Friday, the Facebook boys got creamed.
That’s what happens when your business model sucks. Specifically, the social network was counting on Zynga – another time waster – for revenue. Apparently, people have found new ways to waste time. One of Zynga’s founders wondered publicly whether the whole idea was just a fad, and not a real business after all, after the stock fell 41%.
But the big news last week – the news that turned around stocks – was what Mario Draghi said. After several down days, his words caused stocks to rise in the US – 187 points on the Dow.
What did he say?
Mario Draghi said he is willing to put the European Central Bank’s credit and credibility on the line to prevent a meltdown of the European banks, to prevent the bankruptcy of several European nations, and to protect the whole European Union. Reuters:
“European Central Bank President Mario Draghi pledged on Thursday to do whatever was necessary to protect the eurozone from collapse, sending a strong signal that inflated Spanish and Italian borrowing costs were in his sights…
“The comments are Draghi’s boldest to date and suggest the central bank is ready to defend Italy and Spain whose borrowing costs have hit unsustainable levels.
“Economists think despite the reservations it could be forced to buy bonds again, or support struggling euro zone countries via the back door.”
Is that a sound business model? Central banks can print money. They can buy government bonds. So, the money spent by government seems to come from nowhere.
But will this approach pay out any better than Zynga’s business model? Or will the public get tired of it?
for The Daily Reckoning Australia
From the Archives…
How China is Still Making Steel, But There’s No Real Demand
27-07-2012 – Greg Canavan
Governor Glen Stevens and the Art of Central Bank Speech-making
26-07-2012 – Greg Canavan
Australian Mining Tax Policy to be Abolished, Pigs to Fly
25-07-2012 – Nick Hubble
The LIBOR Fix
24-07-2012 – Satyajit Das
Has Australia Blown the China Boom?
23-07-2012 – Greg Canavan