FSX Friday Update

Believe it or not, stocks actually reversed course on Friday afternoon after making new all-time highs in morning trade.  At one point mid-afternoon the NASDAQ was down more than 30 points, leading all the major averages lower.  Crazy Vlad Putin was doing what sense and reason couldn’t do—he was popping the equity bubble.  But then a second sentiment reversal struck in the final hour of the session and a wave of buying turned the Dow and S&P green and cut NASDAQ’s losses by two-thirds.  What do I make of it?  The story’s intact, as far as I’m concerned: we’re going to 5,000 on the NASDAQ and then we’re going much lower.  2014 still feels like 2000 to me, and the more the Street insists that it isn’t like 2000, the more like 2000 it feels.  I remember 2000, and the Street said it wasn’t like 2000 in 2000, either.  Guess what?  It was.

The Family Stock Index led the major averages again this week, wrapping up a solid February in which the index gained 5.5%.  That still leaves us down 1.8% for the year and more than 200 bps behind the S&P 500—January was just that bad.  The internals are improving steadily, though, as decliners now outnumber advancers by just 13-to-12, and several of the year’s biggest losers—Zondro, Ruby, and Yours Truly—have rebounded sharply over the last two weeks.  The FSX still has a lot of technical damage to repair, and it’s hard to get too excited about our prospects when I’m expecting a nasty bear market in the back half of 2014, but…going out today at 17,013 gives us our first close above 17K since January 22, and I’ll take it.

Advancers

• Ruby (RJET) +8.1%.  Forget the groundhog.  Here’s a bona fide sign that winter is finally over…in Hilton Head.
• Zero (Z) +6.0%.  I need someone to choose my outfit for Jeopardy! tryouts next month—I think the market just nominated Zero!
• Katie (CATY) +5.4%.  Brinky slept through the night last night for the first time in one hundred thousand years, give or take.  Is one night without the Brinkredible Hulk slamming his massive fists against the door of his room over and over and over and over worth a five percent pop?  YES.  YES, IT IS.
• Josie (JCOM) +5.0%.  Josie won’t beat on her bedroom door with her fists like surly Cousin Brink.  Her tiny, cute fists wouldn’t make a sound!  If Josie wants to express her desire for nocturnal freedom, she’ll have to use her head, either figuratively or—like Cousin Jenny—literally.
• Nicole E. (NICE) +3.8%.  Katie got her hair cut to look just like Nicole’s, and the market gave a nod to the original.  I have to say, though, that if Katie ditches the glasses and starts wearing enormous, weird bracelets and necklaces, we might have a problem.
• Mario the Younger (MAR) +3.3%.  The last trimester is the part of the pregnancy that makes a man really, really, really glad that he’s not a woman.  Yes, that’s just one more ‘really’ above the standard ‘really, really glad,’ but still.
• Jenny (GNE +4.0%) and Lee (TGI +3.2%).  Jenny started reading Drawing Wolves this week, and investors are betting that I may have finally found the editor my book needs.  If something I wrote is nonsensical doodoo, Jenny will say so, because Jenny can get away with it.  She’s been perfecting the sweet-but-insulting routine for almost thirteen years.

Decliners

• Charlotte (ICE) -1.9%.  Charlotte was so looking forward to picking out my Jeopardy! outfit.  That darn Zero always gets the sweet gigs.
• Wilson (WILC) -1.9%.  Wilson was so looking forward to death.
• LULU -2.1%.  Katie’s cat really gets on my nerves sometimes.
• Brinkley (BCO) -2.4%.  Katie’s kid really gets on my nerves sometimes.
• Jodi Ann (JOY) -3.0%.  This one is causing me some concern, cute baby or no cute baby.  Caterpillar—the other big US player in earth-moving equipment—is up 7.4% in 2014 while JOY is down 6%.  Last year, CAT and JOY both struggled, and the divergence in the stock charts means one of two things: (1) Jodi Ann is undervalued, underowned, and ready to explode like a coiled spring as fund managers comb through industrial stocks for laggards; or (2) Josie has much bigger fists than it looks like in pictures.

Name	Ticker	2/28/2014	Change
Brinkley	BCO	$30.41	-0.74
Charlotte	ICE	$208.84	-4.07
Dustin	DST	$94.06	-0.02
Icarus	FAST	$47.19	+1.58
Jenny	GNE	$11.49	+0.44
Jodi Ann	JOY	$55.00	-1.73
Josie Ann	JCOM	$51.40	+2.45
Justin	XOXO	$11.93	-0.02
Katie	CATY	$25.41	+1.30
Lee	TGI	$65.20	+2.00
Lisa	LNCE	$27.09	+0.37
Lucas	CTG	$16.25	+0.26
Lulu	LULU	$50.30	-1.09
Marcus	MCS	$14.09	+0.25
Mario T.E.	MGEE	$38.58	-0.17
Mario T.Y.	MAR	$54.23	+1.72
Namilita	NL	$11.21	-0.14
Nicole E.	NICE	$41.08	+1.50
Nicole M.	COLM	$83.09	+0.55
Reagan	REGN	$332.41	-2.57
Ruby	RJET	$9.58	+0.72
Wilson	WILC	$7.98	-0.16
Winston	ED	$56.05	+0.76
Zero	Z	$83.60	+4.72
Zondro	ZQK	$7.80	+0.19

