(By Random Roger) A reader left a link to a Yahoo video discussing the revelation that Morgan Stanley allegedly was going to cut earnings on Facebook (FB) and then gave that info to select clients. This comes on top of what has been a very loud failure of sorts of the actual offering.
The sell side of the industry has evolved a lot but is still rife with conflict. The action that Morgan Stanley supposedly took with this (and for that matter there are now questions as to what their position in the stock actually is) may or may not be illegal, I don't precisely know but as I said in the comments yesterday it is unethical if true. It is also not new behavior if it is true.
We seem to be in an era where this sort of thing can no longer be hidden as well as it used to be which a positive but it will still go on. This is not something I spend much time on as we've never tried to access an IPO and we don't do business with these types of firms. As we move forward with our ETF we will be doing business with several trading firms which creates the potential for "getting our face ripped off" but obviously we believe the firms we'll work with will treat us in an ethical fashion as there is a competitive element that doesn't necessarily exist when someone opens an account at a sell side brokerage firm.
As far as Facebook's stock, most people knew it came to market with a very high valuation. I tweeted that I wasn't sure how to value the stock (reason enough to stay away). Barry Ritholtz replied "earnings and revenues?" to which I said I did not think that would matter for some short period of time. Generically speaking a stock at 100 times revenue does not have to be an avoid but something will have to give. Walmart was very expensive for years and the thing that gave was the stock price didn't really go up but the earnings did.
A different outcome for Facebook could have the stock goes up a little and the earnings and revenue go up a lot or the IPO turns into a goatrodeo.
Fire related, I spent a chunk of yesterday with the structure protection division supe yesterday going over the map of our area and then taking him on a drive around to see what it actually looks like here. It is possible that the fire gets here but it is not probable. Hopefully the work done Tuesday will be helpful for any future incidents we might have. The wind on Tuesday did pick up as they predicted so I will find out at the Tuesday night planning meeting if there was any consequence to the increased winds--I have been attending the planning briefing every night which will continue for quite a while and I wrote this post Tuesday afternoon before the meeting.