Fadi El-Eter

I have discussed, just over a month ago, the absurdity of the Google Groupon deal. I argued that it was not only absurd, but also stupid for Google to buy a coupon website for $6 billion.

The potential deal was heavily criticized by Google’s investors and financial editors, and eventually, they made us believe that Groupon, an almost 3 year old website, rejected Google’s $6 billion offer. Hmmm… Almost the same day I started seeing the following ads all over the web:

I have also noticed that the number of advertisements for coupon websites has increased dramatically. I can’t really recall seeing a single coupon ad prior to the unsuccessful (?) Google Groupon deal. Now is it that the coupon business has become very lucrative all of a sudden?

Clearly, for this massive campaign, Groupon must be paying a fortune for all the clicks it’s getting, with little ROI, since most of the impressions are on website that have nothing to do with coupons. But how much is Groupon paying? Let’s see…

The cost of a click related to the keyword “coupon” is around $1.5. Assuming that Google delivers 10 billion impressions (the damn ad is literally on every website I’m visiting nowadays) through its content network, with a very pessimistic CTR of 0.4%, then Groupon will be paying Google $60 million/month. I think that’s too much money for mostly untargeted traffic. It looks like Groupon is on the sucker end of this deal. Why would a company forfeit $6 billion to pay $60 million/month. Now I’m sure that Google has a special rate for Groupon (it is a mega advertiser), but what is discount, 20%, 30%, 50%. Even at that, Groupon would be paying at least $30 million, and it remains a mystery how this is better than getting $6 billion.

There is something that we don’t know. Could it be that Google secretly bought (because investors loathed this deal) Groupon and is now trying to promote it like crazy to control the world coupon market?

GOOG dropped to $550 (now trading at $613) on the news of the deal, and then resumed its upward trend after Groupon spurned the offer.

There is something fishy, we will probably know more about this in the next coming months…

I’m heavily involved in project management, especially online; in fact, I received a season’s greeting card from an online project management software company just today. So it comes as no surprise my interest in investing in project management firms, but is there any, or are, like law firms stocks, merely a myth?

First let us examine project management and its current status, to see if it’s worth investing. Project management is a formal (defined) process for managing projects, these projects can range from construction to software, and they can vary in size from a few thousand dollars to several billions, and can take anything from a week to a decade to be done. More and more mega-projects are being undertaken, all over the world, especially in the Middle East and South East Asia, which is creating more demand on project management, and thus specialized project management consultancy companies. The future of project management is definitely bright. But is it bright enough for investors?

Let’s examine FLR, the stock ticker of Fluor, a construction project management company (of which I happen to know personally one of the senior executives). Take a look at this 6 months chart:

The stock, as you can see from the above, jumped 55% in the span of 6 months, not bad! Not only that, this is a decent stock, this is a company undertaking mega projects all over the world (hence hedging against recession risks). Although Fluor is trading just $3 short of its peak and at 30 P/E at the price of $65.09, I still believe that this stock has room to move upwards. $80 by the end of 2011 is not impossible for this stock, construction picks up after a recession, and not only that, construction is booming in developing countries (where real estate prices are skyrocketing).

In my opinion, FLR is one of the most stable and fruitful long term investment. And you thought fluor only existed in toothpastes…

Today I discovered that just owning a domain is a huge responsibility. Just owning the domain, let alone having a functional website on that domain. Here’s the story, I bought this domain (I don’t want to link to it directly in case it gets hacked another time) a couple of years ago, and I did nothing with it.

