February 23, 2012
Look Past The Overhyped Facebook Effect
Forget the overhyped Facebook effect (a.k.a. "buy now or be priced out forever 2.0") and simply turn your attention to the S&P 500 which closed the day at 1,363.05, just below its April 2011 high of 1,363.61 (its highest close since June 2008) and the Dow’s 12,986.81, its highest close since May 2008.
UPDATE (2/24): The S&P 500 closed the day at 1,365.74, its highest close since June 2008.
∙ What's The Point? [SocketSite]
First Published: February 23, 2012 1:30 PM
Comments from "Plugged In" Readers
It is an election year, after all.
Posted by: EH at February 23, 2012 2:03 PM
@EH ... Are you saying that banking and finance sectors are intentionally ginning up the markets to get Obama re-elected?
Posted by: badlydrawnbear at February 23, 2012 2:32 PM
I don't think that "banking and finance sectors" are pulling for Obama (they just want to make money) but we do have a big election in a little over 8 months and with Obama, all of the (GOP majority) house and 1/3 of the Senate hoping to stay in office we have a lot of powerful people working behind the scenes to make sure the economy "keeps improving" (or at least seems like it is improving) so people don't vote for Ron Paul, or a Tea Party Guy or the Green party...
Posted by: FormerAptBroker at February 23, 2012 2:53 PM
(pulls on Yogi the Bear mask, lights candle in front of Jim Chanos shrine)
Spare me the domestic equity bubble. There are as many facebook millionaires snapping up houses as there are greek billionaires.
The us equity market is overvalued, on bad fundamentals, and has been for a while.
US Equities are benefiting from crappy markets abroad. And I mean EVERYWHERE else, especially China. Yes, even before Europe.
Capital has no where else to go other than us treasuries, and having pulverized those yields, is shifting to equities.
Gold will be next, fueled by government spending driving inflation.
Let me be precisely clear, there is a recovery underway in the US, but not one sufficiently robust to support valuations approaching historical highs.
Extrapolation into top tier San Francisco real estate is tenuous at best and, more likely, untenable.
I've said this before, but comparing inventory and prices with the availability of bona fide buyers leads to the conclusion that top tier inventory levels will continue to rise and prices across the market will continue their decline.
There aren't that many facebook millionaires.
I would imagine that the majority already have homes purchased with financing secured via the pledge of (and occasionally for a small share of) their pre-ipo equity.
Posted by: BillyBalls at February 23, 2012 2:56 PM
I do not agree with your premises.
Stocks are not overvalued. They're twice higher than during the 2008-2009 free fall, but they're merely on the path to get back to historical averages. Take a log chart of the S&P (starting in 1950) and you'll see the past 2 artificial pump/crash periods of 1995-2000 and 2003-2007 have been fully digested.
Economies are going in cycles and not all regions are created equal.
Europe has a tendency to postpone corrections using its massive government apparatus(es). They've cushioned the 2006-2009 blow in their economies but by putting forward some of the losses. RE is still overpriced compared to income in many areas of the Eurozone (everywhere except Germany) and they have to churn through that nugget sooner or later.
China is a fast learner. They bubbled up but are engineering a controlled landing. I hope it will keep being controlled. They're still growing though. Pretty amazing but what would it be without full control and more than opaque reporting?
The US is much much more efficient in all regards. Even with the bailouts, many have lost their shirts. The correction was deep and now the vicious circle that was the engine of this correction has stopped and started to run in reverse. Even slow national housing is not stopping the recovery. Housing activity starts at almost 0, therefore anything is good news from now on. The rest of the economy is coming back on its feet. 3 years after the bottom, it's been long overdue and it's good news for all of us (maybe not for the GOP though).
Posted by: lol at February 23, 2012 3:27 PM
I love that you simply couldn't have a positive headline, Adam. Seriously, love it...
No way you can mention the S&P levels without some negative reference to something. In this case, the "Overhyped Facebook Effect". It's like you're addicted to anti-sugar coating. Everything gets a dose of negativity!
Posted by: Socketsite Crankypants at February 23, 2012 3:45 PM
Well I certainly agree with BillyBalls that yields on U.S. Treasury bonds have been pulverized. I don't think that doesn't mean they can't go lower, though.
At a few different times in the last two years, one month T-bills traded in the secondary market at negative yields. And now The Treasury wants to get in on that action (scroll down to 'graph 7):
The elevated bid-to-cover ratios in 4-week bill auctions in late December were related to the rule that bounds bill auction stop-out rates at zero. The question was asked if it made sense for Treasury to permit bids and awards at negative interest rates in marketable Treasury bill auctions…It was the unanimous view of the committee that Treasury should modify auction regulations to permit negative rate bidding and awards in Treasury bill auctions as soon as feasible. Rutherford noted that any decision on this policy change would likely be made at the May refunding.Emphasis mine. So soon, you too will be able to easily pay good money for the privilege of holding U.S. debt, and you'll like it when the Greece situation reaches its denouement.
I won't offer a prediction, but maybe all that "capital that has no where else to go" will go into more condos in SOMA / South Beach if the stock market is obviously overheated. Stranger things have happened.
Posted by: Brahma (incensed renter) at February 23, 2012 3:49 PM
@lol, how do you figure the economy is recovering?
Posted by: lyqwyd at February 23, 2012 6:32 PM
The relationship between broad equity markets and D7 real estate has been discussed here before: http://www.socketsite.com/archives/2010/04/2430_scott_street_an_entirely_different_dow_theory_in_a.html
The Fed, ECB, BoJ, BoE are all engaging in extensive easing policies. There are just not many places to park cash today, so equities have gotten a bump-up..just as they did during previous easing programs. Simply look at the massive reduction in volatility we've seen in the past few months -- in correlation to the actions of central banks.
Returning to D7 real estate, it's early in the game. 2601 and 2701 Broadway finally sold for pretty fancy prices.
And again, it's the marginal buyer who sets prices -- even just a handful of social media IPO types could continue the trend.
Anyone remember the BeBos?
Posted by: Joshua at February 23, 2012 6:50 PM
Growth up, unemployment down. Better and better news. This reminds me of 1993-1994. We're not out of the woods yet but the elements that created this crisis have unwound almost fully.
