Wealth Chasm Between Old and Young
Let us set aside the rich bankers versus the every day person or the 1% versus the other 99%. The true gap resides in generational wealth. According to a Pew Research Study, older americans were 47 times more wealthy than younger americans in 2009 while that ratio was a modest 10 times in 1984:
Also notice that today's 65 year old is 41.5% wealthier than his parent while the median 35 year old has 31.8% of the wealth of his parent (all in 2010 dollars)
Social Security and Medicare continue to pay out healthy entitlement benefits to current retirees at the cost of future tax payers. The median 35 year old is struggling to get his/her head above water, much less save money in a retirement plan. In other words, government provided retirement benefits for the 65+ cohort will be paid by the 35 year old individuals who have saved nothing for their own retirements. This same 35 year old cohort will most likely receive little or no entitlement benefits in the future as the US deficit is balanced.
How did this happen? A healthy stock market from 1980-2000, prolific economic growth, robust jobs market, and a 30 year easy money central bank policy which provided a debt-fueled binge.
To the 65+ cohort with private pension retirement payments, social security checks, fully paid health care, and a robust private brokerage/retirement account due to 30 years of declining interest rates and rising stock prices – congratulations for winning the generational lottery at the cost of other generations.
Posted in Economics, Media, Politics.
– November 8, 2011
The Groupon Craze
I generally stay away from commenting on individual stocks or companies. I have very little interest in making trades or bets that are dependent on the idiosyncratic risk of individual companies. Due diligence can go a long way, but unless you have access to the firm’s officers, you might as well throw darts. Besides, individual firms can lie. There might not be any recently outlandish examples such as Worldcom or Enron, but just go read the press releases from Washington Mutual, Lehman Brothers, Bear Stearns, Merrill Lynch, and others before they fell. Nothing but rainbows and sunshine.
When Google went public, I thought the craze was crazy. We had seen dot com’s come and go or grab the headlines and then dim over time. In the search engine space many were able to become the hot name of the week: AltaVista, Yahoo!, AOL Search, Lycos, Ask Jeeve’s, MSN Search, etc. Search engines were a dime a dozen. I always admitted that Google had a better product and I even used it for myself, but I never understood why everyone thought they would grow so quickly. Google went public with a market cap of about $23B with $400M of net income as of year-end 2004. Growth expectations were lofty, but at least they were making money. Since then, Google has grown to become the 7th largest company in the S&P 500 with a market cap greater than Berkshire Hathaway and slightly smaller than Wal-mart at $196.9B.
I was wrong and the Google lovers were right. They have perfected their web-advertising model, but they have also been aggressive in expanding their product offerings and becoming the guardian and holder of vast amount of user data. Google knows who you are emailing, what you are reading, what sites you are visiting, what videos you are watching, and what you are buying…Google knows more about the average internet user than the user’s own spouse. This is valuable information that they promise to never use against you, but for which they are paid handsomely in the advertising space.
In a similarly sized IPO, Groupon has gone public and traded as high as $31.14 or at a market capitalization of about $20B. This would put them in the top 150 of the S&P 500 alongside names such as Yahoo!, Time Warner, Marathon Oil, Archer-Daniels Midland, Cummins etc… The first way that this differs from Google is that the consultancy group Benchmark predicts that they will lose $280M in 2011 on revenue of $1.69B.
The second and most important way that Groupon differs from Google is that it must compete for each new market with only the benefit of its name recognition. In other words, it does not matter if Groupon is the best group coupon provider in Chicago when it is trying to sell its services in Bangkok. This is also why they are losing money even with significant revenue.
I was wrong when it came to Google’s growth trajectory, but (exclusive of a reverse stock split) I will be shocked if GRPN sees $31 ever again.
It will definitely be interesting to watch.
Posted in Markets, Trading Ideas.
– November 7, 2011
Noteworthy News – November 7, 2011
Economy:
Fed Says Economy Has Picked Up While Still Detecting ‘Significant’ Risks – Bloomberg
Can Anyone Really Create Jobs? – New York Times
Growing Economies, Stagnant Wages – The Lowdown
32 Ways Of Looking At Unemployment, In One Chart – NPR
Markets:
Bond Yield Hits Historic Low: 0% – Time
Traders like sound of ‘Bernanke Put’ – Financial Times
Junk Bonds Lead Company Debt to Top Month of ’11: Credit Markets – SF Gate
Gold Traders More Bullish as Debt Crisis, U.S. Economy Spur Bets on Gains – Bloomberg
Politics:
When Governments Pay People To Have Babies – NPR
Spectator’s Guide to the Euro Crisis – New York Times
Japan keeps market edgy after nearly $100 billion intervention – Reuters
Central Bank Weighs in With Surprise Cut – Wall Street Journal
Easy Money: It’s a Global Thing – Barron’s
Banks:
What caused the financial crisis? The Big Lie goes viral – Washington Post
Bernanke and Banks Tested by Latest Market Strains – Wall Street Journal
Wall Street’s resurgent prosperity frustrates its claims, and Obama’s – Washington Post
Posted in Economics, Markets, Media, Politics.
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– November 6, 2011
