What's Happening in the Financial World (12/19/2011) Eurozone Warning, Fuel Prices Fall

Saab finally succumbed to its inability to get a car off the assembly line. The company has not produced a car since last April. It declared bankruptcy today. Zhejiang Youngman Lotus Automobile and a local Chinese bank might have helped Saab survive with loans of $782 million. General Motors (NYSE: GM), a former owner of Saab, had a right to veto the transaction — and it did. Saabs will be nothing more than collectors’ items now, with parts becoming increasingly scarce.

End of the Eurozone?

European Central Bank President Mario Draghi shocked the financial world when he told the Financial Times that the eurozone may not survive. It is fine that he thinks that privately. To state it in public, given his powerful position in a bailout, is another matter. He said the ECB would buy bonds of regional banks, but not sovereign paper. The markets had known that all along. But Draghi’s pessimism about the ability of the region’s governments to set a solution means that investor confidence in the sovereign debt of the region’s countries has been undermined yet again.

A Boost for Twitter

The craze to invest in Web 2.o companies has not diminished despite the weak IPOs of Zynga (NASDAQ: ZNGA), LinkedIn (NASDAQ: LNKD) and Groupon (NASDAQ: GRPN). One of the world’s most famous investors, Saudi billionaire Prince Alwaleed bin Talal, put $300 million into Twitter, at a valuation of $7 billion for the entire microblogging business. The risk of the investment is clear. Twitter has been unable to get many advertisers to support the service. It is hard for marketers to mesh ad messages with tweets that are only several words long. Alwaleed bin Talal may see something in Twitter that Wall St. investors have not seen in similar companies. His net worth is over $20 billion, so, if he is mistaken, it will not do much to hurt his finances.

Gas Prices Fall

As oil trades at a six-week low because of concerns about the global economy and a pledge by OPEC to keep supplies high, gas prices in the U.S. have continued to fall. The low gas prices will have a dual effect. The first is that consumer spending may be helped as families spend less on fuel than they have in a year. The other is that the likelihood that people will travel this holiday season will tick up. As the American economy continues to mend itself, low oil and gas prices may help tip GDP growth back to a moderate level, which is not something most economists believed would happen just six months ago.

Douglas A. McIntyre