Wednesday, February 8, 2012

An Unsustainable Tech Market - the Battles of Form, Kandinsky vs. Pollock

I try to stay away from talking more about stocks these days; because I don’t understand them. There is no rhyme or reason, no algorithm can predict how mass psychology will reflect in arbitrary numbers. It’s not even a probability; the best one can really do is make an educated guess based on past patterns.

Wassily Kandinsky
But there is Art in the market place—we the painter, market the canvas, and the information exchange are remnants of our brushes passing; it’s an aesthetic order based on fundamentals, opinions (analyst reports), and an information exchange (loosely the market infrastructure—computers, phones, media companies, stock exchanges) leaving its mark on society and its various reaches into our daily lives.

I get the suspicion that Money isn’t the real Currency of market trades; although it weighs heavily on who can participate, I see information is what is really traded—or at least, the opinions of information from one (what a communicator, intentionally or unintentionally, convey as “meaning”) transferring to another thus influence trades based on what the recipient understood as the “intent” of the information received.

This transferring of meaning to intent occurs with a backdrop of subject matter information; subject matter such as psychology, history, the hard science (especially important to the stock market is mathematics), etc.; while the depth of these subject matters range from low to high, trading is one of those things one can participate with a few basic (low level of) understanding of universal subject matters—math to better appreciate the fundamentals, language to interpret the opinions, and money to make the trade.

Of course it’s not as simple as I make it out to be. The backbone of that information exchange is valuation. Valuation is also a guessing game and much more involved with the technical aspect of meaning and intent. To be truly an expert in the conversation involving valuation, one would have to at least attain a PhD level understanding of all of the soft and hard sciences and then master them collectively. It is, therefore, at most the subjective side of our trading experience; less geniuses are common occurrence in the trading business.

We have seen valuation wreck havoc in our market’s past; all of the bubbles tells us to be careful of our wild brushes of paints. With the recent Facebook IPO and European crisis, I had been following the stock market closely. I’m also a techie, and I love my 3G/4G WiFi ready Android phone; I also have Sprint, a company I find very interesting in terms of valuation. Sprint announced its 4Q earnings this morning, and it beat the analysts’ expectations by $0.02. But it is still losing money, coming in at a loss of 35 cents per share instead of the expected loss of 37 cents per share. One blogger called it the “look mom, I got an F, but it’s the best F I’ve gotten so far” thing.

I happen to think Sprint is undervalued, but many bloggers seem to think otherwise. It wasn’t until recently, I saw why so many had been having a different intuition.

One business journalist points out, Sprint is going down the proverbial drain because the tech industry is changing.

When I had my first Internet ready computer, it had a dial-up and AOL’s infamous 30-day free trial. In those days, computers lasted five years in the office spaces and homes. Just a little over 10 years later, they're mostly expense-ed at companies. At private homes, they were expendable—consumable. This is especially true with the recent mobile/social tech age. Now, even though the computers are capable of working for 10 years, if you don't expense them you are loosing competitive edge. As a company, you won’t have the fastest, the most attractive to the new work force; in homes and in our private lives, we are made to feel if we don’t have the newest gadget we must be losers. Computers stockpile landfills, their value disappears before your eyes.

Dana Blankenhom writes:

There is a solution in the utility model. WiFi works this way. Roads work this way. The equipment is an expense to each user, the cost of the depreciation is shared through a single authority. If that infrastructure is privately-owned, it's regulated. Or it can be publicly-owned - paid for through taxes.

It's not communism, and it's not socialism. It's how people in the late 19th century learned to deliver electricity, natural gas, how they created ports and telephone service and, eventually, our Interstate Highway system. It's how the Internet works. It's J.P. Morgan, but it's also Teddy Roosevelt. It works.

Sprint, it seems, has been occupying a fictional space on the spectrum of the trades because information is misinterpreted by a shared belief that the intent is to ever expand. We are under the false hope that more will join us in the hoax—it works almost like a pyramid scheme.

This doesn't work. This idea of separate proprietary networks, with obligations to serve everyone but no assurance everyone will use the network, results in a lot of wasted bandwidth. You're building three infrastructures, or four, where there should be one, and you're constrained for capacity where there is high demand.

Dana Blankenhom, Sprint Slowly Circling the Drain.

Why do I get the tingling that Blankenhom is talking about Facebook? You have heard that Facebook is having an IPO soon, or else you’ve been living under a rock? But where is the value in Facebook’s estimated $100 Billion? I use Facebook, although I’ve cut my uses down because of its unpredictable privacy settings and constant changes to more and more resemble MySpace (remember MySpace?).

It’s claim to fame is some 150 million users per day; sure, but how many of them actually look at the ads? Even a decent number of people click on ads, how much of that $100 Bs is it making Facebook?

Another question: with more and more people pissed off about Facebook's privacy rules, how long does Facebook expect to live off its involuntary pull of user information and selling it for money? Even if it achieves the status of content delivers like the old News Papers, or TV programing, is it really worth $100 B?

And even if FB manages to pull enough meaningful information about how consumers are "liking" some content and not others, making educated guesses about how we would spend our money online, is that information really worth $100 B? The only other service I can think of that resemble what FB can do is Neilsen, a media market research and consumer targeting company; it only had a market capitalization of $7 B when it had its IPO in Jan of 2011. If the argument is that FB can provide meaningful consumer data, is it really providing more than ten times more meaningful information than Neilsen for a medium that has not yet reached the maturity of TV programing and other traditional media outlets? 

What if FB is really taking on Google? Google claims over 7 billion visits per day, close to 50 times the amount of users on FB. Google's market capitalization is only about $200 billion, is FB really going up against the Internet's number 1 at half of the market capitalization but only 1/50 of its transaction base? Are the people guessing at the next few decades of the Internet game really think there is that kind of consuming power backing up not only the conglomerate Google, but FB as well? along with all the other tech sector babies? At what point do we tell ourselves that enough is enough, one more infrastructure is unnecessary?

I'm afraid that's not a decision either Google or FB can make alone. The market has to make that decision--the market has to engage in that information exchange with society itself.  

Everyday I see more and more social networking sites pop-up. More and more they are geared towards a very specific demographic. It’s like the web space is self-organizing, specializing, cutting out the inefficiencies in the information exchange. I wonder how long it will be before the market itself does this? And rule out Facebook as irrelevant from the likes of all the other specialty Social Networks?

I will have to say that at least Facebook have collected enough basic, unchallenged, public information about us, it is here to stay. But who would really pay $100 B on information they can get anyway for free? So my prediction is Facebook will eventually value out at a lower bracket; that will be triggered by the hardware market downsizing--the Sprint Drain danger. At that point, all of the people who bought in at FB's $100 B valuation mark, will realize they are holding on to a "free" company. 

So Sprint will be on my watch list for a while. It’s tumbling, if Blankenhom is correct, will probably trigger another bubble bust. That’s when you know to check your funds out early and avoid another disaster for your retirement.

Pollock - aka. Jack the Dripper
Or else, you'd be the one left holding the check paying for the unnecessary and unsustainable infrastructure.

All art is autobiographical. The pearl is the oyster's autobiography. -- Federico Fellini

What is our autobiography?

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