Market Talk

Every now and again, the true mindset that exists on Wall Street escapes out into the wider world. That happened today within the context of Goldman’s now-scuttled private placement of Facebook stock. Read this line from today’s story in the Wall Street Journal on the deal:

Goldman worried that the media spotlight surrounding the private offering might violate U.S. securities laws and expose the firm to legal action.

So, can we assume that had there not been a media spotlight, Goldman wouldn’t have worried about violating securities laws? If you’ve been around for the past five years, or 10, or 20, or 40, you know the answer to that question.

There’s no doubt this was a back-door IPO, and I’m sure Facebook, Goldman and the rich clients it was pitching the deal to all thought they were pulling a fast one and getting over on the system. But there’s so much hype and hysteria over Facebook that it once it all splashed onto the front page, so to speak, the jig was up.

“Wall Street” is a nice movie with a memoriable performance by Michael Douglas, but it doesn’t even begin to get at the heart of the matter. This is, incidentally, why the government must impose rules on Wall Street. Why leaving derivatives unregulated in 2000 was such a huge mistake, why lifting the leverage ratios on the investment banks in 2005 was such a big mistake. Left unregulated, there is nothing these guys won’t do to turn a profit.

Yves Smith, who knows far more about this stuff than I do, sums it up over at naked capitalism:

But perversely, Goldman’s truthiness is an accurate account of the real state of affairs. Goldman sees that securities regs operate in the world of Schrodinger’s cat, where legality is in an indeterminate state until someone takes the trouble to look. And that remains true of what happened during much of the crisis. Tom Adams and I have written long form of the abuses that took place in CDOs, including probable market manipulation, lack of arm’s length pricing, and collusion by CDO managers, and we have argued separately that CDOs were the driver of the toxic phase of the subprime bubble. But no one seems willing to go there because the forensic work looks to be too daunting.

One of the stories circulating today and getting lots of play is this commotion over a $500 million investment in Facebook by Goldman Sachs and Russia’s Digital Sky Technologies — an investment which has been extrapolated out to give Facebook a valuation of $50 billion.

“The deal makes Facebook now worth more than companies like eBay, Yahoo and Time Warner,” states NYT’s DealBook.

Maybe so, and certainly makes for great headlines, but strikes us as if they’re jumping the gun. And by the way, that number isn’t new. There’s been a few investors buying Facebook stakes lately that have then been gauged for determining a value for the entire company. TechCrunch in late November trumpeted the $50 billion number, based on secondary market transactions.

Perhaps I’m missing something, but it seems presumptuous and a bit simplistic.

We’ll acknowledge that in the most basic sense Facebook is worth whatever someone is willing to pay for it, and if $500 million gets you 10% of the company, then boom — there’s your $50 billion.

But it’s a bit more tricky than that, isn’t it? The price you pay for a 10% stake isn’t necessarily what you’d pay for the whole kit and kaboodle. Facebook is a private company with limited and highly sought-after shares. Those “pieces” of the company carry a high value, thanks mainly to their scarcity. That doesn’t seem to be a very objective measure of the company’s value.

Say 100 highly coveted paintings by a single artist go on auction all at once instead of just ten. Will each painting fetch the same high prices that they otherwise might if sold in a just a small lot? Don’t know for sure, but simple supply and demand suggests there’s a good chance they won’t.

Let’s see Facebook’s financial statements and a much bigger, easily accessible supply of stock before we decide its valuation is bigger than eBay’s. Maybe it’s worth $100 billion, or $500 billion, for that matter. But let’s allow the market to make that determination instead of hyperventilating media.

- Facebook and Skype are poised to announce a major partnership that integrates SMS, voice chat and Facebook Connect, Kara Swisher reports at All Things D, . Move is a “big win” for Skype and makes sense for Facebook, especially since it helps its international push and overall goal “to mesh communications and community more tightly together,” Swisher says.