Now naysayers are going to pray for cuts, cuts, cuts. This is silly.
Posted by: lol at February 23, 2012 7:06 PM
The stock market is going to the moon. Look, I know I said sell, sell, sell LNKD, GRPN and Pandora on Nov 28th, and they are up 30% to 50% since then, but I've learned my lesson. Now I'm buying everything I can get my hands on. Just not SF real estate which is still going down another 50%.
thanks tipster, now we know how to tell the top and bottom of markets
Posted by: Tipster the stock picker at February 23, 2012 7:25 PM
@lol, which growth is up?
Unemployment is down, but mainly because of the shrinking labor force. There is employment growth, but it's not keeping up with the population growth, or historical employment growth rates.
What growth are you referring to?
"elements that created this crisis have unwound almost fully."
How do you figure that?
Too big to fail banks are bigger, and they still are using mark to model accounting, which is a pretty solid sign of weakness. The U.S. debt is growing faster than the GDP (and is now larger than the GDP. The interest rates are at all time lows, and the economy is barely struggling along. Without the $1 trillion+ deficit spending, and artificially low interest rates there economy will collapse, and neither are sustainable long term, or even more than a few years.
Just like in 93-4 and 2002 the economy is based on an inflating credidt bubble, but we no longer have the luxury of relatively low debt/deficit and realistic interest rates.
Cuts, or drastically increased taxes, are inevitable, with either approach causing a pretty big recession (at best). It's not a question of if, but when, and the real question is would we rather be Iceland, or Greece?
Posted by: lyqwyd at February 23, 2012 7:30 PM
What some people miss is that much of this newly created credit is not "sterilized". Hence, we experience money creation which is a hugely inflationary force. During times of inflation, people need to invest in equities, hard assets, etc. to maintain their wealth.
Why do you think companies are reporting 50 year record-high earnings? Why do you think gas is so expensive in February? Since 2008, central bankers have worked to inflate us out of the mess. It hurts savers, people whose income/benefits are tied to "CPI", etc.
So long as the printing presses print, especially in such a coordinated manner, people need look for ways to preserve their savings.
Final word to the wise. Look at every 20% equity market pullback since Lehman -- one solution -- TARP/print/MBS purchases/QE/Twist/LTRO/same net effect. And magically, the markets rebound. Rinse and repeat.
Posted by: Joshua at February 23, 2012 11:33 PM
"and the real question is would we rather be Iceland, or Greece?"
Posted by: 48yo hipster at February 24, 2012 8:48 AM
Valuations aren't approaching historical highs. Indexes are. Don't confuse the two.
The S&P is at 14 x trailing earnings. It was at 30x In the late 1990s. It touched 10x in 2008.
The S&p is trading for roughly 12x cash flow. It traded north of 30x in the late 90s
Posted by: Been there at February 24, 2012 9:39 AM
Posted by: lyqwyd at February 24, 2012 10:45 AM
Both being high does not bode well for future stock market returns. The late 90s is not a particularly good example of how to value the stock market.
Posted by: lyqwyd at February 24, 2012 10:59 AM
What Facebook effect? The 2009 hires haven't had a chance to do anything yet. We've been over that dozens of times. Yet now the editor is assisting the trolls? Come on, Socketsite. It's OK to offer perspective, even bias. But come on.
Posted by: [anon.ed] at February 24, 2012 11:01 AM
I think the crisis has been rather well contained in 2009-2010. The key was to expand and pretend until some growth could absorb a recognition of the real losses.
I was one of the most vocals around here to say "let markets work" and let the smartest and strongest survive, but it didn't happen that way. Bad behavior was rewarded and justice wasn't served. What matters now is how to make the best of this. In 4th grade you see the kid next to you cheating his way to an A+ when you only have a B. Tough. Get over it and work harder. This guy could probably succeed later on better than you, but who cares.
Similarly, savers could get the shaft with pro-growth policies and this is deeply unfair. I am one of these and I'd hate this. But this is the only way therefore I'll work harder to make up for it.
Today the growth is there, still muted because of the 2008-2009 hangover and trickling realized losses. The sovereign debt issue can be solved through a bit of efficiency, but mostly through a strong growth policy.
Growth works in 3 positive ways on debt and deficits: (1) more profits means more tax revenue, shrinking the deficit which (2) in itself frees up money for more growth. (3) Growth means a lower debt/revenue ratio, making debt shrink in relative numbers.
Shrinking brings us nothing. Ask the Greeks. Taking a pint of blood from a sick man doesn't make him less sick. It just kills him faster.
Germans might be right to ask for justice, but it doesn't solve anything. They enjoyed 4 to 5% on fixed income in the 2002-2007 period. Time to pay it back.
Posted by: lol at February 24, 2012 11:10 AM
Agree margins are above trend, but that is different that valuation, as billy opined. The bloomberg data shows 14x, far off your 22x multiple. Check your bloomberg. Back out the Apple influence, and it's still way below 22x.
$97 in trailing earnings, 1367 current price. That's 14x. Not cheap, but far from peak.
Posted by: Been there at February 24, 2012 11:14 AM
You are right about the P/E ratio, The site I linked to uses the "Shiller P/E" or P/E10. I was not suggesting that your number was wrong, only that there are other ways of looking at this, my bad for not clarifying that it was a different measure of P/E. Here is some more info on the P/E10, which is currently suggesting the market is about 30% over-valued.
Plain P/E is not all that predictive in the short or medium term, and has even climbed while in the midst of a bear market (when earnings can fall faster than stock prices).
Of course a high P/E (or P/E10 if you prefer) ratio can be corrected by earnings growth, my point is that with already record high profit margins (usually seen at the end of a bull market), it is not likely that P/E ratio will revert to the mean by earnings growth.
Posted by: lyqwyd at February 24, 2012 11:45 AM
If you don't see the growth, you are blinded by fear.
Remember, the best sign of a market peak is massive investor enthusiasm, a "cannot lose" mentality, and general confidence that the economy is *solid*.
Right now, we have positive trend, and general fear, making this an *excellent* investment opportunity -- just like 2008 was a great time to invest and those of us who did made a killing since then.
so go ahead, sit out the market until you have that nice warm fuzzy feeling of confidence and safety, and enjoy paying top dollar at that point.
there might be a small correction here in the next week or two, but that is minor noise.
