One of the primary drivers of investment and trade now is dollar supply and demand, particularly in relation to other major reserve currencies (Euro, Pound, Yen, and Renminbi, among others). I’ve listened to a lot of back-and-forth on the relative merits or demerits of the various currencies, and increasingly the tone of the discussion has moved more towards a place where investors are encouraged to find the currencies that are least bad, with the implicit assumption being that none of them are any good. That seems about right to me. I think you should have the cash you need when you need it, and no more than that. Why have more than a six-month supply of cash when you have no faith in the purchasing power of that cash any further out in time? I’ve gotten more and more disdainful of money over time. Paper money was dubious enough once it was no longer backed by any tangible asset, but now money is nothing more than data, no more tangible than computer code. Doesn’t anybody really want to be paid in computer code? Well, maybe Dustin, but anybody else? Of course not. But most of us are. I think my cynicism is because I understand money too well, on a personal and technical level. From the technical standpoint, I spent 11 years studying and sometimes policing the flow of enormous amounts of money, billions and tens of billions of dollars in the bank’s investment portfolio and trading accounts. You look at a bank with $150 billion in assets, and only a small fraction of that is anything you can touch right at this moment. Ninety-five percent of it is the discounted value of claims on projected future cash flows—and those cash flows themselves are denominated in the fiat currency of the U.S. government. All that is, folks, is the collective agreement that you will be able to exchange your paper money or your data money for actual goods and services at some time in the future. If we stop agreeing, the money is worthless and the assets disappear. We saw it happen to the balance sheets of some of the largest banks in the world during the housing crisis in 2008: the mortgage-backed securities they held consisted of projected future mortgage payments, and when they were forced to recognize that many of those payments would never be made, the securities were suddenly worth dramatically less than they had been. When the securities were subsequently written down in value, the banks’ equity had to be written down by the same amount to offset the asset writedown (that is, of course, why it’s called a balance sheet—it has to balance). In some cases (WaMu, Lehman, AIG), so much equity was erased that the institution’s liabilities exceeded its assets, and some of the biggest firms in the world were insolvent overnight. From a personal standpoint, I watched my mother go from being supposedly set for life to bankrupt in less than a decade, all because she managed her data money imprudently and inconsistently, and what she didn’t mismanage she pulled out of the ATM and straight-up wasted. None of this is real and permanent, and that bothers me. I’m not saying money doesn’t matter—it matters a lot, and that’s the problem. You think I should covet something that matters a lot but that can disappear with nothing more than a change in assumptions or the push of a button? And more of that is what will make me more secure in life? No thanks. You need to have some assets, too (and no asset is more versatile or valuable than a skill). As a point both of principle and of paranoia, I prefer to hold on to things I can hold on to. But maybe that’s just me.
So, LinkedIn happened; what’s the verdict? Everybody watched the clown underwriters float a measly 10 million shares at $45, then gasped as the stock traded above $120 the morning of the IPO, and by the end of the day everyone who had something to say had said it, loudly, and probably more than once. Is it a single-stock bubble? Is it a harbinger? Is it an indicator of the challenges inherent in valuing social networking companies? Is it an artifact of the arcane process of sliver underwriting? Yes. Yes, it is. The pop in the price of LNKD was ridiculous, and almost certainly wouldn’t have happened if the underwriters didn’t deliberately restrict supply. Nevertheless, the company LinkedIn is a real company and is really worth something, unless it turns out that it’s not. The interesting thing to me is what this might mean for the bigger social networking companies. If LinkedIn is worth $9 billion (it’s not), then Groupon is worth $25 billion, Twitter is an easy $40 billion, and Facebook is worth, conservatively, $17 kajillion. What do I think? I hate them all, and I hate all this that is happening. What’s a misanthrope to do? If it weren’t for the inevitability of greed and egotism sabotaging these potential future Skynets from within, I would already have gone underground. Literally, I mean.
The market’s doing nothing, big-picture, and neither is the FSX. How about these closing numbers from the last three Fridays:1277.1, 1276.7, 1273.3. Instead of talking about that, I will explain a little about how I decide which stocks to single out in the Advancers and Decliners. Generally, I try to mention the top 3 to 5 stocks in each group, along with any that experienced wild intra-week swings. Some stocks, however, are high-beta by nature and would not earn a mention for the same magnitude move as a lower-volatility stock. The higher beta stocks usually need to register a 5% gain or loss to get a mention, and sometimes 10% is needed if I’m sick of writing about the same stock over and over again. If you were wondering, the highest-beta stocks in the FSX are LEI, RBY, HWD, and now LEE. Except for HWD, all of these are single-digit stocks and so a move of just $0.50 to $1.00 means a big shift on a percentage basis. I wouldn’t mention these five names in the As or Ds unless they post +/-5%, or I just feel like it. Lucas, honestly, needs to do +/-10% to make the list, all-over-the-place as he is. In contrast, a 3% move in either of the turtle-esque Nicoles is a huge week. This can change if the market dynamics change, but I try to keep everything in perspective. And by that I mean that I try to keep the FSX in perspective; it’s epic explosions in my head all the time, no matter what.