NASDAQ 5000

Bubblewatch ’14—It’s okay.  We’re going to print 5,000 on the NASDAQ again, and we’re going to collapse again, but it’s okay.  I’ve resigned myself to the inevitability of the market disaster and, frankly, I think it’ll be good for us in the long term.  We’ve got to address structural trade and currency imbalances in the global economy as well as the obscene concentration of the wealth of society in the hands of one-one hundredth of one percent of the population.  The world’s central bankers have put off the day of reckoning by inflating a series of asset bubbles through increasingly radical and intractable monetary policies, trading responsibility for time.  When this bubble bursts, the Fed, ECB, BOJ and People’s Bank of China won’t have any way out.  The downside risk is accelerating, competitive devaluation that becomes a currency war, then a trade war, then a real war.  I don’t believe it will go that far, but the plutocrats who’ve been the beneficiaries of central bank largesse will have to come down to earth and live with the rest of us, and they’re not going to do that without pitching the hissy fit to end all hissy fits.  They’ll go after our democratic institutions (yes, even more than they are already) and that’s where it will get ugly, if it does.

But it should be one hell of a Wall Street party before that happens.

One of the traders on CNBC’s Fast Money (the inferior midday version) said today—as we make new highs across the board—that “the only reason to be worried about the NASDAQ is if you’re short” (meaning that you’ve sold stocks short, not that you are slight of stature).  I won’t name the guy because he’s just part of a chorus of bubble-warblers, but I will say this: there are plenty of reasons to worry about the NASDAQ if you’re long, but the biggest reason is that no one on Wall Street is worried.

But it’s okay—it’s inevitable, so it has to be okay.  It all brings to mind a few lines from my favorite Auden poem:

The enlightenment driven away,

The habit-forming pain,

Mismanagement and grief:

We must suffer them all again.

That’s from 1 September 1939, a poem about exactly what you’d think it’d be about.  Again, I don’t think that’s the path we’re on, but the march to WWII—the greatest calamity in human history—did begin with the bursting of a US stock bubble.

Greatest German Political and Military Leaders Part 2

My criteria and caveats for this list are laid out in Part 1 below (or above, depending on how you read this thing).  The difference between goodness and greatness I discuss there comes into play now, as you will see.

5.  Prince-Elector Frederick William (1620-1688)

Margrave of Brandenburg and Duke of Prussia, 1640-1688.  Known as the Great Elector, Frederick William was a masterful navigator of the convoluted diplomatic and military situation in post-Thirty Years’ War Germany.  He secured sovereignty in the Polish duchy of Prussia, providing the basis for the elevation of his house to royal status under his son and successor.  The Great Elector embraced mercantilism and bureaucratic reforms that centralized administrative authority and helped Brandenburg avoid the fate of many less organized German principalities.  He also established the standing army that his great-grandson would use to elevate the then-Kingdom of Prussia to the status of a European Great Power.

4.  Adolf Hitler (1889-1945)

Führer and Chancellor of the German Reich, 1933-1945.  Absolute dictator, messianic demagogue, and psychopathic mass murderer.  Mastermind of the Holocaust, instigator of World War II, and arguably the most heinous villain in all of history.  Conquered France and the Low Countries in six weeks and by 1942 controlled virtually all of continental Europe.  His 1941 decision to wage war simultaneously against both nascent superpowers (USA and USSR) made his defeat and his nation’s destruction inevitable.  The integration and anti-militarism of 21^st Century Europe is a direct response to the madness and carnage wrought by Hitler, and no one man in modern times has had a more profound impact on the course of world history.

3.  Konrad Adenauer (1876-1967)

First Chancellor of the Federal Republic of Germany, 1949-1963.  A former mayor of Hamburg marginalized by the Nazis, Adenauer was the man most responsible for rebuilding Germany and restoring its place in the world after the end of Allied occupation and administration in 1949.  Already an old man when he became Chancellor, Adenauer nonetheless led the new Federal Republic for nearly fifteen years, overseeing his nation’s reintegration into Western Europe.  West Germany’s rapprochement with France, membership in NATO and the European Economic Community, and extraordinary post-war social and economic resurgence are key parts of Adenauer’s legacy.  Perhaps his most important achievement was the establishment of a new, conservative post-war identity for Germany, wholly rejecting all aspects of the Nazi regime while embracing responsibility for the unprecedented crimes that regime committed.

2.  Otto von Bismarck (1815-1898)

Minister-President of Prussia, 1862-1890; first Chancellor of Germany, 1871-1890.  More than any other individual, Bismarck was directly responsible for the creation of the modern German state.  His political and diplomatic skills were unrivaled in his time, if not for all time.  He engineered the creation of a unified Germany under the rule of Prussian King William I, using both economic and military means to entice, coerce , or compel dozens of smaller German principalities to submit to his will.  He built and maintained an delicate alliance system that isolated a hostile France, led to reconciliation between Austria and Prussia, and preserved an improbable peace in Europe for decades.  He dampened domestic unrest within the rapidly-industrializing empire by enacting labor reforms and instituting a modern social welfare system.  The master manipulator brought about his own political downfall when his radicalization of Prince William backfired on him.  Bismarck intended to use young William as a foil against his liberal-leaning, pro-British father, Emperor Frederick III, but Frederick died of throat cancer after a reign of less than three months.  The new Emperor William II, Bismarck’s former pupil, was too headstrong and volatile for the old man to control.  William II fired Bismarck after less than two years, and the diplomatic balance the Iron Chancellor had established to preserve the peace in Europe was doomed.