I completely forgot about it, until this morning, when I received the following email from one “Eric van Wijk”:

I read the email twice, and then I clicked on the link to visit my website, the website looked normal to me, I thought the email I received was just spam with a random link, that happened to point to my website (I know, it doesn’t make any sense, but neither does anything on the Internet). I then got out of my office, and returned to see a missed call from an area code 617, that’s Boston. I don’t know anyone there. I called the number back and it was the direct number of K.S. (I got his voicemail), the Internet Security Specialist of WilmerHale. I looked at my inbox and I saw an email from K.S. about some malicious spam circulating over the Internet, mentioning WilmerHale, and linking to my website. He also asked me (very kindly) if I can remove the malware from my website. I visited my website again, and to my surprise, it was hacked (it was trying to install a malware), that was around 12:21 PM. I cleaned it up immediately. I then called K.S. and informed him that the website is now clean, I then put the following message to explain the situation to those duped into clicking on the link:

About half an hour later, I got a call from someone who seemed to be an executive at WilmerHale, who thanked me for my prompt actions, and then asked if I could give him the logs of that specific website. First I didn’t want to spend too much time working on this, so I told him I will try my best. Thankfully, it was very easy for me to download the logs, so I did, and I emailed them to K.S., who was very thankful.

What’s interesting is that they wanted the logs to see which IPs were duped into visiting the website, and then see if they can associate the IP to an individual’s phone number, call that individual, and explain to him/her the situation (at this moment, they are probably also emailing all their clients and contacts, and they posted this warning on their website). I’ve never heard of a company that cares that much for its reputation.

I was thinking, can I think of one company listed on the NYSE, the NASDAQ or anywhere else that is that proactive when it comes to maintaining a great reputation. I couldn’t think of any.

I then thought that law firms always make a lot of money (so it’s definitely a great investment to buy their stocks), so I started searching to see if there are any publicly traded law firm, and here’s what I found: none. There is not one single publicly traded law firm in the whole US market. Apparently, it’s against the rules for a firm to sell its equities to non-lawyers because of a potential conflict of interest, but this might change, and whenever this happens, I’ll be the first person to buy some WilmerHale stocks.

I remember meeting an Italian Canadian on the plane flying from Paris to Montreal nearly 3 years ago. Besides telling me that she was gluten intolerant (I never knew before I met her that some people are not able to eat bread or pasta, imagine being an Italian and not being able to eat spaghetti or pizza), she was telling me that Italy has changed for her from the last time she was there. There are many non-Italians who are now working and living in Italy. Most of these non-Italians are Chinese. She was telling me that the majority of Italians underestimated the Chinese labor. She told me that they (the Italians) thought that they were more advanced than the Chinese. I was not surprised, because prejudice is the norm where labor travels to a country not really open for immigration. But then she said, as if she was talking to a fellow Italian, “These people, that you think are stupid, are going to come and buy your country”. Her face expressions were very serious, and she was really afraid about her home country, her original country, her Italy. I didn’t think much of the conversation back then, but for some reason, I still remember it as if it just happened. I also never believed that what she’s saying will materialize, at least not that fast!

Fast forward 3 years, and now China is buying Spanish and portuguese debt (and maybe Irish and Greek debt as well). Not only that, China expressed its will and determination to “save” any other European country that may need help. Why not? China is sitting on trillions of dollars (or Euros) and can easily buy any country’s debt, including, but surely not limited to, the US debt (I think they’re the only ones buying US debt at the moment). But why? Well, it’s a long term financial investment, and buying debt in financially weak countries will give China more political and financial influence in these countries.

China is also quickly expanding in Africa, especially West and Central Africa, where most of the undertaken projects and investments are Chinese.

The financial crisis in 2008-2009 changed the rules of the game, and although not officially, it changed the world map, it removed boundaries and added others. Money has changed hands. The US money that the US treasuries are printing is no longer in the US, it is now everywhere but the US.

Now is what China doing considered right? Well it is right from their point of view, as for the others, I don’t think the problem is China, the problem is with the whole system, it’s broken. People are now taxed to death in Europe and North America, sometimes paying over 50%, yet their governments are broke. A century ago, when people were paying little or no taxes, economies were flourishing… Can we solve the problem if we reduce taxes? Definitely not. In fact, the heart of the problem are the thousands of useless government agencies where government employees spend the whole day doing nothing. Fire those and you’ll have a bigger problem. I just don’t know what the solution is. Meanwhile, we can only watch China expanding financially and politically…

Just because a stock is Irish it doesn’t mean that we should think of it as a loser, even if it’s an Irish bank stock. Ever since AIB started dropping below the $2 level back in August for known reasons, the market confidence in the Irish banking sector quickly deteriorated, and started punishing banks with solid fundamentals, such as the Bank of Ireland.

