Over the last 6 months or so a new vintage of Internet IPOs has generated a lot of publicity. Chinese Internet companies and social media companies are going public in droves.  LinkedIn probably being the most significant among them. In most cases the valuation of these new ventures is quite lofty and reminds of the dot-com buble that ended with a crash in 2000. Yesterday a social gaming company called Zynga has made some moves to file for an IPO soon. Social network Facebook and the e-commerce  v enture Groupon are also expected to go public soon.

Clients of private banks are often offered IPO shares or investments in so called pre-IPO vehicles. Goldman Sachs has done just this for some of his clients with Facebook shares. Some private banks can do this as they have close relationships to their investment banking divisions or venture investment organizations.This is especially the case for large, integrated players like UBS, Credit Suisse, Deutsche Bank, Goldman and others.Often these special offers are used for client retention and are used as special “goodies”.

But is it a good idea for private investors to invest in such risky new companies during or even before an IPO? MyPrivateBanking research has undertaken a thorough analysis of the most catastrophic IPOs during the dot-com buble and compares them with today’s new vintage of Internet IPOs. The result is quite shocking - it shows that almost exactly the same banks and IPO underwriters who caused the stock market crash 10 years ago are now doing the same thing all over again. The report will be online soon and will be available for download on our main website.

People are wondering whether the social media hype we are witnessing is a new bubble in the making. Facebook, LinkedIn, Twitter, Groupon, Skype - you name it. Valuations seem like pie in the sky again and i-bankers are cashing in handsomely. But are there some truely objective measures to spot the bubble?  Here is a 10-point-checklist to find out about the bubble-grade of the latest stock market fad…whatever it may be.

By now we have heard all about the Facebook story and Goldman Sachs. The bank’s announcement that it is offering its private clients a chance to invest in Facebook has touched off a battle for the shares among its rich clients. The other day we had in our weekly private banking link collection a great link to Rich Bookstaber’s blog where Rich predicts that over the long-term Facebook will be marginalized for a variety of reasons most importantly because it reduces people’s personalities and disregards basic privacy rights.Whatever you may think about the future of social networks in general and Facebook in particular it seems pretty clear that right now there is a major financial hype especially about Facebook but also about a few other social media and networks which aspire to go public or at least make a buck for founders and VCs through a juicy trade sale.

Remember Yahoo, AOL or even Lycos or Altavista? Each one was a Titan of the Internet back in 1990s. Fast forward to today and Google or Facebook have taken the throne. But technologies and user behavior is changing ever faster and Internet investors should be careful with companies that are valued at $50bn, have revenues of a little more than $1bn and a net profit of around $400m. But investors are not careful. Goldman’s wealthy clients want in on the Facebook deal. At the end of the day, it’s not the investment bank who is paying if and  when the valuation will not hold up. By then the bank will long have cashed in the fees for selling private shares to investors, the IPO fees and many other charges ponied up by investors to become part of the action.

Abraham Lincoln said that you can fool some of the people all of the time, and all of the people some of the time, but you can not fool all of the people all of the time. Let’s just hope that more investors will make their homework and become part of the latter group.

Yesterday we have posted an article on the bad predictions of bank analysts with regard to stock market forecasting. This is not really news - it has been shown over and over again that analysts are - in their great majority - not able to forecast stock market movements.If one analyst is spot-on in one year he will most likely not be able to repeat it the next.

Bank analysts  forecasts are generally in line with the trends of the immediate past. For instance, today Swiss daily NZZ carries a special section on the financial year 2010/2011 (not yet online). Most of the articles are written by bank analysts or fund managers. Headlines read “Positive Gold Prognosis for 2011″ (Credit Suisse) or “Sound Growth Opportunities of Emerging Markets” (Fidelity). Julius Bär’s Chief Investment Officer sees “few signs of bubbles in Emerging Markets - on the contrary valuations measured by P/E are 15% to 25% below the highs of the last 12 months”, etc. etc.

It is the old game of perpetuating trends from the past to the future. Yet, this is exactly what lulls investors in a feeling of false security. But trends will eventually reverse and nobody knows when. I am still waiting for a private bank’s chief invesmtent officer who admits that he has no clue about the future. This would be someone to trust.

We have had a number of pieces on the inflated price of gold, for instance here and here. Bloomberg today runs a great story on how the world’s most popular gold ETF (SPDR) has drawn ordinary investors to buy into the precious metal:

“Globally, the 10 biggest such funds now hold a combined 2,113 metric tons of gold, more than the official reserves accumulated by every country in the world save four: the U.S., Germany, Italy and France. Their popularity has helped drive unprecedented gains for the precious metal, and some people, including analysts at Goldman Sachs Group Inc., say gold can go higher.”

