It was only a dozen short years ago that the investment world was foaming at the mouth at any COM stock that had a dot before it - and that was a 'click' instead of a 'brick!'
It marked the end of a very short NASDAQ era of wacky valuations and of breath taking extreme volatility. Bright eyed and bushy tailed fresh faced Internet CEO visionaries enriched themselves faster than a chamber maid running down the hall of 5 star New York hotel. (Ed Note: It looks like 'Socialist' Dominique Strauss-Kahn took the US3,000/day Sofitel Hotel's 'room service' option a little too literally?)
Time Warner is still trying to recover from their ill fated star crossed Internet love affair (and subsequent divorce) with AOL. Canadian mining companies which changed their name & business charter to an Internet Dot Com tech based mission had once again become fledgling mining operators. The ultimate survivor and heavy weight champion behemoth of the group, Google, did indeed monetize it's business search model (US$8+ billion revenue/quarter) and is the singular poster child for Internet commerce from that exciting and wild era.
The first Internet Social Media space company in the 'new' generation of 'free service' and 'high growth' tech companies to go public, LinkedIN (LNKD), spun off a wildly over subscribed IPO on the NASDAQ Thursday morning. LNKD sold almost 8 million shares to eager investors at $45/sh for a market capitalization of just over $4 billion. Oh, the joys of being a 20 something billionaire with a skin condition!
The LinkedIn model was launched in 2003 and the 'professional networking' company sports over 100 million users in over 200 countries with over 75 million unique page views per month. Over 3,900 companies are using LinkedIn for hiring (25,000+ users per employer) - and over 30,000 companies are using it's service for direct advertising. Ultimately LNKD bills itself as a 'Corporate Solutions' company. LNKD was cash flow positive in 2010 but to this date in 2011 has only broken even. It appears like the standard valuation for these IPO and related mergers (MSFT-Skype) pricing is $50 per user. LinkedIn opened for first day trading an almost double at $80/share. It had traded as high as a mind boggling $122.46 (a snappy 170% increase for the day less commish & a whopping 600 times 2010 earnings) just prior to lunch hour & heralding bitter sweet memories of the Dot Com car crash of 2000. LNKD looks to close it's first day of trading at a market cap of almost US$10+ billion and will be the yardstick for future similar offerings. Considering the limited industry barriers of entry & and rarefied valuations, this 'new' sector certainly leaves plenty of room for price-earnings 'contraction.'
Watching closely in the wings are a veritable army of other 'social media' phenoms itching to get a piece of that sweet action - which includes the likes of Groupon, Facebook, Yandex (Russian search engine), and Twitter. The corporate finance types who have pools of liquidity at their disposal must think they have died and gone to heaven. This week's front cover of the Economists is already calling Social Media a bubble to avoid or perhaps short?
It may be a tad early to discount this hysteria as almost every Gen X,Y, & Z child has their personal communication devise firmly implanted in hand and with their nose buried in various APP's or websites. The power of social media has changed the 'political' face of the Middle East and looks to transform the way we learn, trade and communicate forever. Accessing this 'new' economic paradigm looks to be a rather expensive & risky undertaking!
In the US, stunning complacency is the order of the day in respect to reported debt ceiling limitations and the end of QE II issues. Tim Geithner sure looked very concerned, sincere, and empty handed just prior to raiding the Civil Service Retirement and Disability Fund for further spending largess.
Most major and broad indexes continue to consolidate impressive weekly gains. The earnings season has ended reporting a very constructive and positive earnings profitability profile. Reported (and revised) employment statistics continue to be lack lustre in spite of very healthy corporate balance sheets. Housing prices and construction are groping for a bottom but may need a full Fanny Mae liquidation to finally end the pain.
The S&P and DJIA appears to have simultaneously discounted both the very bad news of Federal monetary impropriety and the very good news of positive and growing earnings. I'm not sure I've ever seen that! The broad markets appear to be in perfect short term ying and yang balance. IPO activity is approaching 4 year high territory with year to date 124 IPO's filed, 67 priced, and raising a total of US$21 billion. The average return in the IPO market has been 10% compared to a 7% increase on the broad US market indices. The initial financing market appears to be heating up facilitating the excess liquidity which receives little or no treasury market return. It sure does seem that Governments are indeed the primary creators of systemic risk either directly or indirectly.
