5/20/11…Goldamn, LinkedIn and bubbles

Bloomberg Top Stories:

*Lagarde May Succeed Strauss-Kahn at IMF as Emerging Markets Fail to Unite

*Euro Weakens as Bundesbank Says Germany’s Economy May Lose Some Momentum

*Summers Sees ‘Bubble’ Concern in U.S. Technology Stocks as LinkedIn Soars

*Buffett Accused of Sticking Shippers With $7.6 Billion Bill for Rail Deal

*Russians Say Nyet to Google, Da to Nasdaq Trading as Yandex Plans Offering

*Liberty Media Offers to buy Barnes & Noble Valuing Bookstore at $1 Billion

*Quarterly Tax-Exempt Gains Set to Top Treasuries, Corporates – Meredith???

*Bank of England Policy Inflating Away U.K.’s Debt Burden

*Oil Will Buoy Aluminum Prices as Stockpile Cry ‘Sell’

*Covered Bonds’ Growing Global Reach Spurs Call for Quality Assurance Label

*Sallie Mae Makes Comeback as ‘Cash Cow’ Student Loans Fuel Private Lending

*Analyst Pessimism Punished as Less Than 1% of ‘Sells’ Come True Since 2009

*Netanyahu Says Obama’s 1967 Borders Call Endangers Israel Before Meeting

*Iran Constitutional Watchdog Says Ahmadinejad Can’t Hld Oil Minister Post

Thursday’s volume was just 871 million shares, slipping again and negating the value of what turned into a modest ‘up’ day despite two impressive runs during the session. Why it rallied so on some pretty weak economic reports is another story. BofA, the new Citi, was the leader with 120 million shares, heavily flashes of course, and it dropped 0.9% for a second session and is now off 2% for the weak. SprintNextel was the big winner on the Big Board up 1.9% on 100 million shares. Take those two out and it would have been a pretty weak day…except for the LinkedIn IPO that not only concerned TB but Larry Summers who uttered the word ‘bubble.’ If you weren’t around in the late 1990’s you might be excused for your irrational exuberance in buying this stock, originally to be priced at $34, then came out at $45 and opened at $83! All on a bet, and while TB believes there is strong business value to LinkedIn, that does not mean it will ever be able to support the price…just as those dumb-named dotcom’s did in the 90’s. Of course, a lot of people made money on them – IF they got out at the right time as two friends did and then funded their winery with the winnings from their stock options…most weren’t so lucky. What Summers can’t believe is that with that disaster still fresh in anyone’s mind that got burned how it could happen again so soon…but didn’t Wall Street do exactly the same thing just a few years after the implosion of LTCM??? What fools we are! The new, new thing is alive and well! Advance/Declines were +1.5x on NYSE and jut 1.1x on Nasdaq while Breadth was just 1.1x on the NYSE and 1.4x on the Nasdaq. New 52 week highs rose to 282 from 183, while new lows slipped further to 64 from 80 from 158 after finally besting the new highs for just one day. Here are the indices over the past three sessions: Dow +0.4% vs +0.7% vs -0.6%; Transports +1.1% vs +1.6% vs -0.2%; S&P 500 +0.2% vs +0.9% vs flat; Nasdaq Comp and 100 up just 0.3% +1.1% vs flat- 1.6%; 100 +0.3% vs +.1% vs +0.2%; Russell 2000 up a weak 0.2% vs +1.6% vs -0.3%.   

The Dollar still tracking sideways but above 75 for an eighth day and is now 75.37 +.27. Since April 14th the long bond had been in a range of 4.47% to 4.36% broke below it for a few sessions then back up to 4.35% and after climbing to 4.33% is back to 4.29% overnight. Meanwhile, the 10 year note continues below the old range (3.41% to 3.29%), and after trading to 3.12% dropped to 3.16! T-bills which traded at ZERO for ten straight sessions effectively are 0.05%. Gold peaked with a record high on 5/2 then immediately tumbled then back below $1500 but then rallied again yesterday and is now $1496.70 +$4.30. Support is $1462.50 hit last Thursday, just below the 40 day m/a! Crude, which has been weak ever since setting that rally high of $114.14, also on 5/2, had a key reversal a week ago Wednesday (higher high, lower low, close below prior session low). After trading above par yesterday it was slammed yesterday on an inside day (invalidating the move, and closed at $98.44. Overnight it is $98.69 +.22..

