About Facebook

Watching Facebook 'co-founder' Mark Zuckerberg last week stand and explain to an audience his company's latest software developments at their annual f8 conference (in an odd attempt to imitate Steve Jobs unveiling the next iPhone), a thought came to my mind: has the purpose of Facebook changed so much from the original intent that its best years are now behind it?

To try and answer this question, we need to go back to understand why Facebook came about in the first place.

Growing up in the early 1990s, I was part of a generation yearning for a greater connection with the world outside the four walls of my bedroom. The difference between my generation and that preceding it was that now we finally had the tools (i.e. the Internet) to actually do something about it.

Now in an era of ubiquitous Internet, social media has become the 'great enabler' to people young and old; it has allowed us to interact with people in ways that were previously impossible.

To what extent the introduction of social media websites, especially Facebook, has on balance made the world a better place, would seem a moot point. Surely the opportunity to make more connections and spread our personal network across the globe can only make us better off?

In theory yes, but in practice, maybe not.

For social media (the way of meeting and interacting with other people) to be based 'online' and not 'offline', a fundamental question needs to be answered: how much can you trust someone who you have never met in person?

Ask anyone with more experience offline and you get a frank reply: not that much. Certainly not enough to tell them your entire life story. How someone can effectively make this judgment themselves after spending most of their childhood online is a troubling question.

However, there is one potentially self-correcting mechanism in place: people, especially young people, get bored. They want to try new things. After a while, no matter how much fun anything is, everyone wants to try something new. This is why Facebook is trying to change into something else, to keep up with the times.

Unfortunately, this need to adapt to the changing needs of its consumers may ultimately sow the seeds of its own demise.

For Facebook to continue to grow at the breakneck speed it has done so far, it will have to give people the opportunity to do something new. Something different. The latest innovation offers users an easy way to show people everything about their life in one continuous page. An open book, if you will.

Does anyone see a problem with somebody showing everything about themselves to the rest of the world? If you had asked someone this question growing up in the 1990s (or any decade before for that matter), they might look at you in a slightly odd way. Why would I want to do something like that??

Why indeed.

After giving anyone and everyone the opportunity to meet and interact with whoever, however they like, Facebook now has to go a step further in the quest to keep consumers interested. Unfortunately, this may be a step too far for some and may signal a point in time when the seemingly neverending growth of Facebook may be past its peak. Logging off is not that hard to do.

The idle investor

I've recently started reading a book called How to be Idle. The title should be enough to ensure its success as more and more people have unemployment thrust upon them.

However, the main idea behind the book - that doing less is more - is extremely pertinent for anyone now thinking of dipping their toe in the stock market.

Over eight weeks ago I recommended buying stocks and selling bonds. It just so happens the US stock market is at exactly the same level today as it was then.

In between the S&P 500 fell by 20% and then rose by 25% (unfortunate rule of investing: things need to rise by more than they fall to get back to where they started).

If you were caught out by this sudden fall and rapid recovery in the stock market, don't worry, you weren't alone.

In fact you were in very good company indeed.

Most, if not all, of the the greatest living (and still active) investors have remained confident throughout the past 18 months, and especially at the end of last year, that the stock market was past the worst.

While most of us are fed up watching the stock market fall (and the rest just don't want to look at the stock market at all) there is something very interesting happening at the moment: a turning point.

Turning points are the hardest things to predict and almost impossible to identify in real time. This is why the current situation is so favourable to the investor who is willing to wait. In other words, be an idle investor.

By doing less, you will earn more.

Find a market you like and leave your money there for a year.

You will be amazed at how productive doing nothing can become.

Investment recommendation: buy stocks, sell bonds

Whenever you see anyone on TV or in the press offering free investment advice, three questions should come to your mind:

1) What are they selling?
2) What is their past performance?
3) Why are they giving away free advice?

Firstly, I am not selling anything. I was working for an investment bank but now have enough time on my hands to be able to sit and home and write this blog, without any fear of conflict of interest between myself and my employer.

Secondly, I have not invested my own money in any financial market for months. Since last summer I have been invested in either cash or bonds and most recently, entirely in cash.

Thirdly, I am giving this advice away for free as I have nothing to lose in doing so and everything to gain, in terms of reputation.

