What's Important in the Financial World (5/14/2012) Greek Elections, "The Avengers"

Coalition talks in Greece have broken down and are not likely to resume. This means new elections are almost inevitable. That will delay the ability of the European Union and IMF to know what the future of austerity in Greece — and perhaps its future as an EU member — will be. Alexis Tsipras, leader of political party Syriza, has refused to join with other parties. His position with voters becomes more powerful by the day. Tsipras says he plans to walk away from government cost-cut plans imposed by the EU. For Greeks who are out of work or have lost part of their wages, his appeal is obvious. Whether he can wreck the financial status of Greece with capital market investors is another matter.

Falling Oil Prices

Futures for Brent crude continue to sink closer to $100. Saudi Arabia’s oil minister said that the $100 level would be ideal for his nation’s finances and, he believes, those of the portion of the world that imports oil. Also weighing on futures is the financial fate of the EU and the growing recession there. For the time being, the beneficiaries of the drop in prices are large oil-consuming nations like the United States, China and India. The crippled economy in Europe has more than offset concerns about supply due to tensions over Iran and lower output from refineries. But the apparent advantage for the U.S. cuts another way. The slowdown in Europe that has pushed oil prices down means that U.S. exports to the same regions will begin to fall. Corporate earnings for the first quarter from a number of multinationals show the process already has begun.

Avon Mulls Options

Avon Products (NYSE: AVP) said it will take a week to decide whether it will negotiate a new, sweetened deal from Coty. Coty has just gotten financial support from Warren Buffett’s Berkshire Hathaway (NYSE: BRK-B). Coty raised its offer to $24.75 a share from $23.25. Avon’s board has a number of compelling reasons to take the offer. The first is the legacy of former CEO Andrea Jung, who ran the company into the ground, mostly by mismanaging its overseas operations. It also has been alleged that on her watch there may have been bribery problems overseas. The SEC has begun to investigate Avon. A new CEO, Sherilyn McCoy, formerly of Johnson & Johnson (NYSE: JNJ), has been appointed by the Avon board. That should not stop the board from saving the company and preventing a sharp drop in its stock if Coty is rejected. Avon has no viable turnaround plan, and, in the best case, it will take quarters for McCoy to implement one, if she can at all.

Big Box Office

The Walt Disney (NYSE: DIS) super-hero movie “The Avengers” was the top grossing movie at the U.S. box office this weekend. The same was true in many other countries. Estimates are that the film has taken in $373 million in North America since it opened. Added to overseas ticket sales, the number is closer to $600 million. Only a few films in history have taken in $1 billion — a number “The Avengers” almost certainly will pass. Among films that have approached the figure or exceeded it are those in the Transformers, Batman, Star Wars, Harry Potter and Lord of the Rings franchises, and the two most successful movies of all time — James Cameron’s “Titanic” and “Avatar.” “The Avengers” probably will not make it past these Cameron movies, But it will become a franchise with more releases, which will line the pockets of the Disney film studio operations.

Douglas A. McIntyre