- Some unintended consequences come from the Fed making it clear it won’t abandon its ZIRP policy anytime soon, Yves Smith writes at naked capitalism. “I’d feel a lot better if we’d forced more clean-up of bank balance sheets, in particular write-down and restructuring of loans, so that we would be on a path to getting the banks off the official dole.”

- Pundits seem fixated on picking out the next Black Swan event, and Josh Brown at The Reformed Broker, frankly, sounds tired of it. “Sometimes, it’s just an ordinary Black Duck,” Brown says. “A negative event or possibility that is processed and dealt with, that doesn’t necessarily lead to contagion, panic and meltdown.” Don’t dismiss warning signs, he says, but “the more we learn not to get hysterical over every Black Duck, the better the chances are that when the real things comes along, we will be cogent enough in our reaction to them.”

- The unofficial start to earnings season is around the corner, but Forbes blogger Sy Harding notes the 3Q earnings “warning” period — already underway — isn’t providing positive clues. Harding notes 112 of the 500 companies in S&P 500 have issued pre-announces — 34 have said their results will beat analysts’ estimates, while 78 have said they won’t. “That 2.3 to 1 ratio is running considerably more negative than the second quarter earnings warning period,” Harding says. If the trend carries over, it could be one disappointing reporting season.

- Non-voting Fed member Charles Plosser said additional asset buying won’t speed up a recovery in the labor market and, conversely, could actually damage the Fed’s credibility. “If one thing is for certain, the debate in the Fed leading into the November FOMC meeting will be heated over the decision whether to continue to push the envelope with monetary policy,” says Peter Boockvar, a Miller Tabak equity strategist. “While Plosser’s comments are welcome from my point of view, the voting members have a much more dovish slant.”

- There’s a reason this “recovery” doesn’t exactly feel like a true recovery; it’s merely a “statistical illusion,” Mish says. He notes government spending extracted from GDP doesn’t paint a recovery picture. “All this talk of a ‘recovery’ is nonsensical. Careful analysis shows the alleged recovery is nothing more than an illusion caused by unsustainable deficit spending.”

- With 3Q earnings season kicking off next week, Bespoke Investment Group notes the financial sector is expected to see biggest quarterly earnings growth. Financials earnings estimated to rise 48% from last year, while industrials, tech, energy and materials also are expected to outpace the broader S&P 500.

- “Despite what we hear — the recession is over and the upside is ‘easy’ — let me tell you something you already know: it’s not easy and it ain’t over,” Todd Harrison writes at Minyanville. “I consider myself an optimistic realist, meaning I hope for the best but call it as I see it. I foresee another side of the financial storm before the epitaph is written on this Great Recession.”

- Goldman Sachs (GS) CEO Lloyd Blankfein issued a veiled warning today that GS could sidle out of Europe if regulatory crackdowns get too harsh, FT reports.

- Google (GOOG) must do whatever it takes to buy Twitter, Henry Blodget writes, in his long-standing advocacy for such a deal. “Whatever it costs Google to buy Twitter today is worth it.”

- Lots of chatter that Obama will appoint a CEO to replace Larry Summers, an idea that irks Paul Krugman. “For one thing, the NEC director is supposed to serve as a coordinator and honest broker among views — not, or at least not primarily, as a decision maker,” Krugman writes. “That’s not what CEOs are paid for — their job is to be decisive, not summarize other peoples’ arguments.”

- Blockbuster filing for Chapter 11 bankruptcy highlights how the mighty have fallen compared to the raging success of Netflix, Josh Brown says. “There is a cautionary business tale in here that is both timeless and essential for all investors to understand…It’s a story that’s been told a million times — the complacent giant felled by a nimbler, hungrier upstart with new ideas.”

- Initial jobless claims continue to portray a labor market stuck in neutral. “Make no mistake: The longer the job market remains stuck in a rut, the stronger the case for arguing that we’re suffering a potent bout of structural unemployment,” James Picerno notes.

