May 19th, 2011
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).
LNKD Bubble Update: $100 Passed... Make That $107.... $108...$110....$115...$117...$122...$115...$112Submitted by Tyler Durden on 05/19/2011 11:45 -0400
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.
LinkedIn Shares Debut With A Near 100% Pop In Price, Annualized PE Over 1,000!!! Next Question, Whose Gonna Write Me Those Bubble Puts???Submitted by Reggie Middleton on 05/19/2011 11:36 -0400
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."
Sorry, You Can't Blame The Philly Fed's Collapse On Japan; And Goldman's Take Of Today's Trifecta Of Bad NewsSubmitted by Tyler Durden on 05/19/2011 10:40 -0400
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.
While ultimately its own entity, the Federal Reserve IS a political institution. True, they pretty much do whatever they want… but only to a certain degree. The Fed can’t just unleash $500 Oil in six months without causing full-scale rioting. And money printing and interest rates don’t do much as defense against angry mobs. So with political heat turning up due to price increases, not to mention we’re approaching an election year, the Fed needed to step back for a bit. This is why they didn’t announced QE 3 yet.
And so another frequently cited by Zero Hedge strategist, Guggenheim's Scott Minerd, steps up to the plate and makes the case that all those expecting an end to quantitative easing may well end up being disappointed (much to the joy of government darling - stocks; and more importantly the government's black horse - commodities). Minerd's speculation is based on what is glaringly obvious: the forced take down of commodity prices does nothing but provide the Chairman with the green light he so needs in order to proceed with further easing: "The case for extended low rates and possibly even QE3 grows stronger given the recent sharp declines in agriculture and energy prices. If price pressures from food and energy prove transitory, as Bernanke predicts, then inflationary expectations are likely to ease by the end of the year. A decline in inflation would certainly make the risk/reward trade-off for QE3 more attractive to the Fed chairman." Basically, the paradoxical outcome is that the lower the most "hated" commodities: crude, gold, silver drop, the higher the probability the Fed takes the step that sends them surging to new record levels. Elsewhere, Minerd once again follows our thinking: the econom is the primary catalyst for further easing (especially in light of fiscal easing being impossible under the current political breakdown): "What
would be Mr Bernanke’s motivation to endure the political fallout of
QE3? The same motivation for QE1 and QE2: namely, stimulating growth to
help employment recover. If economic growth stalls, this will become the
chairman’s primary motivation. Looking ahead, the expiry of tax cuts in
2011 and a government deficit reduction programme (likely to take
effect as early as 2012) will present real headwinds to growth." Lastly, doing a comp to that endless QE basket case demonstrates that at least from the Fed's perspective, the US has much more capacity for monetization as a percentage of GDP, to go on with LSAP for much, much longer: "The balance sheet of the Bank of Japan equals about 30 per cent of Japanese GDP. If the Fed were to hold as many assets on a relative basis, it could conduct a further $1,800bn worth of quantitative easing. That would amount to QE3, QE4 and QE5 (at the same size as QE2) just to get to where Japan is today. If US economic growth stalls, Mr Bernanke, an expert in all things deflationary, could view Japan as an imperfect but relevant precedent for further quantitative easing." And there you have it.
Inspired, among others, by the typically apocalyptic, ecological maunderings of Jeremy Grantham (the renowned investor here providing us with classic evidence of the general non-transferability of specific expertise from one metier to another), the recent overwrought oil market has brought the Exhaustionists out in full force, each plaintively wailing of the dangers of Peak Oil (as well as Peak Copper, Peak Corn, etc.—though never, thankfully, Peek Freans). As is always the case at such times, the name of M. King Hubbert has been given a great deal of air, as if the old rhetorical trick of argumentum ad verecundiam should be decisive in this matter. Yes, to give this particular devil his due, he did accurately predict that US onshore oil production would top out in the late 60s/early70s, so assuring his prophethood for ever, especially since the validity of the estimate became recognised amid the traumas caused by the first Oil Shock. His other glances in the crystal ball have, alas, not borne out quite so well, however.
Another week, another 400+ jobless print, another prior upward revision: the DOL does it like clockwork. In the week ended May 14, initial jobless claims were filed by 409,000 people (to be revised to at least 412,000 next week), which while is a drop from last week's upward revised 438,000 (originally 434,000), better than consensus, yet with the number being well above 400,000, it means that the economy continues to be a net loser of jobs. Lastly, while irrelevant, the 4 week moving average printed at 439,000, highest since November, due to that outsized print from two weeks ago. This number will rise over the next week as well. Continuing claims dropped slightly from an upward (of course) revised 3,792K (first 3,756K) to 3,711K, beating expectations of 3,278K. Looking at the 99 week cliff, it appears an equilibrium has been reached as 49K lost Extended Benefits in the week ended April 30, offset by 53K people added to EUCs.
There's a funny thing about the New World Order: it eventually gets too big and bites the hand the feeds it. Enter the PBoC: "The new IMF leadership needs to reflect changes in the world economic order and be more representative of emerging market economies, Chinese central bank governor Zhou Xiaochuan said Thursday in his first public comments since the arrest of Dominique Strauss-Kahn. "The senior management team of the IMF should better reflect changes in world economic patterns and should be more representative of emerging market economies." Translation - no more European of American cronies. It is also probably safe to say that Lagarde's odds of pulling the white smoke out of the conclave bag have just plunged. It is also safe to say that with China now unofficially Europe's backstopper (and there were those wondering why China is buying all those Spanish and Portuguese bonds), what China wants, China gets.