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GM debuts on markets General Motors Co. capped its remarkable rebirth with a nice bump in the price of its new shares as it returned today to trading in New York and Toronto.
It was a party atmosphere at the New York Stock Exchange, where GM was traded before its spectacular filing for bankruptcy protection and its bailout by U.S. and Canadian governments. The stock climbed as high as 9 per cent - with the eyes of the world markets watching closely and a celebration at the NYSE - before easing back to close at $34.19, up 3.6 per cent.
GM yesterday priced its common shares at $33 (U.S.) apiece amid strong demand, and is on track for history's biggest initial public offering ever depending on how events play out.
While analysts believe GM has many challenges ahead, they are upbeat on the auto maker and its strong comeback from the depths of the crisis.
Despite these challenges, there's no questioning the auto maker's comeback from the depths of its crisis. Last week, it posted a profit of $2-billion for the third quarter, and its earnings so far this year have topped $4-billion. To put that in perspective, it follows five straight years of losses.
Here are the views of some observers on GM's return to the markets:
"This is bigger than just an IPO. It's an American icon coming back on stream and it is feeding optimism to the stock market." Bernie McGinn, president of McGinn Investment Management in Alexandria, Va., to Reuters
"It's good for the stock market. It's good for the equities market. It's good for the economy, so it's good for all of us." Linda Killian, portfolio manager at Renaissance Capital, to Reuters
"We will only get [taxpayer]money back if we are very patient and if GM performs very well." Joe Phillippi, principal of consulting firm AutoTrends Inc. in Short Hills, N.J., to Bloomberg
"GM spread a lot of love across the market. It was in everybody's best interest to have it be a successful deal, but not too successful. It appeared to accomplish that." Frederic Dickson, Lake Oswego, Oregon-based chief investment strategist at D.A. Davidson & Co., to Bloomberg
"Almost $20-billion in private capital voted that they wanted to be part of General Motors. So we do think this is a good day." Ron Bloom, Obama administration's senior adviser on the auto industry
"Today, one of the toughest tales of the recession took another big step toward becoming a success story." President Barack Obama
Ireland buoys markets GM wasn't the only thing helping the markets get their groove back today. Investor fears over Ireland's debt troubles, and concerns they could spread to other countries such as Portugal, eased as the country appeared headed toward some form of aid package.
Fears were calmed as Patrick Honohan, the chief of Ireland's central bank, said he expects the European Union and International Monetary Fund to come to the embattled country's aid with a huge loan of "tens of billions" of euros.
His comments on state television today came just before Irish officials met with a joint EU-IMF mission to discuss a rescue package, even though the government is resisting such a deal.
"European markets have rebounded strongly on expectations that a loan, or a bailout, of up to €80-billion will be forthcoming for Ireland from the IMF and the European Union," said CMC Markets analyst Michael Hewson.
"Comments from Irish central bank governor Patrick Honohan have reinforced this perception, when he stated that he expects any loan to be accepted; however there is a long way to go, notwithstanding any constitutional barriers.
"There still remains some way to go with respect to getting any aid approved in the Irish parliament, as well as the small matter of the passing of the Irish budget, but for now the talking in Dublin has assuaged the markets concerns, but nervousness remains."
In Toronto, the S&P/TSX composite surged 212.18 points, or 1.7 per cent, to close at 12,870.01, while the Dow Jones industrial average climbed 1.6 per cent, or 173.35 points, to 11,181.23.
Ireland's troubles, which reignited Europe's debt crisis, have dogged stock and currency markets as investors feared they would spread to other debt-burdened countries.
"Despite Ireland's resistance, it is likely that financial assistance program will be activated, drawing funds from the European Union's and the IMF's comprehensive financial assistance pool of €750-billion, set up in May," said Scotia Capital economists Derek Holt and Gorica Djeric.
"It is worth noting that Ireland is fully funded until mid-2011, but its banking sector is increasingly more reliant on the ECB funding. With no immediate liquidity issues at present, a potential bailout seems to be more of a political decision, on concerns over possible spillover effects on the euro zone periphery's financial stability stemming from deteriorated investor sentiment."
- Market Blog: Dow, TSX surge
- Ireland expects giant EU-IMF loan
- Ireland picks tax status over bailout deal
- Eric Reguly: With rescues, timing is everything
Will the risk rally last? As stocks, gold and other commodities rallied today, observers wondered whether the rally can last. Did the Irish central bank chief's comments spark a knee-jerk relief rally, or do they represent something with more teeth where Europe is concerned?
