Wednesday, May 30, 2012

Flight to Safety is Not a Good Sign

It looks like it will soon be crunch time for Greece (and the Euro)...

From Business Insider:
  • The yield on the US 10-year bond has just fallen below 1.7%. UPDATE: the yield has just hit 1.6713%, a brand new record low.
  • In Germany, the 10-year has fallen to a new record of 1.33%.
  • UK borrowing costs have hit a record low of 1.73%.
  • In Finland, the yield on the 10-year is 1.624%. You guessed it, that's a record low.
  • Sweden: The 10-year yields 1.405%. Same deal.
  • In Australia, the 10-year has dropped close to a record low of 3.061%.
  • Canadian 10-year yields at 1.87% are close to a record low.
  • Japan's 10-year: 0.85%.
  • Swiss 10-year: 0.59%.
"Get the point?
All around the world, people are clamoring for the safety of government debt..."

Thursday, May 24, 2012

More on Facebook

This is a long but interesting article on the story behind Facebook's IPO. His view is even more pessimistic than mine but the P/E analysis is quite interesting. Anyway, the stock is currently trading at $32 / share, almost 20% below the offer price.

FB may still surprise investors with a new source of explosive growth that nobody, but that is lot to count on to justify paying 60x multiples.

Thursday, May 17, 2012

A while ago I posted about my bearishness of the Brazilian stock market. Putting my money where my mouth is (was), I bought two securities in February and the other day somebody at work asked me how did it go.

I closed the trade almost two months ago (way before the current turmoil) and made money itself on the position, but after the transaction costs (wasn't investing a lot since I don't have much!) I just broke even.

Here are the details of the two securities and their current price (could have made LOTS of money if I had stayed put):

1) The first was an Ultra-short ETF on the Brazilian index (in US$)
Bought it @ 13.43 on 16-Feb 
Sold it     @ 15.15 on 13-Mar. (12% profit)
Since then it has gone up 70% if we take today's price.
2) The other was a put option on the MSCI Brazil ETF, with strike 50 and maturity in Jan/2013.
Bought it @ 3.15 on 16-Feb 
Sold it     @ 2.9 on 13-Mar. Total (8% loss)
Current price @ 5.8 17-May (100% increase) The underlying is now around 51.5.

Major lessons learned: if you trust your trade, stay put and let it develop. Be VERY careful with bid-ask spreads and commissions.

I think there has been some panic selling in the past few days. Maybe it's time to buy another lottery ticket again! :)

Tuesday, May 15, 2012

Facebook Valuation: Worth $100bi?

I was just reading in the FT that Facebook has raised its price range before the IPO. If they get what they want, the company will be valued between $93bn and $104bn.

The final project of the Corporate Finance course I taught earlier this year at Cambridge asked students (split in groups) to value Facebook. The highest valuations were around $80bi and that, often, involved some heroic growth assumptions.

Aswath Damodaran has a nice blog post with his valuation of the company, with a figure aroun $71bi. People from FT's Lex column also has an interesting calculator that you can play out with on your own (not sure if it open to non-subscribers).

At $100 billion, if I could I would surely short Facebook from the second day of trading. It will be interesting to see what the first-day price change will look like.

Either people are true believers that Zuckerberg will pull out another magic cash-flow rabbit out of his hat or....

Thursday, May 3, 2012

New Journal and more on "Publish or Perish"

Following an earlier post on the "Publish or Perish" pressure in academia today I received an email about a new journal in Finance, the Critical Finance Review, edited by Ivo Welch.

In line with Matt Spiegel's comments, the editorial line of the new journal is to give more chance to controversial papers and "non-result" ones. I believe that the profession benefits from both. Hope the journal catches on and becomes a force among Finance research outlets.