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  • Facebook's Fake Movie Is Influencing Valuation

    Facebook's Fake Movie Is Influencing Valuation
    Goldman pulls a fast one on some Russians
    Two Sorkins are making it all taste just right

    We don't think the Facebook movie is real. As in being "a totally true story".

    There is just no way. This lie really bothers us. It's like the experience Malcolm Gladwell describes in his book 'Blink'. Something didn't feel right when we saw Sorkin pitch his flick and the more we keep digging around, the more we know someone is taking some pretttty big liberties to make a lot of money. Why not? We're just suckers, right?

    And now Goldman's doing the same thing with investors. But they're using another Sorkin as their front man.

    He's the one at The New York Times. By selling 10% of Facebook to some Russians a few weeks ago (like in April when they sold $2 billion worth of total crap to the germans and shorted it, earning them fraud charges which were eventually settled out of court). Goldman's attempting the exact same lay up.

    Have someone - anyone - validate a multiple of 100x earnings, and have DealBook do the rest through incredible "non-fiction" articles sponsored by (seriously) 50 cent and Bill Gates. Wow. Ludicrosity.

    If the movie was actually "the real story", Aaron Sorkin wouldn't be selling it so hard as "non-fiction" and pretending Zuckerberg had nothing to do with it. But Zuckerberg had everything to do with The Social Network'. Oh yes he did!

    And he's got 30 billion reasons why he'd try to get away with such an insane stunt.

    Aaron Sorkin himself told us drafts of the script were given to Facebook's communications director. Who would ever believe those drafts didn't make their way straight to the boss's office? Maybe the same people who think Facebook shares should trade at 100x earnings?

    Andrew Ross Sorkin, the still-as-yet-unconfirmed-but-maybe-brother of confirmed-truth-twister Aaron Sorkin triggered our proprietary event-probability matrix which told us Andrew Sorkin is somehow in cahoots with Goldman and his (maybe) brother Aaron to promote the biggest IPO in US history through his esteemed position at The New York Times.

    Not that Andrew Sorkin is lying. He's not. He's only making it possible for Goldman, Aaron Sorkin, Mark Zuckerberg and Facebook to exploit an opportunity to make some boys hundreds of billions of buckaroos.

    Goldman's going to try to do with Facebook what they did to Youku, Tesla and a bunch of other IPOs: Goldman Sachs is going to pull their pants down. That's slang for 'egregious underpricing' and it's a very profitable way for Goldman to rake in the cake and get its jollies.

    Why companies leave that much money on the table is the subject of much academic research and was a primary concern of GM on their IPO, according to media reports. That's the first time most investors had heard that issue raised about an IPO. Morgan Stanley led the GM deal - history's largest - in an orderly and controlled fashion. Goldman was not selected for the marquee mandate but still undercut all the other bankers' fees in a we-don't-win-so-you-won't-either move.

    Goldman has it coming. Any connection between the Sorkins will emerge eventually and Goldman may very well be just an arm's length away.

    When we wrote an even more onerously meandering blog last week on this same topic, we weren't aware Facebook still faced very serious legal risks. We were just telling everyone to get ready for a new hypermodern era of finance where feature films stretch the truth to help 26 year old males get intergalactic rich. It reminds us of the period when the first reality TV show 'Big Brother' came out and everyone wondered if it was, uh, for real. Reality programming now resorts to more and more elaborate games because people are bored with its fakeness.

    When you see illusions of "reality" creeping into securities transactions which can mean the difference between ten or fifty or a hundred billion dollars, it's time to pay attention.

    The facebook movie is not "non fiction". And we're not so poor that we can't pay attention.

    Get this: Just ninety days ago, Paul Ceglia filed documents to claim ownership of 84% of Facebook. (link sourced below). There are also some twins that some say they have a pretty good chance at appealing their paltry $65 million settlement.

    All of this puts Facebook's question of ownership up in the air. Aside from the $30 billion Zuckerberg stands to gain, who really owns Facebook is a pretty good motivation to make a movie...written by an ace at courtroom dramas! Shawwwing!

    Maybe the Ceglia lawsuit is a "scam" like Facebook says. That would mean Ceglia forged the documents. Someone should make a movie about how Ceglia was tricked into thinking Zuckerberg signed those documents when actually it was Jesse Eisenberg. Don't call Fincher, though, he's had enough of high finance.  Aaron Sorkin might be interested, though, only because he could redeem himself by truthfully calling "fiction" fiction.

    Ceglia's legal threat is what it seems: a considerable,unresolved risk. Why else would Goldman kick off the valuation party by selling 10% to a Russian investor? They could have got that ball rolling in the USA but chose a foreign investor instead to send a signal that is decidedly more vague. Tsk tsk.

    But it's no wonder Russia was the only place an investor would fall for the valuation Goldman has established for Facebook. After pulling down the pants of by underpricing their IPO by 161% (!!) and earning egregiously high fees in the process, no rational US institutional investor would believe Facebook should trade at 100x earnings. It's outrageous.

