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May 19 2012

Facebook fizzle?

That’s the term I heard all day yesterday. I would not call what happened a fizzle. I’d call it very accurate pricing by the underwriters.

(C/net) — There was no 1999-style pop, but the stock did climb. In fact, it opened at just above $42 dollars — 11 percent above the offering price of $38 a share. That’s how much demand there was. In fact, the trading volume set an all-time record for the Nasdaq. But this demand didn’t want to stick around. These weren’t bets on Facebook’s grand future. These were attempts to make a quick buck.And when the shares started to fall towards the offering price, it seems the bankers worked like mad to try to “support the deal.” In other words, the investment bankers — who have an agreement to make a market in the stock — likely began buying shares themselves to keep it afloat.

And it makes sense. The bankers don’t want to see it close below the offering price. The stock closed at $38.27 — below where it opened, and just above the offering price. For the bankers, this was not casual Friday.

I saw that half a billion shares traded. Some of the stock is placed institutionally, to help stabilize the price. Depending on how much that was, the entire retail float may have traded more than once yesterday and the stock still held up. Very accurate pricing indeed.

6 comments

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  1. 1
    sithrazer

    In other words, the investment bankers — who have an agreement to make a market in the stock — likely began buying shares themselves to keep it afloat.

    I understand that they’re part of the system that keeps the stock market more stable (as in prevent catastrophic crashes), but the phrasing almost makes it sound like some form of price fixing.

  2. 2
    left0ver1under

    sithrazer (#1):

    I understand that they’re part of the system that keeps the stock market more stable (as in prevent catastrophic crashes), but the phrasing almost makes it sound like some form of price fixing.

    It reminds me of two common practices, one ethical and one not:

    (1) National banks of countries will buy back the countries’ own currency from other nations and banks in order to create demand and thus increase its value. Devalued currencies may be good for exports, but if yours is a consuming country, it’s bad for business.

    (2) Share/Stock/Land Flipping. Conspirators buy paper from each other repeatedly at increasingly higher and higher values, to make it look as if there is demand when in fact it’s a scam. This is what the vatican bank and Italian mafia did together in the 1980s, inflating land prices and then splitting the profits after a sucker bought the overvalued property.

    The Inflated Price Offering of fecesbook and subsequent actions of bankers resembles the latter. They’ll prop up the price long enough for the suckers to buy significant numbers of shares, then let it fall to it’s real value, somewhere between US$6-10.

    “Stock” in pro sports teams have proven to be a joke, and run on similar scams to this. Read up on those who bought into teams like the Green Bay Packers and Boston Celtics. The fans bought overpriced stock, and in the case of Green Bay, they don’t even get a dividend. Green Bay fans are loaning the team money, interest free, which is nothing more than a scam.

  3. 3
    left0ver1under

    That should read:

    “then let it fall to its real value”

    We really do need an edit feature.

  4. 4
    sithrazer

    You want to talk about sports teams and scams, check out http://www.fieldofschemes.com. It’s downright disgusting the kinds of things sports team owners get away with, and that blog is just documenting things relating to stadium deals.

  5. 5
    Stephen "DarkSyde" Andrew

    Stock isn’t a loan folks. I’s a piece of the action. It’s a share of the company. There are certainly scams galore, but the basic principle is you are an owner, not a loaner.

  6. 6
    jerthebarbarian

    Stephen you have more experience with this, but if this is true:

    And when the shares started to fall towards the offering price, it seems the bankers worked like mad to try to “support the deal.” In other words, the investment bankers — who have an agreement to make a market in the stock — likely began buying shares themselves to keep it afloat.

    Then how does that support your conclusion:

    I would not call what happened a fizzle. I’d call it very accurate pricing by the underwriters.

    To this lay person, very accurate pricing by the underwriters would be pricing that would be stable without massive intervention by the investment bankers. Requiring that much intervention really looks (to an outsider) like the banks made a bad judgment and are now scrambling to cover their asses.

    I’d love to hear an explanation that makes the bankers not look like they made a bad call on this one, because as an outsider it just looks like they got played by someone.

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