What’s Important in the Financial World (3/15/2012) Better Google Search, Apple $700 Billion Market Cap

UK Sovereign Debt

Credit rating agency Fitch put the UK’s sovereign debt on negative watch, which means there are great risks to its AAA rating. It is not clear that the action would undermine borrowing costs. UK debt is still considered safe and its economy would have to get much worse to change that. Fitch’s reasoning is that:

The revision of the rating Outlook to Negative from Stable reflects the very limited fiscal space to absorb further adverse economic shocks in light of such elevated debt levels and a potentially weaker than currently forecast economic recovery. In light of the considerable uncertainty around the economic and fiscal outlook, including the risks posed to economic recovery by ongoing financial tensions in the eurozone and against the backdrop of a still large structural budget deficit and high and rising government debt, the Negative Outlook indicates a slightly greater than 50% chance of a downgrade over a two-year horizon.

The UK economy is on the edge of an ongoing recession that would damage national tax receipts. The country has tried to offset those with budget cuts. It is far from certain, though, that those cuts alone will lower the nation’s indebtedness.

Apple’s Market Cap

The new Apple iPad will reach customers for the first time tomorrow. The anticipation has pushed Apple’s stock to record levels. Speculation has Apple’s market cap reaching $700 billion by mid-year. The number now stands at $550 billion. It is preposterous that Apple’s value could gain another 25% in such a short time. Yet, the company has defied predictions that its market worth is too high before. Apple’s next earnings statement is key to the chances of the market cap increase. iPhone sales are expected to continue their surge. So, it will depend on how well the new iPad actually does, as well as whether its sales help Apple’s closely watched gross margins.

Google Search Upgrade

Google will change and “improve” its search engine technology, according to the Wall Street Journal. In part the move will counter improving search engine technology used by Yahoo! (NASDAQ: YHOO) and Microsoft. Consumers often are most comfortable with what they have known best over a period of years. So, Google risks alienating some of its users even as it gives them what it claims are better results due to more advanced technology. Google could extend its lead, from the standpoint of its engineers, but put off some users at the same time.

Douglas A. McIntyre