What’s Important in the Financial World (11/8/2011) Oil Price Surges, NOOK Dead

Sovereign debt crisis update. Some analysts claim the sovereign debt crisis in the eurozone has worsened in the past day. Others say it has gotten better. Each group is only guessing. Greece received the first installment of its bailout package. That sum is 8 billion euro, which is hardly enough to sustain the southern European country for the rest of the year. And there  may be no second payment. The Greek government has not decided who will rule the nation and how much influence each major party will have. While the financial world waits on the resolution of Greece’s political turmoil, the situation in Italy has become dire. Ten-year Italian government bonds yields moved close to 6.7%. That level has not been seen since the euro was created. Experts would argue that Italy cannot sustain itself financially if it has to pay that much for money. Austerity measures likely will be imposed in Italy, although Prime Minister Silvio Berlusconi has resisted many of them, and he has refused demands that he resign.

Toyota earnings fall. Toyota Motors (NYSE: TM) said earnings in its second quarter fell 32%. It also withdrew its full-year forecast. The manufacturer is in an unprecedented condition. Demand for its cars remains high. The Prius hybrid is sold out in America. Recent reliability ratings show that Toyota cars and light trucks are very well regarded less than two years after huge recalls. But Toyota cannot take advantage of this demand. First, its production was knocked offline by the March earthquake in Japan. Now floods in Thailand have cut parts supplies. Toyota is a manufacturer that could sell millions of cars, if it had them.

Brent crude price up. The price of Brent crude has risen quickly above $115, which is higher than it has been in more than three months. A concern that political factors will hurt supply from Iran and signs of strength in the economies of China and other emerging nations have caused traders to bid crude higher. The global economy faces a situation not unlike it did earlier this year. The cost of oil and oil-based products probably will move higher within a month. Consumers who live on razor-thin household budget margins and companies that can barely make their expenses will have to pull back on whatever money they would have spent on consumer goods or expansion. Oil prices, which were not a problem a month ago, have suddenly become a large one.

NOOK tablet just released, late to party. Barnes & Noble (NYSE: BKS) released its new NOOK tablet. It will compete with Amazon.com’s (NASDAQ: AMZN) Kindle Fire, low-end Apple (NASDAQ: AAPL) iPads and a small army of other tablets released by PC and smartphone companies. The NOOK is  months late to the market compared to the Kindle Fire and iPad. Barnes & Noble has always lagged its two major competitors. It does not have the balance sheet, brand or marketing fire power for the new NOOK to become an important presence in the market. The NOOK may sell well in some of Barnes & Noble’s stores where book buyers purchase it because it is convenient. It will not sell well beyond that. The proof of skepticism about the machine is in Barnes & Noble’s stock price. It is at $11.39, not much above its 52-week low of $8.45. The stock’s 52-week high is $21.06

Douglas A. McIntyre