What’s the Story?

by CC May 18, 2012 9:04 am • Commentary


U.S. equity-index futures rose before Facebook Inc. starts trading and as Group of Eight leaders prepared to meet to discuss Europe’s debt crisis. Global stocks headed for the worst week in six months and Brent fell to a 2012 low level as China’s economy showed more signs of slowing.

Standard & Poor’s 500 Index futures rose 0.5 percent at 8 a.m. in New York, signaling the benchmark gauge will rebound from a four-month low before Facebook’s debut following a record $16 billion initial public offering. The MSCI All-Country World Index (MXWD) lost 0.7 percent, after dropping 1.1 percent. The yield on Spain’s 10-year bond fell 12 basis points to 6.19 percent even after the country’s banks were downgraded. Brent crude oil in London decreased 0.5 percent.


Founded in a Harvard dorm room in 2004, Facebook has grown into the world’s dominant social network with 900 million users.

At $38 a share, Facebook would trade at over 100 times historical earnings versus Apple Inc’s 14 times and Google Inc’s 19 times.

For all the high expectations surrounding Facebook, the company faces challenges maintaining its growth momentum.

Some investors worry the company has not yet figured out a way to make money from the growing number of users who access Facebook on mobile devices such as tablets and smartphones. Meanwhile, revenue growth from Facebook’s online advertising business, which accounts for the bulk of its revenue, has slowed in recent months.


Bad debts held by Spanish banks rose to a 17-year high in March and the cost of insuring the debt of two major Spanish banks against default hit a record Friday a day after the sector was hit by a downgrade, underscoring the continuing challenges posed by the country’s five-year property slump.

The central bank said that 8.37% of the loans held by banks, or €147.97 billion ($188 billion), were more than three months overdue for repayment in March, up from 8.3% in February and the highest since September 1994. The total number of non-performing loans is now almost 10 times higher than the level reported in 2007, just as Spain’s decade-high property boom peaked.

The rapid deterioration of the loan books was one of four reasons cited by Moody’s Investors Service for its downgrade of the credit ratings of Banco Santander SA, SAN.MC +3.67%Banco Bilbao Vizcaya Argentaria SA BBVA -3.02% and 14 other banks in the country late Thursday.


First it was the strategists lowering their recommended equity allocation down to the lowest levels since March 2009.  Now, individual investors are at their most bearish levels in nearly two years.  According to the weekly survey of individual investor sentiment from the American Association of Individual Investors (AAII), bullish sentiment came in at it 23.6%, which is the lowest weekly reading since August 2010.