Welcome back, View fans. Here’s a look at my morning reading.
Twitter’s stock price went up a lot more than this NYU professor thought it should, and he’s trying to figure out why.
Aswath Damodaran, who teaches corporate finance and valuation at New York University, wrote a blog post back in October before the company’s initial public offering in which he assessed Twitter’s value at $18 a share. Last week the stock fell 25 percent in one day, but it still trades for more than $56. So he and the market disagree, as they’re entitled to do. Now he has revisited his model, and he figures Twitter is worth $20.57 a share: “Am I predicting that Twitter's stock price will drop back into the twenties? Of course, not, but I would not be surprised if it did, and if the drop was triggered by another piece of trivial news or even non-news. At the same time, I would not be surprised to see the stock double to $100/share, triggered by a different news story. I have used this analogy before but there is no harm in using it again. When uncertainty about the future is high, markets (and investors) become bipolar and predicting their behavior is a fool's game.”
Charles Plosser on the case for speeding up the taper’s pace.
From a speech this week by the president of the Federal Reserve Bank of Philadelphia: “The unemployment rate fell 1.2 percentage points last year, and again in January to 6.6 percent. This is a much sharper decline than anticipated when we started the purchase program in September 2012. We are now only one-tenth of a point from the 6.5 percent threshold in our forward guidance for interest rates. The FOMC has indicated that it doesn't anticipate raising rates when the economy crosses that threshold. However, I do believe that we have a communications challenge. We have not described how policy will be conducted after the unemployment rate passes 6.5 percent. Last summer, it was thought that we would stop asset purchases by the time unemployment reached 7 percent. Well, that didn't happen. What is the argument for continuing to increase monetary policy accommodation when labor market conditions are improving more quickly than anticipated and inflation has stabilized and is projected to move back to goal? The longer we continue purchases in such an environment, the more likely we will fall behind the curve in reducing the extraordinary degree of monetary policy accommodation.”
Please, for the love of Spain, write down these loans.
That’s the request from Spain’s government to Banco Santander SA, Banco Bilbao Vizcaya Argentaria SA and other lenders, according to a report by Esteban Duarte and Charles Penty of Bloomberg News. The loans, which are backed by highways, total 3.5 billion euros ($4.8 billion). The size of the haircuts being sought is unclear. So is the extent to which Spanish banks have other loans on their books that still need to be written down.
Where will the next big economic storm begin?
Matthew Lynn of Market Watch says it won’t be the Fragile Five (Indonesia, South Africa, Brazil, Turkey and India) or other emerging-markets countries. “The next crisis will start, as did the last one, in one of the developed economies,” he writes. “It is far more likely to come from France, Germany, Britain, Australia or Canada. Those nations are the real Fragile Five -- and far too few investors are worrying about them.”
Hey, at least they didn’t name their kid Lehman Brothers.
From the Associated Press: “Parents in the Mexican state of Sonora will no longer be allowed to name their children `Facebook,’ `Rambo’ or 59 other now banned given names.” Each of the names has been found at least once in state registries. So that means someone in Mexico really named a kid Facebook. Here’s more: “Other odd names include a girl called `Marciana,’ or `Martian,’ and a boy called `Circuncision,’ or `Circumcision.’”
(Jonathan Weil is a Bloomberg View columnist. Follow him on Twitter.)
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