What's Important in the Financial World (7/17/2012)

General Motors (NYSE: GM) warned that losses in Europe will be greater than expected in the second half, according to the Wall Street Journal. The news was easy to forecast. None of the large car manufacturers that do business in Europe will do well this year. Management at Ford (NYSE: F) recently told the press that the company would suffer larger-than-expected losses in the current quarter. Too many people are out of work in Europe. And most auto firms cannot cut costs quickly. They face resistance from strong unions and local governments bent on doing whatever they can to save jobs. The negative outcome of the slow sales and inability to cut expenses quickly is that losses among all the companies in the industry will total well into the billions of dollars in Europe this year. There does not appear to be much the manufacturers can do about it.

Gasoline Prices Tick Up

Gasoline prices have begun to tick up again, although only slightly. It may be only a coincidence that oil prices are rising too. The price for a gallon of regular nationwide was $3.406 yesterday, compared with $3.396 the day before and $3.381 a week ago, according to AAA. The increase does not make much sense. It is too early for gas prices to be affected by higher oil prices, which have not reached refineries yet. And inventory in the United States has been high recently. It could be that Americans are driving more now that gas prices have tumbled from just shy of $4. Or, stations may have tried to hold prices around $3.40 to maintain margins. Whatever the reason, the drop in gas prices is over for the time being.

Good News for Spain

The government of Spain received some good news. The country raised $3.6 billion in the capital markets, and rates fell sharply in the process. The yield on 12-month bills had an average interest rate of 3.9%, compared to 5.07% in the auction on June 19. Markets may believe that Spain is very close to a huge bailout that could be well over $100 billion, much of which will go directly to its hobbled banks. Rating agencies have not been kind to Spain recently, although the market has shrugged that off for now. Spain’s sovereign paper, the bonds of many of its states, and its major banks have all been downgraded in the past two weeks. Spain has delayed by a year the point at which it will reach its critical budget reduction goals. And unemployment remains above 24%. The markets have forgotten about much of that, at least for a day.

Douglas A. McIntyre