Perry Glasser

Posts Tagged ‘Business’

THE CRUSH – PART 2 of 3: WHY DOES EDUCATION COST SO DAMN MUCH?

In Business, Economics, Economy, EDUCATION, Finance, Millenials, Political Economy on June 8, 2018 at 10:58 pm

The Whiners can’t win for losing. In the education stakes they are damned if they take on education debt, damned if they do not, and have no third option, at least not as long as anyone wants a comfortable middle-class life. You know, a car, a family, maybe a house, a pet, food in the panty, and a place to put books that isn’t bricks and boards purloined from a construction site.

Why does it cost an arm, leg, foot, your mother’s wig and a promise of your first-born? A Baby Boomer could sell ice cream on the beach all July and August, take another two weeks to goof off, and pretty much have education fully covered. No such luck for the Whiners.

WTF is going on?

The cost of an education soars because unrestrained lending and unrestrained spending is the cocaine of finance.

UNRESTRAINED LENDING

Not long ago, the world learned there ain’t so such thing as a free lunch. Global markets became grossly inflated because of easy credit. No lender had any incentive to say, “No.” After all, if the price of everything will go sky high in the very near future, even your Uncle Pete’s lamebrain kid if he borrows money can pretty much do nothing but clean his toes, wait for profits, sell, and pay off everyone.

But if markets head south, the Uncle Pete’s lamebrain kid shrugs and walks away from a soured investment. When a million knuckleheads all walk away at once, and the financial community is left holding worthless paper.

That was the story of The Great Recession, the worldwide economic slowdown that had national economies shrinking anywhere from 6 months to 6 years after 2006.

It’s not as though a few speculators took it on the chin. When nations’ economies shrink, angry crowds that see their futures and the futures of their children evaporate, carrying pitchforks, torches, and ropes fill the streets.  They want blood.

The similarities between the Great Recession and The Crush are scary.

THE GREAT RECESSION THE  CRUSH
EASY CREDIT BORROWERS Sub-prime mortgages Any 18-year old who can sign his name—or get a parent to sign in his stead.
MARKET CONSEQUENCE The price of housing soars since no one is paying their own money. Why not? Let’s buy 3 properties and in a year sell them to reap huge profits. At 3% down, our returns will be stratospheric! 3? Piker–let’s go for 10! The price of education soars, since no one is paying their own money. Why not? Let’s take three degrees, take our time in school, and figure out what to do after a year or two abroad. We can’t lose! We have a diploma and a bunch of letters after our name! Mom will be proud!
UNDERLYING ASSUMPTION Housing prices will always rise. A return is sure. What can go wrong? College grads will always earn more, a guaranteed return. What can go wrong?
THE CREDIT ENGINE In the US, Federal National Mortgage (FNMA) and Federal Home Loan Mortgage Company (Freddie Mac) guarantee loans made by banks and other agencies.  The Fed is our safety net! How can we lose when the US taxpayer is on the hook to cover all bets in the event of defaults? In the US, Sallie Mae guarantees Federal student loans made by banks and other agencies. How can lenders lose when the US taxpayer is on the hook for defaults if some slacker Whiner refuses a decent job?  Never mind defaults:  the only way to discharge a student loan is for the borrower to drop dead!
THE TOP In 2008 just as the subprime crisis was coming to a head, Americans had $12.68 trillion in debt outstanding, of which housing debt made up $10 trillion.
With collateral like a standing house whose value rises every six months, we’ll make out like bandits!
In 2014, there was approximately $1.3 trillion of outstanding student loan debt in the U.S. that affected 44 million borrowers who had an average outstanding loan balance of $37,172.

With collateral as sound as a college degree, there’s just no way the kid can’t pay it back—and if he doesn’t, we’ve got Mom and Dad on the hook, too!

THE BUST The rise in housing prices proves unsustainable as supply outstrips demand. Financial organizations “too big to fail” do just that. It’s hard to stay solvent when there is not money coming through the front door. Individual savings and investments evaporate like piss on a hot rock. Municipalities holding “guaranteed” mortgage paper can’t pay retirees; whole countries flirt with bankruptcy. Political unrest endangers the developed world Just wait, Bunky.

