Super Money

A few decades ago, a book called “Super Money” (by George Goodman, aka “Adam Smith”) described how American entrepreneurship was creating super money every time their start-up companies issued initial public offerings (IPOs) and then the prices of these new stocks went up ... manufacturing enormous wealth out of thin air. New products and services are imagined, created and marketed to people to propel these new companies to success. This is the power of our free-market economic system in a nutshell.

Dear reader, this is a magical way that the “invisible hand” of capitalism creates wealth ... lots and lots of wealth. Jeff Bazos has, by himself created almost a trillion dollars of super money. And he and his ex-wife have been rewarded with about 10% of this super wealth. This is not accidental. It has happened over and over to American go-getters to create our “golden city on the hill.” And yes this wealth that capitalism creates does get re-distributed to others as it is spent ... and these new companies hire people ... and their taxes pay for our government and to build infrastructure. (Hear that Elizabeth Warren and BHO?)

But there is always a problem wrapped up in capitalism. That is that the dispersion of this super money doesn’t happen fast enough and to the taste of many proto-Socialists. Jealousy, dear reader jealousy, rears it’s ugly head ... fanned by the likes of Bernie Sanders and his fellow travelers. (Funny though how Bernie seems to be enjoying his entry into the cult of millionaires.) But this super money does get spread around ... which is why America is so wealthy and can afford our social programs ... and so is where many of the worls’s needy want to live ... and some even want to be given the opportunity to prosper like Bezos, the son of Cuban immigrants.

But when these social programs become more important than capitalism and its super money ... that is when the golden goose is strangled. Funny how so few people ... even many recipients of super money ... understand this simple truth.

Headlines

Pelosi gets revenge on one of the Dem rebels

CEO of world's largest money manager: There would be a bullish surge on a US-China trade deal

Pelosi asks president to reschedule State of Union address ...

Historian: Queen should suspend Parliament to stop anti-Brexit plots

Gilliibrand's 2020 path: 'Women are pissed off and they're fired up'

Mortgage applications surge 13.5% as borrows rush to take advantage of lower rates

ISIS claims deadly suicide attack on US-led coelition parole in Syria ...

Judge orders removal of citizenship question on 2020 census

Brexit: Britain goes over a cliff

The government shutdown is starting to make the IPO market nervous

WITNESS: El Chapo paid $100M bribe to ex-Mexican president ...

New York law to make abortion 'fundamental right'

In Spades

The European stock markets are up substantially this morning for two reason: one, the hope for a Greek debt settlement and two, the fact that the Shanghai stock market is up over 10% in the last two days ... both reasons being baloney juice. Whatever the Greek terms, it is clear that the vast majority of its debts will never be repaid and a capitulation by Germany and the EEC will now only encourage other debtor nations (Spain, Portugal, Italy) to swing left and emulate Greece in petulant defiance of their debt obligations.

And insofar as the much bigger issue, China, it is abundantly clear that the current Shanghai stock market is now a state-run artifice. The Beijing government has stepped into this "free market" with both feet ... decreeing that big investors not sell major investments for six months, threatening short sellers with prison, stopping trading on huge numbers of listed stocks, forbidding new IPOs, forcing banks and insurance companies to buy stocks, etc. ... see: The Economist Story. Such government manipulation of prices cannot bode well for the future of this trading venue ... and clearly is no reason for any bullish sentiment in the rest of the world.

Even that perennial bull, Jim Cramer, is chary about these developments and is offering constant veiled warnings about the state of the world's stock markets. I concur ... in spades.

Genetics

I have written in the past about the rigors of  aging ... see: Growing Old Is Not For Sissies.

Now it seems that techno-weenie wealth is tempting some Silicon-Valley entrepreneurs to feel that they can forget their appointment with the Grim Reaper ... achieving eternal life. It's as though Ponce de Leon just bought the fountain of youth with his IPO money ... see: Washington Post Article. This is a rather long and meandering piece on how someone, who can restrict communication to 140 characters, can, as a result of this stock market windfall, possibly live forever. It nevertheless is worth a read for its many interesting factoids. Do so and then return for a brief discussion.

While perusing this article a thought struck me ... clearly random mutations in our genomes that occur over time (when cells replace themselves) are one reason why we age (and get some diseases). Yet scientists believe that many of our DNA sequences have no real use biologically. Could this surfeit of DNA sequences be an evolved defense mechanism so that many of these mutations occur in unimportant areas of our genome? In other words is aging a matter of probabilities? Growing old and other bad things begin happening to us when more vital DNA sequences are eventually mutated. The more sacrificial areas of our genome there are, the longer we might possibly live ...

Free Ride

The initial public offering (IPO) of Alibaba Group Ltd. (BABA), the huge Chinese Internet company, has made quite a few investors quite a bit of money ... and I don't even mean the venture capitalists and other initial and mezzanine investors like Yahoo. I mean those people and companies who were allocated stock in the initial distribution this morning at $68 per share. They then had opportunities to sell this stock for as much as $99.70 per share after the stock started trading about noon today at $92.70. During my days on Wall Street, selling an IPO during its first trading day used to be called a "free ride."