In the commodity arena gold continues to hold the US$1,500 in spite of the numerous bearish naysayers who for some reason enjoy discrediting the value and purpose of the ultimate currency. Silver looks to hold the low US$30 level and will need time to consolidate the recent ruthless margin increases prior to challenging all time high territory. Copper is trying to hold US$4/lb and has been consolidating for almost 4 months. A concerted move above US$4.35 would reignite some excitement and possibly a new leg higher. An upside move in interest rates would pressure copper back to US$3.50 support levels.
Natural Gas remains range bound and needs a close above US$4.50/mcf to generate meaningful upside excitement. The crude oil market temporarily broke US$100/bbl and looks to hold the important $94/bbl 200 day ma. I'd be surprised to see US$90/bbl broken significantly based on accelerating increasing world demand. I don't think it will be long before the world is consuming 100 million barrels of oil per day. The Oil Industry has taken a significant amount of heat about 'irregular pump prices' in spite of a profit margin ranking of #114 out of 215 total industries (Yahoo!Finance). The Oil Industry reports an average of 6.2 cents profit per US$1 of sales.
The grains look particularly interesting to me with corn, soybeans, and wheat all looking to break out of 3 month positive consolidations to potential new all time high territory. Technical upside price moves for corn measure to US10/bl from the current US$7.50/bl ; Soybeans measure to a breath taking US$20/bu from it's current US$14/bu ; and wheat which has rallied 17% in a week to just over US$8/bu looks to retest the recent US$9.50 - $10 level. Higher grain prices are supported by drought and flood conditions throughout the world.
Increased costs in the grain complex will add unwanted negative political pressure in the 'boiling and roiling' Middle East. Higher costs would/will unfortunately lead to more protest and conflict and misery. Direct beneficiaries would/will continue to be the related seed, fertilizer, and machinery companies.
In Canada, the chartered banks have shown their hand with a 20% increase offer for the TMX group (Stock Exchange) topping the recent LME merger deal of equals. The new Maple consortium has wrapped themselves in the Canadian flag pointing to nationalistic interests and security. In reality, the Canadian financial oligopoly will be more vertically integrated than ever with very dangerous self interest and monopolistic implications. The regulators are left with the unenviable task of trying to decide if a self interest domestic bank led or foreign interest merger would be more appealing and beneficial to shareholders and the capital markets. My bet is that the banks will get 'their way' once again - and will wield an unhealthy grip on almost every aspect of the Canadian financial industry.
The TSX has held it's 200 day ma after almost 3 months of relentess cyclical resource liquidation. Recently the resource-rich TSX Composite and the S&P 500 has developed one of the largest divergences in recent memory. An upside move above 13,750 for the TSX would imply a potential retest of the 14,200 recent multi year high level. Many of the base and precious metal stocks have discounted significantly lower related underlying commodity price levels - which I doubt that they will reach any time soon. Many of the senior oil and gas issues are very attractively priced on an earnings and cash flow basis. The Canadian Banks are tracking positively and are about to report quarterly earnings with the hopes of dividend increases in the offing. Most of the 5 big banks are fairly to expensively priced based on trailing earnings but a new all time high break in the TSX Financial Index out would imply a new bullish leg to the upside. It must be their clean living?
Bottom Line: The momentum of the two year bull market has magnificently consolidated all the various negative financial and political bomb shells thrown in it's direction. Any important index I look at is within 3-5% of it's recent high and appears to have effectively 'cleaned out/consolidated' any significant selling pressure over the past few weeks and months. Combining the recent very strong earnings season, with substantial corporate buy backs, and a newly invigorated IPO and merger environment, the TSX, S&P, and DJIA are on track to make a concerted run at all time high territory. Any really good & significant economic news has the potential of igniting a powerful intermediate rally in stock valuations in my opinion. I look to the US as the main driver of improving economic and corporate conditions. It will be nice to see the creative and powerful US economic engine firing on all cylinders once again!
They say that Bull Markets climb a wall of worry - the past 3 year 'worry wall' makes the Great Wall in China look like a picket fence!
No comments:
Post a Comment