Investing

See my Forbes post: "Netflix Crushes Its Own Momentum" here.

• "...Netflix has crushed its own growth stock momentum -- and it won’t be coming back – that pixie dust is gone forever. Netflix will never be the same...."

Expect privacy concerns to be the eventual catalyst that ultimately bursts the Internet investment Bubble 2.0. It is rare when there is a profound disconnect and suspension of reality between industry behavior/investment expectations and customer wants, needs and expectations, but that is precisely what is at work in Bubble 2.0.

• Almost by definition, investment bubbles are unsustainable; what goes up must come down, it is only a matter of how and when -- not if.
• Simply what fuels Bubble 2.0  is the patently false core assumption that the current unfettered, widespread, and largely clandestine data mining of individuals private information in order to target specific individuals with personalized online advertising:
  • Is aligned with real user interests;
  • Is a forthright business practice consumers are aware of and have meaningfully consented to;
  • Will not be legally constrained in the future; and
  • Will become the accepted norm -- meaning that the populace and governments will adapt to the wishes and desires of the online-ad- industry and not the other way around.
• In a word, is online tracking, profiling and data mining a consumer-driven model? -- or a consumer-dragged model?

This is deja vu for me. I've seen this movie before when I had a front row seat as the original dotcom Bubble 1.0 wiped away $4 trillion in market valuation in a few weeks.

Google announced it is working on an economy-wide Google Price Index, but has not decided whether to make it public, per Google Chief Economist, Hal Varian, who spoke at the National Association of Business Economists conference this week.

• This development has under-appreciated implications for insider trading and also spotlights how Google's online dominance of market-relevant information suggests market failure and a new potential systemic vulnerability to the integrity of global capital markets.

I.  Insider Trading

In March, Google CEO Eric Schmidt said: "One day we had a conversation where we figured out we could just try and predict the stock market... and then we decided it was illegal. So we stopped doing that."

Now any hedge fund (or market regulator not born yesterday) understands that if Google is actively working on a Google Price Index, Google has not stopped trying to use its uniquely comprehensive and timely, repository of sensitive market information to predict information highly useful to predicting the stock market.

The SEC/CFTC report on the May 6th "Flash Crash" helps confirm that automated index trading technology was a contributing cause of the 2008 Financial Crisis and why recent financial reforms are not enough to address the ongoing destructive systemic vulnerability that automated index trading technology increasingly poses for financial markets going forward.

The abrupt change, that Google's CEO Eric Schmidt will no longer be accountable to shareholders on Google's earnings calls, should prompt investors to ask why? 

• Google claimed that they wanted to put more focus on Google's strong financials, but they did not disclose any more than Google's usual barest of minimum of information to investors.  
• The most obvious reason for this abrupt change is the literal explosion of real franchise liabilities and risk overhangs to Google that reared their ugly heads this past quarter. 
  • Had CEO Schmidt been available to answer investor questions, Google's exploding liabilities could have dominated the Q&A and the investment narrative coming out of the earnings call.

What has changed, and what Google has been not been open about, is the very serious ripening of three different types of going-forward franchise risks (antitrust, privacy/security, and intellectual property) that cumulatively herald a de facto change in Google eras: from the roaring "Growth Decade" of 2000-2009, to the more unpredictable "Liability Decade" of 2010- 2019.

FOR IMMEDIATE RELEASE                                                     

April 6, 2010                                                                                          

Contact:  Scott Cleland 703-217-2407

NetCompetition Comments on Impact of D.C. Circuit Vacating FCC Comcast Order

Don't miss Digital Society's Bret Swanson's outstanding op-ed in the Huffington Post that spotlights the huge disconnect between the White House's top priority of creating jobs, and the FCC's Open Internet regulation plans that are obviously big net job killers. 

Common sense dictates that heavily regulating a healthy and economic broadband sector with unnecessary and intrusive restrictions and red tape will destroy profits, investment and tens of thousands of good-paying jobs.    

In one of the best, most strongly-worded and serious letters to the FCC that I have read in my 18 years following FCC issues closely, the united broadband industry's letter to FCC Chairman Genachowski is simply a must-read; it explains why the FCC's serious interest in reclassifying unregulated broadband information services as regulated telecom services is among the worst and most destructive ideas the FCC has ever seriously considered.

The letter characterized Title II reclassification as:

• "a radical new direction,"
• "regulating the Internet,"
• "a profound mistake,"
• "betraying decades of bipartisan support for keeping the Internet unregulated,"
• "misguided regulatory overreach," and a
• "Pandora's Box."

A particularly strong summary statement was:

FCC Chairman Genachowski's speech to NARUC: "Broadband: Our Enduring Engine for Prosperity and Opportunity" raises some big open questions.