Market Talk

It took about three months (which is a little longer than we initially expected) but GM shares finally reached another milestone: they breached below their November $33 IPO price.

As you recall, it was one of the most highly anticipated and hyped-up IPOs in years, and got off to a bit of a shaky start as shares flirted with breaking the IPO price throughout its first week of trading. Of course, the underwriters weren’t about to let this thing flop right away, and the stock eventually gained a little momement, carried along by a buoyant mood in the stock market overall.

It hit a high of $39.48 in early January, but it’s been mostly downhill since then, even as the broader market continued higher. The sell-side analysts have (naturally) been unabashedly bullish, with more than 70% calling the stock a buy, or some equivalent rating.

GM made $510 million in its fourth-quarter, and full-year profit of $4.7 billion. Investors don’t appear to be impressed, with the stock currently down 4% at $33.20; earlier as low as $32.05.

GM grooved one today for the State of the Union speech tomorrow night.

You can almost hear it already. President Obama standing before Congress, citing examples of the strengthening economic recovery. “And just yesterday,” the president will say, “General Motors — back from bankruptcy, a thriving public company once again — showed us a heartening example of its increasingly brighter prospects.  It’ll add a third shift and 750 jobs at its assembly plant in Flint, Michigan.” (Pause for applause from both sides of the aisle.)

It’s a feel-good moment, no doubt, but one in which we remain just cynical enough to take some shots at.

Look at the details. Is GM planning to increase production of its best-selling fuel-efficient vehicles in an attempt to satisfy what it expects to be increased demand as oil prices climb near (or above) $100 a barrel again? Nah.

They’re expanding production of big pickup trucks, the Chevy Silverado and GMC Sierra. They get about 15 mpg city, 20 highway — not awful for a big truck, but not cheap to fill up, either.

Here’s the amusing part. According to WSJ’s Sharon Terlep, GM’s North American head, Mark Reuss, says the increased production is a response to an uptick in residential and commercial construction. Say what? Is that on planet Earth, Mr. Reuss? December housing starts fell more than 4% to a 529,000 seasonal rate, lowest level in more than a year. Sure, starts are up about 11% since hitting an all-time low in April 2009, but back during the halcyon days, starts were regularly clocking in at more than two million annually. Continue reading…

All that hype, and the best GM shares could muster was a 3.6% pop above the IPO price – and that was with a whip-flailing closing flourish like you’d see at Belmont racetrack.

As we noted earlier this week, the build-up to this event reminded us of the Blackstone IPO in June 2007, with the suggestion being that like BX, GM’s IPO session may produce a high-water mark for the stock, at least for the foreseeable future. The 3.6% premium to the $33 IPO price at the close seems meager. BX, at least, gained 13% in its opening day. It eventually slumped below its $31/share IPO price two sessions later.

Will it take that long for GM?

Stock trades (or we should say churns) more than 452 million shares, roughly 10% of the total NYSE composite volume for the session.

At its best, GM shares rose more than 9% to $35.99 early on, and at their worst were only up 2.7% at $33.89 during the final half-hour of trading.

On today’s Market Hub, we get the Market Talk team together to talk about the rally, Ireland and GM. Be sure to watch to the end as John just grooves one to me and I take the gratuitous cheap shot. I couldn’t help myself, really.

GM stock is on track to return to public trading Thursday, and the hype is ramping up, which reminds us of another highly anticipated and sought-after IPO: Blackstone Group.

Remember that one? Everybody wanted a piece of Blackstone when it first offered shares to the public in late June 2007, just a few months before US stock markets hit an all-time peak. “Shares are so oversubscribed that some Wall Street analysts fear that irrational exuberance will send investors tripping over themselves to get the first publicly traded piece of the private-equity boom,” the Washington Post wrote on the day of BX’s IPO. Some headlines wondered: “Is Blackstone the Next Google?” Continue reading…

Lots to discuss on this morning’s News Hub. I have a small markets segment where I mainly discuss GM’s $2 billion 3Q profit ahead of its IPO next week. Additionally, discussion surrounds the debate regarding a return to the gold standard. And there are several problems banks are having restarting the foreclosure process. Check it all out at The News Hub.

- Considering the “uncomfortably uncertain” mood heading into this morning’s jobs data, the report wasn’t that bad. “The overall picture is of a labor market that continues to chug along in the right direction, albeit far too slowly,” Ryan Avent notes. “The pace of employment recovery implies several long, hard years ahead for American workers. But given the mood on markets and around dinner tables lately, one has to appreciate the continuation of the upward trend.”

