The North Mobile Post

    A report detailing retail sales in December came in better than expected, and stocks moved higher today as a result. From November to December, retail sales rose 0.5%. It was the best showing since September. In contrast, sales rose 0.4% in November. Worries over the fiscal cliff did not stop shoppers from getting out and spending over the Christmas holidays.

    The Dow Jones Industrial Average moved up 27.57 points to finish at at 13,534.89. The S&P 500 was up 1.66 points to 1,472.34. That marked a 5 year high for the S&P 500. The Nasdaq was down 6.72 points to 3,110.78. Apple’s slumping stock was one of the big culprits for the fall.

    Though the fiscal cliff is behind us, the next controversy is quickly brewing. The US government is set to hit its debt ceiling by mid February, a bit earlier than was originally predicted. If the debt ceiling is not raised, the government will not be able to pay all of its obligations. At that point, it will have to pick and choose what it pays amongst things like Social Security, Medicare, interest on the debt, etc.

    If the borrowing authority of the government is not extended soon, we could face another credit downgrade as well. Countries are given credit scores just as people are. It lets investors know how safe it is to buy bonds from said country. The US has always had a AAA credit score, which is the best one can achieve. In 2011, S&P (one of the big three companies that levy scores on nations) downgraded the US credit rating following the debt ceiling fiasco that unfolded that summer.

    The debt ceiling was typically raised without much controversy in the past. After Republicans took over the House in the 2010 elections, they vowed not to raise the debt ceiling unless any hike was met with matching spending cuts. President Obama has said he will not negotiate over the debt ceiling again. The nation is locked in a game of chicken that could send shock waves throughout the world economy.

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    Wall St. was not impressed by Europe’s latest rescue package. The markets initially opened higher, with the Dow Jones jumping as high as 96 points in early morning trading. The rally was short lived, and the Dow finished the day down 143 points. The S&P 500 dropped 17 points, and the Nasdaq fell 49 points.

    Many are questioning the effectiveness of the Spanish bailout proposal. Spain currently has a very week economy, and any austerity measures tied to the bailout could make matters worse. Greece is still on the minds of investors as well. The Greeks go to the polls this Sunday in an election that could hold the fate of their future membership in the EU in its hands.

    Opinions vary on what the consequences in the US will be as a result of turmoil in Europe. Paul Krugman does not believe the Europeans will have a crisis as bad as the 2008 financial debacle in the US, but he predicts they will be hit by a bad recession. Krugman believes that will have little effect on the US economy.

    Bad news for stocks is good news for motorists. With all of the uncertainty about the economy, the price of oil continues to fall. Crude dropped $1.40 a barrel to settle at $82.70. Brent crude fell was down $1.19 to $96.95 a barrel. Commodity traders fear that continued economic weakness will lessen the demand for oil in the future.

    Falling gas prices could have a small stimulative effect on the US economy, as consumers have more money in their pockets to buy consumer goods. In the long term, the prognosis for oil prices is still bad due to growing global demand for petroleum products.

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    Yesterday, Facebook launched the third largest IPO in history. The company raised more than $18 billion, which puts its value around $104 billion. After a delay due to the number of orders, the stock finally went on sale around 11:00 AM. The price quickly jumped up to $43 a share. During the afternoon, the price collapsed and settled around its starting area of $38.

    Over 500 million shares of the stock were traded on Friday. The Nasdaq had big problems handling the traffic, something that is sure to hurt the index’s reputation and bring possible lawsuits. The news was not good for Facebook either on Friday. After surging to $42 a share, the price began to fall, with the stock’s underwriter’s forced to keep the price above its starting point. There is no telling how much money the underwriters spent keeping the price afloat, but many expect the stock to sink on Monday as word spreads about their actions.

    The problem with the Facebook stock is that it was valued to high. A valuation of over $100 billion means Facebook will have to have tremendous growth over the next ten years. Insiders have been claiming for some time that those that run Facebook are having trouble monetizing their product as well as Google has. Facebook has over 900 million users, a lot of which spend hours on the site, and yet their revenue was only $3.7 billion. That is a lot of money, but not for a website with that much traffic. Worse still is that there does not appear to be a lot of room for growth, as it may have hit market saturation in most of the desired countries around the planet.

    The underwriters thought the name alone would attract enough investors to support an opening price of $38 a share. It turns out they were wrong, and the underwriters were forced to support that price themselves. The situation is dangerously similar to the dot com boom of the late 1990s, where tech startups were over hyped, and they ultimately led to a mini economic collapse. When making investments, one must over look the hype and keep an eye on the bottom line. In this case, the bottom line is Facebook was not as valuable as its Wall Street backers tried to claim it was. In the end they were the ones that paid for that mistake.

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    The most anticipated IPO in a number of years now has an opening price range. Facebook revealed a price range of $28-$35 a share at a regulatory filing on Thursday. That would make the company worth as much as $95 billion. The stock will be available later this month.

    The launch will be the biggest ever for an internet company. Facebook could raise over $13 billion with the IPO. That tops the previous record for an internet company set by Google in 2004 which raised $1.9 billion. That IPO valued Google at $23 billion. The search giant is now worth over $200 billion.

