What's Important in the Financial World (12/6/2012)

Gasoline prices have moved back almost to where they were a year ago. That means the drag of fuel prices on the economy becomes increasingly less likely. Only a few months ago, the nationwide price for a gallon of regular on average approached $4. The AAA Fuel Gauge puts that price at $3.379 now, down from $3.409 a week ago and $3.463 a month ago. Even more important is the drop in the price of gas in the most populated states. With the exception of Hawaii, which has to ship in gas from hundreds of miles away, not a single state has regular gas prices that on average are above $4. In California, where prices were above $4 for some time, it has fallen to $3.678. And in New York the price has dropped to $3.846. In some places, the price has moved close to $3, perhaps because they are near to or house refineries. Gas prices are down to $3.148 in South Carolina, $3.139 in Texas and $3.158 in Oklahoma. Oil has fallen below $88 a barrel, and the trend continues downward, which means the drop in gas prices is not over.

Deutsche Bank’s Hidden Losses

The Financial Times reports that former staff members from Deutsche Bank A.G. (NYSE: DB) say the company hid $12 billion in financial losses during the credit crisis to avoid a bailout. The idea that this amount could be hidden from accountants and the hundreds of senior managers at the largest bank in Europe seems impossible because the sum is so staggering. Perhaps the people making the accusations made them up. According to the FT article:

The three complaints, made to regulators including the US Securities and Exchange Commission, claim that Deutsche misvalued a giant position in derivatives structures known as leveraged super senior trades, according to people familiar with the complaints.

All three allege that if Deutsche had accounted properly for its positions – worth $130 billion on a notional level – its capital would have fallen to dangerous levels during the financial crisis and it might have required a government bailout to survive.

On the small chance this is true, some major audit firms are in trouble.

Stocks to Rise 15% in 2013?

Famous Goldman Sachs Group Inc. (NYSE: GS) market analysts Abby Joseph Cohen has forecast that stocks could rise 10% to 15% in 2013. Given the market’s performance over the past three years, that should be possible. While the federal government’s failure to settle issues could hurt the economy, Cohen says that underlying fundamentals are fine. CNNMoney reports that Cohen believes:

Americans are carrying less personal debt as a percentage of their income than anytime since the 1990s, Cohen said. Large corporations have excess cash thanks to strong fundamentals and because they’ve been able to borrow money in an environment of low interest rates.

Moreover, the U.S. has been reducing its debt relative to its growth domestic product during the past few years. She noted that debt was 4% of GDP for the fiscal year that started in October compared to an 11% ratio in 2008.

Douglas A. McIntyre