Posted by: Big V at February 24, 2012 11:49 AM
"If you don't see the growth, you are blinded by fear."
I can see growth, but I can also see what it's based on: which is massive government intervention rather than a fundamental recovery.
"Right now, we have positive trend, and general fear..."
Most of what I see in the news is cheering the Dow breaking 13,000 about how we are in a solid recovery and the Greece/Europe problem is solved. Mainly ignoring bad economic reports, but surges on even the weakest good reports. Seems like a lot of positive information and expectations right now.
There's only a few nut-balls like me who are pointing out the cracks in the wall, which the cheerleaders happily ignore.
"just like 2008 was a great time to invest and those of us who did made a killing since then."
What were you investing in 2008? The bottom of the stock market was early 2009.
"so go ahead, sit out the market until you have that nice warm fuzzy feeling of confidence and safety, and enjoy paying top dollar at that point."
Who said I'm sitting out the market? I'm saying it's about time to start thinking of getting out. I think within 2 months the market will turn, and the turn will become a proper bear market, resulting in a 20% decline or more.
Posted by: lyqwyd at February 24, 2012 2:06 PM
UPDATE: The S&P 500 closed the day at 1,365.74, its highest close since June 2008.
Posted by: SocketSite at February 24, 2012 2:20 PM
…we experience money creation which is a hugely inflationary force. During times of inflation, people need to invest in equities, hard assets, etc. to maintain their wealth…Since 2008, central bankers have worked to inflate us out of the mess. It hurts savers, people whose income/benefits are tied to "CPI", etc.I read this kind of sentiment on socketsite a lot, and while I understand why people say this, I have to admit I don't understand it.
So long as the printing presses print, especially in such a coordinated manner, people need look for ways to preserve their savings.
In broad terms what "savings" refers to is a collection of assets purchased at one point in time in order to have them to sell later. To a lot of people reading socketsite, that would include real property in the form of an SFH in "The Real SF". It could also include shares in Facebook, Zynga or Yelp.com. Maybe it would include a collection of investment-grade corporate bonds.
All other things equal, if the economy performs well over some reasonable future period, then this collection of assets will have a higher resale value at period end than if the economy performs poorly over that same period. Having your "savings" devoted to more than one of these areas means that the future value of your total portfolio will depend more on the overall performance of the economy and less on how prescient a particular "gamble" and the timing in which you took it.
My point is this: if the overall economy doesn't improve over your chosen time period, then your asset collection won't be worth as much as you'd hoped (or if things are really bad it will be worth less than you paid) and you'll have to adjust. I've never understood why some "savers" or wealth preservationists think that they should somehow be able to detach themselves from the trajectory of the overall economy.
I don't see how this is a matter of central bankers "hurting savers". If we define for the sake of this discussion "reducing the expected future value of a collection of assets", then the savers are being hurt due to the state of the overall economy.
Posted by: Brahma (incensed renter) at February 24, 2012 3:20 PM
I think by savings Joshua is referring to money or money equivalents. Not assets like real estate or stocks.
Posted by: curmudgeon at February 24, 2012 3:50 PM
Savers are people who earn their money by labor, and when they save, their intention is to put it in a safe place, leave it be, and when they come back for it, it has very close to the same purchasing power as when they put it away.
This is different from investors, who expect to monitor their money, and actively increase their wealth by the decisions they make as to where to put it.
Savers are hurt by the current economy because there are no (or very few) safe places to put ones money where you can reasonably expect it to hold it's purchasing power over the long term.
Posted by: lyqwyd at February 24, 2012 4:14 PM
The stock market is moving more on money printing then on earnings. It could go a lot higher if retail investors move back into equities, right now there is still a ton of cash sitting on the sidelines.
Posted by: Rillion at February 24, 2012 5:26 PM
@lol, sorry for the delay in responding, but this is a big one...
"I think the crisis has been rather well contained in 2009-2010."
I disagree, I think it's only been postponed, and in many ways made worse.
"Bad behavior was rewarded and justice wasn't served."
I'm aware that happens, but the problem is that the bad behavior has now been institutionalized, and that only ever ends badly.
"In 4th grade you see the kid next to you cheating his way to an A+ when you only have a B. Tough. Get over it and work harder. This guy could probably succeed later on better than you, but who cares."
I think this is a pretty weak analogy for what's going on today. I think a better one would be a class where half the kids are getting A- by cheating, and the other half are getting B's following the rules, the PSAT comes and the cheaters all fail miserable. Rather than tell the cheaters this is the just rewards for cheating, and that they had better stay after school for some catch up classes, the teacher pays off somebody at the SAT for the answers of the test and gives them to the cheaters, but only the cheaters, AND the teacher goes back and changes the cheaters grades to A+, AND assigns extra homework to the rule followers.
"Similarly, savers could get the shaft with pro-growth policies and this is deeply unfair. I am one of these and I'd hate this. But this is the only way therefore I'll work harder to make up for it."
Growth is not inherently anti-saver. It can benefit the savers when it's real growth based on sound economic principles (their real earnings increase, thus allowing them to save more)
"Today the growth is there, still muted because of the 2008-2009 hangover and trickling realized losses. The sovereign debt issue can be solved through a bit of efficiency, but mostly through a strong growth policy."
Growth is there purely through massive government intervention/spending. Since our debt and deficit are so high, these are not sustainable.
"Growth works in 3 positive ways on debt and deficits: (1) more profits means more tax revenue, shrinking the deficit which (2) in itself frees up money for more growth. (3) Growth means a lower debt/revenue ratio, making debt shrink in relative numbers."
There is no realistic growth rate that can shrink our debt sufficiently on it's own. With real growth would come real interest rates, which would cause our debt service to increase faster than any growth. This problem is especially bad since what little growth we have is based on massive deficit spending. Our debt is already over 100% of our GDP, and growing at almost 10% a year. That's a formula for disaster, and not decades out in the future. We are already in PIIGS territory, and some of them have better GDP to debt/deficit ratios than we do. According to wikipedia our deficit is one of the worst, see this and this, Note the second one shows how Iceland is doing the best, when compared to the eurozone, the PIIGS, the U.S. and some other countries.