The Crush is coming.

UNRESTRAINED SPENDING

Unrestrained spending for colleges and universities siphons money from the paying customers–students–into rat-holes that have little to do with their own educations. What incentive does any school have to contain expenditures?  The kids have to pay, and with  a generation coerced into attending, and lending institution falling over each other in haste to lend to kids who can’t resolve debt except by paying or dying, why would a school say to a student, “Nothing doing”?

Living and working on a campus is a nice life. There are shows, sporting events, a lot of trees; pleasant company, all in a landscape that is a joy to the eyes. Bird songs. Fountains. Statues.

Of course it’s not the school’s money that pays for that lovely life. It’s the students. Schools just spend their students’ money. If there is some project near and dear to an administrator’s cold dark heart (assuming administrators have hearts at all) if there isn’t enough in the cash box just raise tuition and fees.

Administrative passions vary, but all have a few things in common:

  1. Administrative bloat has outstripped the pace of student growth. Every dean needs a secretary and an assistant dean who also needs a secretary. Worse, student growth is now reversing itself, but don’t expect college layoffs any time soon.
  2. Administrative services to students allegedly about insuring a safe and healthy environment create the “snowflake” mentality and in fact infantilizes young men and women. Here’s an idea: instead of crumbling with anxiety and accessing expensive college support services, drop out of school and come back when you are ready. Yes, it is possible to live in a world where people disagree. Keep your cash, have another latte, ponder your future.
  3. Whole curricula that have little or nothing to do with traditional scholastic concerns in the Liberal Arts and Humanities or real-world studies such as Math and Science are now lavishly funded. Professors are passionate about educating students about the smallest social segments anyone can identify. Instead of seeking our commonalities, find our differences. A professor’s fantasies of revolutionizing society must be indulged. Identity politics can and perhaps should be stressed on campuses as an engine of social change, but never forget that students pay cash money for a political indoctrination that is available for free 5 yards beyond the ivy-covered walls.
  4. Colleges and universities compete for students by offering amenities usually reserved for cruise ships or mental hospitals: health clubs, guidance counselor, swimming pools, lounges, architecture that wins awards, teams that win championships. The world’s greatest teachers, Siddhārtha Gautama, the Buddha, taught under a banyan tree; Jesus of Nazareth did his best work lecturing in the open air on a hill. They managed to change the world by talking about common humanity, not by demanding their student spay heed to their difference.
Almamater

Please pay at the door.

  1. Colleges and universities have no financial skin in the game. How this point eludes legislators mystifies Dollar$. Thanks for borrowing cash, kid, thanks for giving it to us, don’t let the door slam you in the ass on your way out where you will soon discover that your profound knowledge of a contemporary gay Asian poet has less market value than the dude’s poetry.
  2. Legislatures have cut aid to state education, off-loading what was once understood to be a public good to what now constitutes a use tax. Never mind that all of us benefit from youth ready, willing, and able to make the innovations in products and processes that will benefit us all, let’s charge only the kids.

But is there a costs to us all?

You betcha.

We are every one of us at risk. The Crush will come for us all.

READ:
Part 1 – THE CRUSH – THE COMING STUDENT DEBT CRISIS
Part 3 – THE CRUSH – THE CRUSH IS ON US

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CITIZENS & TUMBLING STOCKS

In Business, Economics, Economy, EDUCATION, Finance, FINANCE FOR THE CLUELESS, Personal Finance, Politics, ROBERT REICH, SOCIAL MEDIA, Wall Street on February 5, 2018 at 7:27 pm
jimmy-stewart

investor

Dollar$ readers have asked for a comment on the recent path of stocks falling off a cliff. Though Dollar$ seldom references perturbations in the market, in this case he will make an exception because any number of people with brains of tapioca or in possession of advanced degrees will point to this event to declare it political, a referendum of sorts on Donald Trump for whom they hold unsustainable rage.

