Did Facebook want OPERA so bad, it decided to last minute greed at the IPO?

The Facebook initial public offering (IPO) leaves investors with a bad taste, all eyes are still on Europe, and despite a shaky stock market and a 10-year bond yield at a new low, overall signals are actually less gloomy than you might think.

Just days before the IPO, Facebook raised its offering from 337.4 million shares to 421.2 million shares – all of it from insiders. They also raised the offering price from $25-$35 to $34-$38 before finally pricing it at the top of the revised range and giving the news media much to crow about.
Only days before the overhyped IPO, General Motors chickened out with plans to stop advertising on Facebook, citing little impact on sales as a result of ads placed on the social media site. Facebook concedes it is having some trouble monetizing the fast-growing mobile platform. According to the Wall Street Journal, lawsuits are beginning to fly, including one that alleges Facebook and its underwriters failed to properly disclose changes to analysts’ revenue forecasts.
Now the politicians are beginning to weigh in, and that’s rarely good for anyone. There is also the possibility that state regulators will begin scratching around for evidence of potential wrongdoing. A typical aspect of initial public offerings is too much supply combined with a high offering price that primarily rewards insiders (one of the many reasons I typically do not recommend IPOs to clients).
So far, Facebook hasn’t been all it was cracked up to be for the average investor, and the sliding price of the world’s largest social network creates another rotten odor for financial markets. A steady diet of negative headlines doesn’t do much for investor confidence, and they can certainly reinforce the notion that markets are “stacked against the little guy.”  On the other hand, IPOs are certainly risky, but one seemingly failed offering should not taint an overall market that offers many solid, dividend-paying, wealth building investment opportunities.  Nor should this latest disappointment override an otherwise sound financial plan you have already built for yourself.

Compared to Europe, the U.S. Looks Relatively Good

Since the euro broke through $1.30 on May 9, currency traders have been dumping it amid fear of further contagion. The current rate is barely above $1.25, bringing the currency to a 23-month low. Last week, the former prime minister of Greece reportedly said that a Greek exit from the eurozone was inevitable, though he later walked back those comments on CNBC that same evening.  Despite chatter in the media that a Greek exit is manageable, activity among eurozone stocks, German bonds, U.S. Treasuries, and the euro say otherwise.
Although U.S. markets have been frothy recently and the 10-year Treasury bond yield reached a new modern low, other significant indicators are not all bad. For example, existing home sales pushed upward during the critical month of April.
While forward progress has halted, jobless claims remain near the bottom of the recent range (hey, at least it isn’t getting worse).   Keep in mind that some may be finding employment, but others who exhaust their benefits may simply drop out of the labor force. After all, one must be actively seeking work to qualify for benefits and be counted among the unemployed.  Those who simply give up looking effectively but artificially lower the official unemployment rate.
On the other hand, driving to job interviews is getting less costly. Thanks to the poor global economic climate, gasoline prices peaked early and have been headed lower, giving American drivers a much needed break.

A Peek at the Coming Week

Europe hasn’t changed much and remains fluid.
  • Keep an eye on sovereign debt yields and – very important – potential bank downgrades by major ratings agencies.
  • Keep another eye on upcoming Greek elections on June 17. Any indication that the New Democracy party might come out on top could soothe market fears of an early Greek exit from the eurozone.
  • Expect headlines to create volatility in either direction.
  • Focus returns to Friday’s employment report.
  • ADP provides a sneak peek of private-sector employment on Thursday.
  • Citing weather, the Fed mostly dismissed recent reports of weak job growth, but another fall off in nonfarm payrolls will likely get their attention.
  • Most economists see unemployment holding at 8.1%, but they rarely forecast changes. Will we see another artificial drop tied to a declining labor force, rather than an actual increase in the number of people finding jobs?