IRE is currently trading at $2.63, with a P/E of just over 8. Even in the deepest economical crisis that Ireland has seen since 1967 (so much for the summer of love), the Bank of Ireland managed to remain on its feet, although losses for the first half of 2010 were about $6/share. Investors have to respect that, and they do…

After the stock dropped to a historical low of $1.38 near the end of November (from a high of $10.57 back in April), it rebounded to $3.04 in a couple of weeks, which is over a 100% gain. Not only that, IRE has a very short ratio, which means that investors think that the stock is currently extremely undervalued, and there is little chance that it’s going to drop further.

IRE is not AIB, and should not be treated as such. I think of AIB as a gamble (I thought likewise of IRE, but not anymore), but IRE is definitely a good investment (just compare the performance of the two stock for the last month to see what I mean). I think the stock can easily jump to the $4 level within weeks if the financial situation in Europe remains calm.

Let’s see what 2011 is holding for the PIIGS…

When buying stocks, I always try to separate between hype and the real stuff. I prefer to know if there’s a reason why a stock goes up or down, or if the stock’s movement is purely based on speculation (in other words, baseless). One of the most fundamental lessons I learned, is that, at one point or another, the market goes back to its senses when assessing a certain (over-penalized or over-rewarded) stock.

Lately, I have been intrigued by mobile hardware stocks, such as MOT (Android Phones), RIMM (Research in Motion’s Blackberry), and APPL (Apple iPhone). I was wondering, since all these phones are web enabled, there is definitely a better and more transparent way than sale figures to see how these stocks will perform in the future, and whether they’re currently undervalued or overvalued. Since every website records the browser and the OS of the client machine, it is easy to see assess these phones are faring against each other. For example, we can see how much percentage of a website’s traffic Android phones are generating.

Take a look at the below breakdown of the mobile traffic to US websites (courtesy of Quantcast):

First let me say that this chart is until August 2010, and I couldn’t find a newer one, but the trend is clear. You can clearly see that Android and the iOS will intersect possibly in April of 2011, when they will both have around 45% of the market share. It’s obvious that Android has a very bullish trend, while that of the iOS is bearish. I think this makes sense: Unlike iPhone/iPod users, Android users enjoy the openness of the system, the low prices, and the innovation of competing manufactures (Motorola, Google, and Sony Ericsson) that iPhone/iPod.

Now as for the Blackberry, it’s fairly steady (and I’m inclined to say that is slowly, but surely, losing some market share). The same goes for “Other”, which mainly means Symbian phones, or in other words, Nokia Phones.

Now let’s examine the stocks one by one:

– NOK: Currently trading at $10.32, which is a fair P/E for its current and potential market share. Mind you, Nokia phones are very dominant in China and third world countries (possibly due to their very low prices). I don’t think NOK makes a good investment at the moment, unless they stop doing the wrong thing.

– MOT: Although Motorola produces Android phones, which apparently are set to overtake the web mobile market possible before the mid of next year (yes, it’s still 2010, I till have a couple of hours), it is currently trading at an insane P/E (over 112). I would not recommend this stock even to my fiercest enemies. It is too dangerous.

– RIMM: With a somewhat steady market share and a very low P/E, I think RIMM may be a good investment, but only for next year (at least for now); this stock is plagued by many issues which makes it a sort of an uncertain investment. I do think that the stock has the potential of breaking above the $80 level should RIM keeps a tight grasp on its market share locally and overseas (which is easier said than done).

– AAPL: The above graph demonstrates that the use of the iOS (iPhone or iPod) is in a steep decline, losing 2 to 3% every month (mainly to Android phones). Although AAPL is trading at a fair P/E (currently about 21) at the price of $322 a share, I find that it’s a terrible long term investment. Investors are not able to see beyond the sales. While Apple is sitting on tens of billions of cash, they refuse to buy any innovative company to diversify their portfolio. They are toying with this AppleTV since forever (guess what, there are others who are interested in the TV streaming market). Add to that, that the hype and the free PR for the iPad (which is some junk that Apple is trying to pass as something we all need) is withering (check the news reference volume).

