Column: Pinterest and Blackstone as QE’s children – James Saft

October 24, 2013

By James Saft

(Reuters) – Two groups with particular reason to be grateful about the Federal Reserve’s never-never taper are the people at Blackstone and Pinterest.

Blackstone, with its pioneering and soon to be AAA-rated securitization of single-family house rents, and Pinterest, which is valued at $3.8 billion and has no reported revenues (zero, nada, niente), both could serve as poster children for extraordinary monetary policy.

Each, in its own special way, is the beneficiary of the loose conditions which the Federal Reserve sees fit to maintain.

Each too, provides a convenient barometer by which we can observe the effects of Fed policy made manifest in financial markets.

In short, this is the kind of stuff that often happens when you have a bubble, but sometimes when you do not.

How far it goes and how it ends, I cannot tell you. That you should be watching is absolutely certain.


Pinterest, an Internet service which allows users to post pictures and other media, raised $225 million this week from a group led by Fidelity Investments. That attached a $3.8 billion value on the company, or $158 for each of its 24.9 million users in September, who like to do things like post pictures of dinners they someday hope to make.

The company, which raised $200 million in February, plans to use the new funds to expand internationally (pictures of Japanese dinners!) and develop mobile apps (pictures of Japanese dinners you look at while waiting for the bus!).

The company has made the first steps towards turning this into money, announcing in September tentative plans to experiment with promoted pins (pictures of Japanese dinners featuring pineapple slices paid for by Dole!)

Remember too that the investors in the latest round didn’t plop their money down hoping to cash out with a small gain. More likely they are hoping for a very healthy multiple of $3.8 billion as the final IPO price.

So should we be concerned about a company with zero reported revenue going up in value by 52 percent in eight months?

For one thing, a recent Reuters and Ipsos survey found 26 percent of the 807 people polled who had signed up for Pinterest said they do not use the service any more and 9 percent of people who signed up have since shut down their accounts.

But public markets are keen, with Twitter planning to go public next month. A September survey of Silicon Valley venture capitalists found confidence to be at a six-year high, with particular enthusiasm about the environment for public offerings.

Hmm, where were we six years ago? Oh yes, at the beginning of a financial crisis which only ended due to extraordinary efforts by government and by central banks.

Pinterest may turn into a money-making machine, and well reward its investors, but there can be no doubt that Fed policies aimed at encouraging risk taking in financial markets are at work here.


“Ground-breaking securitization.” There was a time when I actually thought I’d never hear those three little words again.

But no, now we have private equity group Blackstone and its planned $300-500 million bond backed by rents flowing from homes it bought mainly out of foreclosure. (here)

A bit like Pinterest, the whole enterprise is either pure genius or just another financial disaster waiting to happen.

Having spent upwards of $6 billion buying up foreclosed houses, Blackstone now wishes to get some of its money back by selling the right to the stream of income to investors hungry for that extra bit of yield.

According to the Financial Times the deal will get a credit rating from agencies including Kroll, Morningstar and Moody’s and will get at least one AAA rating.

Now of course structured credit ratings are different from sovereign ratings, but there is an irony here that the U.S. doesn’t even have AAA ratings from all its raters. And while I am sure this will have lots of bells and whistles to justify the top rating, the U.S. has a printing press with which it can satisfy its creditors at zero cost.

To be sure, it is impossible to judge the offering without knowing the particulars, which are not yet public.

That said, this is a complex business, really a new one on this scale, and the securitization will include many risks for which we don’t have very good data.

Again, the very fact that this is happening is at least in part due to very loose monetary policy which has made many investors both highly confident and really desperate for that extra bit of yield.

Triumph, disaster or somewhere in between, both of these deals will be fascinating to watch.

(James Saft is a Reuters columnist. The opinions expressed are his own.)

(At the time of publication, Reuters columnist James Saft did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund. For previous columns by James Saft, click on)

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Another thoughtful post James, thank you.

It occurs to me that these ventures, could in a way be described as being subsidized by the government.

Here in NY I see in the local papers many stories revolving around tax breaks and “payments in lieu of taxes” for businesses small and large. It seems that the state and local governments grant substantial tax incentives to start up businesses. Upstate we have a multi billion dollar computer chip fab plant that was built north of Albany. This fab called Global Foundries was granted hundreds of millions of dollars in tax breaks. It has created some jobs but not nearly what was expected. The local IDA is now broke and not a single “supporting” business (many small tech support companies were expected to open up adjacent to the plant) have come into the site. According to the local papers not a single one. They need more tax breaks apparently.

Aren’t these government tax incentives for businesses another form of subsidy? I’d love to see some investigation. Folks in the community were sold the concept that the large plant would help lower local property and school taxes (these are the largest tax bills most New Yorkers pay according to the Governor). I’ve seen no reduction at all. We do have a lot more Mercedes and BMW’s driving around though, so the local luxury car dealers appear to have made out OK.

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