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05/29/2011

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an observer

Washington Post on LinkedIn, corroborating Observer's view:

http://www.washingtonpost.com/blogs/on-leadership/post/the-poor-folks-at-linkedin/2011/03/03/AGv7dVFH_blog.html

Money Quote:

What does a market capitalization of $8 billion mean for a non-dividend-paying company like LinkedIn? Let’s assume that shareholders have an after-tax cost of equity of 7 percent (a conservative number). Such a scenario means that investors would reasonably expect LinkedIn to generate approximately $560 million of incremental value for shareholders in the next year. But how reasonable is the expectation?
LinkedIn management doubled real revenue earned from $120 million in 2009 to $243 million in 2010 and converted a loss of $4 million to a profit of $16 million. That $16 million represents real and immediate value created for shareholders and a foundation for future growth. But $16 million is a long way from $560 million.
Even if LinkedIn is able to dramatically grow over the next three years – assuming heady growth rates in which revenue doubles and net income triples each year – it would earn $48 million on $250 million of revenue in 2011, $144 million on $500 million in 2012 and $432 million on $1 billion in 2013. All told, that averages out to $208 million per year. By almost any measure that would be impressive growth. But, given current expectations of $560 million per year in shareholder value creation, that impressive growth would work out to a three-year expectations deficit of more than $1 billion. In other words, LinkedIn could grow net income 27 times over three years and still massively disappoint the market. To meet current expectations, it would have to generate 82 times profit growth in the same period.

Jack

Jack,

Seriously dude, ???

......... is that any way to address your collegues?


learn to start questioning your basic assumptions.

............ most of my comments here do so. Perhaps read some of them and comment, or question them?

You are so conservative in your world view you are not a liberal.

.......... Fairly muddled terms these days. Could you be more specific?


You defend the status quo.

.......... not often. Though when tinkering with a large machine that does many things well, I do prefer to salvage what is working and limit my use of the wrecking ball.

without ever considering that it was created by people who had specific intent to tilt the field to their favor.

............. Indeed! and I've posted these informative graphs so often most are likely tired of them:

http://webcache.googleusercontent.com/search?q=cache:bB64joVfJsYJ:lanekenworthy.net/2008/03/09/the-best-inequality-graph/+best+inequality+graph&cd=1&hl=en&ct=clnk&gl=us&source=www.google.com

............ do you have (practical) suggestions on how to undo that which has been wrought during the DEBT amassing years of the ALL FOR THE RICH agenda of Reagan and his followers?

You are so intent on defending the status quo that you will say anything.

........... Inconsistent with readily available data. Unsupported. Nada


Every observer agrees that a big problem in our economy is the short term focus on earnings, all done to manipulate stock prices.

.......... Overstatement of the facts. In our productive sectors, long term earnings and success are achieved by focusing on much shorter term goals. You'll note that I've written more here on the cancerous growth and utter corruption of the financial sector than anyone else has. But! Ha! Many of those having "focused" too myopically (and criminally) on short term gleanings have been rewarded with the loss of the companies, of nearly a century in building, they were entrusted with, along with their jobs, reputations and respect. Let's both hope ongoing investigations will further reward some of the worst of them with the prison terms deserved by grand larcenists who've ruined many lives along with our once strong economy.

If you've thoughts on how to claw back any and all of their ill-gained lucre I'd be among the happiest to know of them and lend my help.

I am going to give you a link to a paper on the SSRN. Read it for a week, then get back to us.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=561305

look at the graph/chart on page 95, study for a week, and then let us know if there is a problem.

Michael Jensen

Remuneration: Where We've Been, How We Got to Here, What are the Problems, and How to Fix Them

......... Thanks, I scanned the first page, which seems of good but, modest? limp? intent. Then noting the date 2004, and with nothing approximating any authority to implement their "conclusions" I dismissed it as just another academic wank to fill a file cabinet somewhere. Do you think I acted too hastily and that their may have been something of worth that I missed?

BTW I HAVE noticed a brief pull back from average CEO's carting off 500 years worth of working folk's income to 400 times, but am nearly sure it was a temporary blip due to the depression and perhaps the glare of the spotlights, and that the constipation of most of our income and wealth income in the bowels of yet fewer and fewer of our citizenry will continue as it has done for 40 years. Never-the-less it seems the time and spirit of "going to the streets" is not yet here.