- Cable giants publicly say the “cord-cutting” trend — consumers giving up cable for Internet video — is just a myth. But Verizon (VZ) CEO Ivan Seidenberg begs to differ, saying the cable bundle will follow wireline telephone as an example of old technology that eventually becomes obsolete. “Young people are pretty smart,” Seidenberg says. “They’re not going to pay for something they don’t need to.”

- The timing of Facebook CEO Mark Zuckerberg’s $100 million donation to Newark, NJ, public schools is getting the usual scrubbing in the blogosphere. Donation coincides with premiere of “The Social Network,” a movie that doesn’t exactly paint the prettiest picture of Zuckerberg. All Things D blogger Kara Swisher says: “Zuckerberg himself decided to move forward now, sources said, apparently concluding that even if a prominent movie was portraying him as the villain, he did not have to act like one in real life.”

- Existing home sales bounced off a record low and rose a better-than-expected 7.6% in August. But Calculated Risk points out inventory increased 1.5% in August from a year earlier. “The bottom line: Sales were very weak in August — almost exactly at the levels I expected – and will continue to be weak for some time. Inventory is very high, and that will put downward pressure on house prices.”

- Apple’s (AAPL) iPhone tops JD Power’s smartphone satisfaction study for a fourth straight year. But the results weren’t so sweet for Nokia (NOK), ranking below Palm, which isn’t even a public company anymore. “Another humiliating blow for Nokia which continues to struggle for relevance in the smartphone market,” Digital Daily blogger John Paczkowski says. “Incoming CEO Stephen Elop has his work cut out for him.”

- Stock-exchange operators and regulators are moving closer toward replacing new circuit breakers for individual stocks with curbs that would limit trading outside of a set range, WSJ reports.

- In the “Wall Street” sequel, Michael Douglas is splendidly slimy as Gordon Gekko but the rest of the film doesn’t measure up, says Joe Morgenstern.

- F-bomb your way to the top. “Swearing may help you do your @#!%ing job. Yeah, you read that correctly, WSJ’s Deal Journal blog says.

- With today marking the anniversary of Lehman’s bankruptcy filing, the trajectory of the stock market during the past two years has been one wild ride. Bespoke Investment Group notes consumer discretionary and technology are the only two sectors trading above pre-Lehman levels. And while financials have rallied 140% off March 2009 bottom, they still need to gain another 43% “before they can put the pain of the financial crisis behind them,” firm says. Overall, S&P 500 remains 12% lower than it was two years ago.

- “Businesses aren’t hiring because of poor sales, period, end of story,” Paul Krugman writes on his blog. “And the best thing government could do to help business would be to spend more, increasing demand. The fact that it’s not going to happen doesn’t change the fact that it’s the simple truth.”

- Twitter’s revamped website has one main focus: Encourage users to spend more time on Twitter.com where the company will show more adds, MediaMemo blogger Peter Kafka says. But Twitter executives say the changes reflect how they want the site to be viewed as a “consumption environment.” “Which is another way of saying that Twitter is a media company,” Kafka adds. “It gives you cool stuff to look at, you pay attention to what it shows you, and it rents out some of your attention to advertisers.”

- Facebook and Microsoft (MSFT) are deep in talks about significantly expanding the search relationship the companies have shared for many years, Kara Swisher reports at All Things D. Broader agreement could include Bing mining anonymized data of consumer usage from Facebook’s “Like” buttons. “Such information might yield a treasure trove of insight for both search users and advertisers.

- Cisco (CSCO) announcing it will begin paying a dividend garnered much positive attention, which surprised Chad Brand, founder and president of Peridot Capita, who called it “unimpressive and unimportant.” “For the investment strategists who claim that income-oriented investors will now all of the sudden flock to Cisco shares, they are clearly overstating the situation,” he writes.

- Eli Lilly (LLY) hops into social media pond, launching corporate blog called LillyPad and accompanying Twitter feed. LLY says blog will address public policy issues, corporate responsibility and advocacy efforts. LLY joins other drug makers including J&J (JNJ) and Glaxo (GSK) that have started corporate blogs. Drug companies have approached social media gingerly, though, because they face strict regulations about what they can say about their drugs.

