Tweets and Messages
Yesterday (Thursday) saw the long-awaited arrival of Twitter on the New York Stock exchange. Following weeks of intense build-up toward its IPO (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 fifty dollar mark. Thereafter, the price fell back to the mid-forties, 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 not yesterday. 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, yesterday had proven a momentous – and certainly a very important – day.
At 2.45p.m. Israel time, an hour earlier in Frankfurt – and only 7.45a.m. in New York – the European Central Bank issued its standard press release regarding the decisions taken at its just-completed regular two-weekly meeting. 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 one percent against the dollar instantaneously, whilst European stocks and bonds soared in price. But the shockwaves 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 Federal Reserve Bank’s policy meeting in September, the markets were caught totally off-guard by a major central bank move. Given that communicating their intentions and policy direction is now regarded as a key requirement of central bank 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 mind-boggling.
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 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 so as “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 clear.
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.