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There are a number of reasons why now is the best time to buy equities and sell government bonds. Apart from the obvious fact that this is what the current direction of both markets are suggesting (the most common reason why people recommend what they do), there are a number of very compelling reasons for doing so:

- We now know that global equity markets halved in value months before the start of the global recession.
- Global equity markets always rise before the end of a recession
- As global equity markets become more and more attractive, global bond markets will become less and less attractive.
- The strength of every downward trend is always followed by an upward trend that is equally as strong.


The only way is up (in the long-run) for equities...

Government bond yields are unlikely to go much lower

It is important not to underestimate the length and depth of the sell-off in global markets for risk. This has accompanied a process of deleveraging that has recently taken the most visual form: job cuts.

Unemployment is the last resort for any company and almost every company in the world has been forced into taking this decision.

Borrowing money from the government is one option, drawing down inventory is another, but once workers are made redundant either they never come back or new workers require training to do the job. This is a very expensive process which is weighed against the benefit of saving money from not paying wages. This process cannot and will not last forever.

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Before any good news arrives on the economy, equity markets will have to rise.

Time is running out before the appetite for risk returns.

The fact that the "safety" of government bonds has disappeared makes risky assets look the most attractive in a decade (and more importantly, than throughout this entire financial crisis).

The question of whether interest rates are low enough and when a strong recovery in equity markets will take place this year is less important for long-term investors. The most important decision is that something is done sooner rather than too late.

Barak Obama's alternate inauguration speech

My fellow citizens:

Thank you so much for coming out today, many of you waiting for hours in the freezing cold, to hear me deliver this, the forty-forth Presidential inauguration speech in American history.

Today is a very special day for many of you, especially those with African-American families. With you, I share in what has been a most historic of victories. With so many, including myself four years ago, not expecting me to even run for office, the fact that I stand here today ready to take on the most powerful job in the world must seem like a fairytale.

And indeed it is a story that will be told to children up and down this great land for generations to come. How one man stood up to all those who were ready to do everything in their power to prevent him from achieving his dream. It should, and will, inspire many to do the same in future.

My life is a shining example of why you should never stop working to achieve you dreams. Dreams are there to be realised one day, not to wonder what it might be like if they came true. Dreams can come true. Look at me, standing here in front of millions of people and billions watching on their televisions at home all over the world. Hello to everyone out there. We are here and we are ready to do business with you. AMERICA IS OPEN FOR BUSINESS!

Now, many of you may be asking, what do I have planned for the coming weeks, months and years. Well, let me tell you first off, everything is on the table. I will rule nothing out. The only thing I will insist on is that anything we do is affordable.

These words may not sound inspiring but they will make a difference to this country in the long run. Yes, my fellow Americans, the next few years will be painful, they will involve tremendous sacrifice. Jimmy may have to wait for his new train set and Sally will not be going to summer camp this year. And Bob, you will have to see about that new car you've had your eye on for months. It's all gotta be put aside for now. From now we will be prudent!

Can we prudent with the public finances? YES WE CAN!

When we start to learn about what it means to live within our means, then it will be possible to re-build this great nation upon the value which made it so great: innnovation, education and affordable healthcare!

I think you will come to understand that government finances are important, just as your own finances are important. If you want to borrow money to buy something, then from now on you will have to borrow directly from government-owned banks!

This is an exciting time for our country, the country we all hold dear. We will not be indebted to the Chinese for the rest of our lives and depend upon the Saudi's to ship us oil each day. Oh no, those days are numbered, and from today I will make it one of my (many) top priorities to see to it that we will not make the same mistakes that so many of my predecessors have made. BELIEVE IT OR NOT, IT WILL BE DIFFERENT THIS TIME!!

I bless you and bless America.

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My Worldle:

Barak Obama's wordle:

Open letter to the Financial Times

Even though the Financial Times has seen fit not to publish my letter, sent (e-mailed) on January 5th, the beauty of the internet means that I get to post it on my blog whenever I want!

Below is the original letter.

(N.B. Since Janaury 5th, the US stock market has fallen by 7%.)

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From Mr. Wesley Fogel

Sir, Anthony Bolton appears to have had his "Buy American, I am" moment in his column last weekend "How to spot the market’s turning point" (January 3).

Just as fellow-veteran investor Warren Buffett, who endorsed buying American stocks in October only to see the S&P 500 fall a further 20%, Mr. Bolton still has faith in his ability to do what nobody else can: identify a turning point in the market.