"Shrinking brings us nothing. Ask the Greeks."
Iceland shrank (but did it at it's own choice and therefore was able to somewhat control it), and is now one of the more sound economies out there, getting stronger every day. Greece is being forced to shrink from external pressure (and in fact is in many ways being prevented from shrinking the way Iceland did), and at the same time is being pillaged. These bailouts will do nothing for Greece, they are only to preserve other European nations interests.
"Taking a pint of blood from a sick man doesn't make him less sick. It just kills him faster."
Again, I don't think that's a very good analogy. I'll agree the economy is sick, but expecting us to operate on sound economic principles is nothing like bleeding an ill person. The rules of economics are real (if poorly understood) and the longer we try to fight gravity, the more painful and damaging the impact will be from the eventual fall. Our entire economy is based on covering up the real problems, and creating growth through unsustainable deficit spending that is costing us more than the little growth we are getting. Sooner or later we are going to have to operate in the real world of economic principles, and it will be much more difficult if those principles are imposed upon us from the outside. It's already starting to happen with Russia, China, and India forming trade programs that do not involve the dollar.
"Germans might be right to ask for justice, but it doesn't solve anything. They enjoyed 4 to 5% on fixed income in the 2002-2007 period. Time to pay it back."
The Germans are not seeking justice, they are just trying to look out for their own interests. They lent Greece money so the greeks could then spend that money on German products. It was never sustainable.
When I see growth that is not based on massive deficits and government spending, then I'll believe in the recovery.
Posted by: lyqwyd at February 24, 2012 5:42 PM
I would like some insight into exactly how many newly minted millionaires will we expect to flood into the market along with any indication of what percent will likely be homeowners. then we could have an understanding of what the likely impact will be
Posted by: jjb at February 24, 2012 8:56 PM
There will be 1452 new FB millionaires. 1257 will be house buyers and 573 will be buying in "real SF"
Posted by: sparky-b at February 25, 2012 9:12 AM
Those are the old numbers dude. They were just updated. It's 1452, 1311 and 588 now.
Posted by: Eddy at February 25, 2012 10:32 AM
These people are making fun of the fact that the numbers are largely not public or unknowable.
There were well under 500 shareholders before the price of fb stock went way up, so if you assume the number is something like 300, those are the people who may make big money. Some of them may have had only a few shares, and others are investors who may not be local, so you might estimate about 150 people with a million or more dollars.
According to one realtor, 25% of fb employees live in SF (which would mean 37), but the vast majority of them are young and single and may not buy anything, and many of them may consider SF a fun place to be in their 20s but do not intend to settle down here. However, some of the others from outside the area may buy small apartments to use occasionally. I'm guessing the number is probably about 50 SF properties (because you don't need a million dollars to buy). If fb stock goes up, it probably adds between 50 and 100 more purchases in sf beyond the original 50 in a few years, because the vast majority of employees get hired late and so they a) don't get much stock and b) don't get it very cheap. In the last two years, everyone wanted to work for fb, so it didn't take much to get them to accept a job.
So if it's 50 this year, that's 4 per month. There are about 500 home sales per month. Not that big of a deal for the average. However, the top end will likely see a pretty decent bump, because there are usually only a few such homes on the market, and adding one or two buyers a month can make a difference in a market that sells only a handful of such homes a month. A few fb'ers will have a lot of money and those will get headlines.
However, the days of IPOs marking the start of the effects in the market are over. Employees can sell stock and options and even stock units on the open markets that exist for wealthy individuals to buy even before the IPO, and so the IPO won't change that. So the effects are already baked into the markets because some employees have already sold, though obviously not every employee has sold their shares.
When not just the wealthy can buy shares, will the price go up, so shouldn't the employees not sell their shares until the IPO? It hasn't been the case for many companies. Zynga was trading at $14 before the IPO and has not been able to maintain that price after the IPO, so the employees who sold BEFORE the IPO made the most money. So there is no inherent reason for employees to wait for the IPO, though some might.
The difference is that every realtor in town is going to rub your nose in every sale to every facebooker. They will do that to hope you'll up your bid or whatever. They did that for google, and they'll do that again. I think most of the google effect was from the non google buyers who panicked and paid too much figuring the whole world was being flooded with millionaires all trying to buy houses. This is what the realtors are trying to do again: they are getting newspapers to publish article after article for the sole purpose of getting the other buyers to panic. The smart buyers will ignore them, and may have to wait 6 months: big deal. Prices fell after the googlers bought but also after the headlines subsided and people started acting more rationally.
Some buyers will believe the realtor salespeople and panic in the next few months and all of those buyers will lose money. Just expect it: your realtor is not your friend, he is someone trying to get as much money out of you as he or she can. He or she does that by getting you to buy, but making you feel good about paying far too much is one way they do that and they are trained day after day to get that to happen. Your realtor is being paid by the sellers to do that for them too.
The reality is that many of the google employees who bought houses after their IPO lost money on the homes they bought, while the googlers who took that money and used it for an MBA or to start a business or both (and did not buy homes), came out ahead, so I suspect the facebookers who make money on the IPO will pause before spending it on housing, or they may just wait a year until after the IPO so that the effects will have petered out.
One of my ex employees went to work for facebook, and has already left to go back to grad school. She started there 4 years ago, and they gave her a handful of shares. She made about $10K. Used it and a whole lot of loans to go to grad school. She'll make more money having done that than she would if she stayed at fb.
fb is also trying to expand outside of the area, something we didn't see with google at the time of their IPO. They are opening a New York office, and whether the opportunities for advancement will be elsewhere, causing people not to want to buy here, no one will know for a while.
So there are no hard and fast answers. Whatever the number, it will be less than portrayed by the media. But in the end, no one knows. So far, fb employees have tended to want to buy on the peninsula, not SF. Before Zynga went public, they moved closer to caltrain presumably because they too wanted to buy south of here. Twitter will probably have the biggest effect on SF IMHO. A higher percentage of their employees will buy in SF than fb.
That lays out the numbers, but certainly no one knows, not me or anyone else, and no one knows what percentage of people will throw that money away on housing or where they might buy.
A dozen realtors and cheerleaders will now chime in and tell you they DO know and I'm wrong. The number is ten thousand more home purchases for a million dollars higher every month for eternity.