    Tesla is another example of another scalping Goldman gave to a naive IPO company that may have believed a one day pop equals success. Or just wanted to cash out regardless of what happens in the secondary market. There are lots of pre-IPO investors like that. Do the IPO, let the company worry about the rest later.

    If Aaron Sorkin's movie was designed to be cleverly disguised propaganda, it achieves its goal of making things much harder for Paul Ceglia and future legal suits against Facebook to be successful.

    But whether or not any lawsuit succeeds is irrelevant to Facebook's users. Everyone loves the site. It makes the world a better place.But not everyone loves Zuckerberg. And Goldman is playing with fire after almost getting burned on that mortgage fraud mess.

    But they were saved by porn. I wonder who leaked that to the media. We're looking into it. Goldman's CEO Lloyd Blankfein has remained stoic the entire time saying Goldman "is doing God's work", whatever that means.

    A mere 90 days ago, Facebook called Ceglia's lawsuit a "scam". We're wondering if Ceglia would describe 'The Social Network' in the same way. There was a time when Eduardo Saverin got turfed by Facebook so he went to see a writer by the name of Ben Mezrich. News of Mezrich's book "The Accidental Billionaires" got leaked and prompted Zuckerberg to settle with Saverin, allowing him to retain 5% of the company, currently valued at $2.5 Billion. This is true, not "non-fiction". Facebook wasn't going to let anyone write a movie that might let someone tell the story in any voice but their own. They learned that costly lesson once.

    We'd love to say no one is lying, but we can't. We know Aaron Sorkin has lied.
    We also think Zuckerberg is exactly like Goldman - both of them use the infinite legal intercept to brush up so close against untruth thatit can be too close to call. But it's a pattern that happens time and again. Probability matrix activated. Beep beep.

    All of us know how easy it is to tweak the meaning of things. It just depends on who you're talking to. For example, friends of a married man might refer to his partner in an extra-marital affair as his true love, girlfriend, mistress, special friend, boff buddy, booty call, second wife, woman she's into, part-time lover, other girl, home-wrecker, or gold-digger. A movie that sweeps awards clarifies any of the grey areas for everyone interested. It frames it. She’s no longer a home-wrecker because she’s his true love.

    Ceglia might be the true love turned gold-digger. Nassim Taleb has written some great stuff on how hard it is to know the past. He's right. But, as he wisely points out, there is only one unique series of events. Not three. One.

    Aaron Sorkin is the perfect fall guy. Look how Goldman threw Fabrice Tourre under the bus. And Lloyd Blankfein told the senate right to its face that he didn't know about the decision to hang Tourre out to dry by exposing his personal sexual emails to the committee. The committee caught onto this. Lloyd said he wasn't involved. Ya, right Lloyd. That's like Zuckerberg saying he had nothing to do with the 'The Social Network'. Preposterous. Pffft. Plausible denial of culpability.

    Tourre took the fall for Goldman in the Timberwolf CDO long/short advisor/prop trading scandal. But he's been taken care of. Aaron Sorkin is set no matter what; he's just a reckless guy who loves the biz. But man we hate to see him sell out.

    Rather grotesquely, Aaron Sorkin compared his film to Shakespeare and others
    way out of his league. Ok. For us, the only line from old Billy boy that came to mind was "I think you doth protest too much". And then we saw the other Sorkin deliver a one-two punch about how Bill Gates and Fifty Cent think Goldman is soooo great under the guise of a Facebook headline and we knew the jig was up.

    Our prediction that Facebook will IPO in March by Morgan Stanley has not changed.

    Morgan Stanley would never handle things like this. Refer to Google's IPO for how it's done.

    -- Follow us on twitter @jackp27

    Scanned court documents of Ceglia's contract with Zuckerberg

    14 October 2010: Facebook says Ceglia is a "scam"

    Sources related to facebook's current legal battles:

    Mezrich radio interview on World Conspiracy Radio
    Producer Scott Rudin talks with Facebook about the film

    See Steve Eisman's quote that he thought David Einhorn's book was "like reading porn"? When we find corporate propaganda like this we might be apt to employ a similar quote.

    Jan 10 4:55 AM | Link | Comment!
  • Fannie's Fall and the Decline of the American Empire (FNM:NYSE)
    July 4, 2010

    If you're a regular reader you know we thought Fannie Mae was, as far as stock picks go, a darn good bet.

    But we were wrong.

    On June 16 2010, we almost fainted when we received the announcement that Fannie Mae and Freddie Mac would be delisted from the NYSE, wiping out shareholders.

    As far back as 18 months ago we thought Fannie was like holding two tens in blackjack against the dealer's sucky five card. But to see the dealer turn over a six followed by five twos was shocking when only one deck is being played.

    Bloomberg's Tom Keene put it best when he said "it struck me like a thunderbolt." Nothing is certain in betting or investing, but when the rules change during play it really stings.

    To be sure, Fannie Mae was a wildly speculative investment. Any stock hovering around $1 is. But considering FNM holds assets worth trillions and holds 95% of US mortgages and is therefore key to the future of the US, that's a beautiful $1 stock. Or so we thought.