However, the three factors which Mr. Bolton uses to determine such a turning point and the one he does not should reveal why his advice will prove at best unhelpful and at worst damaging to investors in 2009. Contrary to his argument, it will be improved visibility on the state of the economy and not the performance of markets relative to the long run or some other technical factors that will help define a turning point. Whilst it may seem foolhardy to challenge the views of either Mr. Bolton or Mr. Buffett, neither gentleman would be at odds with the principle that past performance is no indication of future returns. Now is not the time to see who is right and who is wrong, just who is solvent. The same rules apply to them as they do to us.

Wesley Fogel,London SE10, UK

Sterling goes Loonie

It's been another year to forget for Queen Elizabeth II.

Not only has she had to rein in extravagances as the family budget was squeezed but her face has been on the front of two currencies that have massively depreciated, namely the British pound and the Canadian dollar (commonly called Loonie).

But there is more in common between Canada and the UK than a monarch.

Both countries also export large amounts of crude oil. This has resulted in each currency closely tracking the price of oil as well as each other.

The close correlation between the Loonie and Sterling is an inconvenient fact for those who believe that government failure is at the heart of the pound's weakness.

To guage whether the collapse of the pound or the Loonie will continue, it would be worthwhile to monitor the direction of both over the coming days and weeks. Should there be any deviation between the two, it might signal a move in either direction.

Of course, you could just look at the price of oil, since that will determine where both are going. My guess is up, but maybe not immediately.

Either way, the Queen should have a better year in 2009.

Greenspan's monster eats Goldman's BRICs

The business cycle, as we have so vociferously been reminded, is not dead.

Not only is it alive, but it's now bigger and stronger than ever!

For over a decade, it had become conventional wisdom to assume that rapid growth among the developing economies of, inter alia, Brazil, Russia, China and India (or BRICs, as Goldman Sachs coined them) had become a permanent feature of the global landscape and would be strong enough to compensate for any slowdown that might occur in advanced economies.

Not only would a slowdown in, say, Germany or the US be mitigated by growth overseas in India or Brazil but that such a period would bring with it a redistribution of wealth from rich to poor (i.e. if one group of economies is growing while others are shrinking then a rebalancing of wealth would follow).

And up until the middle of this year everything was going according to plan.

Then oil stopped rising and everything went into reverse, especially among the BRICs.

Two questions now arise (to which you will struggle to find anyone capable of providing a clear and convincing answer):

1) Why did oil prices rise to $150/barrel?
2) Why did oil prices then more than halve in four months?

A third question, to which it's always fun to see people attempt to provide an answer which they can believe:

3) Where will oil prices go from here?

While it would be tempting to try and predict where oil prices will go or explain why they have risen and fallen in such dramatic fashion, it's more important to realise what just happened in the context of oil's gyrations, since much of this backdrop helps to explain why movements in oil and other financial assets follow the paths they do. This will also explain the meaning that's hiding behind the title of this post.

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In 2001, Goldman Sachs economist Jim O'Neill predicted that the BRICs would be among the world's most dominant economies by 2050.

This ambitious prognostication helped create one of the largest proverbial bandwagons in history.

The number of people searching for the term "BRIC" on Google has grown every year. With a growing intellectual curiosity came a growing financial interest. The smart money started going South and East.

Then the stupid money followed.

At the same time as money was flowing into emerging markets, the US was facing the prospect of deflation (falling prices everywhere), something it hadn't seen since the Great Depression.

As now Fed Chairman Ben Bernanke, said at the time, interest rates could and should fall more rapidly than in normal times to avoid such a thing from happening.

And that's exaclty what they did. Until mid-2004, US interest rates remained at 1%.

What then Fed Chairman Alan Greenspan didn't realise what that investors would use the money they could borrow so cheaply to invest in emerging markets, which Jim O' Neil had predicted would offer sustained economic growth for at least the next generation.

Greenspan was creating a monster, and it's color would be green.

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With the volatility we are now seeing in financial markets it has become a fruitless endevour to bet on the next move, up or down.

However, it's important to not lose sight of the fact that we are seeing something no different to the bursting of any bubble gone before.

What caused the bubble in oil and emerging markets was a combination of a low cost of borrowing and gullible investors.

While all bubbles teach a different lesson, they all result in the same thing: the search for a new bubble. But you can't burst the same bubble twice. And oil prices and emerging markets have both now clearly burst.

Only time will tell what Bernanke's monster will destroy...