Posted by: tipster at February 25, 2012 12:53 PM
"One of my ex employees went to work for facebook, and has already left to go back to grad school. She started there 4 years ago, and they gave her a handful of shares. She made about $10K. "
She must have been EXTREMELY low level. Like maybe cafeteria dishwasher. Or you made this up.
Posted by: R at February 25, 2012 4:04 PM
Nobody rubs people's faces in anything, Tipster. Especially not the faces of internet blog opiners who are never going to be in any market during the duration of their time spent on this planet. You always write as if you're involved somehow. You're not. You say stuff on the internet, OK? Big difference. It's so funny how you try to act like it's about you in any way. Pretty funny how you're now acting as if "media" and "realtor" are synonymous. That's a new one.
Posted by: [anon.ed] at February 25, 2012 5:16 PM
@lol - Agree with observations re china and europe, disagree with growth trends or evidence that we've unwound. Please understand, I don't favor general domestic spending cuts. Quite the contrary, actually. We probably agree with Krugman on this.
@ Joshua - your point is excellent; administrations and central banks are being pressed to use more and more powerful policies to sustain market growth. Hard to imagine bigger guns, aint it?
@Beenthere - apologies on my sloppy word choice.
@Big V - you're on glue. Just another salesman trying to sell hype and crap; No data and tenuous assumptions.
You're also naive. I'm in the market; just not long the market. And I like my own deals better than retail investing.
@lyqwyd and Brahma - It's been written that inflationary force by central banks/government devaluation of a fiat currency being considered a form of theft; In actuality a much more nuanced concept and one that has recently been hijacked by a big eared right winger who had a cameo on Bruno.
@ R and anon.ed - Why the rancor over tipster's comment? I agree with his general premise and observations.
Your replies are ad hominus (homo ad hominus? My latin is rusty) and offer no rebuttal.
I wouldn't presume to know what market tipster is or isn't in. My telepathy is good, but not THAT good.
@jjb - in the words of flavor flav - don't believe the hype.
Posted by: BillyBalls at February 26, 2012 10:01 AM
"@ R and anon.ed - Why the rancor over tipster's comment? I agree with his general premise and observations."
Eh? One person's "no rebuttal" is apparently another person's multiple direct challenges of word use. Never mind that he wrote a book about how the FB IPO might actually move the needle a bit in some areas even though last week he said it was going to be nothing. As for not being in the market now or ever, that's a known fact.
Posted by: [anon.ed] at February 26, 2012 11:52 AM
Tipster is just talking out his azz as usual, that is all BillyBalls.
The first 400 or so FB employees got stock options and they have been able to trade on the secondary market. But everyone after that got RSUs, so there is a bunch of FB millionaires waiting for the lock-up to expire so that they can start selling shares. I know a few of them.
The number of millionaires created will certainly be more than 150. But at least you aren't two orders of magnitude off this time, like you were with Zynga.
Posted by: NoeValleyJim at February 26, 2012 5:20 PM
1.Go back and read Zynga's S-1 like I did, NVJ. Then use the data and my statements to show your "two orders of magnitude."
I think you'll find my statements fully supported by the public documents.
2. Not every employee who gets stock gets enough to make that person a millionaire.
3. Not every shareholder lives in the area.
4. Banks will lend against RSUs for a home purchase. No one has needed to wait. Anyone who has waited may wait even longer or not buy at all.
Posted by: tipster at February 26, 2012 6:38 PM
"It's been written that inflationary force by central banks/government devaluation of a fiat currency being considered a form of theft; In actuality a much more nuanced concept..."
I'm not really sure what you are trying to say or what your point is here.
"and one that has recently been hijacked by a big eared right winger who had a cameo on Bruno"
I don't know who Bruno is, but I assume by big eared you are referring to Ron Paul, who has been talking about inflation/ central banks for decades, so I'm not sure how he hijacked it.
Posted by: lyqwyd at February 26, 2012 7:53 PM
I'm trying to understand what comes next, i.e. what follows the deficits.
Does anyone disagree that we're going to be seeing lots more deficit spending in the next five years?
I don't see a balanced budget, or budget cuts, or tax increases, only QE6 or the like...
I'm reading a book about Ron Paul (not his) and I didn't do a great job explaining that point. I'm trying to learn more about and perhaps debunk his positions.
His advocacy for the gold standard stems from the thought that a gold standard prevents a government from just printing money. Inflationary policies, and/or associated currency devaluation, are a form of "theft" (Marx, anyone?) because, in devaluing a currency, a government can meet its policy goals, but also devalues its citizen's money at the same time.
The idea actually predates Paul; One of Alan Greenspan's early papers was on the subject.
By Bruno, I meant the Sacha Baron Cohen movie.
Posted by: BillyBalls at February 26, 2012 11:23 PM
well, the number of facebook employees who got actual stock options is 500 or less, as that's the legal maximum number of shareholders for a privately held company. I think we can probably assume that these 500 will become facebook millionares (or close).
the other 2500 employees had to get restricted stock units if they got any ownership at all. these would vest after the company became public (as after ipo they could have as many shareholders as they wanted). not sure how many of these will be facebook millionaires but certainly many will have enough for a downpayment on a home if they want to use it for such.
so I do think there will be a facebook effect and it will likely be significant especially in already hot markets like noe. assuming the ipo is late spring, after the 180 day lockup we should start seeing the effect -- so fall.
Posted by: fancy rental at February 27, 2012 1:31 AM
A lot of speculation out there.
I'll throw another element: the paper wealth effect.
Some of FB employees are in their first jobs and are not so cash rich (yet), but many are in their 2nd, 3rd gig, probably from a successful series of good paying jobs. Either these employees have already purchased a home, or are waiting for the right time.
Employees who know they're going to get a windfall and have enough already saved up can perfectly purchase now before there's too much competition out there.
As I have said many times before, a big effect these new companies is not only the one-time cash out effect, but the overall total wealth of an economic segment. A company that went from 0 to 100B in less than a decade brings not only cash into the market but also paper wealth and the behavior that comes with it.
Posted by: lol at February 27, 2012 8:24 AM
They don't give enough options to rank and file employees to make everyone who gets the early ones $1M. One of my ex employees went to google pre IPO (2001). She made just under $100K off the options, and probably took a salary hit of about $10K per year for 4 years.