- Google’s (GOOG) long-awaited music service may soon be a reality, reports music website Billboard. Billboard claims GOOG is circulating a proposal to record labels touting an iTunes-esque music service. Key features apparently include a $25-a-year subscription fee, cloud-based storage and a social networking feature. Unlike Apple’s (AAPL) iTunes, which only offers users short previews of tracks prior to purchase, GOOG apparently wants to offer one full-track stream per song for free.

- Mike Shedlock is skeptical of rebounding retail sales. “I don’t buy it. If retail sales were back to within 4.3% of the pre-recession peak, sales tax collections would be back towards the pre-recession peak, if not exceeding the pre-recession peak.”

- Cash for clunkers revisited. And the verdict? It was one big clunker.

- Details emerge of Horace Mann Educators (HMN) CEO’s DUI arrest. “The chief executive of a midsize insurance company who is in a county jail in Florida on drunken driving charges had “difficulty standing,” was “swaying in all directions” and later fell to the ground as police investigated the May 29 car crash that led to his arrest, according to police records,” WSJ reports.

- Microsoft (MSFT) insists one of its top priorities is to bring a Windows-based tablet to market sooner than later. Sounds straightforward. The problem is, [Microsoft] doesn’t always manage to do things really right,” Digital Daily blogger John Paczkowski says. “Certainly, it didn’t manage it with Windows Vista. Or Windows Mobile. Or Zune. Or, more recently, Kin. Who’s to say this time will be any different?”

- Tough to get true read on what’s happening in the stock market these days. “The cross-currents lately are absolutely cartoonish — back-to-back-to-back triple digit rallies while each morning we are treated to fresh evidence of ‘Slouching Housing, Hidden Consumer,’” Joshua Brown writes at The Reformed Broker.

- Hank Paulson says government policies promoting homeownership should be blamed as a major cause of the financial crisis, but FusionIQ CEO Barry Ritholtz disagrees, saying the former Treasury secretary ignores facts and is rewriting history. “His commentary is thinly veiled attempt to rewrite what actually occurred, and to shift his own sad role from conductor of the theft, to hapless victim of long standing government policy. If this exercise wasn’t such a transparent attempt at self-exoneration, it would be amusing.”

- Facebook isn’t planning to go public until 2012, Bloomberg reports. “That certainly sounds plausible,” MediaMemo blogger Peter Kafka says, especially considering Facebook likely doesn’t need to raise cash for operations. And if Facebook doesn’t IPO anytime soon, expect social games giant Zynga to face less pressure to go public too.

- “There is good news and bad news,” Ryan Avent writes at Economist’s Free Exchange blog, regarding 2Q GDP report. “Underlying growth looks quite weak, and in quarters to come the contribution from both government and inventory shifts will fall, or turn negative. All indicators suggest that second half growth will be no faster than first half growth.”

- GDP growth rate of only 2.4% isn’t nearly enough for the economy to properly recovery. “This shows clearly that Congress and the Fed should have taken a more aggressive posture already, not doing so was a mistake, and it’s a clear signal that the economy still needs more help,” Mark Thoma writes at MoneyWatch.

- But NYT’s Floyd Norris still thinks the recovery will pick up steam in near future. He notes this was third-straight quarter in which private sector investment rose at an annual rate of more than 25%. “The last time that figure rose as rapidly was in 1984, in the midst of a very strong recovery,” Norris says. “To be sure, private investment is coming off a very depressed level. But it is worth recalling that 1984′s recovery was also widely doubted.”

- As the Fed grapples with methods to support flagging economic growth, Monument Securities economist Stephen Lewis says (via Alphaville) that central bankers “seem close to recognizing” that their actions don’t determine the economy’s performance. “They can no longer demonstrate, or credibly claim, the omnipotence attributed to them by credulous markets in the era of the Greenspan cult.”

