Water Cooler Finance: Trouble At Home And Abroad

By Michael Deane | March 01, 2010 AAA
Water Cooler Finance: Trouble At Home And Abroad

It hasn't been a pretty week for financial news, with the main theme being trouble – both at home and abroad. With the ongoing automotive industry problems, which have spread out from Toyota, to the unsettling European economy and the cloudy forecasts for the U.S.'s recovery, it's been tough to find some financial sunshine. (Recovering from an economic slump isn't the easiest thing to do, but here are a few potential methods of rebuilding. Find out more in Profiting From A Consumerless Recovery.)

  • Car Troubles
    Last week, auto news was focused on Toyota's safety recalls, but that is now spreading throughout the automotive world. Akio Toyoda, the usually media-shy head of Toyota, traveled to the United States to apologize for, and take ownership of, Toyota's recent safety shortcomings. Stocks had a slight bounce-back, but it still remains to be seen as to whether Toyoda's apology will regain the confidence of the car-buying public. Toyota is no longer alone in the recent recalls, as fellow Japanese car makers Suzuki and Nissan also recalled vehicles this week – though not nearly at the level of Toyota. Suzuki saw the majority, recalling nearly 500,000 cars.

    In North American auto news, GM's deal to sell Hummer to China's Sichuan Tengzhong Heavy Industrial Machinery fell through, after it failed to gain Chinese regulators' approval. GM is now looking at other options, but this might mean the end of these monster SUVs. (These two major ways to obtain a car have very different advantages and drawbacks. Find out which is best for you, in New Wheels: Lease Or Buy?)

  • Troubles Abroad
    If there's something we've learned this week, it's that misery loves company – and things are no different in the eurozone. Ireland, Spain and Portugal have emerged as countries that match Greece in terms of debt troubles. The European Union has instituted spending freezes in these struggling countries, but critics claim that freezing stimulus spending might do more harm than good. To completely remove the hope of immediate aid, the European Commission announced that rumors of a 20-25 billion euro bailout for Greece have been grossly exaggerated. As of Friday, the EU was urging Greece to adopt new measures that would help its deficit – France and Germany are still looking for a bigger commitment from Greece before they fully endorse the EU's support for the country.

    Back at home, Goldman Sachs will be facing Fed scrutiny over derivative arrangements that were made with Greece – and how these derivatives may have added to Greece's financial woes. There is also talk of some ratings agencies considering downgrading Greece's debt, which certainly won't help. Also in the U.S., a number of hedge fund managers got together to make some huge plays on the falling euro. Soros and company are leveraging up to 20 times in order to get the most out of this European catastrophe. Leveraging works both ways, however, and if it turns to losses, they'll be magnified as well.

    Troubles at Home
    The economic crisis in Europe has spread to North America, and the markets were down thanks to a troubled-economy cocktail. U.S. jobless claims being at a three-month low were no small ingredient in this cocktail, and brought about more worry about the U.S.'s hopefully impending recovery from this recession. Adding to this worry was the announcement that new-home sales fell to a record low. These two downers combined to sink U.S.'s consumer confidence, meaning there will still be a while before a full recovery is in the cards. There was a tiny glimmer of hope, however, as home prices continued to fall… but more slowly!

    Obama's focus on healthcare and insurance will certainly have ramifications for the financial markets, especially his announcement that he would like for the government to have the power to block insurance rate hikes. After accusing the big insurance companies of caring less about healthcare than they do about profits, Obama opined that it would be a good idea for insurance companies to justify the rate hikes, so that there will be a way to keep health insurance costs lower. The healthcare summit was on Thursday, and it's no surprise that it didn't lead to some sort of reconciliation and agreement between the Democrats and Republicans. We'll have to wait and see what this means for the healthcare industry.

  • Some Good News?
    On the brighter side of financial news this week, if you can call it that, AIG is still bleeding money, but less than last year. The insurance giant hasn't fully healed its financial wound, but with losses in its fourth quarter down more than $53 billion, things seem to be on the mend. Amid the turmoil in the European airline industry, with Lufthansa's four-day pilot strike and British Airways impending cabin crew strike, U.S. airlines showed an increase in revenue for January. This reverses 14 months of decline, which must mean something positive for consumers and the economy, right? (From coins to credit, find out how the earliest system of money management started, in The Evolution Of Banking.)

  • Batman Beats Superman
    Though consumer confidence is down, there are still a few of them out there that are feeling downright frivolous. This week saw two record-breaking comic sales, one on Monday and another on Thursday. Monday's auction had the 1938 comic that first featured Superman sell for $1 million, breaking the record. Not to be outdone by his tights-wearing counterpart, the 1939 debut of Batman sold three days later for $1,075,500, setting a new record. (Profit margins are slim, but that needn't deter those with a passion for eras past. Find out more in Contemplating Collectible Investments.)

This week was fraught with market turmoil, and it is probably just the beginning for the Europe crisis and health insurance, and the effects these things will have on the markets. There were a few glimmers of hope, but for the most part it looks like the financial world is in for a bumpy ride in the weeks ahead.

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