 

THE AXE OF RAGE 

Rage as a political stance is unsustainable because it consumes its object as well as those who revel in it. We grind that axe at our own peril.

That won’t bother pundits such as Robert Reich at Berserkely. Expect his gloating to surface in a day or two while his cadre of unsalaried graduate student do his work for him.

After all, Reich persuaded thousands of Facebook followers that Spring rain, the demotion of Pluto from planet to rock and back again, and your most recent dose of athlete’s foot, were all ploys by the rich to separate you from your money because there is no bottom to the depth of their greed. (Except for St. George Soros, who sends wheelbarrows of Canadian cash to political causes in the United States out of simple generosity, something that most of us would find curious if the cash came from Outer Slobbovia or Russia.) The Professor has yet to mention the President’s promise to go after Big Pharma or his championing “the right to try” to give the sick access to medications stalled in the FDA’s long system for approval. How could Reich do so? His followers might dial back their rage, and then who’d buy the Professor’s books, subscribe to his videos on Netflix, or line up to enroll in his one class per year in a lecture hall packed with the beneficiaries of privilege, those students at Berserkeley who on cue wildly applaud before marching to deny free speech to someone else?

To be sure, Professor Reich will neglect to mention that the trillions lost on world markets in the past few business days have mostly been lost by the rich. Who did you think owned the shares of companies? Your barber?

Also, make certain you know, that Dollar$ believes our President to be at base a lout, a racist, sexist, and probably a compulsive adulterer who happened to revolutionize American politics by seizing on social media as a means to create a bridge between himself and voters when his own party and the American press gave him all the chances of a balloon in a pin factory.

Benjamin-Franklin-U.S.-$100-bill

Chastity?

None of that, by the way, makes him unfit to join the ranks of John Kennedy, Franklin Roosevelt, Dwight Eisenhower, or Bill Clinton. There were many others; the folks who brag about zero tolerance for white male sin remain eager to rewrite history by expunging ordinary men from the presidential rolls. God help us if they figure out what the Founders did with their time when separated from spouses for months, and that rascal, Benjamin Franklin, was not know for his chastity.

Fortunately, The Donald did not run for Pope.

STOCKS

Dollar$ is happy to report the sky has not fallen, at least not in my neighborhood. If Jemima Puddleduck races past your front door, Dollar$ urges you to unwrap that shotgun you received as a gift from Grandpa. Go bag yourself an inexpensive cheap chicken dinner.

Responsible financial advisers will tell you to do nothing: Dollar$ agrees, unless you have a working crystal ball in which case Dollar$ would appreciate a call. All the elephants could not get through the door without the house collapsing. That’s what happened today.elephants

DECISIONS

What now? Better to ask: Where would your money be better off?

The world economy is peachy.

The American economy is also peachy, showing healthy signs of continued growth.

Do not confuse the economy with the stock markets. After a run-up of 21% in a year, market algorithms were bound to get nervous.  (Algorithms don’t properly get nervous, but the notion of market sentiment is a joke when upwards of 90 percent of all market transactions are conducted by computers.)

The American economy is in danger of suffering wage-inflation. Prices will rise because Joe Doakes, his cousin Joe Six-Pack, and their cousin, Jane Doe, are earning more.

O, the Horror! What will Reich say if people are earning more?  What fraud is being perpetrated that will need a decade to play out?

RELAX

The past week has seen a drop of 5 percent. More is coming.

Bear in mind that historically, a 7 percent gain in a year is good news. If after the carnage we saw today and can expect for a few more days your 401-k, your kids’ 509, and your savings ratchet back to a “mere” 12% annual gain, try not to swoon.

Stay  the course. There are bulls, there are bears, and there are pigs. People who try to time the market—that is, sell now with the hope and expectation of buying it all back when things have settled—are pigs , and like pigs will be slaughtered.