    Another important factor we considered was that the government had been previously successful with monetizing their investment after buying up to 79.9% of other companies. AIG is a perfect example. AIG did a reverse stock split to escape NYSE's rule that you stocks must de-list if they trader under $1 for more than one month. The US, we thought, had developed a model that worked out pretty well for everybody but it was the government itself who requested the de-listing, not Fannie Mae.

    We considered other persuasive factors when we bet that FNM would survive.

    There was the announcement on Christmas 2009 that the government would back Fannie Mae unconditionally. If a blank check from the government itself couldn't get Fannie Mae through the next year what could? Even more recently, key signals suggested the mortgage market will continue to deteriorate. Our belief that Fannie would remain on life support past the election were stronger than our belief that Apple would beat next quarter's earnings estimates.

    And yet, without fanfare or warning, Fannie was suddenly euthanized. Holders of Fannie stock, ourselves and Calpers included, were treated to an unpleasant coup de grace.

    There were scant clues that Fannie would be delisted. In the three weeks leading up to the news, there was a sudden proliferation of anti-Fannie rhetoric on Twitter by people we've never heard of before. More notably, FNM traded flatly in the two days of trading prior to the announcement when the market was up considerably. (Many heavily traded stocks go up when the market is up, absent negative news). We missed the WSJ Op-ed by Steve Blumenthal, Fannie's regulator, two days prior which apparently suggested the government should do a full take-out and buy the remaining 20.1%. De-listing was a cheaper alternative, apparently.

    Immediately after the shocking announcement our favorite economist of all-time, Tom Keene, interviewed Paul Miller from FBR - a defacto expert on the housing market.  Mr. Miller skirted Mr. Keene's critical question on whether the markets should calculate FNM's debt onto the Fed's balance sheet. If anyone could answer that all-important question it would be Mr. Miller. But he didn't. Instead he took the sneaky way out by saying "for overseas...I don't think they completely understand it [the accounting] so it's done to keep it off the balance sheet." If you've read Ken Posner's "Stalking The Black Swan" you know Miller's answer could be a critical clue that something highly concerning is lurking.

    We recall a similar situation in March 2009 when the preferred shareholder's of GM were wiped out without regard for contract law or legal precedent. We thought that was crazy. But the eradication of Fannie Mae is crazy to the power of n.

    One thing that really gets us and still hasn't been explained is this: how can the government violate GAAP accounting to such an unbelievable extent? The Fed didn't violate GAAP accounting rules when they took Fannie over, so why violate the rules now? What's changed? Has the recent onset of the dramatic Eurozone crisis paved the way for strictly-enforced accounting standards to be cast off like some homeless crack addict?

    The long-standing accounting rule to which we refer has not been changed or modified, to our knowledge. It states that if one entity acquires 80% of another entity the balance sheet of the acquired entity must be consolidated on the buyer's balance sheet. It's standard procedure. It's a gimme.

    That's why the government purchased 79.9% of Fannie Mae and not 80% because 80% would trigger a behemoth amount of debt and toxic assets that would legally have to be recognized. We're talking trillions of dollars in assets and $1.5 trillion in debt, not to mention the mega-trillions in mortgage backed securities and who knows how many other debt instruments. The impact of consildating Fannie's balance sheet is not just astounding, it's unfathomable.

    So we thought Fannie was a nice little stock waiting to happen. Kind of like KKR's NYSE listing when it was 0.85 (KFN). It went to $7 in a heartbeat. We were in on that and we loved it.

    Taking on Fannie Mae's toxic wasteground would effectively double the debt level of the US, sending the bond markets into a tailspin never before seen. The pro-forma debt to GDP levels of the US would make every country in the world look like Olympic athletes by comparison. But maybe numbers don't matter anymore.

    Obviously this has not been lost on whoever is in charge these days. We haven't heard from Gheitner in a long time. Obama and Volcker are the new face of American finance while, we suspect, Gheitner is coordinating the design of a global debt reset button.

    Is there another alternative to re-booting the US mortgage computer? Since Michael Moran of Daiwa Securities doesn't think there will be further expansion of the Fed's balance sheet, this suggests Fannie Mae will remain, well, off the balance sheet. This would be a neat trick.

    Is calling a mulligan on hundreds of trillions of dollars in global debt a scenario that is even possible? What would be the ramifications for the thousands of institutions inextricably enmeshed in the fixed income markets? Everything from Mortgage-backed securities to synthetic CDOs to high-yield and senior notes would be affected. If there was such a plan, you'd think we would have heard something by now. It's kind of a big deal.

    Kind of like Fannie Mae going bust out of nowhere.

    Frankly, we're not sure where to go from here. Our confidence is shattered. When Fannie received explicit financial suport of the US we figured it was as good as the inscription that appears on every dollar bill in America: backed by the full faith and credit of the United States.

    The only conclusion we can draw is that it's impossible to know what to believe or who you can trust anymore.

    Heaven help us if the US dollar isn't worth the paper it's printed on.

    If George Soros is reading this: reflexivity has suddenly become the new economic model.

    -- The New York Nickel

    Follow us on twitter @jackp27

    Disclosure: No Position - forced to sell
    Jul 06 1:30 AM | Link | Comment!
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