In all fairness, I don’t see any of these stocks as an attractive investment. The ones that we should be buying are way overvalued, and the others are just not that interesting anymore.

One of the very cool features that Google added a few months ago is Google Instant, which, although I really hated when I first used it, now I’m addicted to it (OK, addicted is not the word, but I like it a lot!), and I feel now that searching the old way (without instant suggestions) is tiresome, boring, and slow. Google instant makes my search a lot easier by suggesting the most common searches relevant to the characters I’m typing. Now what does this have anything to do with the title of this post?

Well, take a look at what I get when I type “Will Google b” in the Google search box while using Google instant:

We know from this search that a lot of people think that this might happen. Let’s analyze why these people think it’s possible:

– Facebook is currently valued at $33 billion, which is a lot of money, but is still money that Google can afford. After All, Google is sitting on $33.4 billion of cash.

– Google will want Facebook because they (Google) can serve extremely targeted ads to Facebook audience, after all, Facebook knows your age, your gender, your job, your education, your background, your interests, your ethnicity. Facebook has the potential to know absolutely everything about you (yet they are never good at targeting ads, something that Google can easily fix).

– If the current trend continues, Facebook is set to surpass Google as the #1 most visited website in the US and the world. That traffic is jaw dropping for Google, who will probably pay anything to get it.

– By buying Facebook, Google will gain full insight on nearly everyone’s browsing behavior and activities (which, as I will later explain, is more of a curse than a blessing).

Now after discussing the others’ point of view, here’s why I think Google will never buy Facebook:

– Although it’s valued at $33 billion, Facebook thinks of itself as worth more. I remember reading an article a few years ago (I can no longer find the link), where a Harvard professor rejected an offer by a company (can’t remember which company either, I feel like I’m spreading a rumor here 🙂 ) to buy Facebook for $3 billion. Back then, in 2006-2007, the professor said that Facebook is worth $30 billion. So, when the market values Facebook at $30 billion, how much do you think that professor will give it a value?

– Facebook think that it can replicate Google adwords, and Google adsense. Although its current advertising is lame, Facebook can do very well if it can target the audience the same way that Google does, which is actually easier for Facebook: While Google jumps through hoops to profile its users (for targeted advertising), Facebook doesn’t need to; it already has all the information it needs about its users.

– The Microsoft factor: Microsoft owns about 1.3% of Facebook, while they don’t have a majority vote, their vote for sure will count when it comes down to selling Facebook to Google, and certainly they will not agree.

– Antitrust? If Google buys Facebook, I suspect many will feel that the Internet is no longer this independent body, and will probably start filing some antitrust lawsuits, or maybe start looking for alternatives for both Google and Facebook, or maybe only Facebook (which is much easier to reproduce than Google).

Google will never ever buy Facebook, it’s not in its interest, maybe they’ll try to compete with it from time to time (I suspect unsuccessfully, as they always did), but they’ll never buy it. And who knows if Facebook goes from strength to strength, or in a few years, we’ll have something better, and Facebook will become the next MySpace.

…that others are losing…

Both stocks can be considered a success story or a sad story, depends on which side of the fence you are. The rules of the game are simple: it’s a buy for AIB when it’s below $1, and sell when it’s above $1. As for IRE, it’s a buy below $2.4, sell when it’s above $2.4. But you know, with stocks as crazy as these, the rules of the game keep on changing, and you might be unlucky enough to buy AIB at $0.9, and having your stop loss order triggered at $0.8. Who knows?

I think trading both stocks is nothing more than a crapshoot at the moment, you just don’t know what’s going to happen. Sometimes these stocks react proportionally to positive reports, other times they just go down for equally positive reports. They really have a mind of their own.

Both stocks can go up 20% or down 20% intraday (and this is happening frequently for the last couple of months). I would never ever trade these stocks myself, too much risk for my appetite, and I feel trading AIB and IRE should no longer be called trading, gambling is a much better word.