Any other alternatives?

TANSTAAFL

Personally, I would not accept investment advice from anyone who has written above (except perhaps Becker and Posner).

an observer

Wall Street ‘mispriced’ LinkedIn’s IPO

http://www.ft.com/intl/cms/s/2/48e72d56-8ae4-11e0-b2f1-00144feab49a.html#axzz1O5gFXP8a

Jack

Hmmmmm... With an IPO savvy guy like Thiel around, one has to wonder why Linked agreed to bring it out at half its worth?

And, Ha! with "our?" WS thieves continuing to misbehave, there's a great opp for new growth to spring up from the compost heap; like companies bringing themselves out, perhaps with the aid of brokers charging only a small commish. Who needs the old boy club replete with favored pals in the electronic trading era?

While Google's self-IPO was a bit rocky, whatever was won or lost was between the company and those investing. Not bad.

Jack

Tans - Ha! hope you aren't here looking for investment advice! But who would you look to for advice?

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Jim

For those of you who have never neen in a board room, let me tell you that the short term thing is endemic there, often from month to month and always controlled by the ceo. The other point is that computer programming is easy, buying a server is easy. Creating an internet program pandering to human weakness and psychopathology is not only easy but highly profitable until of course there is a critical mass of social problems making the whole thing go poof. Can you imagine just a couple of years ago that the news would be full of discussions about a sitting congressman having his twitter account hacked so that a photo of him in his underwear could be sent to some coed. Now the congressman is consumed by the matter and thousands of dollars are being spent to defend, deflate etc. Social media indeed! I don't tweet, link or face as I consider all of it dangerously invasive and do not feel the need to be "well known".

NEH

Jim, Come now, Social Networking is a toy for children. So that they don't have to run down to the end of the block or hangout in the alley with their friends. Having utilized both Facebook and Linkedin I can tell you the business model is based on the 3B's. Blather, B.S. and Bravado. For Communication I find them quite worthless, but as a toy - whatever... ;)

Jump on the BANDWAGON and join the new wonderful world of worthless comm. ;D

Jack

Jim: In the pure capitalist sense we could say "Who cares if a corporation, or all of them, act short term "wise" and with little concern for the long term" as they'll ultimately reap what they sow.

But there is sickness there as evidenced by the financial sector where they threw all caution and concern for the future of the corporation to the winds, and whether knowingly or arrogantly and ignorantly, "sold off" the future value of their corporations in favor of the short term PERSONAL of outrageous "performance bonuses" rewarding callous and even criminal behavior, after which they, in essence walked away with family fortunes, from the hollowed-out husks of companies a half a century or more in building.

Such a sickness in the use of the corporate model IS of interest to us as a nation and democracy in which we hope and believe our resources are to be developed for the general welfare of our, entire, citizenry.

What these guys have discovered is that they are accountable to no one. In years long past, even companies the size of GM were concerned about stockholder unrest and the possibility of a proxy battle that might throw them all out of power. But today, who'd be at a stockholder meeting or proxy battle? Some mutual fund managers with 500 other stocks in their portfolio? Some pension fund managers having a small share and lots of other concerns on their plate? Foreign stock and bond holders? Some program traders getting rich by shorting management's failure?

The board of directors? Ha! a bunch of disconnected, half asleep "yes men" busy with their other positions and designed so it's highly unlikely that one or two combining wisdom with ethics can rock the boat?

If I'm wrong where were they and their sage wisdom when the entire financial sector corrupted itself for fast commissions and "performance bonuses" based upon the fast and sleazily gotten "performance?" When even the casual observer seeing the housing mania and utter lack of lending standards would have seen the disasterous outcome before, it seems, top management or board sitters admit to having a clue?

Some, perhaps many, did see it coming, they had climbed to the top of their industry and spent years in "the market". But to do anything ethical or for the future of the company would have been to forego short term personal gain and disappoint stockholders with "poor performance" figures.

This is all of interest to our democracy and hopes of economic survival in an increasingly competitive world and the matter is made more urgent by (corporate shill?) Roberts having led the SC into allowing corporations far more power to purchase market distorting favors from a now fully owned Congress.

