Water Cooler Finance: Auto Hope, Bubbling Oil and Obamanomics

By Michael Deane | April 06, 2010 AAA
Water Cooler Finance: Auto Hope, Bubbling Oil and Obamanomics


As usual, it's been a mixed week in the world of finance – which is better than a year ago. At least there is some good news in the mix. Glimmers of hope still peek out from the financial rubble, and a few surprising industries made headlines this week. For one, the automotive industry had some positive headlines recently, and the oil industry – apparently coming out of its economic slumber – also underwent some changes. Related to this was the continuing Obamanomics, as the president proposed changes for the oil industry, and bigger and more contested changes to the financial industry. Economic recovery as a whole is still slow-going, which indicates that it is no longer sliding on a steep slope into uncertainty. (Learn more about this sector and how these companies make their money, see Oil And Gas Industry Primer.)

In Pictures: The Biggest Bank Failures

Automotive Hope
This week was bright for much of the automotive industry, both state-side and overseas. After entering into Chapter 11 in 2009, Chrysler (with some federal assistance) now foresees breaking even in the coming year. In addition to this, Ford (NYSE:F) is focusing its sights on Asia by increasing production and making a push into India, and has just sold its Volvo division to China's Zhejiang Geely Holding Group Co. for $1.8 billion. GM also showed vast improvements, with its March sales rising 43%.

American automakers have been benefiting due to Toyota's (NYSE:TM) recent safety mishaps and product recalls, but they may not last for much longer. Toyota, which saw problems due to faulty brakes and sticky gas pedals, has also seen a boost in sales largely due to better incentives. On Thursday, April 1, Toyota announced 186,863 unit sales in March, an increase of 35.3% over March of 2009 on a daily selling rate basis, which makes things appear fairly rosy for the automotive sector as a whole.

Oil Bubbles
It's been quite some time since oil has made headlines, but this past week we've seen some action in oil prices and some new oil production developments. Oil prices gained over 2% to above $86 per barrel on April 4, to reach its highest level in 18 months. If oil continues with this rise, the retail and consumer sectors will be hurt while the energy sector will benefit. This was shown in full force on March 31, where stocks everywhere except the energy sector took a fall.

This rise may be tied to President Barack Obama's intent to open certain offshore areas to drilling. Obama announced this contentious action on March 31, but the proposal will need to be approved by Congress before it has real bearing. In the oil exploration field, there was the announcement that BP (NYSE:BP) will be at the forefront of Iraq's oil revival. Though there are many concerns and obstacles that accompany this announcement, if it works out, this could add millions of barrels per day to the oil market.

The Obama Overhauls
Obama has been on an overhaul rampage lately, with the healthcare overhaul a few weeks ago, which included the student loans revisions. Obama signed the law that will cut banks out of the student loan business, and have most student loans coming from the government. This will purportedly make student loans easier to repay, free up extra money that will be used for grants and will allow for more funding to be given to community colleges. The impending vote on the financial overhaul, which will put stricter regulations on larger financial firms and certain types of securities and will provide increased protection for the consumer and retail trader, is supposed to be pushed through within the next few weeks. The bill is still subject to scrutiny from opponents.

Economy
Despite the optimistic sentiment regarding market conditions, it was recently reported that private-sector jobs continued to be lost in March. The report was released by Automatic Data Processing and Macroeconomic Advisers just before the Labor Department reported that jobless claims are falling; however, the Labor Department's numbers include employment in both the private and public sectors. The private-sector jobs did not fall that much, relatively, and about 23,000 private sector jobs were lost in March. The Labor Department said that jobless claims fell by 6,000 last week, which was better than economists were expecting. This slightly positive data had stocks on the upswing on the first day of the second quarter.

Entertainment Fails and Technology Triumphs
British music giant EMI's talks with Universal Music fell apart on March 31, leaving EMI to seek investment requirements from private equity firms. Another big entertainment company, Metro-Goldwyn Mayer film studio is facing a huge debt load that could lead to the sale of the studio. Also on the film financial front, movie futures may be a no-go as the Motion Picture Association of America has objected to the idea of people trading futures contracts that would speculate on Hollywood's blockbusters and busts.

And yes! The iPad is officially here. It began selling last weekend and the reviews coming in ahead of the release were more than favorable. Reviewers from the Wall Street Journal and USA Today both heralded it as definitely living up to the hype. Also in Apple (Nasdaq:AAPL) news, the iPhone market may be opening up, with rumors emerging that Apple is ending its exclusive arrangement with AT&T (NYSE:T). This would bode well for Apple, as it could now sell phones that would work with Verizon – if the rumors are true.

The Bottom Line
This week, the economy's mix seemed to point to some real proof of recovery, with rebounding autos and dropping unemployment. However, there's much speculation over what Obama's overhauls will do to the markets, and the future of oil development. So, we remain cautiously optimistic and mostly uncertain.

Still feeling uninformed? Check out last week's business news highlights in Water Cooler Finance: Zombies File Taxes, Dead Bills Rise Again.

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