- Slate Group, the Washington Post’s (WPO) online unit, is shutting The Big Money, a business site it launched in September 2008, Kafka reports. “The problem, in a nutshell, is that the site is not pointed toward profitability on a fast enough timetable,” Slate said.

- “The global corporate-bond boom is gathering steam as companies rush to take advantage of some of the lowest borrowing costs in history,” WSJ says.

- If everyone’s so concerned about federal deficits, why the record low yields on US Treasurys, wonders FusionIQ CEO Barry Ritholtz. “Part of the answer is the lack of alternatives. Where else are you going to park yield-seeking money? Euro denominated issues? UK debt? Japanese bonds, emerging markets?” he ponders. “Amongst the motley crew of sovereign debt issuers, the US Treasury is the least ugly girl at the dance.”

- “I have and continue to believe this is a trader’s market in which valuations matter little,” Pragmatic Capitalism says. Ultimately, the macro trends are so fierce that the tides will sink or lift all boats.”

- Apple (AAPL) may be poised to update its iMac and Mac Pro computers sooner rather than later. The MacRumors blog tracks in-store pre-order availability and has taken note of depleted stock at several retail stores, suggesting updated models could be in the offing. MacRumors also points out the iMac was last updated in October, while the Mac Pro was last refreshed in March 2009.

- General tone from European analysts digesting the stress tests is “remarkably sanguine,” NYT’s DealBook says. The tests represent “a substantial step forward,” Goldman Sachs says, although notes if Tier 1 capital ratio was lifted to 7% from 6%, it would’ve tripled the number of failed banks from seven to 24.

- Oracle (ORCL) last week vehemently denied it has a five-year, $70B acquisition budget, which President Charles Phillips originally claimed in a Fortune Magazine article. But, as Digital Daily blogger John Paczkowski points out, it’s obvious Oracle doesn’t want competitors to know its strategic plans. “Hard to believe that a company as aggressively acquisitive as Oracle doesn’t have an M&A budget,” Paczkowski says. “But evidently that’s the party line here and by the sound of things Phillips clearly overstepped it.”

- Google (GOOG) introduces Google Apps for Government, a new edition of its package of Internet-based applications specifically designed to meet the policy and security needs of the public sector.

- When digesting the new home sales report, keep in mind the data point is notoriously noisy, Ritholtz says. June’s 24% monthly increase comes on the heels of May’s 33% drop. “Ignore the swings, look at the moving average to smooth out the volatility.”

- June new home sales surged 24% from a month earlier to 330,000. But don’t get too giddy, especially since the sales level represents the second lowest on record since 1963. “Bottom line, while the figure was better than expected, new home sales make up less than 10% of the overall industry with existing homes making up the balance,” Miller Tabak’s Peter Boockvar says. “It’s good to see a pick up in new home sales but an overall market that still has way to much inventory does not need too many new homes built.”

- IAC/InterActiveCorp (IACI) chief Barry Diller tells CNNMoney that his firm has jumped on the Facebook advertising bandwagon, another indication the social network is gaining traction on Madison Avenue. “My company, which spends a huge amount on advertising, we spend every nickel we can on Facebook,” Diller says. “They’re effective. The targeting of the audience is precise enough. The message and the audience are quite aligned.”

- Robert Dudley has quite the to-do list facing him at BP.

- Nokia’s (NOK) adding its own twist to the Apple/Gizmodo iPhone 4 controversy earlier this year. Nokia’s getting Russian police involved in asking Eldar Murtazin, editor-in-chief of Moscow-based mobile-review.com, to return the prototype N8, a device he gave an unfavorable review earlier this year.

- “Investors have this week been buying up names that have been hit the hardest in recent months, which is usually the case when we see bounces like this,” Bespoke says.

- Banks and regulators must take “appropriate action” to strengthen banks’ resilience to shocks and safeguard the health of Europe’s financial system, ECB President Jean-Claude Trichet says.

