The Great Debate UK

from Paul Smalera:

Facebook.coop

Facebook shouldn't pay its users. Its users should pay to own Facebook.

“Facebook was not originally created to be a company,” founder Mark Zuckerberg wrote in his letter to investors announcing the IPO of his already hugely successful and profitable company. “It was built to accomplish a social mission — to make the world more open and connected.”

Facebook has succeeded wildly, despite internal admonitions that its “journey” is only 1 percent finished. Journalists have latched onto Zuckerberg’s statement that Facebook wants to “rewire” the way the world works. In a world of thousands of self-anointed “social media experts,” only Zuckerberg can claim to have basically invented what the world thinks of as social media. He has etched himself into the timeline of human innovation.

Pity then, that Zuckerberg hasn’t turned his talents or attention toward Facebook’s financial underpinnings. After all, an IPO? How ho-hum can he get? If Mark really wants to accomplish his social mission with Facebook, he should share the company’s ownership with the people who helped him create it. Not just his Harvard contemporaries. Not just the programmers. Not even just the venture capitalists.

I’m talking about us. All of us. The users. Facebook should be a user-owned, user-managed company, run for the benefit of users. For the Facebook, by the Facebook. The company should be a cooperative.

Before I explain further, let me lay out the case in four simple points:

Equities are dead. Again.

–Todd Wenning is lead adviser of The Motley Fool’s Dividend Edge newsletter. The opinions expressed are his own.–

In August 1979, following a decade of high inflation and a shaky stock market that led to depressed investor sentiment, BusinessWeek magazine published a now-famous issue with a cover declaring “The Death of Equities.”

What made the cover famous — in hindsight, of course — was what happened to the stock market in the decades hence:

*Source: Bloomberg

As it turns out, equities weren’t dead at all (note: these returns don’t count dividends). It’s just that investors had left them for dead — and that August 1979 was precisely the time to put money to work in shares.

Today, a similar pattern seems to be playing out following another poor decade for shares and all the economic uncertainty we’re facing.

In fact, investor enthusiasm for shares may be near a generational low point. A survey conducted by Prudential Financial this spring (so, prior to the recent market downturn) found that almost 60% of individual investors had lost faith in the stock market and 44% saying they’d never invest in shares again.

from Breakingviews:

Hoarding gold makes sense only for the hopeless

By Robert Cole The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

LONDON -- Compared to U.S. equities, gold is expensive. You have to go back to the stagflation of the 1970s -- or the depression of the 1930s -- to find a time when the yellow metal was more valuable. Today's worries could push it higher. But only the gloomiest can think gold will maintain its glittering trajectory.

Pictet Wealth Management, the Swiss private bank, points out that the value of the Dow Jones industrial average is currently less than eight times the dollar price of an ounce of gold. That ratio has been lower in the past: it was as little as five during the Great Depression, and during the late 1970s and early 1980s. But during the equity bull market of the 1960s the DJIA was worth 25 times the price of an ounce of gold. At the turn of the millennium, the ratio climbed to 40.

The comparison is far from flawless. For a start, examining the relationship between a stock average and the dollar price of a commodity is enough to make any self-respecting statistician blanch. Moreover, equities generate dividend income, while storing gold actually has a cost. Far from comparing apples with pears, this may be an exercise matching porcupines with parasols.

Even if the relationship withstands scrutiny, the explanation could be that shares are unusually cheap, not that gold is expensive. Western world demographics -- which have seen retiring baby boomers shift from equities to bonds -- have depressed share prices.

It is also possible that the world economy -- especially in the West -- will revisit the territory seen in the 1970s, if not the 1930s. The euro zone could yet fall apart, damning economic activity and squashing faith in fiat currencies. The United States is hardly in rude health, and a Chinese hard landing cannot be dismissed.

Still, you have to be pretty bearish to believe the Dow/gold ratio will plumb its previous lows. And even if it reaches that point, the explanation may be falling shares rather than rising bullion prices. Five times the current price of gold, in DJIA terms, would imply a 35 percent drop in the U.S. benchmark. That scenario can only appeal to the gloomiest bears.

from UK News:

Pru’s Asian misadventure: a cautionary tale

By Clara Ferreira-Marques

Prudential's ill-fated Asian adventure has left the company and its management badly bruised. But it has offered at least two valuable lessons for ambitious executives tempted onto the acquisition path by post-crisis, "once-in-a-lifetime" deals.

Lesson one: It's not 2007 any more, Toto.

Lesson two: Disregard shareholders at your peril.

On the first, bold mega-deals that once impressed the market now seem to mostly unsettle both investors and regulators.

Unease at the Financial Services Authority -- and a need to tick every box -- was responsible for the unprecedented and damaging last-minute delay to Pru's offer details last month.

For that, Prudential can thank the financial crisis, but also Royal Bank of Scotland's near-fatal role in the hubristic and record takeover of ABN Amro -- despite shareholder misgivings and clear signs of an impending crisis.

Equities may now be a better bet

- Edward Menashy is chief economist at Charles Stanley. The opinions expressed are his own. -

Not exactly shock and awe as the MPC keeps base rates on hold at 0.5 percent while the most recent financial surveys have been unanimous in expecting a no change decision for some time now. It was always going to be an MPC meeting to discuss whether or not to persevere with quantitative easing. The difficulty for the MPC is that it is too early to judge the effectiveness of the quantitative easing. Clearly the Bank of England would prefer to wait at least until it publishes new quarterly growth and inflation forecasts to explain how it wishes to proceed.

Observers, who have questioned the success of the Bank’s tactics, point to the fact that much of the easing has been leaking to overseas investors, hedge funds and investment banks.

Furthermore, pension funds which the bank had hoped would be the biggest recipients of newly created money received far less than expected. Other observers note an opportunity of making a profit by buying Government debt from the Debt Management Office (DMO) before selling it on to the Bank and that it may not be advisable to create additional liquidity that would feed through into an already strong equity market rally and create yet another bubble.

Nevertheless having decided to go down the path of quantitative easing the MPC could well feel it was obliged to pursue the experiment to the hilt and inject the full 150 billion pounds. After the DMO statement at the time of the budget regarding gilt supply, investors are bracing themselves for a deluge of gilt issuance, made more acute by the fact that the Bank will feel compelled to sell back eventually to the market the stock they have purchased.

Fixed interest investors face a daunting choice. Investors requiring capital preservation should consider Treasury Indexed Linked 2.5 percent 2016 but equities may now be a better bet.