What's Important in the Financial World (1/4/2011) New Yahoo! CEO, Higher Oil Prices

Oil prices are rising rapidly, adding nearly 4% in less than two days. The increase could threaten the global economy if it holds for long. The reason for the move is news of a possible armed conflict between the U.S. and Iran over the passage of ships holding crude through the Strait of Hormuz. About 20% of the world’s oil passes through that body of water. There are also signs that average supplies of oil worldwide are down slightly. The economy has not faced the threat of very high crude prices since mid-2008, when oil rose above $140 a barrel. Recent levels of $90 are considered tolerable as the wavering recovery of world GDP continues. A much higher price could erode whatever expansion is underway.

European Bank Borrowing

Borrowing from the European Central Bank by EU area banks reached a record 453.2 billion euros at the overnight facility. This was up slightly from Monday’s level of 446.3 billion euros. This is another sign that the region’s banks refuse to lend money to one another in case a financial catastrophe severely damages the balance sheets of a large financial firm. That, in turn, continues to stem from fears that the debt of one of the region’s countries could be threatened with default, or at least interest rates that cannot be sustained. As the Greek situation shows, private sector banks will be forced to participate in any refinancing.

Auto Sales Looking Up

December domestic auto sales in the U.S. are expected to increase again both from November and from December a year ago. Total sales of cars and light trucks should reach nearly 13 million. Just two years ago, that number was barely 9 million, a situation that contributed to fear that one or more of America’s big three manufacturers might fold. Many analysts expect 2012 sales to rise close to 14 million. That forecast comes with several caveats. The first is the price of oil and gas. The price of a gallon of regular has dropped from nearly $4 in early summer to $3.50 on average across the country. Crude prices above $110 a barrel could change that. And the recovery in car sales probably relies heavily on improved employment. Whether than will happen in 2012 is as likely as not.

A New CEO for Yahoo!

Yahoo! (NASDAQ: YHOO) will name a new CEO this week, according to tech site AllThingsD. The new chief will be PayPal President Scott Thompson, who has no experience in senior operations at a large portal. Thompson’s experience may not be critical early on. Yahoo!’s board could still sell its stake in China e-commerce firm Alibaba and its ownership in Yahoo! Japan. Most estimates put the yield of these sales between $10 billion and $15 billion. It also remains possible that the entire portal company will be sold, leaving nothing left for Thompson to run. His election may be simply to mollify shareholders who want someone — almost anyone — at the helm.

Douglas A. McIntyre