Where to Go?

Let's face it. Volumes on SL Capital Exchanges (all of them) are dismal, and liquidity is a major concern for investors. "Why should I plunk down several thousand of my hard-earn Linden Dollars if it'll take me months just to sell at a break-even price, and that's if I'm lucky?" With liquidity locked up, major investors will have a hard time realizing a profit on their investments, even if the market values of the particular stocks rise. So how do we fix this?

It seems that whenever a SL company goes belly-up, the CEO simply throws their hands in the air and walks away. That's because it's a possibility in Second Life. There is no chain connecting the CEO to the viewer which makes him or her responsible. Threats of legal action are simply idle talk, as even recovering something like $20,000 USD (about L$5.4 million) would be silly in the context of lawyers' and courts' fees (not to mention your time) to get it.

Certain exchanges have made progress in the realm of removing the complete anonymity of CEOs by requesting IDs for IPO clearance. Nevertheless, even if you know their ID, what good does it do you? Again, legal fees are too prohibitive.

I hesitate to say it, but I think it may be time to tie some more legal strings around the CEOs of SL companies. Some have suggested using promissory notes, but it sounds more like a fidelity bond issue to me, if there was an insurer who would ever cover it. The point remains the same, though: sending a message to CEOs that this is more than a game (in spite of the hypocritical boilerplate language at most exchanges), it is a responsibility which will reach out and slap you in real life if needed.

Before I let this tirade go too far, I do realize that this is not always something that a CEO wants to take on. I daresay that the salaries earned by most SL CEOs are nowhere near enough to compensate for the trouble which these legal ties could cause in real life. Maybe that's the answer, but I hope not.

I'd love to know how to restore investor confidence, but I'm just not seeing a way of doing it without giving investors some sort of recourse for CEO inadequacy or fraudulant activity.

Anyone else have other ideas? Comments?

SLW Conversion Commentary

On Wednesday night I contacted Bogart Beck about raising the upper-level circuit breakers on CapEx in expectation of heavy trading the following day. I was right.

I'm not gloating too much - it doesn't take a great leap of logic to see that people are scared of SLW and will hold on to just about any other security in order to get rid of the possibility of having them. That's what's pushing CapEx prices up currently. Investors aren't trading Linden dollars anymore - they're trading SLW shares for other shares, and trying to get the best rate they can. Although JTF/CapEx has fixed a price target of L$1.03 for SLW, investors clearly aren't buying that.

I closely watch the SLR stock price, so I'm going to use it for an example. For the past few months, it's been creeping up from L$0.50 to L$0.75, and throughout January has held pretty steady around L$0.75. Today, however, it hit L$1.20. That's an increase of 60%! To me, that's not an increase in the value of SLR, but rather a decrease in the value of SLW. Since we know the share value of SLW is supposed to be L$1.03, we can solve to find out what these traders are valuing SLW at (maximum):

L$0.75 / x = L$1.20

x = L$0.625

These buyers are putting the SLW value at less than L$0.63 each. Looks like the market is expecting a panic...but we already knew that. You can't even read the CapEx forums now without some head-in-the-sand noob screaming "I WNAT MY MONEYS BACK!!! NOW!!!" I even heard a trader in CapEx today claiming that he was going to buy some BTR in hopes of selling it quickly at L$75.00 each. Market forces quickly brought the ask prices back in line, dashing the hopes of this trader, but it still served as an example to me of how confused these traders can get.

But let's stop keeping pace with the market at this point. Let's step up our pace and think one or two steps ahead of the general traders. We know the market is expecting a crash, and I've heard several big players say that they'll happily buy up cheap SLW shares from these fools. I may even throw in a few lowball bid offers in hopes of downward spikes. Those big players may keep SLW above the catastropic predictions and calculations the market is currently generating.

Also, everything I can see says that people are already ditching their SLW - they're just doing it by buying other stocks. That shrinks the supply of SLW shares available from the most active traders, which is another upward thrust for SLW prices. I still think it'll fall below L$1.00 in a heartbeat, but maybe it won't go so low as the calculation above suggests.

These traders and bank depositors want their cash. I suspect they'll take a hit to get to it. But they're not holding SLW shares anymore - they're holding some of their favorite company, or maybe every company. Therefore, I expect the drop in prices to be more severe among other CapEx companies than SLW, at least after the major spikes stabilize. How severe? I'm not sure, but bargain investors will find a huge sale going on at the CapEx next week.

So how do you make money in this market? I've been placing high sell orders on all my stocks and I'm preparing to hold SLW shares until prices stabilize. All orders should be canceled at the conversion, so there is no harm in placing them. Once SLW prices are steady, it should just be a matter of cashing out.

Unless, of course, something unexpected happens.

Holy Crap, Guardian

Hello World,

My good friend Guardian Market talked me into posting on his blog. Not quite sure what I am going to post about, but I look forward to it! :-P

I'm sure I will be bitching about something, as usual... definitely about Second Life, probably about finance. We'll see.

And if you haven't already done so, please be sure to check out SL Reports, where I have just inverviewed IntLibber Brautigan about the ACE stock exchange. I also have interviews with the other exchange heads coming soon, so stay tuned!

Sincerely,

Xavier Mohr
SLReports.net