- Stocks popped Friday on the jobs data, but Capital Gains and Games blogger Andrew Samwick says the report merely represents “more of the same” for the labor market. “There is nothing in here that merits joy,” he writes. “Expect the spinmeisters to focus on the rise in private sector employment (up 763,000 since the low in December 2009) and the upward revisions (to smaller job losses) from the two prior months.”

- The positive vibe (at least for stocks) generated from nonfarm payrolls data can’t be sitting well with former labor secretary Robert Reich. “The Great Jobs Depression continues to worsen,” Reich writes on his blog. “The last time we saw anything on this scale was in the 1930s…The practical choice we face is this: Either major action to reverse the jobs emergency or years of intolerably high unemployment coupled with demagoguery and scapegoating.”

- August jobs report offers a “small sigh of relief,” but the big takeaway is the labor market remains essentially flat, Reuters blogger Felix Salmon says. “Flat, then, is the new up — which only goes to demonstrate just how worried the markets are about a double-dip recession,” he writes. “We’re not remotely in full-bore recovery mode yet.”

- August auto sales, released earlier this week, were portrayed as worst sales in 27 years. But that’s not best way to interpret the data, James Hamilton writes at Econbrowser. “The story for autos remains pretty much what it has been for some time — we’ve bounced off the bottom, but remain stuck at a point far below what would normally be expected. Double dip? Not here, not yet. Disappointingly sluggish growth? Very much so.”

- “The outlook for subpar growth and weak job creation — although superior to a new recession — is a real and present danger, and today’s employment report doesn’t offer much reason to dismiss the danger,” James Picerno writes at The Capital Spectator. “If the economy continues to struggle, eventually the risk of a recession will become more than a low-probability prediction.”

- Mark Thoma uses the central valley in California as a metaphor for economic recovery. “It’s narrow east to west, but very long north to south,” he notes at Economist’s View. “We went down into the valley as we went into the recession, and the question for me has always been whether we are heading east to west so that we will climb out of the valley relatively quickly, or north to south as we trudge along at the bottom of the valley for considerable time…The fact that we’ve had essentially no growth for a year now, and no hint of change any time soon, makes the north to south fear very real.”

- Barnes & Noble’s (BKS) battle with activist investor Ron Burkle is symbolic of a “big fish swallowing a small fish only to be itself swallowed by an even bigger one,” Josh Brown writes at The Reformed Broker. “Founder Len Riggio built the largest bookseller on earth by putting thousands of mom & pops under his sword across the country,” Brown notes. “Now he himself is facing his own possible destruction from the twin threats of shareholder activist Ron Burkle and the disintermediation of the digital age.”

- With Dell pulling out of the 3Par (PAR) bidding war, Robert Cyran wonders if Dell shareholders are on Xanax. Dell investors “displayed neither much concern about overpayment nor relief about the deal being dropped,” he says. “After a decade of scandals, missed opportunities and dismal performance, they may have stopped caring.”

- Just your typical brawl at the US Open.

Jobless claims once again disappoint, and Cisco disappoints, but GM is looking brighter. So, see, there is some good news out there. ‘Course, when that’s your bright spot, well…

Today incidentally was the first Markets Hub where we got to deliver some really breaking news, by the way, as the Whitacre headlines were crossing the Tape as we were getting ready to film. Just sort of interesting.

What’s also interesting is the market action; traders keep trying to pull the indexes onto higher ground, but they can’t punch through the resistance. Be interesting to see if their strength on that front flags at some point.

- US GDP growth at 2% is unsustainable; economy either has to break higher or fade lower sooner than later, Stu Hoffman, chief economist at PNC Bank, tells Big Picture blogger Barry Ritholtz. “Just as a 747 cannot maintain altitude at 200 mph, neither can the economy sustain a 2% GDP,” Hoffman says. “So the captain of the plane must increase thrust and fly faster, or lose altitude and land. The economy…behaves the same way.”

- There were warning signs about former H-P (HPQ) CEO Mark Hurd that investors and the media largely ignored, writes Eric Jackson, founder and president of Ironfire Capital. He cites the “piggish behavior [Hurd] and his executive team were exhibiting at the expense of H-P shareholders,” in the form of excessive compensation and lavish perks in last few years. “In my book, if you’re piggish about the small stuff like expense reimbursements, you’re going to be piggish about the big stuff.”

