Weekly Commentary: Facebook: a savior or a pariah [piranha]?

May 21, 2012

05.21.12

The overall stock market continued its retreat last week, with the S&P falling by 4.3% while the Nasdaq was down by 7.2%.  Both domestic and international concerns weighed on our equity markets.

Internationally, Greece returned to center stage, with bank depositors fleeing and debt yields spiking.  It is becoming clear that they do not have the discipline to remain in the Eurozone.  The only question is whether their exit is orderly or otherwise.  The drachma, which was retired in 2002 [at a rate of 340.75 drachma to the euro], will be reintroduced in the not-to-distant future.  Let’s hope that it is done in a way that does not disturb the other European dominos.

Domestically, both earnings and economic reports were mixed. Housing is bottoming and manufacturing is strong, with industrial production increasing by 1.1%, twice what had been expected.  Initial jobless claims are still high [370,000 in the latest week] while the leading indicators index actually fell 0.1% [+0.2% expected]. The dollar strengthened last week, mostly against the euro, as the flight to safety trade dominated.

The Facebook IPO dominated domestic financial headlines late last week, but aggressive sizing [$16B raised instead of ~$10B] and pricing [$38/share instead of ~$32] produced disappointing aftermarket price action.  In addition, the Nasdaq experienced technical/communication difficulties during early trading last Friday.  As a result, the underwriting syndicate was tested by repeated bounces off of the $38 offering price Friday afternoon [and subsequent breaking of the syndicate the following Monday [with a $34.03 close!].  Perhaps now we can turn our attention back to seasoned issues.

“There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency”
– Lord John Maynard Keynes [1883 – 1946]