But what is to be done? It's far too complex for a teabagger's bumper sticker or even a Congressional or Presidential campaign. Do we have no choice but to sit here in our deck chairs knowing that the keel timbers are rotted to the core?

Ideas?

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Jim

Jack,

As I have said before, societies rot from the bottom up and the top tiers react to that usually making the rot at the bottom worse and around and around it goes until the structure collapses and is rebuilt after some period of misery. The rich at the top see that and try to protect themselves with money(power), knowing that there is not much else they can do. The media is complicit in the process. When the news is dominated by scandal, reality shows, American Idol, Dancing With The Stars and which movie made the most money over the weekend, what does that say about our values. And if you start to talk about philosophy or economics at a cocktail party, eyes glaze over and the subject is changed to something parochial. In terms of looking for a savior at the top, not likely. We are in the midst of that experiment now and it isn't going all that well. Social justice is a matter of culture, not regulation and/or taxation. The most capable are dissuaded from politics because of the corrupt mechanics and the media thirst for irrelevant blood. I fear that the whole process will have to play out to everyone's detriment. Maybe Malthus should have included cyclical social decay as a specific population growth retardent. May be did and called it war or something else.

Harris Pike

The Keynesian point that investors buy based in what others are buying is reminiscent of Becker's 1991 study in restaurant pricing and social goods that previous consumer demands affect present demand. Although this is related to social goods where most consumers are not fully informed and many financial investors are informed, there are investors who are not fully informed and base their future valuations off present demand. Could it be that when this present demand becomes valuation based off misguided speculation and more less-informed consumers enter the mix the bubble begins to build, eventually reaching a break point? In this case Mr. Posner's point that limitations on borrowing would control bubbles works in cases where it forces out the uninformed investors.

an observer

Jim offered this really stupid remark:

As I have said before, societies rot from the bottom up

Jim where do you put the following societies:

1) Nazi Germany ?
2) Stalinist Russia ?
3) The Confederate States of America (more than 600,000 deaths fighting to preserve Slavery) ?
4) Maoist China ?
5) Militaristic Japan ?

Were these rotting bodies or heads?

Jim

Well I should have said "free" societies inasmuch as in those you get what you deserve with or without a majority of the people. There were at least 30% of the Germans who supported Hitler. Evil cannot rise to the top and remain there without at least the acquiesence of the population. And if the voters are too ignorant or lazy to investigate the candidates and elect the wrong ones to power, the society will eventually self destruct "from the bottom up". The leaders are just the instrument.

Stupid? Maybe, but I don't think entirely. Anyway, thanks for the complement.

Jack

Jim: Right on! And though much is made of the salaries of our electeds being too generous -- at levels of local hack lawyers or very small business owners, most electeds or those in position for a viable campaign are or would be foregoing better pay in order to take public office. Consider Huckabee or a mediocrity such as Palin giving up Fox salaries and the easy pickings of America's fascination with fame for fame's sake, and Ha! the ten and half year stay of Reps -- just long enough to be fully invested -- and then off to cash in as lobbyists and shills for those of deep pockets.

I'm not sure of Observer's exact point. But are there not parallels with the flaws Jim points out, American's (puzzling!) reluctance to vote in every election offered, and Germans allowing their democracy to be voted out of existence?

Lenin and Stalin subverting the hopes of those overthrowing the czars in favor of Marxist reform, doesn't seem to teach us much about "rot".

China? then and now is vulnerable to the return of bad emperors, as was Japan before the post WWII imposition of democracy.

The Confederacy? After decades of reading and seeing films, documentaries on those four years of utter madness I'm no closer to understanding the mass insanity than in my youth. What was really in it for ten's of thousands to line up in long obsolete Napoleonic formation under moronic "generals" to charge modern rifles, accurate and deadly at 500 yards and be slaughtered by the thousands in a single battle?

I guess the "lesson" is that of once the guns are drawn, the lines harden making a rational deal impossible until one side is vanquished and its will is broken completely. Helluva a way to cut a deal, eh?

"Evil cannot rise to the top and remain there without at least the acquiesence of the population. And if the voters are too ignorant or lazy to investigate the candidates and elect the wrong ones to power, the society will eventually self destruct "from the bottom up". The leaders are just the instrument."