1.  Frederick II ‘the Great’ (1713-1786)

King of Prussia, 1740-1786.  A sensitive aesthete who was abused by his militaristic father, King Frederick William I, Crown Prince Frederick was an unlikely candidate to become a legendary warrior-king.  Yet when he ascended the Prussian throne at the age of 27, Frederick wasted little time turning the balance of power in fractured Germany on its head.  When the Holy Roman Emperor Charles VI of Austria died a few months after Frederick’s accession, Frederick invaded the wealthy Austrian province of Selesia.  Frederick defeated Austria in a series of three wars to retain Silesia; the last of these, better known as the Seven Years’ War, saw Prussia narrowly defeat a coalition of all three of the remaining continental Great Powers—Austria, France, and Russia.  After the war ended in 1763, Frederick the Great spent the remainder of his reign modernizing the civil service and legal systems in his sprawling territory.  In the 1770s and 1780s, Frederick joined his former enemies Russia and Austria in the partitions of Poland, doubling the size of his kingdom.  In modern times, only Napoleon’s generalship excels that of Frederick the Great.  Frederick established Prussia as a great power and ending centuries of Austrian hegemony in Germany.

 

Greatest German Political and Military Leaders Part 1

I couldn’t find a list of greatest German political & military leaders I considered comprehensive and objective, so I made one.  Before I get to the list, there are two questions I need to preemptively answer.

Question #1: Who is German?  It’s necessary to be somewhat arbitrary in deciding which historical figures count as German in a political and military context, especially for the period prior to German unification in 1871.  For this list, I consider leaders affiliated with the state that came into being in 1871 as the German Reich, and with its predecessor states, the Kingdom of Prussia (1701-1871) and the Margraviate/Electorate of Brandenburg (1157-1701).  I exclude leaders affiliated with other ethnically and culturally German states, most notably the Habsburg dominions (Austria/Austria-Hungary).  The reason for that key exclusion is that the Habsburgs ruled a multinational empire; ethnic Germans were a minority, although they held the highest political and military offices in that empire.  For the period 1949-1990, both West German and East German leaders were considered.

Question #2: Is there a necessary moral component to greatness?  My short answer is no.  As I define it, greatness measures the scale, scope, breadth, and depth of a leader’s achievements, as well as the extent to which those achievements were both transformative and enduring.  Good and evil aren’t part of the equation.

So, in ascending order, here’s the first half of the list.

10.  Angela Merkel (born 1954)

Chancellor of the Federal Republic of Germany, 2005-present.  First woman to govern Germany; led her country through the financial crisis of 2008-2009, cementing Germany’s position as unquestioned leader of the European Union.

9.  Albrecht von Roon (1803-1879)

Prussian/German Minister of War, 1859-1873.  Along with Moltke, modernized the Prussian Army and made it the most efficient military force in post-Napoleonic Europe; played a critical role in the Wars of German Unification (1864-1871).

8.  Helmut Kohl (born 1930)

Chancellor of the Federal Republic of Germany, 1982-1998.  Longest-serving German Chancellor since Bismarck; presided over the stunningly smooth reunification of formerly-Communist East Germany and West Germany in 1988-1990.

7.  Gerhard von Scharnhorst (1755-1813)

Born in Saxony, entered the service of Prussia in 1801.  Most important figure in the resurrection and reformation of the Prussian Army after its annihilation at Jena (1806).  Hero of the Wars of Liberation (1812-1814) against Napoleonic France; died of wounds received at the Battle of Lutzen in 1813.

6.  Helmuth von Moltke (1800-1891)

Field Marshal and Chief of the Prussian/German General Staff, 1857-1888.  Created the modern military staff system; revolutionized military transport and logistics to achieve the rapid movement and concentration of forces; architect of the Prussian victories in wars against Denmark (1864), Austria (1866), and France (1870-71) that led to the establishment of the modern German state (under Prussian control) in 1871.  Often referred to as Moltke the Elder to distinguish him from his imbecile nephew of the same name; the latter was Chief of the General Staff at the outset of World War I in 1914.

Operation Thermoplyae

Brinky’s might cannot be overcome.  He will not sleep; victory is impossible.  His hours of wailing and pounding on the door every night have taken a physical and mental toll on everyone–myself included–that can no longer be borne.  Long, late naps–his favorite kind–give Brinky the power to fight sleep (and his parents’ will) until well after midnight.  Therefore I have decided to sacrifice naptime to save the evening.  Henceforth I will not allow–let alone force–Brinky to take a nap if he does not do so by 1:00 in the afternoon.  Today is such a day.  All hope of sustained, productive writing and editing will be lost, presumably until the fall of 2016.  But I have to face the facts: I simply have not had the success to justify saving my afternoons if the price is the one sleepless night after another for everyone.

