What's Important in the Financial World (4/16/2012) Spain's Debt Trouble, Best Buy Stores Close, Gas Stays High

The prices that Spain has to pay for debt continue to race higher. The level, now more than 6% for 10-year notes, cannot be sustained if the nation is to balance its budget. The pressures of budget cuts and the effects of high unemployment married with high debt cost will be too much. The factors, taken together, have convinced a number of investors that Spain will move to the edge of default and need a bailout. The bailout could be several times the one for Greece, which would put it well into the hundreds of billions of euros. On CNBC, Rabobank rate strategist Lyn Graham-Taylor said:

 We’re back in full crisis mode. It is looking more and more likely that Spain is going to have some form of a bailout. Assuming there is not an [European Central Bank] intervention you would not see a cap on Spanish yields, they would just keep increasing.

Geithner on Energy Costs

Treasury Secretary Timothy Geithner told the hosts of ABC’s “This Week’ that U.S. consumers can handle high gasoline prices without a large disruption in their household budgets. His comments represent a guess, at best. “The economy is in a much better position to deal with those pressures … because natural gas prices are down, the overall cost of energy for consumers is down,” he said on the TV program. He assumes that most Americans use enough natural gas to offset their gasoline, and therefore driving, costs. That is not the case among people with long commutes, heavy use of trucks and low incomes. This group of “heavy gas users” almost certainly will have to chop spending to make ends meet.

A Best Buy Turnaround

A number of cities’ residents breathed a sigh of relief as they found out that they would not face a shuttering of their local Best Buy (NYSE: BBY) stores. The electronics retailer released the final list of the 50 that it previously announced would disappear. Since Best Buy disclosed its plans, the company has lost its CEO, Brian Dunn. Wall St. thinks the firm has become more desperate by the day to set a turnaround strategy. No matter who takes Best Buy’s chief executive job, the 50 stores are not nearly enough for a company that has started to lose sales and posted a net loss in its most recent quarter. Best Buy has hundreds of stores, and it has had no success competing with online electronics sale sites, particularly the challenge from Amazon.com (NASDAQ: AMZN). The number of stores that new management will close is likely to be a large multiple of the 50.

High Gasoline Prices

The new stability of gasoline prices continues, after months of rises that have brought the nationwide cost of an average gallon of regular to near record levels. The AAA Fuel Gauge report shows the price was $3.907 yesterday, flat from the day before and down from $3.927 a week earlier. Some economists believe now that the price of crude oil has started to retreat, gas prices will as well. That assessment is premature. The tension with Iran that may cause it to cut supplies through the Strait of Hormuz — the passage way of 20% of the world’s production — has not ended. And the number of refineries worldwide that have been closed permanently or temporarily shut for repair is still high. The AAA average is also misleading. Many of the largest states by population still have average prices for regular in excess of $4 a gallon. This includes California, Connecticut, Illinois and New York.

Douglas A. McIntyre