Lehman's loss toll

Salesforce.com: still plenty of room to fall.

The first casualty of this market crash is innocence. As such, a stock like salesforce.com (ticker: CRM) trading at a ridiculous multiple of 120 P/E should continue its free fall for quite a while. The stock is down 48% YTD but we are still only in the 4th of 5th inning. The Company, in spite of its rhetoric is still just a one trick poney, it only competes in the Customer Relationship Management (“CRM”) applications space. CRM is a market with about $7 billion in sales it is crowded with strong competitors such as SAP, Oracle , Microsoft and Sage, Salesforce has a market share between 10-15%. Compared that with Salesforce $3.5 billion in enterprise value and you can get an idea of how overvalued the stock still is. Disclosure: Short CRM

Interactive brokers - the mother of all short squeezes is coming

Interactive brokers - the mother of all short squeezes is coming During last week’s carnage Interactive broker’s stock was down only 4% compared to the S&P’s 18% decline. Tom Petterfy, the CEO and founder, is probably making good use already of the authorization to buy up to 8 million shares. The Company recently gave indication to the market that it’s third quarter results (which it plans to announce on Thursday, October 23, 2008, after market close) are likely to be strong (income before income tax and minority interest of between $325 million and $375 million, diluted earnings per share to be between $0.55 and $0.65) and exceed the street consensus. My expectation is that the company must have been quite conservative and will come out on top or even exceeding the range. In addition it seems also that the fourth quarter is of to a very strong start as the company benefits when actual volatility exceeds implied volatility in the derivatives, this is almost surely the case. With this level of volatility IBKR market making subsidiary, Timber Hill, has likely benefited in volume because more investors seek protection or speculate on a recovery and some their competitors withdraw from market making, finally pricing is also more favorable as the spreads widen significantly. With the stock priced at 9 times trailing twelve months earnings, with the market likely to be priced below intrinsic value and with strong indications of good earnings from the third quarter and encouraging prospects for the fourth quarter, you would need to be crazy to be short this stock, in my opinion. Yet as of 9/25 there were still about 6 million of shares shorted. DISCLOSURE: LONG IBKR

Will the Euro's Survival Be at Risk?

Ireland's decision

Ireland's unilateral decision to guarantee all deposits and (more concerningly) debts of her six largest banks (followed by similar assurances from Greece and Germany regarding deposits) is very concerning for the future of the Euro and indeed the Eurpean union. Ad-hoc responses in an uncoordinated fashion by different governments are much less effective than a well coordinated response and leave the remaining governments in a even more difficult situation. This could lead to a sub-optimal result for Europe as a whole a situation akin to game theory's prisoners dillema. Nouriel Roubini calls it a "beggar thy neighbor policy". This is substancially more damaging than the Irish turning down the Lisbon Treaty in the recent referendum (which provides for a much needed oberhauling seeking to improve the governability of Europe post-expansion to the East). This is particullarly regretable as it is coming from the country who possibly benifited the most from the adhesion to the European Union. On second thought this is perhaps not that surprising as the Irish had been been allowed to get away with fiscal dumping for decades, attracting businesses to be based in Ireland through very low corporate tax rates - at the expense of neighbouring countries who because of their larger size and political responsbilities in te context of the EU could not afford to have such a bucaneering attitude. A very tough test is in front of Europe which in a worst case scenario could end up in the premature death of the monetary union experiemtn of the Euro. I certainly hope this does not come to happen.