......... that's how it seems to me. One example? While my son had a semester of econ in an advanced class in HS, most HS grads miss even learning the rudimentary principles of our economic system. College? many specialties, (ha1 like "education") are able to duck it, and from experience those going on to law school were in my basic econ courses, did as little as possible for a "grade" and moved on. So perhaps 15% of our citizenry has even a basic idea of econ? ......... and other subjects like history crucial to trying to run a democracy?

Jack

Harris: Ha! it was occurring to me that it was "the market" overvaluing Lindedh..... perhaps along with "the bankers" undervaluing.

It's "interesting" that Posner hold hopes for lowering margins for buying stocks. Not sure what it is just now -- 50%?? After an era of "non-bank - banks" floating garbage bonds at 30 times assets? Three percent? with not much being said for years?

Assuming "supply and demand" with gobs of capital "on the side" and, obviously far too few worthy investment opps, it seems likely that there are "too many dollars" chasing "too few goods" in the entire stock market. Sooner or later, I suppose the "equilibrium price" for Linkedh will be found. Ha! mebbe, like AOL they should find something of established worth to buy before the bloom fades?

NEH

C'mon guys, this is about an IPO for a toy company, not an example of Socio-Economic collapse. Was so much "ink" spilt or in this case "electrons", over the issuance of stock when Parker Brothers brought out Monoply or Mattel brought out Hotwheels? Perhaps not. But then, back in those days, the U.S. was a vibrant and real economy based on industry and commerce, not the side show of games and toys that it has become today with its subsequent problems at the macroeconomic levels.

Xavier L. Simon aka Xavier

I couldn’t agree more with Jim’s entry of 06/03/2011 at 11:48 AM and his later addition that people get what they deserve. I’ve been reading Fukuyama’s “The Origins of Political Order” and where he writes about technology having allowed us to move to a post-Malthusian society my reaction was yeah, right. We are far from there and for the very reasons Jim gives. We are very far away from even coming close to a sufficiently good organizational technology to take us beyond relatively small kinship or community groups and keep us from the cycle Jim describes.

In fact, Fukuyama identifies the problem in page 75 which is in the middle of an absolutely essential section on Warfare and Military Organization, but then doesn’t make anything of it; he seems to ignore what he himself said at that early point in his book. There he wrote about the “difficulty of judging beforehand the strength of the moral bonds between a group of retainers and their leader.” He goes on, among others, to point out that the only large society that was able to move from kinship to state-level organization was Europe thanks to Christianity, before ending that chapter with a section titled From Tribalism to Patrons, Clients, and Political Machines where he concludes that “tribalism in this expanded sense remains a fact of life.” Yes because we have not been able to keep or somehow replicate the strong moral bonds that Christianity temporarily gave us.

It doesn’t have to be Christianity that gives us the moral bonds but as I’ve commented repeatedly we do need a sufficiently strong value system that can bond all Americans. For a while it looked like the values that created and were then built into the Constitution would help provide the moral bonds that could hold the United States. Unfortunately these began to be prostituted some 100 years ago and if anything the process has been accelerating. More and more it has become everyone for themselves and those that fail will be taken care of by a government run by Nobel Prize winners.

Jack

NEH -- Yes. It seems a good exercise when "China" and other "sky is falling" tempests are magnified by media and some sort of echo chamber, to look at our own budgets and see where and how the money is spent.

Housing, of course, is the biggie, with the decimation of the whole new home/commercial business being the major reason it is, and will be tough to revive the economy. It's neither simple or quick to turn legions of construction guys, or those in the home financing biz, into ......... whatever, that is supposed to pick up the slack. That's the reason I strongly favor more, well targeted, government spending in the construction sector of tackling some $2 trillion of long delayed infrastructure rebuilding and upgrading. It's better to be in debt and have something to show for it than to be in debt and have a stack of cancelled unemployment and welfare checks when this mess ends.

Next we spend on food, H/C and a variety of services including education and other public sector services, most of which are a part of our domestic economy.

