"It was like avoiding an atom bomb, or in this case, a financial bomb," quipped one Morgan Stanley trader.
That was his reaction to Monday's surprisingly strong stock market performance following Friday's wicked 166-point decline in the Dow in the wake of the Egyptian riots.
The consensus of some market watchers over the weekend was that all hell might break loose on Monday, but it never happened. The market opened higher, never looked backed and wound up the day higher, with the Dow rising more than 68 points.
Even the Wall Street Journal guessed wrong, telling its readers over the weekend that U.S. stocks were likely to extend their Friday tumble when the market opened Monday. Actually, when you think about it, the Journal should have been right, given the obvious risks related to the riots, notably:
-- They might encourage terrorists to spread the riots to destabilize other Mideast regimes, such as Jordan and Saudi Arabia.
-- Lead to a possible disruption in the transportation of 2 percent of the world's oil through the Egyptian-controlled Suez Canal, which would cause the price of crude to skyrocket.
-- More than likely heighten tensions between Israel and its neighbors should Egyptian president Hosni Mubarak (who announced he will not seek re-election) leave and radical elements take control of the country, the leading Arab peacemaker in the region.
Apparently, investors pooh-poohed the significance of these risks. Though investors escaped the ravages of the riots on Monday, the question is raised as to whether Wall Street is making a mistake by downplaying the crisis. Some market watchers suggest yes.
One is well-regarded Wall Street veteran, Fred Dickson, chief investment strategist of D.A. Davidson & Co. in Great Falls, Montana, who argues the worst may not be over yet as far as the Egyptian conflict goes. It will prey on investors' minds until stability is restored, he says. "It's like a flash fire; either it goes out right away or it smolders. This one will smolder."
Dickson figures the Egyptian situation will lead to above average market volatility for the next month or so. One obvious danger, he notes, is the possibility that extremist elements may gain control of the country. If that happens, he observes, "look for a nasty market decline."
In any event, Davidson sees stock prices vulnerable to a 3 percent to 5 percent pullback some time soon. "This market has come awfully far awfully fast and looks overextended," he says.
Another market watcher also questions the wisdom of downplaying the crisis. He's Costa Rican money manager Felix Heligmann, who manages about $93 million of family and friends' assets.
About a week ago with the Dow hovering around 12,000, up about 20 percent since late August, he told me "The U.S. market is acting so strong that you really have to be a player and I'm going to increase my position."
But that was a week ago. Now, in light of the riots in Egypt, he's had a change of heart. "I've changed my mind about doing more buying," Heligmann says. "The market is acting like the events in Egypt were a non-event. That's reckless, scary and it's also not right because too many things there could go wrong. Does anyone," he asks, "really think the U.S. haters in the Mideast are not plotting ways to worsen this crisis?"
Whether he's right or wrong is anybody's guess. But for sure, he's dead on about the market, which, based on its ongoing strength, looks like a combination of Samson, Hercules and Conan the Barbarian all wrapped up into one.
Citigroup views the political unrest in Egypt as little more than "a short-term challenge." In addition, a Rasmussen poll shows that 75 percent of the participants don't think the Egyptian problems will spread.
I only wish I could be so cocksure. Reminds me of this boat captain who assured an alarmed passenger: "Don't worry; the Titanic could never sink."
What do you think? E-mail me at CDandordan@aol.com.
Facebook has officially announced that it has just raised $1.5 billion in funding at a $50 billion valuation, according to a release issued today (we’ve embedded the release below).
As stated in the release, the investment was broken into two parts. Goldman Sachs participated in the first round (via an offering to its non-U.S. clients in a fund), which totaled $1 billion. In December, DST and Goldman separately invested another $500 million into the social network. Both rounds gave Facebook a $50 billion valuation, says the company. This brings Facebook’s total funding to a staggering $2.336 billion.
It’s interesting to note that Facebook didn’t take the full $1.5 billion from Goldman Sachs in the first part of the investment. As stated in the release:
Under the transaction’s terms, Facebook had the option to accept between $375 million and $1.5 billion from the Goldman Sachs overseas offering, at the discretion of Facebook. While the offering was oversubscribed, Facebook made a business decision to limit the offering to $1 billion.
One has to wonder if the fact that Goldman excluded U.S. investors from the round had to do with Facebook not raising the full $1.5 billion (which would push the total investment to a whopping $2 billion).
Another interesting tidbit from the release is this: Even before the investment from Goldman Sachs, Facebook had expected to pass 500 shareholders at some point in 2011, and therefore expects to start filing public financial reports no later than April 30, 2012.
Clearly, it looks like Facebook plans to IPO no later than April 2012.
So what will Facebook do with this massive amount of cash? The company says it has no set plans but vaguely stated that it will be “investing to build and expand its operations.”
The Goldman investment was first reported by New York Times’ Dealbook.
So much for that slow Friday news day.
Facebook Raises $1.5 Billion
Facebook Receives $1 Billion from Goldman Sachs Overseas Offering; Digital Sky Technologies and Goldman Sachs Also Recently Made $500 Million Direct Investment
Investment Values Facebook at $50 Billion
PALO ALTO, Calif., Jan. 21, 2011 /PRNewswire/ — Facebook today announced it has raised U.S.$1.5 billion at a valuation of approximately $50 billion.
The transaction consisted of two parts. Today, Goldman Sachs completed an oversubscribed offering to its non-U.S. clients in a fund that invested $1 billion in Facebook Class A common stock. In December, Digital Sky Technologies (DST), The Goldman Sachs Group, Inc., and funds managed by Goldman Sachs invested $500 million in Facebook Class A common stock at the same valuation.
“Our business continues to perform well, and we are pleased to be able to bolster our cash position with this new financing,” said David Ebersman, Facebook’s chief financial officer. “With this investment completed, we now have greater financial flexibility to explore whatever opportunities lie ahead.”
The investment generated a significant number of questions from interested parties and Facebook has addressed the most common ones below.
Why did Facebook raise this money?
DST and Goldman Sachs approached Facebook to express their interest in making an investment, and Facebook decided it was an attractive opportunity to bolster its cash reserves and increase its financial flexibility with limited dilution to existing shareholders.
Why did Facebook choose to raise $1 billion in the overseas offering?
Under the transaction’s terms, Facebook had the option to accept between $375 million and $1.5 billion from the Goldman Sachs overseas offering, at the discretion of Facebook. While the offering was oversubscribed, Facebook made a business decision to limit the offering to $1 billion.
What are Facebook’s plans for the proceeds of this transaction?
There are no immediate plans for these funds. Facebook will continue investing to build and expand its operations.
Does this investment mean that Facebook will have more than 500 shareholders?
Even before the investment from Goldman Sachs, Facebook had expected to pass 500 shareholders at some point in 2011, and therefore expects to start filing public financial reports no later than April 30, 2012.
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