It is over for me.  But I assure you Brinky will not prevail either, not on his terms.  He is going to be one tired, tired boy come 8:00 tonight.  We will face annihilation and madness together.  It should be fun.

Watching the Olympics

The snow is so peaceful.  The sports are so boring.

And…is that the handle of my broom below Brinky’s hand?  When did he steal my broom?

 

FSX Friday Update

It’s Friday once again, and that means it’s time for another episode of Bubblewatch ’14!  This week, Facebook—itself valued at $175 billion, more than 100x trailing earnings—announced it would buy mobile-messaging company WhatsApp for $19 billion.  NINETEEN BILLION DOLLARS.  My first question was…what’s WhatsApp?  I had no idea.  And I’m not alone.  I was watching Fast Money on CNBC (my absolute favorite show in the world) when the news broke, and four of the five people on the show had never heard of WhatsApp.  That’s right—never heard of it.  Turns out that WhatsApp is a 55-employee company founded in 2009 by some dude named Jan Koum.  WhatsApp claims to have 400 million active users and also claims to be profitable (it’s not a public company, so who really knows?)  For that, Facebook is paying $19 billion.  I started reading the Facebook press release, and then I stopped reading at this Zuckerberg statement: “I’ve known Jan for a long time and I’m excited to partner with him and his team to make the world more open and connected.”  I’m serious—I stopped reading.  Why?  Because that’s total crap.  Mark Zuckerberg hasn’t known Jan Whatshisface for a long time.  Mark Zuckerberg is 29 years old.  He hasn’t known anyone for a long time.  This is crazy.  This reminds me of 2000, when JDS Uniphase (a company you’ve probably never heard of) bought SDL (a company you’ve definitely never heard of) for $41 billion.  Then, in August 2001, JDS Uniphase reported a record quarterly loss of $45 billion (you read that right) when it wrote off most of the value of the SDL purchase along with the value of its earlier, $15 billion purchase of E-TEK Dynamics (who knows?).  That was less than two years later.  Or, as Mark Zuckerberg might say, a long time.

So…is this deal like Google’s purchase of YouTube (GOOG paid $1.6 billion in 2006 for an asset now worth at least $50 billion), or is it like JDSU’s purchase of SDL?  You can guess which way I’m leaning.

The Family Stock Index eked out a half-percent gain on the week, handily beating the S&P 500 and Dow (both slightly down) and matching the gain in the bubbly Nasdaq.  In truth, that headline number is misleading, as advancers and decliners were close to even and a big gain in double-weighted Nicole M. accounted for all of the index’s outperformance versus the S&P.  Without Nicole and her uterean accomplice, we’d be down…but when isn’t that the case, after all?

Advancers

• Nicole M. (COLM) +7.2%.  Childbirth classes?  Check.  Breast-feeding classes?  Check.  Obedience classes for Ed Winston?  I sure hope so.  Baby name?  Beats me.  The market is betting on a blockbuster, clearly.  This move—and an all-time high—isn’t based on the dog.
• Zondro (ZQK) +4.7%.  Speaking of dogs, I try and set the bar low in the what-a-dog-wants area.  Reagan said she played tug-of-war with Zondro the other day, and that’s really all it takes for him.
• Jenny (GNE) +4.5%.  Demi Lovato concert this weekend!  OMG!
• Reagan (REGN) +3.4%.  Reagan says OMG like it’s a word—I hate that, and it hates me.  But more importantly…when you see OMG, does it make you think of OMC, the band(?) that brought us ‘How Bizarre’ all the way back in 1996?  No?  Well, it does now, sucka.
• Mario the Younger (MAR) +1.9%. I think I heard Katie say at one point that Mario and Nicole were considering the name ‘Roman’ for their kid.  That’s third-hand information, obviously, because Katie got ‘Roman’ from Mario and I got it from a past version of myself who may or may not have heard ‘Roman.’  For all I know, the name I heard was ‘Ronan.’  Ronan the Accuser.

The bottom line is Ronan the Accuser is 100 percent what I’m destined to call Little Little Mario, however the whole name thing shakes out.  It’s out of my hands, really.

Decliners

• Brinkley (BCO) -1.6%.  I often feel that my son and I are locked in a grim, brutal struggle amidst the ruins of my life, much like the months-long battle between the German 6^th Army and the Soviet 62^nd Army in the ruins of Stalingrad during the winter of ’42-’43.  In that scenario, one of us is the conscientious, cultured Field Marshal Paulus

and the other is the unrefined, unyielding General Chuikov

Don’t make me tell you who’s who.

• Lee (TGI) -3.1%.  I’m Paulus, okay?  Paulus loses, and I’m Paulus.

