Alibaba transaction volume compared to Amazon and eBayEinhorn Cries Bubble, Apple Splits 7-1

David Einhorn of Greenlight Capital says “we are witnessing our second tech bubble in 15 years,” and “what is uncertain is how much further the bubble can expand, and what might pop it.’  He described the current bubble as ‘an echo of the previous tech bubble, but with fewer large capitalization stocks and much less public enthusiasm.’”  Einhorn gives 3 reasons for his bubble call: 1) “the rejection of ‘conventional valuation methods,’” 2) “short sellers being forced to cover positions,” and 3) “big first-day pops for newly minted public companies that ‘have done little more than use the right buzzwords and attract the right venture capital.’”  Even though he isn’t “predicting a complete repeat of the collapse [of the first Tech bubble ~ 2001], history illustrates that there is enough potential downside in [momentum “Cool Kid” stocks] to justify the risk of shorting them.”  And, oh yeah, “the last time the internet bubble burst in the early 2000s, Cisco Systems dropped 89% and Inc. fell 93%.”  Speaking of which, “Amazon raised the stakes in its battle with Netflix (alt) for supremacy in online video streaming by striking a deal with HBO to gain access to some of the most popular shows from the pay-TV channel’s library.”  Meanwhile, “Apple Inc. raised eyebrows Wednesday afternoon by announcing a 7-for-1 stock split along with its (positive) second-quarter earnings…At Wednesday’s closing price of $524.75, the split would price shares at $74.96.”  Here’s something to consider: Apple stock priced at ~$75 as opposed to ~$500 makes it eligible for inclusion in the Dow.  Not only that, but “It makes the stock more attractive to the smaller buyers…It’s better priced and more people will buy it.”  Furthermore, stock splits can sometimes create “a shift in ownership toward less sophisticated individual investors…This creates more liquidity in the stock.”  Which is kind of an argument for market inefficiency?  Meanwhile, here are 5 things to know about Alibaba’s IPO.  And finally, MIT’s 10 most significant breakthroughs in technology over the past year.  

GM Recall Also Looks Bubbly

General Motors recorded its worst quarter (alt) since returning to public listing in 2010 after the costs of its botched ignition switch recall slashed first-quarter net income to $100m.  The results — down 89 per cent in the same period in 2013 — were hit by a $1.3bn charge for the costs of car recalls, mainly related to the ignition switches on a series of older compact cars.”  Meanwhile, “General Motors’ liability for defective ignition switches in its cars is complicated by its bankruptcy in 2009.”  Furthermore, “it seems that the bankruptcy case will probably mean that G.M. has no legal obligation to pay a good chunk of these claims.  Whether it faces political pressure to pay nonetheless is another story.”  Meanwhile, while everyone talks about Mary Barra getting thrown under the bus, I can’t help but notice the warm water and suds everywhere.

Liquidity Drops, ECB Plays “Fantasy” QE

“The amount of spare cash in the euro zone banking system fell to its lowest levels in 2-½ years on Thursday, pushing up short-term money market rates and adding impetus for the ECB to loosen policy further…The last time liquidity fell so low it nudged the ECB to introduce its Long-Term Refinancing Operation, a series of emergency loans to banks…The euro zone overnight bank-to-bank lending rate, settled around 0.22 percent, up about 2 basis points from the previous day but still below the rate of 0.25 percent which the ECB charges banks to borrow cash, known as the refinancing rate.”  This adds fuel to the “QE in Europe” debate; the Financial Times thinks that an ECB asset-purchase program would be ineffective in boosting investor confidence (alt), and that “the ECB is trying to talk the euro lower by playing fantasy QE.”  The more probable scenario for monetary easing could come from sterilization of the ECB’s Securities Market Programme.

Housing-Led Recovery?

Goldman Sachs would like you to know that mortgage-lending standards are choking a housing recovery.  That being said, we may want to temper our expectations for a housing-led recovery in the United States.  While growth in housing prices has been pretty strong over the last two years, the number of people borrowing cash against their home (cash-out refinancing) has been very little, and indicates there is “very little spending out of housing wealth currently.”  Also, “home builders have not been responding to rising home values nearly as aggressively as they did prior to the Great Recession.”

Fed: Forward Guidance: A Pattern Of Always Expecting Higher Interest Rates In Two Years

Global: Home Is Where The Money Is

TerrificHeadlines: Icahn Looking To Launch An Army Of Mini-Icahns


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