Lock-up ends for Facebook shares

STOCKTAKE:FACEBOOK reports earnings tomorrow. The stock has halved since floating last May, and remains stuck in a persistent downtrend – the number of days it has spent above its 50-day moving average is in single digits.

Strong earnings would cheer analysts but many investors are going to steer clear of the stock for now, given the flood of shares about to hit the market. Next Monday, 234 million shares held by insiders become eligible for sale as the post-IPO lock-up period expires. That’s similar to the 271 million shares that became eligible for sale on August 16th, when the stock fell by 7 per cent to a new low.

Rating Spain in different terms

MARKETS rallied last Wednesday after Moody’s retained its investment grade outlook on Spanish bonds, citing the “willingness” of the ECB to buy its bonds and the government’s “continued commitment to implement the fiscal and structural reform”.

Six days earlier, SP downgraded Spanish bonds by two notches due to “mounting” public finance risks, the “declining” ability of the country’s political institutions to deal with “severe” economic challenges, and “uncertain” euro zone policymaking.

Two completely different analyses? Yes, but SP’s BBB rating is equivalent to Moody’s Baa3 rating. One can only imagine what a true divergence of opinion would look like.

When stocks are better than bonds

DESPITE being the world’s biggest bond manager, Pimco chief Bill Gross last week predicted that investors are likely better off with quality dividend stocks than low-yielding bonds.

Pimco stats reveal that dividends have accounted for 42 per cent of equity returns since 1931, noted blogger and strategist Josh Brown (thereformedbroker .com) last week. In every decade since then, bar the 1990s, dividends have accounted for at least 33 per cent of equity returns.

Index investors will note that dividend yields in Europe (4.2 per cent) and the UK (3.9 per cent) trump US yields (2.2 per cent).

For stock pickers, however, it’s not just a case of opting for the highest dividend payers. Since 1979, stocks in the eighth decile of payers delivered far superior returns to the highest-yielding stocks.

‘Fear index’ well below average

THE CBOE Volatility Index (Vix), or fear index, recently hit a six-year low, and has spent the last few months hovering around 15 – well below its long-term average of 21.

Bears see that as market complacency, arguing that traders are ignoring market risks, whether they be the US fiscal cliff, poor corporate earnings or continued euro zone woes.

However, Vix expert Bill Luby ( vixandmore.blogspot.com) notes that Vix traders have actually been dramatically overestimating, not underestimating, market volatility. In 2012, he says, the Vix has overestimated 10-day historical volatility in the SP 500 by 47 per cent – the biggest gap since 1996.

Spotting the next Bernie Madoff

HOW CAN you spot the next Bernie Madoff? Since last year, the US Securities and Exchange Commission (SEC) has been using an analytics system called Aberrational Performance Inquiry designed to spot suspect outperformance.

Last week, it charged Yorkville Advisors, which once controlled more than $1 billion in assets, with fraud, saying the firm “grossly” exaggerated its assets. “The analytics put Yorkville front and centre on our radar screen,” the SEC said.

Hurrah for a new era of regulator sophistication? Perhaps not – in 2009, a financial blog ( the-cold-truth.blogspot.ie) reported that the SEC was about to launch a formal investigation of Yorkville.