But from a long-term trend gold has underperformed alsmost all other asset classes (except cash). So, don’t bet on this bubble - because “this time is different” won’t apply - at least not in the long-run…

Over the last months we have seen an avalanche of emerging markets investment products. Especially China funds are hustled to private investors. Is this a good idea?

Evidence is mounting that a huge bubble is building up in China. A recent article in the New York Times presents the China skeptic’s case quite succinctly:

“They increased the money supply to stimulate the economy. Now land prices have jumped 20 times in some places, 100 times in others. Inflation is broad-based. Go into a supermarket. Milk is more expensive in China than it is in the U.S.”

Reuters titles “Emerging markets rush turning into secular move”. I am just wondering how long “secular” is for Reuters? Seculum is commonly defined as “a generation, an age, a century”. I suspect that the emerging markets seculum will face a much shorter life span - at least in the sense of the outrageous valuations that many emerging market stocks, real estate and some bonds have already reached.

“It has become almost indiscriminate. It used to be Growth At the Right Price. Now it’s almost Growth At Any Price. We’re moving from emerging markets as an option to a permanent feature in asset allocation portfolio.” says Michael Power, global strategist at Investec Asset Management.

If you had the opportunity to listen to global strategists in the year 2000 or 2006 you can easily replace emerging markets with tech or real estate in southern California.I also love the word SEISMIC with respect to the latest investor fad:

“Market capitalization remains small and the majority of global investors have only a fraction of EM exposure within their portfolios, despite the fact most major indices generated very little in the way of returns over the past decade,” said Craig Farley, investment manager at Ashburton. “We believe we are witnessing the start of a seismic shift in the other direction.”

Can please somebody stand up and spell the word BUBBLE  to these gentlemen?

In its latest “Investor’s Guide” (only in print)  UBS  pushes heavily the case for gold. In an interview Dirk Faltin, head thematic research at UBS, says:

“Compared to stocks or oil gold is according to our calculations somewhat cheap, at least not extremely expensive… Gold has maintained its value for over 750 years. Naturally the gold price fluctuates, even substantially… But gold offers some protection against inflation.”

As opposed to UBS we have no particular opinion on the future price of gold. But what we know is that, in real terms, gold has had almost no positive return for investors.

Here are the data (from: The Buy and Hold Bible (in German), Prof. Jeremy Siegel comes to the same conclusion):

Average Annual Return of Gold (after inflation)

1889-1908: -0.4%
19909-1928: -3.2%
1929-1948: 1.9%
1949-1968: -1.4%
1969-1988: 6.9%
1989-2008: 0.8%

Compared to other asset classes the picture for gold is bleak (source: J. Siegel):

Even short-term government bonds would have returned more than gold. What sense does it make to recommend gold as its price hase been increasing so much over the last few years? This has probably more to do with all those gold etfs, gold certificates and other structured gold products UBS and many other wealth managers want to push down their clients’ throats than with a sensible investment strategy. Please read also the excellent interview with Rick Bookstaber on The Gold Bubble.

The German Financial Times (FTD) reports that Germans are ordering gold, especially gold coins, in unprecedented amounts. Frank Ziegler, head of precious metals at Bayern LB is quoted with the words “People buy Krugerrands like crazy”. But other coins are in high demand too: Münze Austria, which makes the “Wiener Philharmoniker” coins talks about “Panik-Käufe” (panic purchasing). The spread between coin gold and the gold market price has risen to 8% - usually it is 2%.

Most likely it is the German fear of inflation, reaching a fever pitch after the Greek bail-out, that drives gold sales. People still have the historic memory of the hyper-inflation 1923 and the currency reform 1949 which detroyed the paper savings of millions. Some market experts are fanning the flames: Quirin Bank’s (a private bank based in Berlin) chief strategist Claus Vogt said last week that “in 8-10 years our money [the Euro] will be worth only the half”. This statement implies an inflation rate of more than 5% starting in 2011.

However, we believe that this panic may be ill-informed. Gold is not a particular good inflation hedge and the price of gold may have already reached a near peak. Rick Bookstaber, well known risk expert and former hedge fund manager, who is presently an adviser to the SEC, has warned investors about the gold bubble on MyPrivateBanking.com. Germans should heed his advise - in the long-run, returns from gold have been near zero.

Here comes my quote of the day by Ken Rogoff, well-known economist with some very accurate predictions about the financial crisis:

“Greece spent more than half the years since 1800 in default”

It seems to us that EU finance ministers possess an unhealthy dose of optimism to believe that this time it will be different (the costliest sentence in finance). But don’t worry and check our latest advice on the Greek disaster and what you should do with your portfolio. At least, it seems, the EU and the ECB have bought us all some time to readjust our assets.