Feb. 24 - Mar. 1/2013
Market comments: On Wednesday the DJIA touched a new five-year high. This is particularly astonishing as the index experienced the year’s worse sell off last Monday. The S&P 500, and S&P/TSX also did well, although the Canadian market was weighed down by commodities towards week’s end. The S&P 500 is only 3% away from is 2007 high, and the Dow is half a percent from its highest close (again from 2007).
Company News: Yahoo Inc made headlines when Marissa Mayer, CEO, banned working from home. As an internet company that makes connecting easier, some consider it to be a counter intuitive move. Others argue Yahoo is just the first company to implement this change, and others will follow suit.
Several other Internet companies made headlines last week. Groupon was in the news for eliminating chief executive Andrew Mason after dismal earning reports. The company, valued at $12.7bn at its IPO in 2011, was recently valued at only $3bn and missed recent analyst expectations. The stock gained 13% upon news of Mason's departure. Andrew's letter to employees is certainly worth a read:
"...After four and a half intense and wonderful years as C.E.O. of Groupon, I've decided that I'd like to spend more time with my family. Just kidding - I was fired today. If you're wondering why... you haven't been paying attention..."
While Groupon tanked, LinkedIn posted particularly strong earnings. It is now valued at over $18bn, having IPOed at only $4bn.
International news: The Italian elections did not reveal a clear direction for the government, resulting in “a surprisingly tight three-way race between Pier Luigi Bersani’s centre-left coalition, Silvio Berlusconi’s centre-right coalition and the upstart, anti-establishment Five Star Movement of Beppe Grillo. Caretaker prime minister Mario Monti’s centrists were all but destroyed. While the centre-left barely won the lower house of parliament, there was no clear winner in the upper house – the senate.” Remember, a majority in both the upper and lower house is required to govern.
Otherwise: US sequestration is now beginning – meaning $85bn is automatic spending cuts are now taking effect. Investors seems to be looking for the silver lining – interest rates must remain low, the budget will be improved, etc. In particular, companies that produce consumer essentials have been doing well, as their products tend to do well in a tough economy.
RBS and Lloyds reported significant losses (c. $8bn and $2bn, respectively), these were attributed to funds appropriated to PPI misselling, and fines associated with LIBOR. Both companies are at least partially owned by the British government.
Banking bonuses were a hot topic last week. They are to be capped at two times salary under a provisional EU deal. Critics argue that staff and lucrative operations will move to the US or Asia as a result. BoJo called the bonus cap 'moronic'. On a more hilarious note, this article for Bankers gives a how to guide for telling "your wife or husband you got a bad bonus" and it isn't ironic...
With regards to austerity, it seems the tide is turning. According to this article in The Economist "Thursday's by-election in Eastleigh showed the UK might have its own Beppe Grillo-style disrupting force in the form of the UK Independence Party. But the British downgrade showed that, for all its attempts to please the markets, slow growth in the UK is preventing the government from making a dent in its debt, while Italy showed that voters will eventually reject an austerity policy". The Lib Dems came out ahead, with UKIP coming in second.
Otherwise, sterling is quite weak right now; it is sitting at a two year low relative to the USD.