What's Important in the Financial World (5/30/2012) Facebook at $20, Tim Cook Interview

Spain’s bond yields are no longer sustainable. Its government sold 10-year notes at 6.652%, up 19 basis points from the last auction. The deep financial troubles of its banks, a double-dip recession and unemployment of nearly 25% have made the chances Spain will need a bailout almost certain. Economists wonder how many hundreds of billions of dollars this will require. The EU funding facility has about $700 billion. The International Monetary Fund says it has another $270 billion to support EU national finances. But those pools of money could be nearly exhausted by the financial needs of Spain. That leaves the question of what happens if Portugal and Italy get in deeper sovereign trouble.

China’s Stimulus

China’s government leaders say that any stimulus they might add to the economy in the People’s Republic will be nowhere close to the $600 billion invested in 2008. They claim that China does not face problems like those four years ago, when the world dropped into one of the deepest recessions in decades. At that point, China’s growth and employment were threatened. The amount of stimulus needed is likely to change, no matter what government officials say. China’s GDP growth rate is down to near 8%. In most economies that would be a boom. In China, it could mean a recession. And the slow growth may worsen as its major trading partner, the European Union, the largest region in the world by gross domestic product, becomes more economically troubled and falls into a second recession. China’s middle class has to grow and prosper to support its GDP. If factory activity slows and employment growth stagnates, the amount of stimulus forecast would have to rise quickly.

New at Apple

New Apple (NASDAQ: AAPL) CEO Tim Cook said in an interview at the AllThingsD conference that Apple was looking carefully at the TV market. Beyond that, he spoke a great deal but said very little, a habit he must have acquired from Apple’s founder, the late Steve Jobs. Cook hinted that new, great products would be released by Apple soon, but he would not reveal if these were part of the current iPad, iPhone and Mac product lines. Rumors abound that an iPhone 5 will be released later this year. But how much of an evolution can it be from its predecessor or new and popular products from Samsung? Cook also said that he would increase the level of privacy at Apple. He is clearly worried that competitors and rivals will get a sneak look at products in development.

Facebook Falls Further

Facebook (NASDAQ: FB) shares fell another 10%, to less than $29, and are off almost a quarter from their IPO price. That initial public offering is surrounded by scandal, which ranges from glitches in the Nasdaq’s (NASDAQ: NDAQ) trading system to possible revelations about Facebook’s revenue forecasts from lead banker Morgan Stanley (NYSE: MS) to some large investors. None of these are as important to most investors as the question of how far the stock may fall. Some believe a $20 floor represents a valuation at which Facebook is pegged more closely to other huge tech firms. That valuation could be supported by estimates of where the stock will fall if earnings from the second quarter are well below expectations. For the time being, very few experts and analysts have been making the case that Facebook should trade much higher.

Douglas A. McIntyre