Consumers Haven’t Given Up Entirely

“Some of the dire forecasts for economic growth in the first quarter may not be true,” says one analyst in reaction to the news that consumer spending inched up at a seasonally adjusted rate of 0.2% in February, in line with expectations. While the inflation-adjusted number actually dropped by 0.2%, after a 0.7% rise in January, the report was still seen as another slight ray of hope in the economic landscape.

The consumer price index also ticked up, by 0.3%, in February, after the same increase in January. Excluding volatile food and energy prices, core CPI rose 0.2% in both months. That helps somewhat to calm fears of deflation, though economists caution that deflationary pressures are more likely to show in the months ahead. Wall Street found something not to like in today’s news, however, as the market in midafternoon had given back all the gains it notched yesterday, with the Dow down about 180 points.

Source: New York Times

Bankers Gather at the White House

President Barack Obama convened a meeting of top U.S. bankers at the White House to discuss such pressing issues as the Administration’s push for sweeping new regulations, and the controversies over executive compensation. Among the dozen attendees: the CEOs of Bank of America, Citigroup, Goldman Sachs, and JP Morgan Chase.

Source: Wall Street Journal

27.3 Miles Per Gallon, Please

The Obama Administration announced fuel economy standards for 2011, saying it will requite U.S. carmakers to average 27.3 miles per gallon in their fleets. The standard shouldn’t be hard to meet, since it’s just 0.3 mpg higher than the one carmakers had to achieve in 2008. But Washington is expected to push for sharply higher standards in coming years.

Source: Detroit Free Press

The Coming Oil Shortage

A study released Mar. 27 by consultancy Cambridge Energy Research Associates carries a sobering warning for the global economy after the recession ends and growth resumes: Thanks to the plunge in crude prices since mid-2007 and a resulting cutback in oilfield and production investment, shortages in capacity may appear within five years, leading to an oil price shock. Although oil majors such as Exxon and Shell say they are keeping their investment plans unchanged this year despite falling prices and the slowdown in demand, many Mideast producers have scaled back. As a result, Cambridge Energy warns, nearly 8 million barrels per day of expected output may be “at risk.” At its recent meeting in Vienna, OPEC also warned of a possible price rise when the economy turns around and demand picks up again.

Source: Wall Street Journal, New York Times

Obama: Help for Detroit Comes with Strings

President Barack Obama said Mar. 26 during an online “town hall” meeting that his administration will unveil an aid package for the ailing U.S. auto industry within the next few days, but that it will entail “painful” and “pretty drastic” changes for carmakers. If the companies don’t agree to aggressive restructuring, Obama warned, “I’m not willing to have taxpayer money chase after bad money.”

Source: Washington Post

The Looming Battle over Geithner Reform Plan

Markets reacted positively to the proposals outlined Mar. 26 in Washington by Treasury Secretary Timothy Geithner to drastically reshape regulation of the financial services industry. But behind the scenes, industry groups are already mobilizing to block restrictions they oppose and win new protections they have wanted for years. Expect a months-long political battle pitching interest groups against one another.

Source: New York Times, BusinessWeek

Barclays Soars on ‘Stress Test’ Success

Shares in the big London bank jumped as much as 10% Mar. 27 on news that it has passed a thorough audit of its books conducted by Britain’s Financial Services Authority watchdog. The clean bill of health means that Barclays likely won’t have to seek additional capital from shareholders or outside investors.

Source: Financial Times, Times of London

Facebook is Hunting for More Money

Facing rising costs for the computers and networks needed to support its surging traffic, the social-networking site is working to secure as much as $100 million in debt financing from big banks, sources say.

Source: BusinessWeek

Las Vegas Developer May File for Bankruptcy

CityCenter, the troubled residential and casino development in Las Vegas backed by MGM Mirage and Dubai World, has hired a law firm to prepare for a potential bankruptcy filing, possibly within days. Backers are likely to miss a $220 million debt payment due Mar. 27 for the sprawling and unfinished $8.6 billion project.