"The Irish issue dredges up memories of the crisis of confidence in the euro zone of earlier this year, a dynamic well noted by euro zone policymakers as it is obvious that they are not interested in whether Ireland already has sufficient funding for the near future (which it does), but rather that the upwards pressure on all weak euro zone nation sovereign yields is arrested with finality," said Scotia Capital currency strategist Sacha Tihanyi.
"This is key not only for short term sentiment, but also lays down a blueprint for dealing with other countries in the future. Policy makers seem intent to show the market that access to support will be forced whether it is needed or not and despite national pride, for the greater good of the euro zone.
"A coordinated and consistent approach, unlike that seen in dealing with Greece earlier this year, goes a long way to preventing further strains related to Spain, Portugal, Greece or some unknown future banking/fiscal problem. Thus this may imply that the relief rally in the making has legs, absent verbal bungling by European politicos or increased worries that the pool of money standing behind weak euro zone nations is truly large enough."
Western Coal in merger talks Vancouver's Western Coal Corp. is in talks with a U.S. counterpart to form what they say would be one of the biggest publicly traded producers of metallurgical coal in the world.
Walter Energy Inc. , which producers coking coal for the steel industry, is in exclusive talks to acquire Western Coal in a deal that values the company at $3.3-billion, the companies said in a statement today.
The cash-and-stock deal, if concluded, would offer Western Coal stockholders $11.50 a share. Western Coal's biggest shareholder, Audley European Opportunities Master Fund Ltd., would sell its holdings of almost 20 per cent to Walter, which is based in Tampa, Fla.
"The combination would create one of the world's largest pure-play publicly-traded producers of metallurgical coal with geographically diversified assets in Canada, the U.S. and the U.K. and with strong market positions in Asia, South America, North America and Europe," the companies said.
The coal sector is suddenly on fire. Just this week, Vallar acquired stakes in two Indonesian coal mining firms for $3-billion (U.S.). And Caterpillar Inc. moved to boost its presence in the mining industry, partly related to demand for coal, with a takeover bid for equipment manufacturer Bucyrus.
Strong demand from emerging economies such as China is peaking interest in the coal industry, The Financial Times reports today, noting that prices for thermal and coking coal have surged since the financial crisis.
Economist takes on Bank of Canada U.S. economist Carl Weinberg today slammed the Bank of Canada for hiking interest rates, in turn pushing up the Canadian dollar , which he linked to poor manufacturing numbers in the most recent report.
"Central bankers around the world, there is a lesson for you in this report: Beware the retraction of monetary accommodation - a.k.a. hiking interest rates, or otherwise tightening monetary conditions - when the largest economies of the world are not," the chief economist of High Frenquency Economics said in a research note.
"You could get your head handed to you, especially if you are a small, export-dependent nation."
Statistics Canada reported earlier this week that manufacturing sales slipped 0.6 per cent in September. New orders plunged, largely because of the transportation sector.
"We figure the dip in manufacturing production is linked to the dip in exports," Mr. Weinberg said.
"They were 10.5 per cent higher than a year ago in September, but they remain 25.3 per cent lower than their peak.
"The export debacle can be directly linked to a number of factors, including subpar growth in the United States, structural changes in the North American auto industry and the collapse of U.S. demand for home construction materials and energy in volume terms. It is also linked to the appreciation of the loonie, now flirting with par against the U.S. dollar."
Mr. Weinberg links the dollar's rise to the Bank of Canada's three increases in its benchmark overnight rate since the recession's end "in a battle against inflation that clearly does not exist."
"So the trade balance is now in deficit, exports are in the garbage can and manufacturing has been devastated."
Other economists have also linked the weakness in manufacturing and a swelling trade deficit to the loonie's rise but also to sputtering demand in the United States and the attractiveness of Canadian assets to foreign investors given the country's economic and fiscal standings.
At its last policy meeting in mid-October, the central bank held its key rate steady at 1 per cent, following three hikes. And it did note the softness in global economies and that fact that inflation was running slightly below its forecast. It also noted that any further tightening would have to be "carefully considered."
Its key rate is still at historically low levels and, the central bank noted when it last hiked rates in early September, "as a result of monetary policy measures taken since April, financial conditions in Canada have tightened modestly but remain exceptionally stimulative."
From today's Report on Business
- Bernanke gets a break on inflation
- Vale reveals $10-billion spending plan in Canada
- Magna sizes up Italy's Pininfarina
- Cineplex to unveil movie download service
And, read our Streetwise blog and Your Business section.