(photo credit: Courtesy of Twitter homepage)
Thursday saw the long-awaited arrival of Twitter on the New York Stock Exchange.
Following weeks of intense buildup toward its initial public offering, the price
of the company’s shares to be sold in the offering was raised from below $20
–just last week – to an expected $22-$24 and finally to $26 in the actual
“pricing,” which took place on Wednesday evening.
But this dramatic
increase in the imputed value of a company that has yet to make a profit, nor is
expected to any time soon – or ever, in the opinion of some analysts – was
overshadowed the instant trading started on Thursday morning. Twitter opened at
$45 and, in volume far greater than that of Facebook’s opening day, soon reached
the $50 mark. Thereafter, the price fell back to the mid-40s, but where it
finished on Thursday will be known to readers, but is anyone’s guess at this
time of writing.
All this is, of course, intensely reminiscent of the
absurd excesses that accompanied the dot-com mania of the late 1990s and that
ended with the collapse of the Nasdaq and the demise of many of the star
companies of that era – supposed to represent a new paradigm in finance,
corporate activity and even economics as a whole. Many analysts have assembled
evidence to show that the specific case of Twitter, and the mania that has been
apparent in the technology sector generally in recent months, is actually worse
than that of the dot-com period; it is surely no less manic, and its fate will
surely be similar.
Twitter’s frenetic debut would normally be enough of
an event to make a given trading day stand out. But Thursday, November 7, 2013,
was not prepared to go down in history as merely the day Twitter started
trading. In fact, even before the American markets opened and Twitter was off to
the races, Thursday had proven a momentous – and certainly a very important –
At 2:45 p.m. Israel time, an hour earlier in Frankfurt – and only
7:45 a.m. in New York – the European Central Bank issued its standard press
release regarding the decisions taken at its just-completed regular biweekly
Although there had been much discussion among economists around
the world as to the likelihood of the ECB cutting its interest rates –
especially after the latest data showed inflation in Europe as being much lower
than anticipated – no less than 67 out of 70 forecasters predicted that this
meeting would see no change.
The announcement of a 25-basis-point
(quarter-percent) drop therefore came like a bolt from the blue. The euro fell
by over 1 percent against the dollar instantaneously, while European stocks and
bonds soared in price. But the shock waves that ECB President Mario Draghi
triggered, and that were not quelled by his remarks at the post-meeting press
conference, reflected more than the content of the announcement. There were two
very troubling aspects to the ECB’s move.
The first was that once again,
as with the US Federal Reserve’s policy meeting in September, the markets were
caught totally off guard by a major central-bank move.
communicating their intentions and policy direction is now regarded as a key
requirement of centralbank activity, these failures are particularly glaring.
That there should be two such snafus, by different banks and in different
directions (in the US, everyone believed a change of policy would be announced,
but none was; in Europe the opposite occurred) is simply
Secondly, the substance of Draghi’s move was shocking. It
meant that the talk about an economic recovery in Europe was largely baseless
and that the threat of deflation was real – and much greater than the ECB had
been pretending for some time. This was the very same fear that underwrote the
reaction to Ben Bernanke’s failure to announce the reversal of the ongoing
policy of quantitative easing; he held off because the US economy is too weak to
take this blow, much weaker than the Fed has been pretending.
As if all
this was not enough – and in the morning there had been an important move by the
Czech central bank to defend the Czech koruna – there were more “technical
problems” in the New York securities market. Trading in all the small companies
traded over the counter (the so-called “pink sheets” companies) was halted
“because of a lack of current quotation information” and “to protect investors
and ensure a fair and orderly marketplace.” Whether this was connected to
Twitter trading, which was dominated by the high-speed computer-generated
trading that now effectively runs the markets, was not immediately
What is clear is that in the US, in Europe and in Japan, despite
the unprecedented scale of monetary expansion in an effort to create inflation,
deflationary forces are slowly but surely getting the upper hand. In that
context, the Twitter show was almost light relief.
The markets are
broken, the real economies are sinking, while the circus is bigger and better
than ever for the gullible and stupid. That’s the real message, even it takes
more than 140 characters to get it across.www.pinchaslandau.com