Jobs were hard to find in this area in 2001 and everyone wanted to work for Google. They just didn't have to give her all that much to get her to take the job. The idea that everyone at these companies makes millions just isn't how it works.
Both of my ex employees referenced here graduated from Stanford. Both went to these companies as their second jobs. Neither were programmers.
Posted by: tipster at February 27, 2012 8:44 AM
Again with this stuff? As if saying it a lot makes it valid?
1.Go back and read Zynga's S-1 like I did, NVJ. Then use the data and my statements to show your "two orders of magnitude.
Go back and read your own errors about how ZNGA is tanking and all the jokes you made. You had no clew or concept about the effect the FB IPO announcement would have, or the Zynga revenue percentage announcement. None.
I think you'll find my statements fully supported by the public documents.
wrong. far from it. Here's a bad one, by you, "It was decent hiring by tech companies, but with Zynga falling on its first day from a valuation that had already been halved, it's going to be more of a struggle for tech companies to raise money going forward. We'll probably start seeing some of them lay off next year to match their funding prospects"
2. Not every employee who gets stock gets enough to make that person a millionaire.
nobody said it. Indeed, flow charts have even been linked to showing otherwise: http://articles.businessinsider.com/2012-01-12/tech/30618875_1_millionaires-facebook-s-ipo-facebook-pr
3. Not every shareholder lives in the area.
According to the Almanac News FB's own study shows 27.4% of its employees live in SF: http://www.almanacnews.com/news/show_story.php?id=10592
4. Banks will lend against RSUs for a home purchase. No one has needed to wait. Anyone who has waited may wait even longer or not buy at all.
There's needing to wait, and there's letting things take their course. Getting a loan against RSU's is in effect paying an extra fee. So some may do it if they see something they absolutely love, sure. But implying that because it's possible most would do it is just silly.
Posted by: [anon.ed] at February 27, 2012 9:16 AM
[begin snark]The desolation and misery caused by multi-billion dollar IPOs can be felt all around the peninsula![end snark]
Posted by: lol at February 27, 2012 9:26 AM
"[begin snark]The desolation and misery caused by multi-billion dollar IPOs can be felt all around the peninsula![end snark]"
Careful not to ingest too much negative silver. Makes your objectivity shrivel!
23 offers meaningless aint' "you want cole valley to burn" and facebook's not popping up SFRE ain't "desolation and misery"
From anon.ed even, only a few thousand total, not all got enough stock to even make a million, only 27% in SF and if people wanted a loan off of RSUs it's just a fee. (And seriously if a guy's valuable enough to drop a seven fig pay package on you don't think FB can figure some way to get the guy DP money?)
What guys you got left are guys with the millions in SF that didn't want to pay the bank fee. But if a bank fee's blocking them how much are they going to be willing to bid up prices?
Posted by: ReadingForRealtors at February 27, 2012 9:58 AM
"What guys you got left are guys with the millions in SF that didn't want to pay the bank fee. But if a bank fee's blocking them how much are they going to be willing to bid up prices?"
Words fail ^
Posted by: [anon.ed] at February 27, 2012 10:02 AM
The desolation and misery caused by multi-billion dollar IPOs can be felt all around the peninsula!
Yes, but compared to the multi trillion dollar collapse of the loans-to-anyone-with-a-pulse market, it's a drop in the bucket. It helps, for sure, but it isn't going to solve that problem.
And it's only a short term help. This is 5 years worth of pent up IPO demand coming to market at the same time. After the headline companies, there aren't many big IPOs in the pipeline. So even if this has a net positive effect for a period of a few months, what happens after the blockbuster IPOs?
It's not like dot com days with an endless supply of profitless companies generating a thousand internet millionaires a month, with no end in sight. Today, it's a couple of big IPOs and then we're back to begging for money from the fed and $5K bennies from uncle sugar.
Competing against a short term supply of riches doesn't seem like the path to success in real estate investing.
Posted by: tipster at February 27, 2012 10:06 AM
You are confusing the US RE market and the Bay Area. But you know that already, don't you?
The successive waves of tech brought an accumulation of capital (human, technological, financial) which are all coming of age to create profitable and stable ventures.
Had all tech workers folded and moved out in 2002 the BA would be in the same shape as the rust Belt. Only the unlucky, the under-trained and the mismatched moved out or went to do something more adapted to them. The others kept going. Similarly people from today's star companies will create tomorrow's growth.
Posted by: lol at February 27, 2012 10:59 AM
Honestly, he has a point. If someone isn't going to pay 5% for a half a year on a 30% loan secured by RSUs for a downpayment on a $5M home, which will cost $37K, what makes you think they are going to throw caution to the wind and pay more than $5,040,000 for the same home after the IPO?
Posted by: tipster at February 27, 2012 11:01 AM
"It's not like dot com days with an endless supply of profitless companies generating a thousand internet millionaires a month, with no end in sight."
Good point. These businesses all have revenues, profits, growth, viable / disruptive business models and long term sustainability. And we don't need IPOs as you have reminded us so frequently. The secondary market has provided some liquidity, however, I really don't think it has played as big a role over all.
And again, the "facebook effect" is a broad term that I presume covers the entire growth tech industry. Many private companies are churning out wealth. Like the Washington st home recently purchased by a founder of a private company.
Also, the loan against RSU, while possible, is risky if you don't know when you will ever see liquidity.
Posted by: eddy at February 27, 2012 11:16 AM
"Also, the loan against RSU, while possible, is risky if you don't know when you will ever see liquidity."
Buying a house is risky too. A lot of guys from 07 don't know when they'll see the liquidity in their house.
And the real risk is in the house. If the house price goes up who cares if your stock value goes down. If you think the house price is going down, why buy?
Posted by: ReadingForRealtors at February 27, 2012 11:31 AM
"Honestly, he has a point. If someone isn't going to pay 5% for a half a year on a 30% loan secured by RSUs for a downpayment on a $5M home, which will cost $37K, what makes you think they are going to throw caution to the wind and pay more than $5,040,000 for the same home after the IPO"
No, he doesn't. And neither do you, switching from singular to plural like that. Some will go that route. Everyone has agreed on that point. Most will want to have the money, and then see the house they want enough to make them use the money.