I left out energy and transportation which is up there with food for many households, as such a large portion of the energy expenditures leaves our domestic economy to build the skylines and treasuries of other nations. That's why I'm supportive of any and all efforts to wean us from foreign oil to conservation, NG, and other domestically produced alternatives even if in transition some may cost a bit more or require some temporary subsidies. The admin is on the right track though mired in the squabbling.

In terms of draining financial resources imported oil and LNG eclipses "China" which gets far more concern than it deserves.

And finally the entire internet? Fifty bucks for a broadband hook-up? about twice what a basic "dumb" copper wire phone line it replaces? on par with the water bill. Then retailing and some paid services that have moved to the net; but percentage of the family budget? Not much. For most US cell phone (gouging? more to send text than voice??) is bigger.

So......... yeah "toy companies". Mebbe Linkedh has some franchise I'm not seeing, but is hardly AOL in the early days of internet access. Look around your home, the economy is still the "rust belt" of housing, cars, heavy mfg, appliances, furnishings and services and it's those areas that have to drive a recovery.

Jack

Xavier: Food for thought? Perhaps the US with its Constitution that puts religions in their rightful place has done well despite what divisive policies Christians have, and would impose were they able to get away with it. While I get the point of our several hundred religions and many more sects perhaps taming the savage beast and providing some sense of community, I'm not buying it whole cloth.

I spend most of my time in Alaska, which along with OR and WA are the only three states where those who affiliate with an established religion are below 50%. I've spent enough time in OK where those figures are 75% and heavily skewed to protestant Christians. What I observe in OK is strong bonds of extended family that have been there for several generations, church, and next to NO community beyond. The politic reflects the same with little support for communal efforts.

WA, OR, and Alaska, both the culture and politic is more oriented to a broad community of diverse people. As for "morality" I don't see a measurable difference unless one were to include the environment where OK would be a distant laggard.

Lastly, what do you think of comparing US community and culture to that of Europe and the UK were religion is relatively weak?

Jack

Xavier: I forgot to ask you about the "prostitution" of our C about 100 years ago and wonder if the amendments of that century were the cause of your dissatisfaction? Or?

Jim

I agree with NEH that this is a toy bubble but a socially dangerous one in which little bubbles inside the big bubble can not only get themselves in trouble but even start revolutions. They distract from the real economy and its repair and maintainence. I hope not but fear that we have been reduced to a few avenues of success ie pro sports, entertainment, financial manipulation, social network creation and political office all of which smack of fantasy and wishful thinking. Perhaps when folks tire of spilling every ounce of personal info on impersonal media, the bubble will as Oliver Wendell Holmes said in The One Hoss Shay, "What do you think the parson found,
When he got up and stared around?
The poor old chaise in a heap or mound,
As if it had been to the mill and ground!
You see, of course, if you're not a dunce,
How it went to pieces all at once,
All at once, and nothing first,
Just as bubbles do when they burst."

Xavier L. Simon aka Xavier

Jack, I frankly didn’t understand your first set of comments on religion and community. As to what has happened to the Constitution the last 100 years, I commented on it before in these pages: checks and balances totally blown starting with TR’s and WW’s Progressive Movement taking their case directly to the people. It's straightforward history. The effect today is quite visible: instead of a truly deliberative Congress, Obama is taking his case directly to the people and further splitting what was already a heavily polarized Congress and country. One just hopes common sense prevails and the spending binge stops before the country goes over the cliff. When at the edge it won’t take too many overinflated tech stocks to push the country over, if we haven’t gone over before.

an observer

Jim, Jack, and Xavier-two on the right and one on the left, all of whom are never bothered with the facts.

Jim is stuck because the good old CSA obviously rotted from the head down. The Civil War sure wasn't caused by the body, the slaves owned by those who launched the civil war.

Jack admits he ought to keep his thoughts to himself, confessing, he doesn't have mental model that can even comprehend the CSA, writing, "The Confederacy? After decades of reading and seeing films, documentaries on those four years of utter madness I'm no closer to understanding the mass insanity than in my youth. What was really in it for ten's of thousands to line up in long obsolete Napoleonic formation under moronic "generals" to charge modern rifles, accurate and deadly at 500 yards and be slaughtered by the thousands in a single battle?

Xavier thinks the Constitution prohibits either the States or the Federal Government from regulating working conditions for children.

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