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Jim Cramer's Best Blogs

Stock quotes in this article: FB, MS, NTAP, HPQ, PVH

NEW YORK ( TheStreet) -- Jim Cramer fills his blog on RealMoney every day with his up-to-the-minute reactions to what's happening in the market and his legendary ahead-of-the-crowd ideas. This week he blogged on:

  • key questions about Facebook's IPO; and
  • how to profit from market assumptions gone wrong

Click here for information on RealMoney, where you can see all the blogs, including Jim Cramer's -- and reader comments -- in real time.


10 Facebook Questions That Need Answering

Posted at 3:12 p.m. EDT on Friday, May 25

And still no one is talking about the number cut. I am getting incensed by this lack of discussion about the numbers being sliced for Facebook (FB) right before it came public.

Humor me. Why is it not possible that what happened here is that each time the bankers checked with Facebook, the earnings estimates had deteriorated?

You want to talk business as usual? Here's what happens. Facebook's looking for, say, $1 a share in 2013. The company tells the brokers it is going to do 80 cents. What's the point of disappointing in the first quarter that you come public? That makes no sense. So you lowball, usually lowball big.

So, I have to believe that the 88 cent number that everyone allegedly had was the low-ball number.

Now, with just days to go the number switches to 83? That's stupefying, but no one is talking about how bad things must be for that to happen. If anything, the idea is that perhaps the numbers are so strong that the deal has to be upsized and the price raised simply because it is too cheap on earnings.

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Instead the insiders got the same word we didn't, the buyers got the same word we didn't and the bankers made the cool and cynical decision that the public would not care about the earnings and it would just want to be part of the 900-million-strong soldiers of Facebook.

I actually wonder whether everyone could have been that cynical?

  1. Did Facebook know that the last quarter was actually not a seasonally weak quarter, but was a secularly weak quarter because of the shift to mobile?
  2. Did the bankers freak out and realize that they had to get the most for Facebook despite the slowdown so they could keep winning business?
  3. Did the bankers then favor the insiders who have so many more deals down the pike so they will go with Morgan Stanley next time?
  4. Did the bankers realize they were going to crush the big buyers by having to reveal eventually that there is a secular trend against Facebook and that Facebook cares more about not junking up its site than about giving the advertiser what it wants? That's why they tipped selective people off and nobody else? They didn't want to burn the big institutional payers?
  5. Did Morgan Stanley figure that its retail network didn't know the difference and would just be grateful to get some stock, any stock, regardless of whether the company was doing better or worse than expected?
  6. Is it possible that the reason why the software glitch was so evident was there was unprecedented selling from Morgan Stanley (MS) as the big institutions who couldn't cancel had to dump it lest they started losing money?
  7. Was the problem compounded by the fact that the over-the-transom orders came from companies that only had one-way flow, like Knight Capital (NITE) and Citadel, the classic aggregators of retail orders?
  8. Did the high-frequency traders get tipped off about all of the stock there was to sell at Morgan Stanley and then run ahead of them causing further chaos at the Nasdaq?
  9. Were there talks at the highest level about delaying the offering either by Morgan Stanley the night before or by Nasdaq that Friday morning, but too much hoopla and excitement made it impossible to cancel?
  10. Will the government be able to try to answer these questions or are these just the musings of a madman who was a gigantic player in the IPO market, brought public an Internet IPO and knows the way the Street works when it comes to numbers better than the government?

All I can tell you is that if these questions aren't answered, or at least addressed, there will never be much faith in an already tattered process.

Now here is what will happen: nothing. No one will pay. Lawsuits will be filed and they will be fought. Morgan Stanley will have small make-goods. Nasdaq will say it is not its fault, so they don't have to pay. The government will attempt to look in to this but will be befuddled.

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