Posted by: [anon.ed] at February 27, 2012 11:42 AM
^ Apart for highly-skilled professionals, a house is often a poor investment vehicle. People who buy have other factors in mind. Family needs, lifestyle choice, social statement, diversification of assets. Not all are rational, but all must abide to the rules of supply, demand and local constraints. Right now demand seems strong and supply seems low in some good SF neighborhoods. Also, the psychology has changed I think.
Posted by: lol at February 27, 2012 11:46 AM
The point is that getting a loan against an RSU is a great idea in theory; but if you can't make the loan payment than you're going to get in trouble. I don't think many people are taking this option.
Buying a home IS risky and this has always been the case. And the higher the price of the home, the greater the risk, to the extent that you are leveraging yourself.
But lets look at 2531 Washington Street. Here is a case where the buyer (self made internet millionaire) bought a brand new spec flip at premium pricing while at the same time selling his prior home for a 200k loss. So "risk" is really relative to your sensitivity to potential losses. To some people these losses are not significant. And we've seen countless owners take very real and gut wrenching losses. We've seen many folks get nailed by foreclosure and short sales. So buying a home should not be taken lightly.
Posted by: eddy at February 27, 2012 11:49 AM
"To some people these losses are not significant"
Sure, but for these guys then why do they care about potential losses on their stock between buying the house and IPO?
Not saying no risk. Risk is in the house. Not the Stock.
"And again, the "facebook effect" is a broad term that I presume covers the entire growth tech industry."
If the "facebook effect" is a broad term about General Sunshine and Happiness spreading around SF. Sure! Great!
But what does that have to do with pre-IPO liquidity?
If the "facebook effect" is a visible bump in SF home prices right after the lockup. You gotta say "Hmm if guys can get liquidity if they want it and they think prices will pop post IPO, it makes sense that more people would grab the liquidity to get in before the pop"
If you're talking something that won't show up in the stats then I don't care. If you're talking something that will show up, seems important that most folks already had the option to pull the trigger.
Posted by: ReadingForRealtors at February 27, 2012 12:17 PM
"Does anyone disagree that we're going to be seeing lots more deficit spending in the next five years?
I don't see a balanced budget, or budget cuts, or tax increases, only QE6 or the like..."
I'm with you there, it seems extremely unlikely that things will change anytime soon.
"I'm trying to understand what comes next, i.e. what follows the deficits."
I see 4 possible scenarios if the current deficit spending continues:
1) Decades of slow growth and high unemployment, much like Japan
2) Inflationary Depression (possibly hyperinflation)
3) Deflationary Depression
4) Our economy recovers, we start seeing real growth and unemployment goes back down to pre 2008 levels
I don't really think 4 has a snowball's chance in hell, but I included it for completeness. Of the others, we could see more than one happen, or even all of them happen.
I think we are already in number 1, and our best case scenario is that is all that happens. I think an inflationary depression is most likely after the extended recession, although there might be a brief deflation which acts as the trigger for inflation as the central banks try to fight the deflation. A deflation is bad for both the U.S. government as well as banks, so I think it's unlikely to be the final outcome of all this.
"I'm reading a book about Ron Paul (not his) and I didn't do a great job explaining that point. I'm trying to learn more about and perhaps debunk his positions."
I'm certainly interested in him, so if you have any opinions about him I'd love to hear therem
"His advocacy for the gold standard stems from the thought that a gold standard prevents a government from just printing money. Inflationary policies, and/or associated currency devaluation, are a form of "theft" (Marx, anyone?) because, in devaluing a currency, a government can meet its policy goals, but also devalues its citizen's money at the same time."
I don't consider inflationary policies as theft, so much as a hidden tax, particularly on the middle class. It certainly hurts wage earners, since wage growth always happens more slowly than inflation. I feel a gold standard mitigates a government's desire to deficit spend, via the threat of redemption.
"The idea actually predates Paul; One of Alan Greenspan's early papers was on the subject."
Howard Buffett (Warren Buffett's father, also a succesfull business man/ investor) was also a strong supporter of the gold standard.
"By Bruno, I meant the Sacha Baron Cohen movie."
Ha! I haven't seen that one yet, but I'll probably see it before the Dictator comes out, which I'm very excited to see...
Posted by: lyqwyd at February 27, 2012 12:23 PM
The facebook effect is actually a book and a term coined long ago that was co-opt'd here with loose context for the the title of this thread. But the irony here is that the editor is making a very good point about the overall strength of the market having a more concrete impact on the SF real estate market. And to this point, I largely agree that no single company can have any macro impact on the entire real estate market. So I don't really expect anything to materially show up on the stats as a result of any single company.
Hey, the S&P peaked at 1,371.94 today and is currently trading at a 52 week high. How about we just embed a ticker on the front page of SS so we can all know the real time impact of the stock market on SFRE!
Posted by: eddy at February 27, 2012 12:45 PM
I think option 4) shouldn't be dismissed. 3 years ago we seemed to be in a deflation trap but today inflation is back to its historical standards. The much-hyped "Boom" side of "Ka-Boom" (deflation/hyper-inflation) hasn't happened and probably will not.
But in an alternate reality such as the one the Paulheads are living in, the second shoe is yet to come. RP looks more and more like a broken clock to me. His moment of glory is gone now. I suggest his followers follow him to Guyana where they can create their own gold standard based utopia.
Posted by: lol at February 27, 2012 12:53 PM
Regarding your first paragraph, see my comment from Feb 24 at 5:42 PM on this thread. But in summary, we are much closer to 2008, than 2002 or 1993, and the causes of the collapse are all still there, and many of them now worse.
For your second comments, just because you disagree with somebody doesn't mean they are in an alternate reality, or even wrong. Suggesting somebody you disagree with leave the country is one of the weakest arguments out there.
Posted by: lyqwyd at February 27, 2012 1:15 PM
1 - We came out of the GD through deficit spending after 1945. The virtuous circle of expanding economy, naturally increasing tax influx and controlled sustainable inflation made the debt negligible after 10 years.