    The largest IPO in US history was Visa’s in 2008. The credit card giant raised $17.9 billion. The largest IPO in world history belongs to Agricultural Bank of China Ltd. The Chinese bank raised $19.3 billion.

    The stock will become available on May 18. It will trade on the Nasdaq under the symbol “FB”. Founder and CEO Mark Zuckerberg will maintain control of the company with a 57.3% stake. If the stock opens at the higher end of the price range, Zuckerberg’s share of the company will be worth $17.6 billion.

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    The stock market came alive today, shaking off a bumpy few days after Federal Reserve Chairman Ben Bernanke suggested that the Fed will keep interest rates low for the foreseeable future. Bernanke believes the economy is still fragile, and that we can not be sure if the recent surge in hiring will continue. Investors jumped at the thought of continued record low interest rates.

    The Dow Jones Industrial Average jumped 160.90 points, its biggest one day gain since January 3. The Dow has gained 7% on the year. The Nasdaq and S&P 500 were both up on the day too. Those averages have gained 18% and 12% respectively. Improving economic data and the continued support of the Fed are credited with the recent stock market surge.

    Last weeks unemployment reports suggested that March’s number are going to be in the same neighborhood as the previous few months. The last 3 months have all seen 200,000+ jobs created. Each additional month with numbers that high further solidifies the economic outlook. Corporations will begin revealing quarterly results next month. That will give us another insight into the economy’s overall health.

    There are several factors that could hurt the growing recovery. The number one issue threatening the recovery right now is high energy prices. They seem to have stabilized for now, but whether or not we have reached peak prices for the year is unknown. If gas prices rice to far above $4 a gallon we could see it become a major drag on the economy.

    Economic weakness abroad could prove problematic for the US economy through the rest of 2012. Europe is dealing with a recession brought on by the government debt crisis. China’s economy has begun to slowdown as well. We are now in a global economy where nations are interconnected. When one country’s economy weakens, the effects ripple throughout the world.

    The recovery from the 2008-2009 recession has been slow. That has historically been the case when dealing with financial recessions. President Obama has laid out some policies that most economists believe softened the blow. The stimulus package pumped over $700 billion into the economy, mostly through tax breaks and aid money to the states. That bill is credited with saving millions of jobs. The bailout of the auto industry is also paying dividends as GM has become the top car maker in the world again, and Detroit is enjoying a decent comeback.

    We will see in time if the reforms passed by President Obama were enough to keep the economy from collapsing on itself again in the future. The Dodd-Frank reform bill made some decent changes, but it has drawn a lot of fire from critics on the right and the left. Conservatives view it as going to far, and Liberals feel it didn’t go far enough. The next presidential election is going to be significant. If a Republican wins the White House, you can bet your bottom dollar that most of the reforms passed in the last four years will be repealed. Going back to the way we did business before the financial crash of 2008 is probably not a good idea. Those that fail to learn from history are doomed to repeat it.

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    For the first time since May of 2008 the Dow Jones Industrial Average has closed above 13,000. It is now only about 1,200 points off its all time high set in October of 2007. Growing confidence in the economy has led the Dow to gain 6% so far this year. The stock market is having one of its best starts to a year in over a decade, and today’s finish may cause additional investors to start believing in the recovery.

    The Dow has flirted with the 13,000 mark for the past two weeks. Polls showing growing consumer confidence finally put the index over the top today. Other indexes are doing even better. The Nasdaq is up 14%, and the S&P 500 is up 9%. The markets have show surprising resilience to gridlock in Washington and turmoil in the middle east. The easing of uncertainty in Europe has helped the market the past few weeks.

    There could be bumps in the road for the rally. If gas prices continue to rise then the economy could falter. If the economy begins to slow down under the weight of inflated gas prices then stocks will follow, with the exception of energy stocks.

    The market has some good news to look forward to as well. Facebook will have its IPO sometime later this year. Apple is expected to announce its new iPad 3 in the coming weeks. Tech stocks should be strong this spring. Barring unforeseen jarring events the Nasdaq should do well in the coming months.

    February’s job numbers will be a good indicator of how strong the recovery is. We have had a few good months of nice job creation. The unemployment numbers will also be an interesting read. Even if job creation is strong, the unemployment rate could go up as those without jobs try and reenter the workforce. Weekly trends have yet to show that bump, but it could come at any time. If the numbers are strong again, then the free market will be ready for them.

    Tech stocks were a bit of a drag on the market today. Amazon and Netflix were down 5% and 3.8% respectively. Shaky economic data and the end of the Federal Reserve’s stimulus program have investors worried. The recent plunge in commodities has not helped matters either. Experts say a minor correction may be on the way.

DOW           12,548.37     -47.38     -0.38%
NASDAQ     2,782.31     -46.16     -1.63%
S&P           1,329.47     -8.30     -0.62%

    The stock market was up for the third straight day today. Crude oil, silver, and gold all moved higher following last week’s plummet. Technology stocks moved higher with the notable exception of Microsoft. China reported a huge trade surplus for April of over $11 billion. Import prices continue to rise as the Labor Department reported an increase of 2.2% in April. Most of the price increase was due to surging energy prices.

DOW     12,760.36     +75.68     +0.60%
NASDAQ     2,871.89     +28.64     +1.01%
S&P     1,357.16     +10.87     +0.81%