Archive - May 2011

It appears that according to some, the world will end in 48 hours or something, on May 21, in what Christian radio broadcaster Harold Camping has called the Day of the Rapture. Judging by the inverse selling in the stock market today (if not by those allocated underwriter shares in LNKD: those guys are long gone), mutual funders and other idiot money aren't buying it. Neither is the Treasury which just released its latest 2, 5 and 7 year refunding statement in hopes someone aside from Brian Sack will be left alive to bid up the $110 billion in new US paper. So in order to help readers decide if it is time to start reciting that "The End Is Nigh" here is NMA with their as usual absolutely spot on, and typically humorous, assessment of this most recent brick in the wall of apocalyptic worry, which at best will merely add to the already near record NYSE margin debt.

It may be a great momentum trade as web 2.0 hype (finally, eventually?) climaxes, but longer-term its a total dog of a company.

I'm calling their bluff. If Treasury answers this, I will publish their response.

Now that it has finally been made clear that in order to accommodate the debt ceiling by adding marketable debt, the Treasury has no choice but to literally plunder retirement accounts, we now know that in order to fit in the just announced $110 billion in new bond issuance over the next week, Tim Geithner will have to reduce US retirement funding (the bulk of which, the Social Security Trust Fund already lost $1.1 trillion in the past year) by at least $45 billion. That is the net result of $60 billion in net new cash and $15 billion in bill paydowns which will settle between May 19 and May 31. What remains to be seen is just how much cash the Treasury will bleed as it seeks a parallel track of under-rolling maturing Bills, in order to keep its previously disclosed intentions of issuing just $142 billion between April and June. Keep in mind almost two thirds of this period has passed, which means that somehow the Treasury has to not only stop but in fact reverse its net issuance. We are not sure how this will actually happen.

A snapshot of the US Afternoon Briefing covering Stocks, Bonds, FX, etc.

Market Recaps to help improve your Trading and Global knowledge

And now for some actually relevant news. Any minute now the president will address the nation over US policy in the MENA region: a topic far more important than some tech stock indicating the dot com bubble is alive and well, and that the Fed's liquidity will not be restrained (good luck with hiking the rate on the IOER Ben).

It seems investors are doing their best to recreate the entire 1998-2000 bubble in the span of one trading day. After opening at $83, LNKD has just passed $100. The question is will the bubble pop today or take a few more trading days? And yes, at current count the P/E is over  1,200x.

11:40 EDT: The stock just moved from $100 to $107......

11:43 EDT: $108....

11:45 EDT: $110...

11:46 EDT: $115

11:47 EDT: $118

We will chart it as soon at it hits $200 in a few minutes.

Hey, on the positive side, LinkedIn is better off that Facebook. You see, Facebook will have to register the whole computer capable populace of the world to justify the Au plated, Goldman Goldilocks fairytale other wise known as marketing materials. LinkedIn will just have to grow revenues 300% or so for about about a decade to make this JPM/MS fairytale have a happy ending. No matter what, I betcha there will be a moral to these stories for investors, though!

And while DSK is no longer relevant in any global financial or economic sense, his personal tragedy (from likely future president to prison inmate) will haunt the media for a while. Therefore headlines such as this will likely be commonplace for at least a week or two, until the world moves on to the next major financial scandal (and how fitting is it that the biggest conviction of a financier to date is of a foreigner for a crime totally unrelated to any financial or economic actions over the past decade). According to Reuters, DSK has just arrived in court where his lawyers are asking that he be released on $1 million cash bail and placed under 24-hour home detention with electronic monitoring, court papers showed. A bail hearing is due to be held later on Thursday. "Strauss-Kahn's lawyers have denied the charges of a criminal sexual act, attempted rape, sexual abuse, unlawful imprisonment and forcible touching. He was denied bail on Monday. He faces up to 25 years in prison if convicted." Elsewhere, screenplay writers are furious scribbling across the nation, keeping the Starbucks topline well funded, in hopes of getting the royalty rights for the next big Hollywood blockbuster to be titled, appropriately enough: "DSK."

