What's Important in the Financial World (1/12/2012) China Car Sales, Foreclosures Fall

Foreclosures fell for the first time in four years, according to research firm Realtytrac. The firm said “Foreclosure filings were reported on 205,024 U.S. properties in December, a decrease of 9 percent from the previous month and down 20 percent from December 2010. December’s total was the lowest monthly total since November 2007 — a 49-month low.” That means there is finally some good news about housing. Combined with low interest rates and a small tick up in consumer activity, the trouble in the home market may finally be slowly passing. The news does not mean that homes prices have begun to move higher. Case-Shiller indicates the opposite is true. But the number of foreclosures may have dropped because home prices are so low that buyers finally have returned to the market. And supply may have begun a tentative contraction.

Spain Sells Bonds

The sovereign debt crisis in the eurozone was put briefly on pause. Spain sold more than double its target of bonds today, and the rates it paid were unexpectedly low. The nation’s treasury raised 10 billion euros from the auction of three bonds. Spain planned to sell only five billion. Yields dropped by about 1 percentage point from the mid-December auction. It is an early sign that the tremendous amount of debt that financially weak nations in the region must raise to roll over old paper, and additionally to cover deficits, may not have to be done at unsustainable rates.

More Bank Layoffs

The bloodletting in the financial services industry is hardly over. RBS (NYSE: RBS), the largest state-owned bank in the UK, will cut 3,500 jobs in its investment bank. UBS (NYSE: UBS) made cuts last month. Goldman Sachs (NYSE: GS) has laid off bankers and traders. Bank of America (NYSE: BAC), desperate to prove its viability, will cut 30,000 positions. Banks, which made a modest earnings recovery after the recession, are in trouble again. The mortgage crisis has not passed. Financial firms both hold home loans and are under attack for lending practices and their habit of bundling mortgages and selling them to other financial companies. Investment bank work has all but disappeared as corporations have drawn back on M&A and issuance of debt and equity. Finally, the consumer banking business has become more automated each year. The branches where individuals and small business banks went for loans and mortgages are barely useful anymore.

Chinese Auto Sales

The Chinese auto market is not as attractive to international manufacturers as it once was. The China Association of Automobile Manufacturers reported that car and light truck sales rose only 2.5% in 2011. China is still the world largest market with 18.5 million sales last year. That is at least five million more than the U.S. But the Chinese market has become very crowded. Sales leaders General Motors (NYSE: GM) and Volkswagen have become the envy of their rivals. Japanese car companies Toyota (NYSE: TM) and Honda (NYSE: HMC) have rushed into the market, as has GM’s American rival Ford (NYSE: F). Luxury manufacturers BMW and Mercedes have found a rich market among China’s growing upper classes. In addition, Chinese manufacturers will not be elbowed aside. What is now the largest car market has become among the most competitive.

Douglas A.McIntyre