The Depreciation of Trust

The SLW conversion is complete, and traders on SL CapEx are now fully capable of withdrawing Lindens from the sales of their stocks. Yet, much work remains to be done.

On the public relations front, the most pressing issue I can see is newbies who somehow have gone blindly throughout life with no comprehension whatsoever of how a stock market functions. They stumble in, rant about where their money is gone, are pointed to a news posting, and then slowly realize the truth of the matter: Their portfolio is now worth 55% of what it was when they were a happy JTF Bank customer (current SLW price is 0.55-ish).

This problem is compounded by the fact that many of these customers don't speak English as a first language or maybe even at all. I do not fault these people for being confused, as it's a complex enough topic to handle for native speakers like myself. CapEx has made a good effort in reaching out to these people, and I hope CEOs are doing the same. Verballis may be able to help.

However, now it is time to look at another issue of the conversion: Trust. Trust is a funny thing to talk about in the financial, economic, or mathematical sense of the word. It certainly has value, but yet how to value it remains a near mystery. The branch of study known as Game Theory delves into this topic in great detail by applying certain "games" that try to quantify trust into a dollar value. If you ever hear of someone looking for volunteers for a Game Theory study, sign up - you will most likely walk out of the room with cash.

SLW presents another interesting way to try to quantify trust. Arbitrage Wise has promised to pay L$1.03 for each share of SLW at some future date. He has not released a date when this can be expected to occur, however. So, the question then becomes, how much is a promised L$1.03 from Wise worth? As mentioned above, it is currently worth L$0.55.

The far more interesting thing to me, however, is that this value is decreasing. After its initial volatility, SLW appears to have established a downward trend of about L$0.03 per day. (To be fair, one day it did rise L$0.03, but then fell L$0.06 the next.)

The market is giving Wise an idea of how much time it will be willing to wait for him to bring new funds into the market. For former depositors, these shares represent forward contracts of L$1.03 with an unspecified settlement date. I believe what is causing them to increase is a perceived increase in the risk premium or settlement date of SLW, or both. (Note: If anyone would like me to go through the mathematics of this, let me know and I'll work up another Lessons of FM for it. Don't be afraid to ask - it's just too much for this post.) At present, the market appears to be losing faith in Wise's promise at a rate of about 5% per day.

What can be done to avoid this? Well, this post on the CapEx forums caught my eye. While I don't agree with the abrupt manner the request is presented in, I do agree with the premise: it's time for a show of financial power and honestly from Wise. L$100,000 would go a long way towards buying some faith back in SLW, as would a metric posted somewhere showing how many shares have been repurchased to date. Even better is the fact that with renewed faith will come new buyers, pushing the price up and getting the most vocal and impatient of the depositors out the door, which giving the shares to more patient and positive investors.

I await a price spike.