Water Cooler Finance: GM's Dramatic Return

By Michael Macklon | November 22, 2010 AAA
Water Cooler Finance: GM's Dramatic Return

It was a notable week in finance, highlighted by General Motors' (NYSE:GM) sensational reentry to the stock market. GM's record-setting IPO may have attracted the glut of investors' attention, but that didn't stop some companies from working for a share of the spotlight. Other top news stories included Apple, Ireland and investing icon Warren Buffet, and wrapped up with two big-screen icons, who learned that life doesn't always have a Hollywood ending. Read on for a brief look at some the top financial news stories this week. (IPO ETFs are a relatively new way to better invest your money - but there is some risk involved. To learn more, read IPO ETFs Inside And Out.)

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Back with a Bang
GM's return to the stock exchange was anything but general. With a valuation of $63 billion and first-day shares opening at $35, GM became the largest initial price offering in history. This comes as a huge relief to taxpayers, who bailed out the company in June 2009. But skeptics are, well, skeptical, saying that GM's market cap needs to be $70 billion before the government has a chance of breaking even on its investment/bailout. Meanwhile, many investors are shorting the stock in the belief that the monstrous IPO is built on little more than hype and hope. There's no doubt that investors are buying this stock – 220 million shares traded on opening day – but it remains to be seen whether GM can attract similar fervor for its vehicles.

Beatles For Sale
Last week, Apple (Nasdaq:AAPL) announced it had bugs ... well, Beatles anyway. The iTunes music store may account for a quarter of U.S. music sales, but until this week its virtual shelves lacked the world's most popular band. The Beatles record label, EMI, finally ended its dispute with Apple, and is now licensing The Beatles' catalog to iTunes. In the past, Apple has admitted that iTunes operations post meager profits, so it should be interesting to see what Apple can do with a little help from its rock-star friends. (The new music offerings are only a taste of what Apple has in store for consumers this holiday season. Find out more about this and other companies that are leading the charge into holiday shopping in 6 Companies That Will Save Christmas.)

A Very Hungry Caterpillar
Construction equipment giant Caterpillar (NYSE:CAT) made a major expansion to its operations by purchasing mining equipment maker Bucyrus. This $7.6 billion dollar acquisition amounts to Caterpillar betting that its mining division can capitalize on China's growing demand for coal and minerals. When Bucyrus went public in 2004, it traded at $18 per share. Caterpillar's offer of $92 per share, a 411% appreciation, has the company poised to be one of the hottest IPO of the decade. (Not all mergers work out. Find out about some of the biggest failures in Biggest Merger And Acquisition Disasters.)

Irish Banks Aren't Smiling
The luck of the Irish may be on the decline, as Ireland has had a sudden change of heart and is applying to the European Union for a multibillion-dollar bailout. Despite being unable to finance a national deficit of 19 billion euros, Ireland's finance minister, Brian Lenihan, spent the week denying the need for any assistance. By the weekend, he decided a small loan might be a good idea. Prominent economist and former Bank of Ireland employee Jim Power believes the move marks the demise of private banks in Ireland, and was quoted in the Irish Independent News as saying, "The Irish banking system is fundamentally finished." (Learn more about Ireland's woes in Top 6 Most Indebted Countries (And Why).)

Praise in Public
Investing icon Warren Buffett was so inspired by the recovering U.S. economy that he decided to give thanks to everyone who helped with 2008's bank bailouts. But Buffett's $47 billion net worth and status as a market guru allow him to do things with a little more panache than most, so he published a thank you note in the New York Times. Buffett's letter praises Uncle Sam and many of the government officials who orchestrated the bailout, saying "in this extraordinary emergency, you came through and the world would look far different now if you had not." Buffett's Berkshire Hathaway (NYSE:BRK.A) investment firm would likely look a little different, as well, especially its investment in Goldman Sachs (NYSE:GS). (This esteemed investor rarely changes his long-term investing strategy, no matter what the market does. See Warren Buffett's Bear Market Maneuvers.)

Celebrity Sentencing
Famous funny-man Will Farrell lost an $18 million securities arbitration hearing against J.P. Morgan Securities last week. Farrell, his wife, and a group of investors claimed that the banking and securities firm made "unauthorized and unsuitable purchases of preferred securities," according to the Wall Street Journal. Not only did Farrell lose the case, but the Financial Industry Regulatory Authority panel ordered the Farrells and company to pay J.P Morgan Chase $600,000 to cover legal fees.

Action star Wesley Snipes also lost in court this week, as a federal judge refused Snipes' request for a new trial and ordered the "Blade" actor to begin serving a three-year prison sentence for tax evasion. According to a Reuters report of the case, prosecutors reported that Snipes has earned $38 million since 1999, but he did not file a tax return from 1999 to 2006. (If you report a tax evader to the IRS, you could be eligible for a reward. Check out Reporting A Tax Cheat.)

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The Bottom Line
This week will certainly stand as a notable one in financial history. General Motors made a cannon-ball splash with its return to Wall Street, but it will take a few fiscal quarters before we can assess if the "new" GM is on track to regaining its status as the world's top automaker. A comeback for GM would definitely signal a healthy economy and justify Buffett's praise of Uncle Sam. And we can assume Ireland is closely watching the U.S. recovery efforts, as the EU nation takes its first steps into bailout territory.

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