- Whatever happened to all those toxic assets on banks’ balance sheets that garnered so much attention a while back?

- Jobless claims dropping 21,000 to 454,000 represents a “tactical victory for the bulls,” James Picerno writes at The Capital Spectator. “But until and if the trend rolls on it’s only marginally encouraging. The strategic outlook, in other words, is still up for grabs.”

- Silicon Alley Insider says the real reason Google (GOOG) is worried about Facebook is that people buying things are more inclined to trust their friends than strangers or search ads. SAI says that’s the key message in a presentation prepared by Google researcher Paul Adams for company execs who are plotting the company’s next social network initiative, rumored to be called “Google Me.”

- Individual investors are turning more bearish, which contrarians could actually view as a bullish indicator. Only 25% of AAII’s respondents are bullish on stocks, compared to 42% who say they are bears. “I always prefer actual buy and sell driven data — prices, volume, asset allocation, etc. — versus mere surveys,” Big Picture blogger Barry Ritholtz says. “They can be useful, but have huge limitations. Us humans are notorious for saying what we hope, rather than what actually is.”

- Double-dip has dominated the market chatter in recent days. While pundits keep saying the economy won’t fall back into a recession, Reuters’ David Gaffen isn’t so sure. “It may not happen — but when a lot of people are trying to convince you that something’s not going to happen, it can make you believe that it’s more likely than not.”

- The commercial real estate market hasn’t collapsed because of a strategy known as “extend and pretend,” essentially banks giving troubled borrowers time to make good on their bets until the economy recovers. “Sometimes, it actually works. But, usually it doesn’t — especially when practiced on an industry-wide scale,” Henry Blodget writes at Business Insider.

- The LeBron James surreality show is about to begin. He’s “leaning” toward Miami, but we still have faith he’s coming to the Big Apple. Let the “LeBronference” begin.

- Well, that didn’t take long. Verizon Wireless is already slashing prices on the two Microsoft (MSFT) Kin phones, just one month after the devices’ release. “That we’re seeing discounts for the Kin so soon after its debut suggests that it’s not selling nearly as well as Microsoft and Verizon had hoped,” Digital Daily blogger John Paczkowski says.

- Ten-yr Treasury yield drops below 3% amid fears of a global economic slowdown. Tom Petruno at LA Times’ Money & Co blog notes G-20′s wealthiest nations pledge to slash deficits doesn’t help matters. “The more the industrialized nations talk about reducing spending, the greater the risk that the global economy tilts back toward recession and deflation.”

- “When the benchmark indices of four of the six largest economies in the world are either at or near new lows, it doesn’t paint a pretty picture of the outlook by investors on the path of the global economy,” Bespoke says.

- “If you’re invested in these kind of markets, only two extremes make any sense,” Reuters blogger Felix Salmon says. “Either you’re a buy-and-hold type who’s convinced about the existence of the equity premium over the long term and who happily ignores all intraday volatility, or else you’re a high-frequency trader who loves to make money on a tick-by-tick basis,” he adds. “Everybody else is liable to get stopped out, or otherwise crushed.”

- Not surprisingly, first-time home buyer traffic plunged in May amid the expiration of federal tax credit, according to recent survey (via Barry Ritholtz.) Survey’s first-time home buyer traffic index registered a 35.1 in May, down from 63.5 in April. And prior to May, the index hadn’t dropped below 50 since September 2009. The drop implies fewer signed contracts in June as well as less closed transactions in July and August.

- Deutsche Bank’s Jim Reid looks at inflation and deflation prospects facing the economy in the future. “While we fear inflation is the biggest longest term concern, we see deflation as the bigger near-term risk, and a highly possible path in many parts of the western world,” Reid says (according to FT’s Alphaville blog.)

- The founder of Q&A website Quora is feeding the rumor mill with tidbits suggesting that Google (GOOG) is preparing to take another stab at Facebook. Adam D’Angelo, who formerly worked at Facebook, says “reliable sources” have convinced him that GOOG is “really scared” by Facebook’s growing clout.