Global equity markets continue to trade choppy: FTSE +0.2% vs +1.1% vs +0.8% vs -0.3% vs -0.7% vs +0.6%% vs -1%; CAC 40 -0.2% vs +1.4% vs +0.7% vs -0.5% vs -1.2% vs +0.5% vs -1.2%; DAX -0.5% vs +1.4% vs +0.5% vs -0.9% vs -1% vs +0.1% vs -1.3%; Nikkei -0.1% vs -0.4% vs +1% vs +0.1% vs -0.9% vs +0.7% vs -1.5%; Hang Seng +0.2% vs +0.7% vs +0.5% vs -0.3% vs -1.4% vs +0.9% vs -0.9%; Korean Kospi really volatile +0.8% vs  -1.9% vs +1.6% vs -0.1% vs -0.8% vs -0.1% vs -2%!!!; Indian Sensex ditto +1% vs +0.3% vs -0.3% vs -1.1% vs -1% vs +1.1% vs -1.3%. U.S. Futures rallying: Dow +45; SPX +5.20; NDQ +7.50.

…after TB panned Goldamn again the other day, a friend who had been lost contacted TB on LinkedIn and after forwarding the commentary, wrote back asking if TB might be too bearish on Goldamn as it was trading near its book value. TB respects this guys opinion and his comment brought back an lucky move by TB in 1987.

TB was working for L.F. Rothschild as a bond salesman, having been hired away from Mother Merrill by a good friend and LFR was about to go public. Alas, it was too close to the IPO so TB couldn’t get any stock as it was already allotted. BUT he was able to buy all he wanted at the IPO price (friends and family). So he bought a fair amount for himself and watched the stock soar…nice…then when the firm decided to branch into mortgages (TB had warned them not to as they didn’t have enough capital for that game), and that brought down the firm…spending money that was not theirs whereas they had been frugal when it was a partnership (once your capital is not at risk you feel much freer to risk someone else’s). Anyway, TB for once in his life sold at the high. Then as the stock plunged, all those with restricted stock started yammering that it was trading below book value and began to double down. TB thought about it as ‘everyone was doing it’ and then happened to mention it to a friend in the firm. He asked, “what is book value in a broker? Don’t all the assets take the elevator down every day?” Wow! Soooo, TB dodged a bullet on that advice.

Back to Goldamn, its book value is $78.2 billion…yesterday’s close took it to $74.7 billion and while TB feels that it is unlikely the government will fully go after them for their transgressions, IF they do and are found guilty of fraud, they are out of business. The last broker that did this was E.F. Hutton, which shut them down. Then, the district attorney for Orange County told TB that they didn’t want to find Merrill guilty of fraud, merely collect penalties for what they did to the county. IF they were found guilty all of their offices in Calfornia would be shut down and that would have been a big negative on the state’s economy.

TB’s friend wrote back yesterday thanking him for the advice as it saved him money…it remains to be seen how the story will play out but book value is not a good reason to buy a financial institution.

As for LinkedIn, what insanity…just like the private placement by Goldamn of shares in Facebook, sans financials and they even issued bonds at the same spread as Microsoft would. A fools bet!

So, Larry Summers’ (who TB is not a fan of), comment on yet another bubble is timely and the warning should be heeded. How can we continue to not learn from past experience??? Are we that dumb? Guess so!

. . .  – – –  . . .    . . .  – – –  . . .

The third party debate continues and history has shown that while they don’t go anywhere or at least very far, their ideas (mainstream third parties that is), have often been incorporated into the two major parties platforms. Question is for the Bland Old Party: how many different groups can they support, especially with the wide range of interests?

We need to get our young people interested in voting but when we spend four times as much on senior citizens (who never miss an election), as we do on education, why should they believe there is any point in voting?

But like TB has said, if a leader…someone who excites them like JFK, or Obama did in 2008…causes them to vote…and if someone has enough vigor to unite the minorities, we could be in for one wild ride. Ask the French!  

Have a fun and relaxing weekend!




  1. LDH said

    what’s book value at a bank? the assets include loans in their portfolio, marked anyway that will make them look most favorable. arent all of the big banks still trading south of book value? … great story about LRB, but are you confusing facebook and google with regard to bond issuance? Google brought the 3part bond issue earlier this week, it IS a public company.

    • traderbill said

      Thank you for the correction….I transposed in my mind! Hate it when that happens.

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