Leave Facebook's Eduardo Saverin alone
Eduardo Saverin's timely renunciation of his American citizenship is no reason to keep him out of the US. People should be able to move where they want, when they want, for any reason.
Eduardo Saverin's timely renunciation of his American citizenship is no reason to keep him out of the US. People should be able to move where they want, when they want, for any reason.
The Maryland House of Delegates just voted to raise taxes. Should we move to Florida鈥r Delaware?
If we move to Palm Beach, will we ever be able to visit our beloved Maryland homeland again?
The Financial Times reports that thousands of wealthy French people are now moving to London. Their motive? They want to escape the taxes proposed by France鈥檚 new president, Francois Hollande.
Should the French impose an exit tax on these 鈥渆x-patriots鈥�? Should it then bar them from visiting France?
Of course not.
In England in 1215, the right to travel was enshrined in Article 42 of the Magna Carta:
Here鈥檚 the United Nations Universal Declaration of Human Rights. Article 13:
Article 12 of the International Covenant on Civil and Political Rights incorporates this right into treaty law:
People should be able to move where they want, no? They should be able to look for lower tax places to live, shouldn鈥檛 they? After all, we鈥檙e Americans, aren鈥檛 we? Aren鈥檛 we all descendants of people who tried to improve their lives by moving to a new place?
Apparently, a lot of Americans don鈥檛 think so. Facebook is going public. And one of Facebook鈥檚 founders has moved to Singapore. He will save, by one estimate, $67 million in taxes by giving up his US citizenship. He says that鈥檚 not the reason he gave it up. But you can believe what you want.
And now the politicos are up in arms. Mr. Saverin has helped to give them an asset worth about $100 billion. Are they grateful? Do they bend down and kiss his derriere?
No! They want to tax him even more heavily鈥nd prevent him from ever setting foot in the US again.
Yes, dear reader, there is no thought so dumb鈥o short-sighted鈥o low鈥hat it won鈥檛 become the law of the land. Bloomberg reports:
If Chuck Schumer has his way, entrepreneurs like Eduardo Saverin will think twice before setting up shop in America!
[Editor鈥檚 Note: After yesterday鈥檚 column, Run, Saverin! Run!r, we were delighted to discover that a brave Fellow Reckoner had actually linked to The Daily Reckoning...on Chuck Schumer鈥檚 Facebook page. Ha! Feel free to 鈥渓ike鈥� our bitty missive and to 鈥渟hare鈥� it on Facebook. Call it non-violent protest. And of course, you can always 鈥渂e our friend鈥�.]
Down, down, down鈥ay after day鈥� Stocks down. Yields down.
But what鈥檚 this? Gold rose nearly $40 Friday
Our 鈥淎lert Flag鈥� went up yesterday morning. The Dow fell 156 points during the day. Not that there鈥檚 any connection. Most likely, after so many down days, stocks will bounce. But watch out鈥�
We have a hunch.
Facebook is the biggest deal in the stock market鈥erhaps ever. It鈥檚 a company that didn鈥檛 even exist 10 years ago. We know all about the company鈥檚 founding; we saw the movie. Twice. Because our daughter has a role in the movie. She鈥檚 the waitress in the scene where Zuckerberg means Sean Parker.
Not a bad flick. But from an investment standpoint, Facebook is probably one of the worst moves you can make. Most likely, it will be gone 10 years from now. $100 billion of market capitalization will disappear. Poof! It鈥檚 just a website, after all. We looked at a Facebook page, once鈥� We couldn鈥檛 figure out why anyone would waste his time.
The trouble with new technology is that in a few years it鈥檚 old technology.
Here鈥檚 our hunch: The Facebook IPO may mark a major peak鈥nd the beginning of a major bear market on Wall Street.
It happens every time. There鈥檚 a big, big deal. And then, it鈥檚 over. We鈥檇 give you some examples, if we could think of them. But we can鈥檛. You鈥檒l just have to trust us on this.
We don鈥檛 really have any evidence or logic to back this up. It鈥檚 just a hunch.
But our intuition tells us that when investors finally get the full Facebook treatment, they are going to be turned off by the stock market and Wall Street. Not only will the company turn out to be not worth a fraction of the IPO price鈥nvestors will also get a clearer picture of how Wall Street really works.
About that IPO鈥� The idea is to generate a lot of excitement鈥 frenzy鈥o that people are eager to get the shares. And with all these Facebook users, who like鈥ike鈥acebook鈥nd think they can tell a good investment when they see one鈥t ought to be easy to create a buying frenzy. Besides, everyone knows shares are intentionally priced below what their backers believe they can get for them. This causes the share-price to 鈥減op鈥� right after the IPO.
Of course, the distribution is tightly controlled. You have to be an insider to get IPO shares. Say鈥ou鈥檒l get them at about $40鈥nd then, you expect them to go to $50 on the 鈥減op.鈥� If it works out as planned, you make $10 per share. This is a lot of money. Easy money. So, the insiders all want a piece of the action.
How do you get to be an 鈥渋nsider鈥�? You have to be a friend of Morgan Stanley. Which is to say, you help Morgan Stanley make money. How? For example, if you are a pension fund or hedge fund you put through a lot of trades. Morgan Stanley makes money on the churn. You make money on the churn, too. Customers don鈥檛 make any money on the churn. They pay for every transaction. But who cares about them?
Everyone is convinced that buying鈥elling鈥nd trading investments makes money. As long as the illusion lasts, Wall Street is happy. The customers are happy too鈥ore or less. They鈥檙e participating in the Great Illusion 鈥� all trying to make money without actually doing anything.
So everyone churns. And the more you churn with Morgan Stanley the more likely you are to get an allocation of IPO stock. There could be about 50 million shares handed to insiders in this manner. Let鈥檚 say they go up $10 in the 鈥減op.鈥� That鈥檚 half a billion in gains 鈥n only a few hours.
Dan Ariely explains:
Regards,
Bill Bonner,
听蹿辞谤 The Daily Reckoning