- Disappointing jobs report last week as well as unfavorable monthly revisions don’t bode well for stock market and economic recovery. “Pending a change in policy mix which is anchored by meaningful structural policies, the equity market is unlikely to sustainably regain its composure and yield levels will continue to surprise on the downside,” says PIMCO CEO Mohamed El-Erian.

- S&P 500′s short-term uptrend remains intact. “Looking at the 15-day intraday chart, the index held the bottom of its uptrend channel nicely,” Bespoke Investment Group writes, noting technicals look pretty good this week. “It looks like traders are going to try and at least test the highs made last week.”

- “If you’re on Wall Street, and you’ve seen the stock markets recover and the banks go from virtual insolvency two years ago back to record profit numbers now,” then you may think the recession’s over, Rolling Stone’s Matt Taibbi says. But if you’re looking for a job “somewhere outside the Beltway and/or lower Manhattan, and you’re noticing that the only easy job openings this year were temp gig taking census surveys (and even those have dried up), then your view of things is going to be no way the recession has ended.”

- Investors should embrace the uncertainty and turmoil plaguing the economy rather than whine about it, Justin Fox writes at Harvard’s Business Review blog. “Think about the feelings of relative economic certainty and confidence that prevailed in 2006, or in 1999,” says Fox. “Investing right now may seem scary and dangerous, but chances are that it’s a lot less dangerous than investing three or four years ago.”

- Macroeconomic Advisers changes its stance on when it sees the Fed boosting rates, shifting to late 2011 from mid-2011. “Given our expectation that any downward revision to the forecast will not be ‘appreciable’ and that the recovery is not ‘faltering,’ we do not anticipate either easing steps or changes to the policy guidance,” Macroadvisers blog notes.

- About that whole “cash on the sidelines” argument, John Hussman says it’s nonsense. “Analysts are pointing to an apparent pile of corporate ‘cash on the sidelines’ as if these holdings of debt securities somehow make new corporate spending more likely.”

- AOL’s Daily Finance blogger Peter Cohan wonders how effective former H-P CEO Mark Hurd really was, especially since H-P’s cash and short-term investments have slipped from $13.9B to $13.3B and it’s long-term debt has jumped from $3.4B to $14B.

- Speculation swirling that the Fed this week could announce additional measures to boost the economic recovery. But University of Oregon economics professor Tim Duy isn’t so sure. “My baseline expectation is that the FOMC statement acknowledges the weakness in recent data, but leaves the current policy stance intact.”

- The surging US dollar is “eerily reminiscent of the peak worries in the credit crisis when deflation appeared to be taking a death grip on the global economy,” the Pragmatic Capitalist says. “As asset prices decline and bond yields collapse this is a clear sign that inflation is not the near-term concern, but rather that the debt based deflationary trends continue to dominate global economic trends.”

- University of Oregon economics professor Mark Thoma isn’t on board with Yale professor Robert Shiller’s argument in a NYT op-ed that fears of double-dip recession could become a self-fulfilling prophecy. Bigger economic shocks would seem “the more likely trigger” of double-dip, Thoma says. “Even more likely is an outbreak of extreme hawkishness causing us to pull back too fast on fiscal stimulus, and to raise interest rates too fast.”

- Turns out Palm’s sale to Hewlett-Packard (HPQ) last month wasn’t exactly a last-minute deal. Digital Daily blogger John Paczkowski points to a PALM SEC filing, which reveals the buyout process began in February and the company was in contact with 16 potential acquirers.

- HAMP April data shows program slowing down.

- The “shock and awe” effects of Europe’s big bailout package are already starting to fade, and the concern is that long-term viability is being sacrificed for short-term gains, Pimco CEO Mohamed El-Erian writes at FT’s Alphaville blog. So far, the package is just giving investors an escape hatch, without addressing the real issue: solvency.

- GM isn’t putting on the hard sell for an IPO.

- Reuters blogger Felix Salmon looks at how government bailouts affect moral hazard and the role they play in market volatility. “A lot of investors have made a lot of money from the moral-hazard trade over the past 15 years or so. When that trade comes to an end, expect the losses to be just as big, if not bigger.”

- Ryan Avent shows how the role the declining euro plays in the global economy.

- Though it’s still early for conclusive evidence, it appears Apple’s (AAPL) Mac sales haven’t been cannibalized by the iPad, Digital Daily blogger John Paczkowski says, citing research from Piper Jaffray.

- Jason Zweig looks at the debate over holding brokers to a higher standard.