Unchanged
- LEE +0.0%. I will say one more thing about myself, and then I will treat LEE the same as I do my brother in volatility, Lucas. I seem to have bottomed here in the $0.90-$1.20 range. The shorts have finally moved to the sidelines, content with having driven me down 70% in less than two months. Nevertheless, they won’t soon forget their ghoulish feast and you can bet LEE will stay on their Bloomberg screens for many months to come, so that they can strike again if it shows signs of life. Any potential bulls know that, and I think it will take major changes in ownership and capital structure to alter the dynamics—the market won’t come back to LEE unless and until the fundamental story changes. Like my sigil, I have begun to suspect that I’m a 2012 story, and I’m working my way around to getting comfortable with that. I thought I could just switch gears and go on to the next thing this year while I raised a baby in the background, and that was stupid. Not only is a baby anything but ambience, I have also started to really feel the effects of the last two bananas years. Near-death and recovery, reviving my career and then ditching it, house restoration room-by-room, finally the end of my mother’s life and the beginning of my son’s—that’s a lot of serious stuff, and the passage through each of those trials left me in a different place rather than restoring any kind of familiar status quo. When I came out of rehab, all the poison was gone from my mind and body and I felt stronger than I had felt in ten years; truthfully, I felt stronger than I probably really was. I made good use of that momentum, I think, but the friction and drag has slowed me enough now that I feel like I’m just me again, no better and no worse. If I have a hard day, I’m going to be tired by the end of it. If I have a hard week, I’m going to be slayed by the end of it. I don’t like that, but there it is.
Advancers
- Reagan (REGN) +7.3%. I have been trying to figure out what Reagan’s problem is that she wrecks her bike and tears her legs and arms all up at least once an afternoon. Then I discovered that a number of the scabs that I had believed to be biking injuries were in fact former bug bites where Reagan has dug little holes in her arms and legs with her violent scratching. Add to that the legitimate bike scrapes and bruises, the contusions she gets from tripping on nothing and falling into everything, and she looks like a street fighter. And not Chun Li, either. What in the world upside could all of this battle damage have for little Reagan? It could make her the next stage in epidermal evolution is what. I now believe that Reagan is trying to transform her skin into a gnarled and impenetrable carapace, making her body invulnerable to lancing, slashing, and gouging injuries. Many martial artists have done such things, you will observe. True, but have any done it at the age of seven? Having transformed herself while still an adolescent, Reagan may be seeking to embed the changes in her genetic code. Then again, the ingredients may already be present in her genes. God knows I run into every wall and door in the house at least once a week.
- Jenny (LEN) +2.5%. Jenny has the worst case of molluscum contagiosum our doctor has ever seen and her belly is covered in sores. How could that be worse? She could have only the second-worst case. Then she would be almost as miserable but not nearly as legendary. Bad is just bad, but the worst is also the best.
- Charlotte (ICE) +2.4%. Charlotte finally let go of the NYSE pipe dream this week. The nice folks at the Justice Department finally weighed in on her bid (made in conjunction with the Nasdaq), and pointed out that a merger of up and down had a better chance of winning approval than a tie-up between NYSE and Nasdaq. So that was that, and the market breathed a sigh of relief. Charlotte was promoted at work, as well, and even if the politics and the people are stressful at times, she’s really well suited for the apparel business, and not so much for managing a global stock exchange. The rally in ICE would have been even stronger, I think, if not for the nervousness of commodities traders, the folks upon whose animal spirits the company’s revenue depends. If the bulls come back, we could see Charlotte back at $130 in no time.
Decliners
- Brinkley (BCO) -4.1%. This week Brinkley rolled over definitively for the first time, and he’s showing a significantly better understanding of his hands and the diabolical things he can do with them. With all that progress, he ought to be up, right? Remember, the market is forward-looking; if he can grab his toy rings, roll over, and eat solid food, how much long before he can do push-ups, or run laps, or serve his father as aide-de-camp? Not much longer, I say. But this is the face of a gentleman who can handle whatever life throws at him, as long as life only throws toys.
- The Marios (PBY -5.0%, SUP -5.6%). I wonder if the NFL labor woes are beginning to affect the Family Stock Index. Ruby has already taken it on the chin in 2011; her 20% YTD loss is bettered (worsered?) only by the Eure Bros. Now, as hope for a timely resolution fades, Mario the Younger is coming face-to-face with the realization that the absence of fantasy football and actual football will leave him with hours and hours of unwanted time each week, time that he certainly has no idea what to do with. As for Mario the Elder, no Steeler Club means a grumpy Ruby, in a much smaller house, no less.
- Icarus (FLOW) -8.8%. With the sudden divergence of Justin’s and Icarus’ market fortunes (WOLF +40% QTD, FLOW -17%), the longstanding, accepted theory that they are two parts of the same soul might be called into question. That or I got the stock tickers wrong.
Name | Ticker | 5/20/2011 | Change |
Brinkley | BCO | $28.58 | -1.21 |
Charlotte | ICE | $121.18 | +2.86 |
Dustin | DST | $47.28 | -0.04 |
Icarus | FLOW | $3.65 | -0.35 |
Jenny | LEN | $17.96 | +0.44 |
Justin | WOLF | $2.96 | -0.02 |
Katie | CATY | $15.66 | -0.08 |
Lee | LEE | $1.14 | unch |
Lisa | LSI | $7.51 | -0.11 |
Lucas | LEI | $2.70 | +0.06 |
Lulu | LULU | $96.29 | +1.06 |
Marcus | MCS | $10.50 | -0.10 |
Mario T.E. | PBY | $13.22 | -0.70 |
Mario T.Y. | SUP | $21.30 | -1.27 |
Marisa | MOLX | $27.26 | +0.31 |
Nicole B. | NI | $20.37 | +0.01 |
Nicole L. | COL | $61.66 | -0.95 |
Reagan | REGN | $56.91 | +3.88 |
Ruby | RBY | $4.56 | +0.06 |
Wilson | WILC | $7.76 | +0.04 |
Winston | HWD | $16.49 | +0.95 |
Zero | FRZ | $3.02 | -0.06 |
Zondro | ZRAN | $8.16 | -0.25 |