This is the right time to do it. Our infrastructure is starting to crumble, we need to re-base our manufacturing ability inside the US, we are NOT producing enough highly qualified workers. There's plenty of room for expansion through investment and education, and the government should be in the driver's seat. $1 invested will bring back $10 in the next 20 years. If we do not do it, our quality of life will rapidly diminish. Ask Argentinians how $0 public money in infrastructure is working out for their train system...
2 - Ron Paul wants the US to close itself off, shrink government, remove essential financial flexibility, let everyone fend for himself in a pure Darwinian fashion. Nothing good can come out of this. These plans are so out of base with reality that they appeal very much to libertarian geeks who spend way too much time on alternate reality games. Real life sucks for them, I get it. But the truth is that Darwinian selection would have taken out this awkward lot fast without our working model of society, lol! A dose of reality and some fresh air would do them some good. They are joined by the survivalist/supremacist loonies who also have their beef with reality. Which is why RP is unelectable, and probably certifiable in my book.
Posted by: lol at February 27, 2012 4:21 PM
1) You are wrong about that. We deficit spent during WWII. Our debt/GDP ratio peaked in 1945-46, and quickly declined almost immediately after the war ended. The 2 years following the war saw fairly sizable surpluses and the budget was roughly balanced after that until about the 60s, at which point the deficit started growing
"wants the US to close itself off"
He wants us to stop going to war for oil control and stop being global bullies, which I certainly agree with.
"... shrink government... "
Great! Totally agree there.
"... remove essential financial flexibility... "
That is so vague as to be meaningless. What "essential financial flexibility" is he trying to remove?
"... let everyone fend for himself in a pure Darwinian fashion... "
The rest is just a rant, so I'll ignore it.
Posted by: lyqwyd at February 27, 2012 6:44 PM
tipster, your contacts at google got rsu's, which is what most people think of when they say "stock options".
because if they are important enough to be one of the 500 vip recorded shareholders in a pre-ipo company who got actual stock, I am certain they got enough to make them a millionaire.
a good number of these 500 are actually venture cap companies and other investment groups though so the number of individuals who effectively own stock pre-ipo is significantly more than 500.
Posted by: fancy rental at February 27, 2012 7:03 PM
Sure there was a bit of a rant there. I have seen good friends go to the dark side (from Dem to Paulhead) and it is a bit disturbing.
WWII ended and THEN the US government spent huge amounts of money to build up the infrastructure. WWII expenses were non-constructive, a bit like the boom/bust cycle of 2002-2009. Plus the war brought back many millions of men to a country that had lived without them for 3+ years. The GI Bill and other government financed programs were "pay it forard" investments
Posted by: lol at February 27, 2012 7:15 PM
lol, trying to categorize somebody as insane or evil because they disagree with you a sign of a closed mind. Maybe your friends are on to something and you should be listening to what they have to say rather than rejecting it out of hand.
Your earlier comment implied that what is happening now is similar to what happened after WWII, which is incorrect. Of course there was government spending, there always is. But the spending was accompanied by sufficient revenue to support it. The real deficit spending was during the war, not after.
What we have today is spending like we are protecting the world from Nazi's, but all we're really doing is trying to keep control of the flow of oil, and enriching bankers. There is nothing similar with what's going on now and what happened during or after WWII.
There are many other factors that make times different today, and few of them make what's happening today look like a good idea.
Back then we were rebuilding the industrial world, the U.S. was pretty much the only country with a functioning economy, we were helping our former allies and former enemies rebuild for a better world. We were operating on reasonable fiscal policies. We were trying to create a more just world.
Today we are hiding the problems, our economy is barely functional, operating on flawed fiscal policies, enriching a few select people at the expense of the middle class, and creating more oppression locally and abroad.
Posted by: lyqwyd at February 27, 2012 8:30 PM
One of my ex employees went to google pre IPO (2001). She made just under $100K off the options, and probably took a salary hit of about $10K per year for 4 years.
Wow, she really had some bad luck there tipster.
Have you heard about the Google cook who got over $26M in stock from 1999 to 2005?
I have a friend who is a programmer that started in 2001 and stayed just less than four years and came out with more than that cook. He started with about six years of experience and was kind of in the sweet spot of age and experience for a pre-IPO company to want him, so they probably bid high. He also had a job at the time with Akamai, forcing them to make a good offer if they wanted him.
So while it is certainly true that not everyone made out like bandits at the Google IPO, a very large number of people did. Most estimates were around 1000 though that number must have increased as Google's stock went from $80 to $400.
Most estimates for Facebook are another 1000 millionaires. It is hard to say how many and the people who know for sure aren't talking. It is fun to talk about though.
Posted by: NoeValleyJim at February 27, 2012 10:33 PM
I am Facebook friends with the owner of Facebook, so think my number of 1452 is pretty good.
Posted by: sparky-b at February 28, 2012 8:16 AM
And in the March issue of The Noe Valley Voice (not online yet), there's a front page article with the headline "Here Comes a New Generation of Tech Workers: Don't Be Surprised If You See Home Prices Rise."
Features quotes from a guy paying $2500/mo for a furnished studio apartment on Grand View (yikes!), and a couple who just bought a place on Sanchez St for 1.4M––the husband commutes to Sunnyvale and likes the easy freeway access, the European feeling, the nice family feeling, and so on.
From the article, "Now our quaint urban village is in line for a new wealth infusion, thanks to a dramatic growth in well-paying jobs in San Francisco and the prospect of instant millionaires when Facebook this spring holds an initial stock offering that will raise billions of dollars for the company and its employees."
I think it's fair to note that a majority of the ads in TNVV are related to real estate. Also, it is quite possible that I am the only potential Noe buyer who actually reads TNVV. (Hey, I like to keep up-to-date on the crime reports ;). In any case, I was amused to see the article after all the back-and-forth on this site about the Facebook Effect.
Posted by: RenterAgain at March 8, 2012 2:05 PM
Well I definitely called the market turn, still waiting to see if I'm right about the 20% decline...
Posted by: lyqwyd at May 17, 2012 4:36 PM
Twitter's IPO: An almost doubling of the share price in the first hour.
Posted by: lol at November 7, 2013 7:56 AM
Anyone bold enough to claim that this new money will have no impact on our housing market?
Posted by: NoeValleyJim at November 7, 2013 8:02 AM