Wednesday, November 30, 2011

ECB & Central Banks Actions (Nov 30)

Is it dollar liquidity driving this action or the EU crisis? Or both?


see:


Central Banks Pushed to Act as Funding Squeeze on Banks Worsens
Businessweek


Anyway, the news should give a pop to equities worldwide, at least for today. 



Tuesday, November 29, 2011

Zynga employee relations to affect the company?


For those of you not in the know, Zynga is the maker of Farmville and Mafia Wars games on Facebook and as a standalone app. Earlier this year it applied to IPO. Roadshows should start soon. However publicity over its treatment of its employees are coming to light and not in a good way. 


Its reputation could've possibly affected potential acqusitions of Popcap, which it offered $950M in cash, and Angry Birds maker, Rovio, for $2.5B. Both turned down offers. 

see:


Zynga to employees: Give back our stock or you'll be fired


Current implied valuations on Sharepost stand at $12.9B, as of Nov 29, 2011. 2011Q1 earnings hit $12M with full year revenues believed to be above $1B

see:

Zynga road show kicks off next week: sources




Games are for free, but die-hards called whales (named after their casino counterparts), will spend money to gain that edge over others. It was estimated that 1% of Zynga's players account for 25-50% of its revenue.  It's the new revenue model for the free video game business model. Businessweek highlighted a customer who spent $500 in Farmville and a competitor to Zynga claiming it had 200 people who spent more than $10,000 per year on their games. 

see:

Update: Italian Bond rates spike in latest auction

3-yr bonds have hit an unsustainable rate of 7.89%


Facebook 2012 IPO?


Reuters reported today that Facebook can possibly IPO next year, raising $10B and thus valuing the company at over $100B. For those unfamiliar with the Facebook story, there was a Hollywood movie, The Social Network, last year.




How can you play this as an investment? You can't! Unless you are a very large (or important) high net worth individual (HNWI) at Goldman Sachs ex-US according to an earlier Reuters report. It was rumored that Goldman offered HNWIs the chance to invest a minimum of $2M with a lockup until 2013. Goldman was estimated to raise $1.5B in the private placement. 



Although it has come to light there is an alternative market trading pre-IPO private shares. Sharepost is reportedly trading private shares of Facebook, Twitter, and Zynga to name a few. In order to qualify, the website states that you must be an accredited investorThe current Sharepost Facebook implied valuation is $73B. Without data it's difficult to determine the proper valuation. However if the investor were able to get in at $73B and it IPO'd at $100B, the gains will be sizable. 


For all the remaining retail investors, you will have to wait until the IPO hits the secondary market. 







Monday, November 28, 2011

IMF to provide an aid package to Italy?



Over the weekend there was a rumor that the IMF was preparing a 600 Billion Euro aid package for Italy. However this morning, the IMF has officially denied it. 


So what is the outlook for Italy if it doesn't receive a bailout like Greece and Ireland? Not too good. Italy has amassed $2.2 Trillion in debt, 120% of GDP and now its 10-year bond is now sitting firmly above the 7% rate, the rate at which signaled peril for Ireland and Greece. The market has lost confidence and is demanding more to lend. 






About half of the debt is held domestically. But who are the other large Italian debt holders?


1. France, $105B
2. Germany, $51B
3. Japan, $30B
4. Belgium, $17B
5. US, $14B


source: Wallstcheat


To note, Belgium was just downgraded by Standard & Poor's from AA+ to AA. 


What does it mean to your investment portfolio? An exposure to Italian banks would be something to avoid. As of Friday (Nov 25), Fitch downgraded 8 mid-size banks citing a rise in cost of funds and the risk of the Italian economy heading into recession. 


According to Professor Paolo Manasse, of Bologna University, Unicredit (UCG) owns as much as 40 Billion Euros in government bonds, while Intesa Sanpaolo (ISP) 64 Billion Euros. 



Sunday, November 27, 2011

Hedge fund type ETF Strategies


Once the domain of sophisticated investors such as hedge funds, market- neutral strategy ETFs are now accessible to the retail investors. Although it will attract pension funds, hedge funds, and institutional investors. The ETFs are traded on the NYSE. 


What is this market-neutral theme? In short, investing long in one instrument while going short another, irrespective of market movements the spread should generate a profit. Ideally the two instruments should be negatively correlated. There are different variations of the theme based on the market sector (i.e. telecom), market index, exchange rate, rates, dollar weight, beta, size, and other factors. One example is the equity-pairing method. An investor could have gone long on Apple (AAPL) as the iPhone popularity surged while shorting Nokia (NOK) which has declined significantly. Although Apple operates other businesses besides cell phones, the chart below illustrates the negative correlation, and hence a hedge.  








Source: Google finance


The key weakness inherent in this strategy is the constant need to rebalance the portfolio to maintain the hedge. As transactions incur cost, this can be a significant impact on returns. Another transaction disadvantage is the creation of undesirable tax effects. 


Back to the ETFs. FFCM LLC is a Boston-based adviser running the QuantShares ETFs. Here is a short spot on them ringing the NYSE opening bell:




They offer 7 variants of the theme:


(1)  U.S. Market Neutral Momentum Fund (MOM)


(2)  U.S. Market Neutral Value Fund (CHEP)


(3)  U.S. Market Neutral High Beta Fund (BTAH)


(4)  U.S. Market Neutral Size Fund (SIZ)


(5)  U.S. Market Neutral Quality Fund (QLT)


(6)  U.S. Market Neutral Anti-Momentum Fund (NOMO)


(7)  U.S. Market Neutral Anti-Beta Fund (BTAL)

These funds have just started so let's see how they will perform. The current economic backdrop will provide a good stress test. 


Margin Call


Latest Hollywood movie to cover Wall Street. Here's the preview:




Watch the villain from Heroes, Zachary Quinto, take on Wall Street as his investment bank has to unwind their positions set at the beginning of the economic crisis of 2008.

Black Friday

Even with poor economic conditions, US consumers managed to create record Black Friday sales, pushing it up 6.6% from last year.

Which companies are likely to profit? The largest retail chain in the world, Wal-Mart (WMT) comes to mind. If the following video is any indication, there was foot traffic.



Wal-Mart is also helped by recent developments in India where it is now allowed to start operating. Previously foreign retailers were not allowed to operate in the Indian market.