things don't.

The "Poverty Action Lab" that the authors founded in 2003, focuses on what works. Right now, researchers are engaged in 240 experiments across 40 countries.

Interestingly, the authors point out that slowing growth in the West is a huge problem for growing countries like India, China, Bangladesh and Pakistan which rely on servicing those markets.

It looks like an interesting book. It was certainly an interesting interview.

Krugman On Solar

http://www.nytimes.com/2011/11/07/opinion/krugman-here-comes-solar-energy.html?hp

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"We cannot hold a torch to light another's path without brightening our own." (Ben Sweetland)

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Paul Krugman put in a plug this week for solar power. I think he's early.

But, before we get to solar, I want to make sure I reference his digression into hydraulic fracturing (fracking): injecting high-pressure fluid into rocks deep underground which, of course, releases fossil fuels. Here's what Krugman says we know fracking does: it produces toxic (and radioactive) wastewater that contaminates drinking water; there is reason to suspect, despite industry denials, that it also contaminates groundwater; and heavy trucking required for fracking inflicts major damage on roads. To Krugman, no industry should be held harmless from its impacts on the environment and the nation's infrastructure.

OK. But here's the thing: Daniel Yergin, who is a Pulitzer Prize winning author on the oil industry and a member of the Secretary of Energy's commission which will report on shale production to President Obama, takes the position that "best practices" and a caring approach to the environment can mitigate many of the concerns currently expressed. According to Yergin, shale gas is now 30% of U.S. natural gas production.

Krugman's overall point, though, is that "solar" is closer than we think and much "cleaner." Krugman, the economist, accurately points out that the Solyndra failure was actually caused by technological success: the price of solar panels is dropping fast, and Solyndra couldn't keep up with the competition (here, I would add that, while I'm no expert, the China "competition" is highly subsidized). He also points out that there appears to be a developing solar version of "Moore's Law" where prices are dropping at a rate of 7% per year.

At this point, Krugman begins to compare the costs of solar with coal. But, later on at his blog site, he makes some qualifications to his euphoria. This is good because people like Dr. Michio Kaku, a theoretical physicist, and author of the long awaited 2011 book "Physics of the Future" (which, among other components, involved interviews with 16 Nobel Prize winners on the science of the future) has observed that solar cells are not efficient (with efficiency hovering at around 15%). For example, right now one might be able to supply the electrical needs of the United States by covering the entire state of Arizona with solar cells.

Daniel Yergin's committee reported to President Obama yesterday that government and industry aren't moving quickly enough to mitigate the environmental impact of shale gas drilling and production. The committee also faulted the Environmental Protection Agency for not including scrutiny of methane emissions by drillers in a proposed set of rules covering air pollution by the oil and gas industry. This report was a "draft" of the final report which will be produced in November but it's a "heads up" call for the overall energy debate.

So Krugman has some points about what he doesn't like but he needs to temper his euphoria about what he does like.

Interestingly, Dr. Kaku points out that while Europe has been the leader over the last few decades in wind technology, the U.S. has overtaken Europe in generating electricity from wind. Texas alone produces 8 billion watts from wind power. If the Texas plan continues, the state will produce 50 billion watts of electrical power from wind, more than enough to satisfy the state's 24 million people. Just like other sources, wind power faces its own limitations: intermittentcy, loss of power in transmission, and battery storage to name a few.

Yergin ties all this up neatly in his new book ("The Quest") when he refers to wind and solar: they are still small when measured against the scale of the power business. They still need to demonstrate that they can provide large-scale reliable electricity competitively. By 2030, hydrocarbons will still be 75 to 80 percent of what's used to generate electricity.

But things can change. Again Yergin: the largest source of U.S. oil imports is a resource that did not even exist on a commercial basis in the 1970s - Canadian oil sands.

We'll see.

China's Real Estate Shaky?

http://www.nytimes.com/2011/11/11/business/global/government-policies-cool-china-real-estate-boom.html

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"Most people are more satisfied with old problems then committed to finding new solutions" (John C. Maxwell)

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There are people who have predicted that China's real estate "bubble" will burst and with it, the Chinese economy.

Whether that's true or not, the New York Times report this week that ads have grown on the Internet for unfinished apartments at up to 28% off the price at which developers were selling them a few months ago, is worthy of note. China's government wants to deflate the bubble without causing a crash and has implemented policies like pushing up interest rates and setting limits on bank lending that will slow inflation and inhibit speculators' efforts to borrow money.

As the Times points out, Premier Wen Jiabao said Sunday that the government had no intention of letting up on these policies until prices fall to a more reasonable level.

Economists at Barclays Capital suggested in a research note on Tuesday that the Chinese government might start reversing policies if the fall in real estate prices reaches 20%.

We'll see.