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Sunday, May 6, 2012

Revisionist history

Tony Paradiso

The disadvantage of being ahead of the curve is that you have to wait for the news to catch up. It’s beginning to dawn on Wall Street that Europe’s depressed economy is a problem.

In April, the euro zone suffered its steepest decline in manufacturing activity in almost three years. The only bright spots were modest increases in activity in Ireland and Austria. And Europe’s employment picture is beginning to makes ours look like the ’90s boom days. According to Eurostat, the euro zone’s unemployment rate rose to 10.9 percent, equaling the lowest mark since they began keeping records in 1995. That’s never a good thing.

Before the sun sets today, French President Nicolas Sarkozy will be counting himself among the unemployed. His successor – Francois Hollande – likely will rile the Franco-German alliance by lobbying against continued austerity. That’s not necessarily bad, at least in the short term. Tinkering with the fiscal pact may compound Europe’s sovereign debt issues down the road, but it’s likely to improve current economic conditions.

German chancellor Angela Merkel’s reaction to changing course will determine if things improve or worsen. Odds favor a compromise because the alternative is almost certainly worse.

Meanwhile, the Greeks also go to the polls today and the only certainty is that a coalition government will be required. The stability of that coalition will determine the country’s fate. Ultimately, Greece will exit the EU. The only question is whether it will be sooner or later. That will depend upon whether a stable coalition can be maintained.

Heading east, April was a mixed bag for manufacturing in Asia. Taiwan suffered a steep decline, Korea was flat, and output ticked up in China. The improvement in China is welcome news but the jury remains out on whether the momentum will continue. That question will be answered over the coming months.

Manufacturing activity also improved domestically. The Institute of Supply Management’s purchasing managers index rose in April to 54.8 from 53.4 in March. The increase in the new orders reading was particularly strong. On the employment front, only 115,000 jobs were created in April, but the good news is that February and March were revised upward by 53,000.

The bad news is that construction spending was flat and the service sector didn’t match the manufacturing side. The ISM’s nonmanufacturing PMI dropped from a reading of 56.0 in March to 53.5 in April. Given that nonmanufacturing activity comprises the bulk of economic activity, the decline in the services sector overshadowed the uptick in manufacturing.

But enough on the economy, let’s turn to my favorite pastime: poking fun at corporate leadership.

Facebook is weeks away from its initial public offering, and the projected price range is set to dwarf Google’s initial IPO valuation of $23 billion. If the company achieves the high end of the $28 to $35 a share range, Facebook’s valuation will approach $100 billion. With the anticipation surrounding the stock, don’t be surprised if the final price is set above the initial range.

The IPO process opens up the company’s kimono and a number of the disclosures might make some potential investors pale.

For example: first-quarter sales and profits fell from the previous quarter. Or how about this minor problem: Relatively few people actually click on Facebook ads. But one of the most interesting tidbits was the revelation that even in death Mark Zuckerberg may control the company.

According to the filing “… in the event that Mr. Zuckerberg controls our company at the time of his death, control may be transferred to a person or entity that he designates as his successor.” Just the fact that Zuckerberg would insist on such a stipulation is more than a little creepy.

The climate turned grey on Green Mountain. Shares fell off a cliff after the company announced lower profits and an inability to predict future consumer demand for its cornerstone product: Keurig single serving coffee packs. There is a silver lining for management. If Green Mountain’s board decides to make a change, management’s inability to project future activity makes them eminently qualified to pursue a career in economics.

Talk about a bad investment. Last September Green Mountain’s stock hit its peak at $111.62. After the rocky news, the stock lost almost half its most recent value and now trades at around $28. In an Everest-sized descent, the company lost more than $3 billion in market value in a single day.

In another development, Yahoo’s biggest shareholder – Dan Loeb – accused CEO Scott Thompson of padding his resume. At issue is Mr. Thompson’s claim that he holds a degree in computer science. Yahoo’s response: it was “an inadvertent error.”

Thompson holds a Bachelor of Science degree in accounting from Stonehill College. What he meant to note on his resume is that he took a class in computer science. Because it was taught at a Holiday Inn Express, he considered the class the equivalent of a full-fledged degree.

I need to go now and update my resume. I realized that I inadvertently included a Ph.D. from Oxford University and Rhodes Scholarship on my resume, and I need to correct the error post haste.

Author, professor, entrepreneur, radio and TV commentator, Tony Paradiso can be reached at tparadiso@tds.net.