Sunday, May 22, 2011

The Party's Just Beginning

I hope you were as amused as I was at all the articles refuting the parallels between LinkedIn's rocketing IPO and the internet bubble of 1999. The justifications for what one journalist called "a glorified resume service" were abundant and reminded me of the bashing I took for suggesting solar and ag were overbought 3 years ago (see article here And they're partially right; it's not 1999, it's 1998. We've seen this gig before, grossly underpricing the IPO, stock doubles day 1, and a bunch of insiders become multi-millionaires. If LinkedIn, a company with earnings of $15 million and projected losses for 2011 can trade for $110, then Groupon and Facebook should hit $200 or $300 easily, right?

The current tech rising coincides with cracks in the facade becoming more evident daily. Aside from dismal manufacturing numbers which are always blown off as one-off events by the bull, retail's ship sank this week with Gap, Sears, and Aeropostale at the helm. Despite frequent Fed reassurances that commodity inflation will be transitory, Gap, one of the largest clothing retailers in the world, said they would knock .30 off of estimates because they could not get pricing power on cotton. Recent flooding and soggy weather has halted the rapid drop of corn and wheat, and gold has managed to stay strong in the face of a rising dollar. Interestingly, as Bill Fleckenstein noted in his column this week, China recently put a a $500 million bid on a gold mine, perhaps a sign of things to come.

This market has been very difficult to short for a long time now. Even stocks such as Open Table that were begging to be punished could have lost you a lot of money on its way from $20 to $120 before its recent $30 slide. But the list is growing. Priceline is still above $500. RIMM has taken a beating from near $70 to the low $40s and is caught in the middle of Android's ever-available platform and the cache of the iPhone. Sears lost $1.39 last quarter and is getting killed by both of its businesses. Berkowitz loaded up on Sears and Cisco last quarter and either knows something we don't, or is willing to take some short-term pain. The cable cowboy, John Malone, entered a bid for Barnes and Noble for $17, sending the stock over $18 yesterday. Malone is a bright guy who has been able to piece together unrelated businesses in the past, and BKS may be worth a small stake as either an arbitrage play or to gain Liberty shares going forward. In the meantime, I'm sticking with cash.

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