American Markets have been beaten to death for the last couple of years. Many US listed stocks are currently being traded at ridiculously cheap prices as investors fled stocks to safe havens such as treasuries.

In the beginning of 2010, however, some fresh money was injected in the US markets, some new money, some European money. Apparently it was time for Europeans to flee their markets themselves, and seeing that they can invest either in emerging markets or, mature, undervalued markets, most of them probably went for the second option. Apparently it was a successful move for the Europeans who did that, as they made about 23% when they invested in the S&P rally. Clearly, such investments started reviving the (then) almost dried up American markets.

But why didn’t Europeans choose to invest in their own continent through safe investments the same way the Americans did?

See the difference between the Europeans and the Americans, is that the latter, despite everything that happened to their economy (and the dozens of conspiracy theories) still trust the Feds (that’s why investors were fleeing to treasuries), while the former no longer trust any investment having anything to do with the European economy. I think this is normal, the American system is much more transparent than its European counterpart. The European financial system is full of ambiguities (how hard is it to know if a country is going to default or not, it’s not rocket science, it’s pure math), lies, and fake optimism. How can you trust a system that has no transparency whatsoever, while claiming to be the most transparent in the world? How can you trust a system that created almost a trillion dollars in Euros out of thin air to protect a 10 year old currency that turned out to be the worst thing that ever happened to the European economy since World War II?

I think Europe has to drop this fake “one-currency, one-economy” scam that everyone’s now tired off, and go back like it was 20 years ago. At least then, we were able to tell who’s lying, and who’s not.

I bought FAZ a few months ago when it was at $13, it is currently trading at trading at $9.64. I admit, I lost money, a lot of money on this stock. I still haven’t sold it and perhaps I won’t sell it unless I sell all my financials. For me, FAZ is a hedge when my financial stocks go down… But now it’s doing more harm than good, because, as everyone probably knows, the year end rally is now upon us.

Year end rallies happen because of six main factors:

1- Losers getting out of the market: A lot of small investors who lost money this year usually start selling their stocks (to claim capital loss on their taxes) in the beginning of December. This selling spree stops at the end of the second week of December.

2- Hope: This is probably psychological, but most people (and investors are people), are more optimistic, hopeful, and full of positive energy at the end of the year. This is because a new year is upon us. A new year that might be better than the current year.

3- Low volume: Most people start taking their vacations at around half the month of December. Since at that time, the losers are out, and because there’s more hope, buy orders do not find sell orders to match them, and stock prices start going up and up (especially small cap stocks).

4- Bad news are scarce and easily digested: A common factor that drags stocks down is bad market sentiment stemming from bad news. But usually news (whether good or bad, and whether political or financial) are scarce at that time. News networks are more interested in giving some peace to their viewer at the end of the year. Even if we have bad news, the market easily absorbs them (since they are, again, scarce) and because of the hope factor that I mentioned above.

5- Losers re-entering the market: Since, as explained later, the year end rally continues through mid January, investors who got out of the market at the end of the year will start re-entering the market, hoping this year will be better. I call the money injected into the market by these investors yo-yo money.

6- Fresh money pumped into the market: Quite a few people want to make money in the next year as part of their New Year resolution, and where else but the stock market, where you can make an infinite amount of money with no risk whatsoever (or so they think). So, they start investing their money by usually buying blue chip stocks (which reminds me, better not sell your BAC stocks until the next year, it’s an undervalued stock).

So how long does the year end rally last?

I have checked several years, and it seems to end by mid January, this is probably when investors start realizing “Hold on a second, there’s nothing different between this year and the previous one, with the exception that now I have a different calendar in my office”. This is when hope fades, volume picks up, and the yo-yo and fresh money has dried up.

Bear ETFs, including financial, technology, and commodities bear ETFs, should be avoided at all costs at this time.

So what do I think about next year? I think from a market perspective the next year will be much better for the American economy, I think Europe will suffer a lot (with all the PIIGS problems, of which we have only seen the tip of the iceberg), but that suffering will no longer have that much of an effect on the American market. I would stay way from European and international companies for next year and focus solely on the US and Canadian companies.