What's Important in the Financial World (5/17/2012) Greece Wobbles, Verizon Increase Rates

The debate over the state of the housing market continues to seesaw. RealtyTrac reported that April foreclosures fell again and are now back to July 2007 levels. But the research operation’s CEO Brandon Moore cautioned, “More distressed loans are being diverted into short sales rather than becoming completed foreclosures.” Those sales do not do anything to increase home prices. As a matter of fact, they continue to push down other home prices. There is no evidence that short sales are an indication of upcoming foreclosure data improvement. Foreclosures continue to be very high in the hard-hit markets of California, Arizona and Nevada. The markets in those states have hardly improved at all on a historic basis.

Japanese GDP

Japan’s surprisingly sharp rebound in gross domestic product shows how resilient its economy can be despite years of growth that has been hobbled by a sort of stagflation, and more recently, the value of the yen. GDP rose at an annualized rate of 4.1% in the first quarter. Almost 40% of the improvement was due to government expenditures to rebuild parts of Japan after the horrible earthquake a year and a half ago. But even the speed with which the government turned on stimulus to fuel this is impressive. The Japanese consumer also was active in the period. Sales of cars and other consumer goods were strong. The earthquake may have shattered a large part of the economy, but many consumers have put that behind them, at least as far as their spending habits are concerned.

Shaky Greece

The situation in Greece almost certainly will drag on for another month. A caretaker government is about to take over ahead of June elections. Greece may say it cannot make the next debt payment, which is due before voters go to the polls. It could become obvious, well before the vote, that enemies of austerity will be clear winners. There is still no consensus about what happens if Greece leaves the eurozone. Some economists believe the impact will be benign. Debt held by banks and the International Monetary Fund could be wiped out. It is too early to predict what that would mean, other than to say some large private financial firms may barely survive it, if pessimists are correct. Greece’s own banking system took a blow, which is a signal for what will continue to happen to the financial companies there. The European Central Bank said it would not provide capital to four Greek banks it believes are insolvent. As Greeks continue to take money out of bank accounts, the trouble will only get worse.

Verizon Plan Changes

Verizon (NYSE: VZ) will end its unlimited data plan for existing subscribers. As customers upgrade to superfast 4G LTE service, Verizon will use the opportunity to take away something many consumers thought was routine pricing. 4G networks carry larger amounts of data than 3G ones. Verizon will make the case that the expense of customers who use these networks is high. Verizon has a strong enough lock on the American market to hold most customers to such a plan. So does AT&T (NYSE: T). Sprint (NYSE: S) and T-Mobile are in another class. They cannot alienate their smaller pools of customers and need to try to take subscribers from their larger rivals. Their one point of leverage could be to keep 4G unlimited plans and promote them as superior for heavy users of data on 4G networks.

Douglas A. McIntyre