Source: New York Times

Air France-KLM Sags on Loss Warning

Shares in Europe’s largest airline, Air France-KLM, fell as much as 7% early on Mar. 27 after the carrier warned it will lose $272 million for the year ending Mar. 31 amid deteriorating economic conditions and a slump in corporate travel. The carrier also mistakenly hedged fuel prices at above their current price.

Source: MarketWatch

State Aid Urged for Troubled Russian Banks

A senior Russian banking official has warned that hundreds of domestic banks are at risk of going under this year as bad loans rise to as much as 20% of their portfolios. Pyotr Aven, president of Alfa Bank, called on the government to move swiftly to recapitalize the top 30 banks and name the institutions that will receive assistance.

Source: Financial Times

GM Thins Its Ranks Some More

More than 7,500 retirement-eligible hourly workers have agreed to take General Motors’ latest buyout offer, the company reported. The packages are worth up to $45,000, and most of the workers who accepted them will leave by Apr. 1. What’s perhaps more striking, however, is the number of retirement-eligible UAW members who didn’t accept the offer—some 14,000. The company desperately needs to clear more highly-paid workers from its payroll in order to replace them with new hires who will earn much less. GM is finding it more difficult than it had hoped to persuade people to give up their jobs during a recession. Nevertheless, GM stock was up nearly 11% in midafternoon trading.

Source: New York Times

This Market Rally May Be Real

Predicting the stock market is a dicey game, but better policy and a shrinking trade deficit—in addition to clues from history—argue for muted optimism in the wake of the market’s recent 20% rally.

Source: BusinessWeek

House Pares Back Obama Budget

The battle lines are being drawn in Congress over President Barack Obama’s budget proposal. On Mar. 25, Democrats in the lower house unveiled a $3.45 billion budget plan for fiscal 2010—$100 billion less than what the President asked for. Under the House plan, the budget deficit would rise to $1.2 trillion next year (rather than the $1.4 trillion contemplated under the Obama budget), and fall to just under $600 billion over the following five years.

Source: Washington Post

Signs of Life in the U.S. Economy

Demand for machinery and other big-ticket items rose 3.4% in February, the U.S. Commerce Dept. reported on Mar. 25. The betting among economists had been that the number would be negative. Meanwhile, a separate Commerce Dept. report showed that sales of newly built single-family homes rose at their fastest pace in 10 months in February. The data are the latest signs that the U.S. recession may be bottoming out.

Source: Reuters

Reaction to the Toxic Assets Plan

After U.S. President Barack Obama outlined plans on Mar. 23 to lift toxic assets off bank balance sheets, attention now focuses on whether private-sector investors will be enticed to take part. Stock markets certainly think so, with the Dow rising 6.8 percent, or 497.48 points, to 7775.86 by the closing bell on Mar. 23. While that reaction relieved some of the immediate financial pressures, it was hardly a unanimous vote of confidence. Some critics called the Mar. 23 plan a series of opaque subsidies that, at best, would prop up the banks and their shareholders without doing much to revive lending. The critical question is: will the U.S. Treasury’s plan work? For many, Obama’s latest attempt to jumpstart the domestic economy assumes the basic problem is one of liquidity. Yet if the problem is really one of solvency — that current prices for these assets are, in fact, accurate — the gains posted on Mar. 23 won’t last for long.

Source: Financial Times, BusinessWeek

Daimler Sells 9% Stake to Abu Dhabi Fund

The German carmaker, facing the worst auto industry crisis in decades, will increase its share capital by 10% and sell a 9.1% stake to Abu Dhabi-based Aabar Investments for $2.7 billion. The cash injection should help the Mercedes Benz maker weather a crisis that saw European auto sales plunge by nearly 20% in February vs. a year earlier.

Source: Financial Times

Suncor to Buy Petro-Canada for $15 Billion

Canada’s No. 2 oil company, Suncor Energy, plans to acquire rival Petro-Canada in a $15 billion deal that will create the country’s largest energy group and boost Suncor’s oil sands reserves.

Source: Reuters

Conversation of the Day: Securing the Smart Power Grid

Reader Marc Jacquinot writes: “You can easily create secure, hacker-proof communication channels between smart grid components using smart card technology.”

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