THE GOOD NEWS

In Business, Economics, Economy, Political Economy, ROBERT REICH, SOCIAL MEDIA, TAXES on January 6, 2018 at 1:10 pm

SOCIAL MEDIA STARS -TWOFER

Dollar$ like to imagine the column is the counterpoint to the tsunami of illogic and disinformation that rises in the far off muddled oceans and then inundates us all. Good news rarely makes it into major media. Social media is more iffy, but the War for Clicks devolves into imagery of Fluffy the Cat or Adolph Hitler because as long as there is no middle ground, panic, disgust, and self-pity rules the day.

Good News

  • Though legions of the self-righteous were quick to announce they had to leave the country because of The Orange One’s election, they are still here. Yes, that is good news. This is America, and in America when an election result does not confirm your convictions you are obliged to learn something and, if so inclined, try again. (Go Joe!  Joe Biden that is.)
  • Urban murder rates in the US are the lowest they have been since 1990. That’s hard to notice on the Left where shrill accusations of American racism serve as a touchpoint for activism no matter how distant the cry lies from Truth.
  • The stock market is at an all-time high. Again, the Left wants you to believe that lives are being crushed by corporate America when, in fact, more than half of all American workers have 401-k accounts whose returns have been staggering in the past 2 years. Will there be a correction?  Of course. So what? Stay the course; grow rich sloooooowly.
  • Unemployment rates are so low that wages are rising. If employers want hands, eyes, or brains, they have to bid for them. Cynics question the motives of organizations that have perceived the 2018 tax cut as an occasion to raise minimum wage and to give low-level workers raises.   No one, however, has yet demanded that workers scorn the new money in their wallets. Dollar$ suggests the true cause is a worldwide growing economy.
  • Your take-home pay starting in February will be higher. If you are on salary, You get to keep more or what you earn. Robert Reich* and other progressives who lack a program beyond, “I’m against it!”  are at pains to remind us that this is really a profound plot to transfer wealth from your pocket to the pockets of the rich. Dollar$, however, suggests you buy a better Pinot. Should the tax law need to be adjusted, it will be. After all, if tax law were shaped in brittle concrete, how did it get changed this year?

* Professor Reich continues to redefine chutzpah by not only telling citizens his work is vital to the program-free Resistance, but by asking us to pay to see that vital message on Netflix. This is akin to expecting members of the maquis before they were strangled with piano wire to have passed a hat to continue their vital anti-Nazi work and expecting the SS to look on benignly before beginning any torture.
All right, maybe they’d pass a beret.

TREES DON’T GROW TO THE SKY or WHY RHETORIC WILL LEAVE YOU BANKRUPT

In Business, Economy, Finance, FINANCE FOR THE CLUELESS, Personal Finance, Wall Street on December 17, 2017 at 2:11 pm

Simple Truths

  • The stock market neither advances nor retreats–though prices indeed go up and down.
  • For every buyer, there is a seller.
  • When buyers and sellers agree to prices, they set asset values.
  • Buyers buy with the expectation of future profit; sellers sell when they believe continued ownership of an asset constitutes a risk no longer commensurate with possible reward.
  • No one in a free market is under compulsion.
  • Wall Street is neither a battleground for territory, nor  an adversarial contest.
  • It’s a market.

Wizards require small investors to believe that generals understand the battlefield and so deserve your trust and your fees because they otherwise have nothing to sell.  Internet access to mutual funds, closed-end funds (CEF) and  exchanged traded fund (ETF) has made giving professional advice a media game.

Sell newsletters, attract viewers, collect advertising dollars.  You need not be wise or even right. Scare the piss out of customers, and they come back anyway, thrilled that you were wrong. If God-forbid the doom-saying prognosticators prove to be right, customers will come back chastened and ready to listen.

Market Sentiment

Basically, after getting in the game buy buying 3 to 5 broadly diversified vehicles, you should do nothing. In 2017, if you followed that strategy, so far you are making a mere 20%. Since the vast majority of investing operations on Wall Street are performed by networked machines that monitor every price tick and move great mountains of capital for millions of worldwide financial vehicles, there is no human sentiment involved.

When you as a small investor get the news of sharp price movement, it is too late to act, unless you think and make decisions at light speed and are plugged directly into markets.