• Ruby (RJET) -2.7%.  Ruby has struggled mightily this year (-17% year-to-date), and while some of that difficulty can be attributed to the impact of the nasty winter we’ve endured, the rest of the airline group hasn’t suffered nearly as badly.  Reagan solved this vexing market puzzle when she noticed that ‘Ruby’ sounds a lot like ‘Rupee’—Reagan’s second and final miss in the recent district spelling bee.  Coincidence?  There are no coincidences in the market.
• Justin (XOXO) -4.1%.  Speaking of no coincidences, last week Justin was sporting a moustache and he looked eerily like our dad—half the poundage and twice the hairage, but still, it was eerie.  This week the moustache was gone.  Last week XOXO was up 5.2%.  This week…well, you see what happened.  You can’t fight the tape, as we say in the business.  You got to rehash the ‘stache, Justin.

Name	Ticker	2/21/2014	Change
Brinkley	BCO	$31.15	-0.51
Charlotte	ICE	$212.91	-1.94
Dustin	DST	$94.08	-0.38
Icarus	FAST	$45.61	+0.63
Jenny	GNE	$11.05	+0.48
Jodi Ann	JOY	$56.73	+0.07
Josie Ann	JCOM	$48.95	-0.11
Justin	XOXO	$11.95	-0.51
Katie	CATY	$24.11	-0.16
Lee	TGI	$63.20	-2.05
Lisa	LNCE	$26.72	-0.03
Lucas	CTG	$15.99	-0.80
Lulu	LULU	$51.39	+0.34
Marcus	MCS	$13.84	+0.21
Mario T.E.	MGEE	$38.75	+0.02
Mario T.Y.	MAR	$52.51	+0.99
Namilita	NL	$11.35	+0.03
Nicole E.	NICE	$39.58	+0.13
Nicole M.	COLM	$82.54	+5.57
Reagan	REGN	$334.98	+10.99
Ruby	RJET	$8.86	-0.25
Wilson	WILC	$8.14	+0.06
Winston	ED	$55.29	+0.13
Zero	Z	$78.88	-2.08
Zondro	ZQK	$7.61	+0.34

 

 

FSX Friday Update

NASDAQ Composite +2.9% this week to a new 13-year high.  Forget the other, broader indices—this is the epicenter of the impending disaster.  I’m expecting the NASDAQ—now at 4,244—to be 20% higher in a month…and 50% lower by the end of the year.  It’s 2000 all over again, with biotechs in the role of telecom equipment makers and social media companies in the role of the dot-coms.  Don’t try to fight it, this thing was meant to be.

Family Stock Index +3.2% to 16,665.  Apparently Zero and I need to stink it up in order to have the FSX outperform; that’s been the pattern the last few years but I was thinking this might be the year that trend reversed.  It isn’t.

Katie and the girls wrote the A/D section.  You can tell because Katie’s punctuation is abominable.

There should be one space after a comma and TWO SPACES AFTER A PERIOD, DAMMIT!  TWO!

If there’s anything in the world that makes me madder than one space after a period, I can’t think of it right now.

Advancers

• Jenny (GNE) +8.4%.Me: Jenny, why are you up? Jenny: No school for three days? I read the book. Me: What book? Jenny: Perks of Being a Wallflower. Lee: A book? You read a book every day. What’s different? Reagan: Well, she built that big snowman that she had to get two people to help her roll up the hill. Me: I know. It’s because her secret crush is going to give her a Valentine when they finally go back to school next week. Jenny: And I’m going to get a haircut this weekend. I’ll walk if I have to.
• Reagan (REGN) +8.1%. Lee: You two are up almost the exact same amount, probably because this is the most snow you’ve ever seen. Reagan: Um. Um. Jenny: SNOW! Her hat got to grace the top of my snowman. Reagan: Wow, Jenny. Lee: You definitely beat those losers across the street with your big snowman. Reagan: Yeah! Jenny: I made it. Reagan: I can still spell, even though the spelling-bee-ness is over. And I’m happy I’m doing an ambassador thing tomorrow.
• LULU +7.7%. Lee: Lulu is well-fed judging by her litter box this week. And she puked in her water bowl. Me: Those don’t sound like reasons to be up to me. But maybe she really enjoyed the food she shoved in too quickly.
• Nami & Lita (NL) +7.6%. Reagan: They were the stars of Instagram like this whole week. Instagram sensations. Me: And here I was just thinking they enjoyed Charlotte and Zero being home for snow days.
• Josie (JCOM) +6.8%. Reagan: Um, well, apparently Jodi Ann bought these really cute outfits for her and posted pictures of her on Instagram. She looks very pretty. Jenny: So another Instagram sensation!
• Lucas (CTG) +6.0%. Jenny: He’s been having some snow days too. I mean, he’s going to be in school until the end of June, but…lucky!
• Justin (XOXO) +5.2%. Reagan: Oh! He has a moustache. Jenny: And he got to talk to us. Reagan: We graced him with our presence.

Decliners

• Lee (TGI) -1.3%. Me: I don’t think snow days with everyone home are his favorite days. Jenny: I don’t think he likes That Thing You Do! (our Katie’s birthday movie choice). He doesn’t like Tom Hanks, and he’s in it. Reagan: The curling team he wants to win didn’t. Me: Is that true? Reagan: I don’t know.
• Zero (Z) -5.6%. Jenny: He wasn’t the star of Instagram. Reagan: Um. Me: Do you want to leave it at that – he wasn’t the star of Instagram? Reagan: No, just um.
• Ruby (RJET) -6.8%. Me: Because her daughter’s so old now? Jenny: Because she wasn’t here with you on your birthday. Reagan: That’s what I was gonna say! Her granddaughter’s a big poopy face. The older one. Jenny: The younger one.

