Alan Abelson: "Facebook is overpriced" (2012)

Assuming profit margins stay around the same as they are currently, and assuming, too, that the P/E will match that sported by Google last we checked, according to Mark Hulbert's calculations, Facebook's shares should be changing hands at $16.66 each...  Anyway he looks at it, Facebook is overpriced.

~ Alan Abelson, Up & Down Wall Street column, Barron's, May 28, 2012

(Facebook closed at $31.91 on May 25, 16% below its IPO price of $38 set on May 17.)

Alan Abelson builds the skeptic's case against China

In a kind of backhanded recognition of the country's status as a growing economic colossus is the fear, voiced occasionally by market mavens, that should the perpetual China boom go bust, the result would be widespread havoc. As it is, of course, Corporate America and investors here are wild about China.

All of this is a prelude to recommending a piece on China by Ian Johnson in the Sept. 30 issue of the New York Review of Books. Johnson, now based in Beijing, is a former Wall Street Journal writer and bureau chief (we never met him), who has collected a number of awards, including a Pulitzer. His take on China is not only informed but extraordinarily revelatory and compelling.

Early on, he points to "the spectacular misperceptions about China, a key one being that the government has been privatizing the economy." Actually, he says, what it has been doing is turning state-owned enterprises into shareholder-owned companies but—and this is rather a big but—with the government holding a controlling stake. And, he adds, "even today, almost all Chinese companies of any size and importance remain in government hands."

Throughout the '90s and into this decade, he recounts, prospectuses for IPOs of Chinese companies written by Western lawyers fudged the fact that the Communist Party's Organization Department, rather than the company, would remain in control of all personnel decisions. The ability to hire and fire is scarcely trivial. And major Chinese companies, Ian relates, have Party secretaries who manage them in conjunction with the CEO.

China has changed and for the better in many ways, Ian feels, such as largely withdrawing from what he dubs the "personal lives of Chinese citizens," permitting them to "pursue their own ambitions and goals as long as they avoid the high crime of directly challenging the party."

For all the economic growth achieved by what Ian calls China's "conventional mercantilist policies" in the past 30 years, he's skeptical those policies will continue to work in the future. What's badly lacking, in his opinion, is a "more open economic and social system that can foster innovation and creativity." One badly needed reform on this score, he argues, would be to pry loose the Party's iron grip on businesses. But don't hold your breath waiting for that to happen.

The tight ties in China between politics and economics have "created giant state-owned companies that have had spectacular success on foreign stock markets." Those big companies, he goes on, are giants, but merely because of their size. Essentially, they're little more than partially privatized quasi monopolies, not very nimble or inventive or even influential in global markets, except "when trying to buy natural resources."

Ian bemoans the fact that after Tiananmen, the Chinese government "channeled huge sums into better dorms for students, housing for teachers, labs for scientists and junkets for administrators" to little avail. This may have satisfied material demands and lured foreign universities hoping to set up programs in China. But it hasn't produced a bumper crop of "creative and innovative" students that Chinese companies can draw on.

"Even among China's elite universities," Ian claims, the academic level, in most cases, is on a par with one of our "mediocre community colleges."

While economic reform hasn't quite come to a halt, says Ian, the state sector is regaining lost ground in part because of Beijing's policy of "recentralizing control." The powers that be lack any impetus to reform. That would suggest that an awful lot of folks, businessmen and investors alike, in our blessed land who can't wait to get a piece of the Chinese miracle might wake up one day more than a little disappointed.

~Alan Abelson, Barron's magazine, "The Bad News Bulls", September 25th, 2010

Alan Abelson builds the skeptic's case against economic recovery

That the market is on a roll is undeniable (and who but a cockeyed grizzly would want to deny it). But what's providing the biggest lift is the prevailing investor tendency to respond like gangbusters to even a glimmer of good news and to ignore bad news no matter how telling. Take the response to the latest data on housing.

First came the disclosure that existing home sales were up 7.6% in August—immediately seized upon as evidence that housing was on the mend, supposedly a harbinger of an accelerated recovery and reason enough to take the plunge into equities. But it ain't necessarily so.

As Mark Hanson, of Hanson Advisors, is quick to point out, while last month's sales were better than economists' forecasts (most of whom never saw the housing crash coming), they were down 19% from sales in August '09, and inventory edged up to 11.6 months. That awesome pile of unsold homes all by itself is going to be exceedingly tough to unload.

Moreover, Mark warns that you better be prepared from here on for the full impact of the end of government stimulus, including some pretty irresistible tax breaks, which helped goose demand this year. The absence of such artificial resuscitation is likely to translate into extremely disappointing year-to-year comparisons, including more than a few months of double-digit declines in existing home sales. He also sees the heavy mass of foreclosures and so-called short sales "pushing median and average prices lower, quickly."

As for new home sales in August, they were flat at a pitiable annual rate of 0.288 million units, just a sneeze above May's all-time low of 0.282 million. As a matter of fact, Mark says August sales were the smallest for the month ever. And he notes that foreclosure starts and actual foreclosures were close to 300% of overall new home sales, which stacks up as "a huge obstacle to builder sales" as we head into the slow season for housing.

Again, maybe we're missing something, but a decent recovery without a revival in housing strikes us as a BLT on toast without bacon. It just isn't going to happen. But investors at the moment apparently couldn't care less.

~Alan Abelson, Barron's magazine, "The Bad News Bulls", September 25th, 2010

Alan Skrainka on the European bailout of May 2010

One trillion dollars is a big number. This is enough to buy all of Greece's debt twice, with enough left over to buy all of Portugal's debt. It was meant to remove any potential for contagion. Problem solved.

~Alan Skrainka, Chief Market Strategist, Edward Jones, "They Said What? European Bailout", Barron's magazine, May 15th, 2010

Alan Abelson on "widespread stealth bullishness"

We'll happily abandon our nagging negativism on the stock market when everyone stops saying it's time to buy because everyone's bearish. As was nicely enunciated last week by an options maven in this space, the professed ubiquitous bearishness doesn't square with unmistakable evidence of widespread stealth bullishness. We'll pay more heed to the optimism of the most luminous pundits, including those few who properly urged caution in advance of the debacle, when they stop offering projections five and seven years out in urging one and all to invest now.

~ Alan Abelson, "A Plague of Prophecy," Barron's, January 5, 2009

Alan Abelson: Still bearish on the dollar

GISELE BUNDCHEN IS A MUCH-IN-DEMAND BRAZILIAN who commands a king's ransom to do her modeling thing. We admit that Gisele was completely unknown to us (which, it appears, and we say this somewhat ruefully, didn't hurt her career one whit) until her highly publicized pronouncement that henceforth the king would have to pay his ransom in euros, not dollars, for her services.

In the case of the dollar, we doubt if there's a sentient being anywhere who's unaware of its horribly reduced status. And since the decline and fall of the dollar apes the woes besetting the economy at large and the financial system in particular and we see no immediate relief in sight for either, Gisele, we submit, is right on the money.

~ Alan Abelson, "Day of Reckoning," Barron's, November 12, 2007