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Yesterday Facebook announced they were raising the target price of their IPO from $34 to $38 per share. This can mean lots of things, but the conventional view (i.e., the one Facebook and its team of bankers would like you to believe) is that it represents wild enthusiasm for Facebook stock. But where is this enthusiasm coming from? Like me, Felix Salmon isn’t sure:

The press loves IPOs, because they’re one of the few occasions when the stock market delivers a significant news event which can be prepared for in advance. But the public? The whole investing-in-IPOs thing just feels so late-90s to me, and the performance of stocks like Groupon and Pandora is hardly likely to spark another feeding frenzy.

So when Henry Blodget describes the Facebook IPO as muppet bait, I do wonder who the muppets really are. Is it a genuine horde of individual investors, all clamoring to get in on the hot new stock offering of the decade? Or is it the muppets on CNBC, following Mark Zuckerberg’s every move like he’s the Pied Piper of Hamelin, only with a hoodie instead of a magic pipe?

The right way to think about IPOs doesn’t really have much to do with the fundamentals of the company itself. Who cares if Facebook is going to be either (a) a flop or (b) the biggest company in the galaxy five years from now? All you really care about is Facebook’s stock price the day after the IPO. Or, at most, a few months after the IPO. What you care about is whether other people are enthusiastic about Facebook. That’s it. It’s purely an exercise in forecasting the madness of crowds.

So who are the muppets? I guess they might be retail investors, but my guess is that they’re mostly big, sophisticated Wall Street guys, all trying to read each other’s minds. It’s the same game they play with every other security they trade, and they’re all convinced that someone else is the idiot. Main Street is just a sideshow.

UPDATE: And speaking of Facebook, the powers that be at MoJo have created a Facebook fan page for me. You can see it here:

https://www.facebook.com/drumblog

I have to confess that I don’t really understand why someone would rather read a Facebook page instead of just reading the blog, but that’s probably because I’m a 53-year-old dinosaur. However, even if you don’t want to read me on Facebook, maybe your kids do. Send ’em the link now!

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