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Masses Suckered Into Facebook IPO Burnt With 20% Loss In 2 Days

Monday, May 21, 2012 21:27

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Using the branding power of Facebook, Wall Street has suckered the masses back into the stock market only to burn them for a 20% loss in two days of trading.

Friday, Facebook had launched its Initial Public Offering which allowed retail mom and pop investors their first chance to trade stock in the company amidst weeks of media hype in the biggest stock offering of its kind.

The 1%, known legally as the sophisticated investor, were able to get on the stock before it started trading public for the price of $38 per share but when the stock finally started trading on the market the first price was $42.05 per share.

That represented an immediate 10% profit for the sophisticated investor.

Meanwhile hundreds of millions orders from middle class mom and pop retail investors flooded the market buy up the shares for the $42.o5 opening prices.

As they did those sophisticated investors who bought their shares before trading opened to the public for $38 per share dumped their purchases and stock sent the stock price plummeting.

That forced the stock offering underwriter’s to step in and buy shares to keep the Facebook’s stock price artificially propped up at the initial $38 dollar offering price until trading closed on Friday.

Facebook IPO Crashes Nearly 10% After $42.05 Opening Price (UPDATED)

Fadebook IPO Crashes Nearly 10% Off The $42.05 Opening Price

Facebook opened its shares for stock market trading today, opening at $42.05 only to immediately crash nearly 10% to $38 per share.

In the heyday of the stock market, companies went public to raise capital to expand their companies and make further profits.

In today’s world of crony capitalism that is no longer the case.

Instead, companies raise capital to expand and grow their business through venture capital firms and angel investor’s and only go public when the companies insiders are looking to cash out.

Today’s Initial Public Offering (IPO) of shares in Facebook is no exception to the rule as Facebook’s founders, executive management, and original investors will all make hundreds of millions to billions of dollars, with Facebook CEO being catapulted into the slot of the world’s 29th richest man as he cashes our for over $1 billion dollars.

But Wall Street bankers have been licking their chops for weeks knowing the retail investor – that is the average person like you and me – would be throwing loads of cash into the offering.

That’s exactly what happened as the stock immediately crashed nearly 10% from its opening price after a massive 100 million shares were traded in the opening 3 minutes.

Today, the stock started trading again but this time without the artificial support of the bankers who wrote the deal and the stock plummeted and stayed near the days lows to close down another 11% at the price of $34.03.

For retail mom and pop investors who were suckered into the offering that’s a whopping 20% lost – plus the cost of commission and other feeds – over the first two days of trading.

Washington’s Blog gives us a nice summary of some very insightful opinions over the debacle.

Fadebook, Fakebook, Facepalm … or Farcebook?

Witty epitaphs for the disastrous Facebook IPO have included:

Fadebook

Fakebook

Facepalm

But is there more going on than just an IPO disaster?

Reggie Middleton alleges:

Facebook is falling like a rock despite the fact that there’s a short sale restriction on the stock until at least tomorrow. Why is there a short sale restriction in the first place? Exactly what is wrong with allowing market forces to find the true market price? Well, you can run but you can’t hide, Mr. Market equilibrium avoider.

Tyler Durden writes:

There was a time when an IPO simply allowed a company to raise cash: sadly it has devolved to the point where a public offering is a policy statement in support of a broken capital market, which however is fully in the hands of SkyNet, as yesterday’s chain of events, so very humiliating for the Nasdaq, showed. From a delayed opening, to 2 hour trade confirmation delays, virtually everyone was in the dark about what was really happening behind the scenes! As the analysis below shows, what happened was at times sheer chaos, where everything was hanging by a thread, because if FB had gotten the BATS treatment, it was lights out for the stock market. Well, the D-Day was avoided for now, but at what cost? And how much over the greenshoe FaceBook stock overallotment did MS have to buy to prevent it from tumbling below $30 because as Reuters reminds us, “had Morgan Stanley bought all of the shares traded around $38 in the final 20 minutes of the day, it would have spent nearly $2 billion.” What about the first defense of $38? In other words: in order to make some $67 million for its Investment Banking unit, was MS forced to eat a several hundred million loss in its sales and trading division just to avoid looking like the world’s worst underwriter ever?

And Michael Rivero argues:

There is no way that major Wall Street players ever saw the Facebook IPO as a long term investment. We are in all probability looking at a get-rich-quick “pump and dump”, but there may well have been an additional agenda at work.

We know the main players manipulkate the markets. The almost $12 billion poured into the Faceook IPO late Friday to prevent the price from going into the red represents one form of obvious manipulation. And there are many others, including the use of high-speed computer trading systems

However, because of the many years that the PPT has manipulated the stock market with their high-speed computer trading systems, savvy small investors have left trading, which means the actual flow of cash into the market has dried up. The PPT games shuffle what money exists around and around in circles trying to run up some impressive looking numbers, but the volume and the value is simply no longer there.

So, part of the reason for the major push for Facebook may have been to lure young investors into the market with the Facebook “brand”, rubes too dumb and inexperienced to know they were lambs to the financial slaughter, to form the new lowest level of the Wall Street pyramid scheme.

The value of such a re-invigoration easily explains why the major Wall Street firms turned a blind eye to Facebook’s inability to pay dividends on the IPO, and why Morgan Stanley, JPMorgan Chase and Goldman Sachs gambled nearly $12 billion late Friday to prop the price up.

If I am correct, and the Facebook IPO was intended to bait new investors into the stock market as a whole, then any major drop in Facebook value Monday will trigger a general market panic.

Source:Washington’s Blog

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