It may be time to adjust those IMF head odds. Handelsblatt has just reported that the female (and this apparently is key) finance minister of France is next in line to head the world's bailout efforts of all those insolvent countries, courtesy of the support of France, Germany and the US. Google translated: "The race to succeed the retired IMF chief Dominique Strauss-Kahn in Germany apparently omitted the designation of a candidate's own. Currently becoming apparent that the Federal Government the nomination of the French Finance Minister Christine Lagarde supports. Nothing has been decided, but it all comes down to the Frenchwoman. Dies erfuhr das Handelsblatt aus Berliner Koalitionskreisen. This Handelsblatt learned from Berlin coalition parties. The U.S. also argue for the Frenchwoman."

Already some of those who said that the Japanese disaster would lead to a surge in global GDP (since disproven) are trying to validate that 3rd worst 2 months drop in the Philly Fed in history (43.4 in march, 3.9 in May) can be attributed to, you guessed it, Japan. Sorry. You can't. Goldman explains why: "We have no information on how much of the drop in the Philly survey over the past two months could have been related to supply chain issues associated with the Japanese earthquake, but this is not a region with an especially high concentration of vehicle manufacturing." So while other Fed districts that do have a substantial manufacturing exposure will likely collapse even more, but at least have a validation for their drop, the Philly Fed is indicative of nothing more or less than wholesale economic contraction, absent the "one-time" impact from Japan.

The head of America’s largest newspaper is terrified of blogs. The battle of bytes versus trees, and the bytes are winning. Running a picture of the dead Lady Diana, or not?

The Philly Fed, which was expected to rise from the April number of 18.5 to 20, instead collapsed to 3.9! This compares to the March level of over 43. So much for the "Economic Recovery"^TM. The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, decreased from 18.5 in April to 3.9, its lowest reading since last October (see Chart) and the 3rd largest 2 month drop on record. The demand for manufactured goods, as measured by the current new orders index, showed a similar slowing: The index fell 13 points while the shipments index declined 23 points; both remained positive, however, suggesting slight growth last month. For the first time in eight months, firms reported that unfilled orders and delivery times were falling—both indexes were slightly negative this month." And even thought the prices paid dropped from 57.1 to 48.3, this was little solace for survey respondents: "A majority of firms continued to cite input price pressures and a sizable share of firms reported higher prices for their own manufactured goods again this month." Time for Tim Geithner's 2011 NYT OpEd edition, titled appropriately, "Welcome to the Economic Stagflation." And, oh yes, bring on the QE3.

And so the internet bubble is back. The market cap of LinkedIn at this price, based on 94.5 million shares is $7,843 million. Taking out $297.6 million in cash means $7,546 million in Enterprise Value. The relevant metrics are:

• Revenues (pro rated annualized): $375.6 million or Price/Revenue 20.9x
• EBITDA (pro rated annualized): $53.2 million or EV/EBITDA 141.8x
• Net Income (pro rated annualized): $8 million or P/E 980x

To all who have studied the French revolution, the most prominent part is not the actual revolt: only a regime so in love with itself is unable to realize that when you have a massive social schism between the haves and the have nots without any well-funded government safety net would result in anything but beheadings and a popular uprising (right Tim Geithner?), but the Thermidorian Reaction imminently following the first wave of discontent. And as we wrote back in March sharing our outlook on the (first) Egyptian revolution, that very soon we would see the imminent second "revulsion" part in Cairo, as it happened in Paris over 200 years ago, so it seems that a second Egyptian revolution is now on the docket. From the Middle East Media Research Institute: "In response to reports that the Supreme Council of the Egyptian Armed
Forces is considering pardoning Mubarak and his family in exchange for
the transfer of all their property and fortune to the state, Facebook
pages have been launched calling for a second Egyptian revolution, on
May 27, to replace the Council with a civil presidential council." This next time it will be different. We promise.