Phil Pearlman's Blog

Despite recent reports, the Facebook user base is not shrinking. Here’s a quick look at monthly active users from yesterday’s earnings deck:

There’s an elasticity of scale that I think $FB has reached that will protect it from mass exodus from the platform no matter how many ads they paste to its pages.

Its so huge that it doesn’t matter anymore if the cool kids migrate elsewhere because it has secured so many graphs that are intertwined and the cost of leaving now outweighs the cost of a deteriorating user experience.

This is a profound achievement – scale as an elastic factor.

Instagram, however, while its getting really big (100m active monthlies), has not necessarily reached this level of scale. I use the term necessarily because really I have no idea how big it needs to be to ensure scale as an elastic factor though I am sure Zuckerberg has a pretty good feel for it.

There must be immense pressure to begin monetizing Instagram.

Meanwhile, the experience without such meddling remains simple and magical so it will grow and that growth will serve as a positive feedback loop and inch it closer to being immune from mass migration away from it.

Zuckerberg has resisted the pressure to monetize Instagram and he will continue to until it surpasses escape velocity and that is long term smart.

You still have 24 hours to enter The Sohn Investment Idea Contest.

Basically, you can pull one all nighter, do the best work of your life and become famous like Ackman or Einhorn. Its that simple.

Here’s the contest detes and sign up HERE.

And here’s Joel Greenblatt offering some last minute advice if you’re game:

Follow The Sohn Foundation on StockTwits & Twitter.

Josh Brown and I will be at the conference and live blogging of course. Should be great!

Instead of reading what journalists write about the Theil / Andreessen debate, much better to watch the full interview.

This is excellent:

Don’t love the name but this video is out of hand and more details coming this week:

Read more about this on The Verge: Microsoft IllumiRoom is a coffee table projector designed for the next generation Xbox

$MSFT

Yesterday, I was interviewed by Howard Green at BNN. We talked about the future of Bitcoin and I entertained the notion that large companies will get involved and might create their own currencies.

You can watch it HERE.

We can use the early days of the internet as an analog as large companies rushed in to dominate despite the net’s early non-commercial ethos and only after the internet had proven concept.

Judging by the hate I am getting over this piece I posted yesterday to my blog, you might enjoy

Just did the Google Hangouts with All Star Charts (AKA JC Parets). We wrapped the week that was and talked the SP 500, Singapore & the buoyant bond market. Have a look…

$SPY $EWS $TLT

There must be a small group of geniuses inside the Googleplex who have been observing Bitcoin and thinking deeply about potential implications.

While many of us smirk, myself included, at the illiquidity and the volatility, Bitcoin raises some big and novel issues that might seem obscure at this point:

First, Geopolitical & Macroeconomic – Let’s think for a moment about how invested nations have become in trying to control the value of their own currencies. It has been a race to the bottom for the Yen and at times the Dollar in an effort to spur growth while the Chinese collared the Yuan to keep it from rising. Much of this relates to international trade and so all currencies are intrinsically tied to one another. Even the way we trade currencies are paired, relative to each other.

Further, fundamental currency value is only derived from the faith of the underlying issuer. There is no gold or anything else standard.

Next, Technological –  Bitcoin is an experiment. It may fail and I suspect it will but the implication that we are now capable, technologically, of creating an electronic currency not backed by a nation can never be undone. Others, who have learned from the experiment, might create currencies that solve structural and technological shortcomings of Bitcoin. Proof of concept exists and this can not be undone.

(There are also potential sociocultural implications but I will leave a more detailed discussion of this for another day.)

Google does amazing things that at first appear preposterous and that average people mock initially (BTW, Fred Wilson wrote a good piece about this the other day). They’re building driverless cars, experimenting with inexpensive internet services 100x faster than current offerings and building computerized eyewear to name a few.

If Google decided to launch a currency they might resolve 2 of the issues raised above.

On the technology side, there is no one better equipped to fuel and service a global currency created out of whole cloth. Certainly, they would be better prepared than the distributed but faulty network that hinders Bitcoin to this point. Google would also have the second mover advantage which allows them to think through the Bitcoin mistakes and rectify beforehand. Recall, they did this with search coming well after Lycos and Alta Vista and then crushed them.

On the fundamental value side. Google could back the currency with the full faith and credit of, well, Google, a highly profitable company with a 265B$ market cap that already has its own currency in some respects, their publicly traded shares.

Maybe Google partners with a Visa or American Express or a similar established company that has an expertise in transactions and currency.

Maybe they spin the currency out and make it a non-profit…

This has been a thought experiment as we head into the weekend, entertaining the crazy ideas…

$GOOG $V $AXP

All I am hearing about the flash crash is how bad it is and what a threat to the system it is but for the most part, its just overreaction by those who forget market history and the way it has always been.

We have been hearing about the threat since the May 2010 flash crash and for sure, there are serious issues around high frequency trading and social media that require a measured magnifying glass and market participants’ risk management considerations.

I am not making light of it here but the reports are everywhere, overstated and distorted from reality – the scarier the better I suppose.

I don’t see anything here that is as destabilizing or historically out of the ordinary as most reports would have you believe.

Recall the initial response to 09/11 after the first plane hit. Mark Haines was reporting that it was a light plane and neither tower was immediately evacuated.

Over 100 years ago, JP Morgan manipulated US markets more with his pinky finger than HFT or Twitter hackers ever have.

The market is not broken and if it is, then it has always been broken.

Yesterday, Marketwatch quoted me,

In a way, that’s a really healthy thing: The dissemination that it was a hoax went out just as quickly, and the latency was very, very brief… People are not focusing on the resiliency of the market and the self-corrective aspects of social media.

No one is focusing on this – that the market snapped right back as reports were refuted and that refutation spread just as quickly as the false rumor did.

Markets have always been imperfect and manipulated and as long as humans are involved, whether or not they are wielding super fast computers or malicious password cracking software, they always will be.

That’s the playing field so if you are managing risk then plan accordingly.

Over the weekend, Barron’s published a bullish cover in conjunction with its Big Money Poll. Here it is (ht: @tradewithmojo):

I was a bit surprised by the timing of it, not because it comes after such a big run in the indices but more from a seasonality perspective as it comes just a week or so before the historically weak portion of the year beginning in May.

While always fun anecdotally, I’m not fully convinced of magazine covers as contrarian indicators, especially the timing (I’ve written about this with some great imagery from the New Yorker). Its often an availability heuristic thing as we seem to remember best instances when things happen rather than when they do not happen.

Regardless, Ryan Detrick posted this older Barron’s cover earlier today from late October 2012 when the Big Money Poll was getting bearish a few weeks before a major bottom:

Again, most salient to me is the neglect for seasonality as equities tend to get strong into November/December.

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StockTwits has begun visualizing ticker specific crowdsourced sentiment and it is worth noting that this morning social sentiment on the $SPY stream (a proxy for the market that gets lots of votes and so seems a good sample) registered its most bearish reading so far at 66% Bearish vs 34% Bullish.