  • Machines do not agonize over decisions such as Buy, Sell or Hold.
  • Machines have no hearts. Machines do not succumb to sentiment. Machines do not read the newspapers.
  • Machines do not hold on to send their kids to college.
  • Machines do not save pennies to accrue the down payment on a house.

Nevertheless modern Wizards want us to believe market sentiment exists and that t hey are plugged into that sentiment.

Yeah. Sure. Right. Got it. Roger that.

How do TV Wizards get away with recommending buying or selling new assets every day?

kramer7

Sells perpetual panic and urgency

The fact is that while our money trickles into pension funds, 401ks, college funds, health insurance funds, and all the rest of the vehicles invented by Wizards to lure us with illusions of safety in an uncertain world, machines–owned assets are being sold.  There’s a buyer for every seller, Binky. Remember that.

Machines sell in torrents. We pray for 7 to 10 percent each year, are happy to get 3%, but when the algorithms indicate “Sell,” prices drop 20 to 50 percent in minutes.
Sentiment? Level playing field?

A Warning

Dollar$ is aware that sharp price moves can be precipitated by events and non-events such as national elections. If you think the US is going to hell in a handcart, do you also believe that after crap hits the fan that the money you buried in the backyard will buy a can of tuna?

This is why reasoned investors await blood on the floor before buying, and unless you are within 5 years of a financial goal–retirement, your kid’s first year of college, that down payment on your house–sit tight, never sell.

  • Buy and hold.
  • Ignore alleged “corrections.”
  • Sleep at night.

WHINING – A HOW-TO FOR MILLENNIALS

In Business, Economy, Political Economy, Politics on December 9, 2017 at 2:26 pm

One of the more frequent themes Dollar$ reads on social media is the ongoing complaint that the generation born between 1945 and 1970, those rotten Baby Boomers, are a bunch of louts who deliberately loused up the economy for everyone who came after them. Selfishness is something you develop by smoking weed through a bhang and

HENDRIX

SELFISH BABY BOOMER

listening to Jimi Hendrix. If they would all only die, housing would be cheap and jobs would open, easy, high-paying jobs with benefits that require no experience.

This theory explains why that kid who lives in your basement on a three-legged couch incessantly watches pornography on his cellphone. All the jobs out there are soul-sucking crushes, fruitless and stupid wastes of time. Even looking for that job is a waste of time. Fixing the couch isn’t worth the trouble, either. Glue? Nails? It’s all too complicated.

Facts

Facts only obstruct a good theory, but Dollar$ is not yet of the party that deems feelings should be the basis of policy because facts are no more than the legacy of the dying culture called Western Civilization, but our hearts never err and can only lead us to a better world. As Donald Trump and deconstructionist professors have taught us, facts are relative.

However, some facts are numbers.

  • In November 2017, the US economy created 228,000 new jobs
  • The jobless rate for non-high school graduates is 5.2%
  • The jobless rate for the overall US economy is 4.1%, the lowest it has been since the dot-com bubble burst in 2000.
  • After years of lackluster growth of 2%, the economy is now growing at nearly 3%, a pace that means business expansion will require ever more new employees and—gasp—will need to pay entry-level employees well to compete for their heads and hands.
(figures from The Wall Street Journal, Dec 9, 2017)

By the way, Dollar$ also notes that the economic expansion these figures suggest is worldwide. The stock market is soaring because that confidence in the future is shared most everywhere. If Finance Buccaneers don’t screw it up by inventing products that have no basis in reality and then leverage that fantasy 100-fold before selling those vehicles to municipal retirement accounts, regional banks, and other suckers, your BitCoin Futures, for example, we are in for some good years.

Good news upsets ideologues who prefer to complain about their ongoing, constant anxiety even though that anxiety, at least in the economic sphere, is misplaced. Sure, things can go wrong, and eventually will, but the quality of life has never grown in a straight line. When things suck, wait a while. They will turn around. You don’t really need to check under the bed each night.

