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dullhunk
Greece goes from one disaster to the next, jumping from the fry pan into Vesuvius. According to the latest reports, Fitch ratings agency has downgraded five Greek banks. It gave National Bank of Greece, Eurobank, Alpha, Piraeus and Agricultural Bank of Greece a CCC rating, down from B-, and noted that these banks have not yet received capital injections earmarked for them under the country's latest international bailout. So what's left of the Greek government has left them high and dry.
Reuters reports the Greeks are now saying German Chancellor Angela Merkel has raised the idea of Athens holding a referendum about its euro zone membership next month. Berlin has vehemently denied it. Reuters reports: "The confusion arose after a telephone call earlier on Friday between Merkel and Greek President Karolos Papoulias, in which Merkel conveyed her hope for a functioning government in Greece after repeat elections on June 17. Greek government spokesman Dimitris Tsiodras said after the call that Merkel also raised the idea of a referendum. '(Merkel) relayed to the President thoughts about holding a referendum in parallel with the elections on the question whether Greek citizens wish to remain in the euro zone.' A German government spokesman rejected the idea that Merkel had proposed a referendum. 'This is false and we completely dismiss this,' the spokesman said." Maybe they just needed a good translator.
Yesterday I did a blog entry looking at the likelihood of Greece exiting the Eurozone and warned that it could lead to a coup there. Add to that the warning from former Mexican central bank governor Guillermo Ortiz who says that if Greece leaves the euro zone it could detonate a global financial crisis even worse than the 2008 credit crunch, dry up global trade financing and spur another U.S. recession. We're in uncharted waters, and dangerous territory.
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DonkeyHotey
Here's the bad news for Facebook investors. After Friday's float, Facebook shares are likely to crash.
The Wall Street Journal reports that all those investment bankers protected the Facebook shares on the day of the stock market debut and kept them from dipping below $38. To put it simply, most investors weren't willing to spend $38 per share, not with the stock market cratering because of Europe. No one was prepared to take that sort of risk.There were 33 underwriters determined to make sure the offering didn't break below the $38 price so when people stopped buying, they bought up the shares to keep them at $38.
The big question is what happens when Facebook's security detail, the protection team of bankers decides to move on next week. No one will be holding up the shares then.
For Facebook to actually be worth $125-$150 billion or more today, it would have to be worth $300-$400 billion in a few years' time, otherwise it's not worth buying. Facebook would have to earn $20 billion of profit to justify a $300-$400 billion valuation, 20 times the amount Facebook earned last year. Which means it's going to have to find new revenue models. And we haven't seen any evidence of that.
Espen Robak, the president of Pluris Valuation Advisors, has told The Atlantic it doesn't make any sense. "Nobody knows what Facebook's revenue and profit model is going to be. If their revenue and profit model stays the same, this valuation doesn't make any sense. There's no way they can just squeeze enough plain old ad revenue to justify these numbers. They must change. We don't know what this is going to look."
In the meantime, investors are likely to be taking a "wait and see" attitude. That's why the shares will dip after the banks move on next week. Monday's story will be very different. Bad luck if you bought shares in Facebook.
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Fortune Live Media
Is Warren Buffett nuts? He's buying newspapers now. Associated Press reports that Buffett is buying 63 newspapers from Media General for $142 million. His company Berkshire Hathaway is also lending $445 million to Media General, which it will use to pay off debt. In return, Berkshire is getting the 19.9 percent stake in Media General and a seat on the board. Buffett says newspapers have a future if they continue delivering information that can't be found elsewhere. They also need to stop offering news free online, he says.
This sounds crazy because it's in complete defiance of all the predictions that newspapers are finished. Commentator Clay Shirky says newspapers will disappear because the economics don't add up anymore. He says they will be replaced with a whole lot of experimental models. No one knows what the future holds. "For the next few decades, journalism will be made up of overlapping special cases. Many of these models will rely on amateurs as researchers and writers. Many of these models will rely on sponsorship or grants or endowments instead of revenues. Many of these models will rely on excitable 14 year olds distributing the results. Many of these models will fail. No one experiment is going to replace what we are now losing with the demise of news on paper, but over time, the collection of new experiments that do work might give us the journalism we need."
But then, it makes sense when you realise that Buffett is not actually buying big national newspapers. That would be stupid because they're haemorrhaging money. What he's buying instead are small, but profitable, community newspapers. As Eric Wemple points out in the Washington Post, they are close to their communities and generate exclusive content. It's not a commodity, not the sort of stuff you can get on Google News. And according to BusinessWeek, Buffett paid a pretty cheap price for the assets, about four times earnings. For that sort of outlay he would get a nice return.