Name	Ticker	2/14/2014	Change
Brinkley	BCO	$31.66	+0.48
Charlotte	ICE	$214.85	-0.67
Dustin	DST	$94.46	+3.95
Icarus	FAST	$44.98	+0.75
Jenny	GNE	$10.57	+0.82
Jodi Ann	JOY	$56.66	+1.87
Josie Ann	JCOM	$49.06	+3.14
Justin	XOXO	$12.46	+0.62
Katie	CATY	$24.27	+0.66
Lee	TGI	$65.25	-0.85
Lisa	LNCE	$26.75	+0.90
Lucas	CTG	$16.79	+0.95
Lulu	LULU	$51.05	+3.67
Marcus	MCS	$13.63	+0.05
Mario T.E.	MGEE	$38.73	+1.72
Mario T.Y.	MAR	$51.52	+2.29
Namilita	NL	$11.32	+0.80
Nicole E.	NICE	$39.45	+1.25
Nicole M.	COLM	$76.97	+3.37
Reagan	REGN	$323.99	+24.20
Ruby	RJET	$9.11	-0.66
Wilson	WILC	$8.08	+0.20
Winston	ED	$55.16	+1.14
Zero	Z	$80.96	-4.84
Zondro	ZQK	$7.27	+0.37

FSX Friday Update

Was that it?  Was that the great correction for the NASDAQ?  Let’s see…

• Intraday high on 1/21: 4,238
• Intraday low on 1/28: 3.856
• Percentage drop: 9.0%

Oh, wait…that was what happened in 2000.  My bad.  Here’s 2014:

• Intraday high on 1/22: 4,246
• Intraday low on 2/5: 3,969
• Percentage drop: 6.5%

Back in 2000, what happened after the January pullback is the now-legendary sprint-to-disaster of the turn-of-the-century tech stock bubble, as the NASDAQ rocketed higher by 33% in five weeks, reaching an intraday high of 5,132 on March 10, 2000.  What happened after that is even more legendary: the bubble burst, taking the NASDAQ down 51% over the last 10 months of 2000 (12/29/2000 close of 2,470) and by 78% to the October 2002 bottom at 1,109.

Don’t worry, though, because this time is nothing like last time.  Everybody says so.

What’s the biggest difference?  Splitting your stock was cool in 2000, and now not splitting your stock is cool.  It used to be you weren’t cool unless you announced a stock split, like, all the time.  JDS Uniphase split its stock 2-for-1 three times in the just the last eight months of the bull market (July 1999, December 1999, March 2000).  Maybe you don’t remember JDSU—they make optical network equipment—but this was no Pets.com.  In March 2000 JDS Uniphase traded at nearly $150 per share (after the three splits in 8 months) and sported a market cap of more than $200 billion.  That put it among the 15 most valuable companies in the US back in 2000 , and it would be ranked #13 today, ahead of Pfizer, IBM, Bank of America, AT&T, Visa, and Coca-Cola.  It’s not ranked in the top 13 now, of course.  It’s not in the top 300 now.  From the March 2000 peak, JDS Uniphase stock collapsed:

• Down 82% after one year (to $26)
• Down 99% after two-and-a-half years (to $1.50)

Seven years after it peaked at $147 and still trading around $2, JDSU split its stock again in 2006, this time in reverse.  The 1-for-8 split effectively reversed the last three stock splits of the bubble era, reducing the number of shares outstanding to 1/8^th of the pre-split total and resetting the stock price from $2 to $16.  Friday, JDS Uniphase—still a leader in optical networking—closed at $13.27, giving it a market value of just over $3 billion.  That’s pretty bad, but at least it wasn’t Nortel.  Don’t remember them either?  Nortel was a Canadian fiber optics company valued at nearly $400 billion in 2000.  When the bubble burst, Nortel stock fell 99.6% in two years.  In January 2009 the company filed for bankruptcy protection.  Six months later it ceased operations entirely.

There were survivors, of course.  In fact, some of the companies at the forefront of the first NASDAQ bubble—against all odds—did much more than survive.  Cisco, Intel and Microsoft were eventually added to the venerable Dow Jones Industrial Average.  Ebay’s market cap topped out at $33 billion in 2000 and is over $70 billion now.  Amazon’s market cap at the 2000 market top was $40 billion; today it’s $165 billion.  And then there’s Apple, now the most valuable company in the world with a market cap of $463 billion.  Apple’s 2013 profit—$37 billion—was greater than the value of the entire company in 2000 ($35 billion).  But more than any of those, the company that best illustrates the full-circle nature of the coming disaster is Priceline.

Priceline.com came public in the spring of 1999, just as the bull market was expanding into a bubble.  The company priced its shares at $16 and they closed above $68 on the first day, a 325% gain in a few hours of trading.  The stock then traded as high as $104.25 in March 2000, up 550% in less than a year.  But Shatner sold his shares—oh, and the tech bubble burst—and the market’s judgment was swift and harsh.  Just look at the closing prices for all twelve months of 2000.