- Despite Apple (AAPL) CEO Steve Jobs’ antipathy toward porn apps for his company’s products, the porn industry appears to be lending AAPL a hand in its feud with Adobe (ADBE) over Flash video technology. According to the ConceivablyTech blog, the founder of Digital Playground — a US “porn heavyweight” — says it’ll abandon Flash as soon as desktop browsers fully support HTML 5.

- “If Mr. Bernanke wanted to make a big statement on fiscal policy and additional legislative measures to stimulate the economy, he would probably have done it in another venue, where he would be less open to criticism that he is jeopardizing the Fed’s independence,” James Politi writes at FT’s Money-Supply blog.

- “Depression is the price we pay for budgetary murder and, contrary to Krugman’s belief, further budgetary murder cannot possibly cure anything,” says Mike Shedlock.

- “Cutting government spending, raising taxes, raising interest rates, and hoping the rest of the world does the same as some have called for is not the answer to the threat of a depression,” writes Mark Thoma.

- “When you hear about corporate insiders emailing undercover FBI agents with insider information in this day and age, you can only shake your head and ponder the utterly pathetic intellects of the people involved,” Josh Brown writes at The Reformed Broker. “As we hear more details about the investigation, I suspect there will be even more head-scratching over how it could be possible that these people haven’t learned better by now.”

- While pursuing financial regulatory reform, the Obama administration chose new regulations over structural change, an easier outcome but not necessarily the best choice. Mark Thoma has the details.

- Number of workers who voluntarily quit in February actually surpassed amount of folks who were fired for first time since October 2008, a positive for weak labor market, especially since turnover essentially froze during the height of the recession, Barry Ritholtz notes at The Big Picture. “The backlog of ‘workers waiting for better times to make a move to better jobs’ is now acting like pent-up consumer demand — only for employees.”

- April durable goods surged 2.9%, well ahead of analysts expectations, which is “just the thing to blow away the deflation blues that have been poisoning the party over the past few weeks,” James Picerno writes at The Capital Spectator.

- Why is Steve Ballmer still Microsoft’s (MSFT) CEO? “Microsoft still has a dominant market share in PC operating systems and office applications, but it’s managed to take that massive competitive advantage and waste it everywhere else over the past decade,” James Kwak says.

- Yahoo (YHOO) CEO Carol Bartz’s potty mouth generates ton of attention in blogosphere, but Reuters blogger Rob Cox says investors should be wary of executives who spout expletives at critics. Bartz used some questionable language in an interview yesterday with TechCrunch’s Michael Arrington, which “smacks of desperation,” Cox says. “Shooting the messenger is never a sign of strength.”

- Yahoo’s chase to the bottom. “The bottom line is that turning around a decline at an Internet company is tougher than elsewhere. That is at least partly because of the ease with which consumers can switch to a different website. Once a site’s image is impaired, it is very hard to repair,” Martin Peers writes at WSJ’s Heard on the Street column.

- Google says it generated $54B of economic activity in 2009. Digital Daily John Paczkowski believes the purpose of Google’s report is to show regulators it’s not anticompetitive. “What better way to counter perceptions that Google merits antitrust scrutiny than to highlight its positive effect on the national economy?”

- Google’s (GOOG) investment case getting muddled? “Most of [Google's] time nowadays seems dedicated to releasing products that don’t make a dime,” writes Chad Brand of Peridot Capital, who discloses his firm has a small position in Google. Downside looks limited based on declining P/E ratio, but “I have mixed feelings as to whether it warrants the commitment of new capital,” he says.

- Facebook attempts to appease privacy advocates by redesigning its privacy controls.

- “Whatever little trust Wall Street might have regained in the recovery since 2009 was surely dashed back to square one on May 6,” Ray Pelleccia writes on the Exchanges blog. The “flash crash” continues to defy easy explanation, and that only adds to the public’s widespread bafflement and distrust of what happens in our financial markets.”