The size of this initial offering was 320.1 million shares and the total volume for this first trading day totaled over 271 million shares. This means that it is possible that many of those who received their shares on the original allocation had a opportunity to sell them for at least a $24.70 per share profit to as much as $31.70 per share profit ... meaning that those who were lucky enough to get these allocations were wealthier (on paper anyway) by at least $7.91 billion ... possibly more. Not bad! Basically all this wealth was just created out of thin air. One clever author call this IPO-created magical wealth, Supermoney ... see: Amazon Listing.

To me, this suggests that all this monetary gas may keep the stock market inflated for a while yet. To read more about this IPO and Alibaba itself read: Marketwatch Writeup.

Afterthought: Thinking about this IPO further, I may have stumbled upon the fundamental advantage of capitalism ... super wealth creation. Such things just don't happen under those economies of the commonwealth variety. Perhaps that is why the U.S. keeps winning despite all our screw-ups?

Government Motors

President Obama has attacked Mitt Romney for his saying that General Motors (GM) should have gone through the normal bankruptcy process and, if this were to have happened Obama claims, this country would have lost hundreds of thousand jobs. I've got a news update for The Barry ... GM did go bankrupt (see: GM Chapter 11 Reorganization) and tens of thousand jobs were indeed lost both at the company itself and at the hundreds of GM dealerships that were disenfranchised. The difference is that this bankruptcy was not arbitrated by the courts who best know how bankruptcies work. It was the autocratic Obama administration that decided most of the terms of this bankruptcy while, at the same time, throwing 50 billion dollars into this once great (but geriatric) company. Here are the details of the bankruptcy filings from Wikipedia:

The purchase was supported by $50 billion in U.S. Treasury loans, giving the U.S. government a 60.8% stake. The Queen of Canada, in right of both Canada and Ontario, holds 11.7% and the United Auto Workers, through its health-care trust (VEBA), holds a further 17.5%. The remaining 10% is held by unsecured creditors. On July 10, 2009, GM reported 88,000 U.S. employees, and announced plans to reduce its U.S. workforce to 68,000 by the end of 2009 after filing for bankruptcy.

Now this is just part of this sad story … a great American company becoming a piglet sucking on the government’s teat. To see more of these sordid details go to: Michelle Malkin Article and Subprime Auto Loans. The totality of the General Motors reorganization is extremely complex, but suffice it to say that the shedding of something like $90 billion of liabilities from its balance sheet is bound to make its financial health look much better than in times past. Yet still, the new General Motors stock is down 30% from it offering price of $33. Clearly sophisticated investors are not taken in by the Democrat political hype. Since I am of the opinion that any company that is majority owned by the government (U.S. and Canada) and its employees (the UAW) cannot survive for an extended period, I suggest that you think twice before you buy a Government Motors auto with a long warrantee.

Unfortunately, the Democrat demagoguery that the auto bailout offers Obama probably works for him over the short term. While Romney’s critique of this reorganization process, although likely correct, does not buy him many votes in Ohio and Michigan.

Rash Prediction

Before Thanksgiving of this year, the price for a share of the Facebook (FB) stock will have fallen below $10 (IPO price was $38/share).

Faceplant

I have an incurable disease ... old-fogeyism.  As a result I have no business blogging about Facebook.  I don't understand its popularity.  And I don't understand its intricate mechanics ... nor do I care to learn.  Somehow I have gotten registered as one of its billion or so users and keep getting those annoying messages that there are things pending for me there.  Yawn ...  It is just one more cyber-technology I would prefer not letting into my life.  Ditto Twitter.  Texting has me perplexed.  Why would one take the time to type a message to someone when one's voice message is oodles more efficient?  And I keep hearing ominous things about how Facebook is using or is going to use all the dumb things (I must be careful here ... my daughter is a big user) that its users post on its tens of thousands of racked computers to invade their privacy bubbles.  No thanks.

Now, this stupid company is going public this spring with a stock offering which will probably value it close to $100 billion.  That's billion ... not million (see ENews Account) ... enough money to rescue Greece from its financial predicament. And that 27-year old puke, Mark Zuckerberg, will become a multi-multi-billionaire (sidebar: I haven't seen the movie, Social Networking, either, nor will I).  Is this rational?  Not to me ... but it clearly is to the millions of Facebook aficionados who will be clamoring to buy this initial public offering (IPO) which might value Facebook at something like twenty-five times its trailing annual revenues (see: IPO Details).  This clearly is insane ... but then so was Google's IPO that came out at $85 per share and is now selling for $580 per share (= a market valuation of $188 billion).  So Facebook should get this hyperbolic initial market valuation which will likely then be even more insanely eclipsed by its soaring stock price during its first day of trading.

Caution to all of you who want to take part in this Wall-Street mania ... yes, you might make a pot of money if you buy this stock early-on.  But caveat emptor ... at some point this bubble will burst and Facebook will take a faceplant ... it might take days or months or even years.  But, be assured, it will happen ... mainly because Facebook's product is so ephemeral.  (It might take somewhat longer, but the same fate should also eventually happen to Google.)

Gotta go ... I have to take my Studebaker in for an oil change.