1/2000:  $58.00

2/2000:  $55.94

Intraday high (3/14/2000): $104.25

3/2000:  $81.13

4/2000:  $63.25

5/2000:  $38.13

6/2000:  $37.99

7/2000:  $23.69

8/2000:  $27.19

PCLN broke below its April 1999 IPO price on 9/27/2000

9/2000:  $11.88

10/2000:  $5.75

11/2000:  $2.50

12/2000:  $1.31

I mean…damn.  From $16 to $104, then from $104 to a buck and change, all in less than two years.  Priceline was left for dead, along with every other dot-com company.  Remarkably, it didn’t stay dead (although it certainly played dead for a long time).  PCLN rebounded to around $6 by the end of 2001, only to collapse yet again, trading as low as $1.05 in the fall of 2002.  In 2003 the company executed a reverse stock split (1-for-6), resetting the stock price overnight from $4.25 to $25.50.    Still, the stock languished for several years.

Price after reverse split (6/13/2003): $25.50

2003 closing price: $17.90

2004 closing price: $23.59

2005 closing price: $22.32

But as the housing bubble boosted the economy, Priceline’s stock price began to rise again.

2006 closing price:  $43.61

2007 closing price:  $114.86

So that means the stock—left for dead less than two years after its 1999 IPO—topped its March 2000 all-time-high seven years later…right?  Well, it would have, if not for the reverse split.  Without that 1-for-6 split, PCLN would have six times the number of shares outstanding and the stock price would be 1/6^th of its current level (but the company would have the same value—stock splits don’t change the value of the company).  Without the reverse split, PCLN would have closed out 2007 at $19.14—not bad, considering where it was in 2002, but nowhere near its all-time high.  That March 2000 high becomes $625.50 on a split-adjusted basis—almost inconceivable, and absolutely unassailable as the financial crisis unfolded in 2008.

2008 closing price:  $73.65

As we all know now, the world didn’t end, and the extraordinary actions taken by the Federal Reserve and US Treasury to prevent a second Great Depression put a floor under the stock market in the process.  Priceline’s business stabilized and its stock rebounded sharply.

2009 closing price:  $218.41

The Federal Reserve began the second round of quantitative easing (QE2) in 2010.  The artificially-low Treasury yields sought (and achieved) through this unprecedented bond-market manipulation has resulted in systematic underpricing of risk across asset classes.  Double-digit annual earnings growth—which Priceline has legitimately produced since the end of the crisis—has been rewarded with price/earnings multiples reminiscent of the bad, old days of the late ‘90s.  Priceline is a well-run company with a solid business—but does that justify this?

2010 closing price:  $399.45

2011 closing price:  $467.71

2012 closing price:  $620.39

In 2010, 2011, and 2012, PCLN returned 83%, 17%, and 33%, respectively, and it ended that run of outperformance by closing less than one percent away from its all-time bubble-era high ($625.50, split-adjusted).  This valued Priceline at $32 billion.  That may look insane, but from a valuation standpoint it really wasn’t.  In December 2012, PCLN traded at an above-market P/E multiple of 22, but its 2012 EPS of $27.66 was up 34% from the prior year ($20.63) and 167% from fiscal 2010 ($10.35), meaning it had actually gotten cheaper over that time period (2012 P/E of 22 vs. 2010 P/E of 39).  And then 2013 happened.

2013 closing price:  $1,162.40

Priceline is expected to have earned $41 when it reports 2013 earnings in two weeks.  That would represent nearly 50% earnings growth, and it certainly justifies another leap in the price of the stock.  Does it justify an 87% leap?

Nope.

PCLN notched its now-record close on January 23, 2014, at $1,213.29.  Like its parent index, the NASDAQ, it sold off sharply in the days that followed.  Priceline’s intraday low, reached Tuesday (2/4) morning, was $1,107, a decline of 8.7% in less than two weeks.  Does that mean the bubble burst last week?

Nope.

Pundits and analysts uniformly declare that Priceline is cheap(!) at almost 30 times earnings.  And from that intraday low, Priceline rallied 8% in three days, closing this Friday at $1,195.39, about one percent below the all-time high.  Sound familiar?

It should.

We’re in an equity bubble—again—and we’re on our way to 5,000 on the NASDAQ—again.  If that scenario unfolds, I expect PCLN to trade north of $1,800…before finishing the year around $900.  It won’t be the junky companies (Priceline in 2000) that will wipe out the greatest amount of wealth—it will be the high-quality but insanely-overpriced companies (Priceline in 2014) that do us in.

Again.

At least Priceline won’t have to do a reverse split this time; neither will Google ($1,177), Apple ($525), Amazon ($360), Biogen ($315), or FSX member Regeneron ($300).  I guess we have learned something.

Speaking of the FSX…well, the less said, the better.  We sold off with the broader market, only much more.  We rebounded with the broader market, only not as much.  The result?  We underperformed.  Badly.  Again.  The S&P 500 was up 0.8% on the week; we were down 0.3%.  The S&P moved back above its 100-day moving average after easily holding the 200-day; we are solidly below the 200-day and the trend is bearish.  Only three of our 25 members are positive for 2014, and one of them is Zero.  We’re trailing the S&P by nearly 400 basis points and we’re not even halfway through February.  Well, look at that: I’ve said a lot and—as predicted—it isn’t better.