For example, Robert Reich, the Beserkely professor, former Secretary of Labor, and Facebook columnist, checks under the bed three to four times each day with columns and videos. His trauma at not being reintroduced to the corridors of power when Hillary Clinton failed to be elected must have been acute. Instead of running the world, he is on the sidelines where he generates a tsunami of media whose final point is that whomever is doing whatever, Professor Reich could do it better. He has the time to do this because California pays him in excess of $400,000 per year, requires him to teach no more than one or two classes, pays the salaries of a cadre of graduate students to assist him with his onerous work, collects $40,000 for speaking engagements, and has published a book called Saving Capitalism, which, if Dr. Reich’s situation were typical, would seem to need no saving at all.

At least not for him.

Baby Boomer Failures

  • The safe and cheaply available birth control that makes hook-up culture possible on that basement couch, thus eroding the moral fiber of our culture.
  • The internet that delivers porn directly to the basement couch.
  • The virtual elimination of several diseases, such as polio and smallpox.
  • The virtual elimination of famine because of advances in agriculture and the successful world distribution of crops like winter wheat.
  • The Civil Rights Movement of the 1960s.
  • The Women’s Rights Movement that began again in the 1970s.
  • Passenger jets. How else can a Millennial go backpacking in Nepal before taking residence on the sofa?
  • Cell phones, that device that permits Millennials to snap selfies, cat photos, and up-to-the minute data on any Millennial’s location should they venture from the basement, all forms of narcissism previously never seen on our planet.
  • Digital special effects that bring believable visions of world apocalypse and intergalactic warfare to that cell phone or the game box beside the couch facing the flat screen TV on which HD pornography plays most of the day.
  • The rising preponderance of women in higher education as students, teachers, and administrators.
  • Automobiles that cost more because they are built to new standards of safety, airbags, seatbelts, and the like for passengers who strangely wish to live through collisions. Those doodads are constructed with materials other than steel to keep vehicles lightweight enough to conserve fuel. slow global warming, preserve energy, and keep that basement comfy.

Why are These Failures?

Dollar$ is glad you asked.

The work, you see, is not yet done. Those damn Boomers selfishly left the world imperfect. Some kids may have to get off the couch and build better infrastructure, get us renewable energy sources, find better batteries, silence jet engines, create hologram entertainment, and take the US out of rubber, concrete, and petroleum logistics.

You know, work and innovate.

Effort sucks.

Totally.
download

 

 

 

DEMONIZE THE OTHER GUY

In Business, Finance, Political Economy, Politics, TAXES on December 4, 2017 at 5:50 pm
screwed1

Citizen

Dollar$ sadly notes that social media has reduced American political discourse into rabidly demonizing the other guy. I wish we could say Dollar$ is surprised.

If you dislike the proposed tax bill, it cannot be that in 500+ pages there is not a line or page you admire. If you admire the new tax bill, it cannot be the in 500+ pages there is not a page that is wrong-headed.

Here’s a challenge: call your representative and ask him or her what he or she likes (or dislikes) about the bill. Make them reverse field. Watch them cry.

Real-world logic allows for conversation and (gulp) compromise. Instead, we see Republicans who simply walked away from their responsibilities for the final year of President Obama’s tenure and refused to act on anything at all; we now have Democrats who think what citizens want is for them to do the same, to get even.

You know, like a kid in a school yard with a grudge.

Wake up, ladies and gentlemen who  represent us—none of us voted for you to do that.

Is it any wonder that Congressional approval ratings linger under 15%? Think of it, 6 of 7 Americans think their representatives are a bunch of horses’ asses.

Guess who is getting screwed?

Congress at work.

Congress at work

Valuing Facebook and LinkedIn: the Pump and Dump?

In Business, Economics, Economy, Finance, Personal Finance, Wall Street on January 28, 2011 at 1:24 pm

Goldman Sachs neatly side-stepped US regulatory agencies by valuing Facebook at $50 billion but limiting sales to off-shore private capital investors, a valuation of $10 per Facebook user.

SEC?  Never  heard of the bums.

Revenues? Proprietary and secret.

Intended use for investor capital? None of your damned business.

Principles cashing out? Shut your mouth.

Surely Mr. Zuckerberg, who is not yet 30, will spend his next 40 years doing the same thing day in and day out.  How could it become boring?

The Pump and Dump strategy?

1. Accrue or issue billions of shares in a company.

2. Pump the stock with PR releases, mysterious rumors, hints of future growth…anything but genuine business acumen.

3. Dump the stock at premiums on the gullible and faithful. Last seller out the door is broke.

Pump and dump is inhibited by SEC regulations, those pesky bureaucrats who insist that balance sheets be public records, require executives who sign off on those records to attest to their completeness and honesty (that’s the Sarbanes-Oxley Law that Republicans insist is a nuisance), and require certified accountants to attest that the balance sheets adhere to standardized accounting practice.

Executives who ignore these laws do hard jail time. Ask the guys who ran WorldCom or Enron. You’ll have to ask on visiting day.

So excuse us for being skeptical of Goldman-Sachs’s valuation and wondering they are engaged in an end-run around US security laws.

Let’s do some arithmetic.

LinkedIn and Revenue – the Real Deal

LinkedIn will be the first social networking site to go public in the US.  The books on an industry are finally opening. (All data from pages B1-2 of the January 28 Wall Street Journal).

LinkedIn reveals it has 90 million users who for the first 9 months of 2010 generated $161 million in revenue.

Let me save you the arithmetic—figure that’s roughly $200 million annualized (add 33%), or near $2.10 revenues per user.

LinkedIn profit

It costs money to make money. Revenue is not profit. LinkedIn declares net income for those nine months to be a measly $1.85 million, or $.02 per user in three quarters, or $.03 per user per year.

That’s right, a whole three pennies.

LinkedIn is about professional networking, jobs, references and other stuff for grownups. LinkedIn offers services Facebook does not. You cannot find a single time-sucking game on LinkedIn.. No Mafia Wars. Most LinkedIn users come to the site less than once per month, a dismal number for any advertising revenue model.

LinkedIn declares three revenue streams:

  • advertising
  • premium subscriptions, and
  • specialized human resource services that accounted for 41% of company revenues

Dollasr$ Asks: What’s Facebook Worth?

It’s hard to imagine two competitors in the same industry being wildly divergent with revenues. The stocks and fortunes of Royal Canadian Lines and Carnival Cruise Lines sail in tandem. Wells Fargo and Bank of America move, mostly, as one.

But for giggles, blind to Facebook’s revenue streams or plans, let’s worship at the Temple of Wunderkind Zukerberg and triple LinkedIn’s revenue per user. Now apply that number to Facebook.

At $.09 per user in annual profit, Facebook with 500 million users might be earning $45 million in profit.

If Golman-Sachs values Facebook at $50 billion, it’s selling stock with a Price/Earnings ratio of more than 100.

Sure, there will be future growth, and if you care to discount it out, I invite you to do it.

At current valuations, if Mr. Zuckerberg and his company live to be 100 years old, he will have earned back all of what investors have put in. If he doubles growth and revenues above these estimates—a mere 50 years.

And that’s to break even.

Comparisons

Mature businesses show P/E ratios from 8 to 15; riskier companies from 15 to 25; technology grwoth companies can go as high as 30.

 

Market Cap (billions, Jan 28 2011)

P/E (trailing)

LinkedIn ??? ???
Royal Canadian Cruise Lines $10 20
Target Corp $38 12
Facebook $50 100 (calc. user basis)
Boeing Corporation $51 15
General Motors $55 8
Microsoft $240 12

Competitive Environment

If you wanted to go into business against RCL or Target or Boeing, you’d need significant capital outlay because you’ll need more than intellectual assets. Building a crusie ship or a jet takes some doing.

But what will it cost to compete with Facebook? How soon until someone, somewhere, gets a faster, cheaper idea?

Remember when IBM was under attack as a monopoly? Remember when Microsoft was under attack as a monopoly? What did it take for Google to enter the game?

Goldman-Sachs needs a visit to the woodshed.