Advancers

• Zero (Z) +4.5%.  Best performer on the week?  Second-best for the year-to-date?  This indignity simply cannot be borne.  But I’m not concerned.  The standard is clear, and Zero is a man who takes pride in his work.  Zillow—prepare to visit the south side of $40 in the back half of ’14.
• Marcus (MCS) +4.0%.  I haven’t heard from Marcus in awhile, usually not a good sign.  Of course, it snows all the time up in Yankeeland nowadays and shoveling snow can’t be good for his back.  So why the pop this week?  Maybe he’s taught little Josie to shovel the walk for him—he is an award-winning educator, after all.
• Jodi Ann (JOY) +3.9%.  That’s right—there’s not one, but two snowbound teachers.  Josie’s probably learned to drive a snow plow by now.
• Reagan (REGN) +3.9%.  Reagan’s middle-of-the-pack finish in the county spelling bee (she missed predicate and rupee) was extremely disappointing to her, but investors seem to be heartened by the lackluster performance.  That reaction makes no small amount of sense.  In reality, Reagan was never likely to win as a fourth-grader against kids as far along as eighth grade, and coming close would have only added to a growing cockiness that was already undermining her patience and preparation.  Reagan has four more years to win at this level and beyond, and she’s learned (hopefully) a valuable lesson: at the highest level, talent isn’t enough.  Not ever.
• Charlotte (ICE) +3.2%.  Brinky revealed his ability to speak perfect English—long suspected but never confirmed—to Charlotte in order to secure her aid in his plan to blackmail me (the goal: his own soda fountain).  Will she help her only nephew, or will she flip and turn the information over to me, her beloved brother?  Either way, Charlotte has a lot of leverage considering how tight the LBE2/LBE3 battle-of-wills has become.
• Josie Ann (JCOM) +1.3%.  Heck, she probably has her own snow-plow business.

Now I’m handing the mic to the ladies for the decliners.  I’ve grumped enough grump for one day.

Decliners

• Jenny (GNE) -2.5%. Jenny: Should I not say my butt hurts? Reagan: She didn’t get to be in the district spelling bee. Jenny: Cause I so wanted to (slightly sarcastic). Jenny: And J.K. Rowling said Harry and Hermione should be together. That is so stupid. (I can’t continue to type all she wants to say about this, but clearly, it is very upsetting to her.) Jenny: And I’m reading Pride and Prejudice. While it’s a good thing, they just talk so weird! If I used that grammar now, I’d probably be told I didn’t have good grammar. It doesn’t make any sense.
• Mario the Elder (MGEE) -2.6%. Reagan: He didn’t get to come to my spelling bee. Katie: Dad’s travelling up to Pittsburgh, and he’s no longer used to temperatures below freezing for an extended period of time.
• Nicole E. (NICE) -3.2%. Jenny: She has a widow’s peak. Reagan: She’s sad that her vacation was only three weeks. So she couldn’t do too much. Jenny: She didn’t go to London.
• Lisa (LNCE) -3.2%. Reagan: The Bruno Mars concert is all the way in July. Jenny: It’s so long. And – she has to take Reagan. (Fighting commences on the couch beside me between two loving sisters. It involves slaps and tickles.)
• Lee (TGI) -3.4%. Jenny: Daddy is down because he got a scuba diver’s mask on his face and he couldn’t get it off. Reagan: And he had to sit in a room for 4 hours and watch me spell words incorrectly. Katie: On the plus side, he got to read a book. Jenny: That’s the best part – reading a book.

Name	Ticker	2/7/2014	Change
Brinkley	BCO	$31.18	-0.46
Charlotte	ICE	$215.53	+6.74
Dustin	DST	$90.51	-0.49
Icarus	FAST	$44.23	+0.30
Jenny	GNE	$9.75	-0.25
Jodi Ann	JOY	$54.79	+2.00
Josie Ann	JCOM	$45.92	+0.57
Justin	XOXO	$11.84	-0.29
Katie	CATY	$23.61	+0.11
Lee	TGI	$66.10	-2.32
Lisa	LNCE	$25.85	-0.86
Lucas	CTG	$15.84	-0.32
Lulu	LULU	$47.38	+1.69
Marcus	MCS	$13.58	+0.52
Mario T.E.	MGEE	$55.51	-1.47
Mario T.Y.	MAR	$49.23	-0.07
Namilita	NL	$10.52	-0.52
Nicole E.	NICE	$38.20	-1.25
Nicole M.	COLM	$73.60	-0.75
Reagan	REGN	$299.79	+11.20
Ruby	RJET	$9.77	-0.04
Wilson	WILC	$7.88	-0.24
Winston	ED	$54.02	-0.39
Zero	Z	$85.80	+3.70
Zondro	ZQK	$6.90	-0.15

What Does It Mean?

The garbage disposal just threw a penny at me.  Should I be concerned, or should I ask it for more?