Daily Archives: March 9, 2008

Oil May Trump Credit Crisis In Undermining US Economy

Most of the business and economic headlines splashed across the media are related to fears that the credit crisis will further erode the default rate on mortgages and drive more huge losses at US financial firms The write-downs at banks and brokerages, which already total $180 billion, are eye-popping.

Morgan Stanley recently wrote that subprime losses could cause a total of $325 billion in margin calls at already-troubled banks. Since that capital is not likely to be made up by private money or capital from abroad, the Fed, which has already offered the systems $100 billion in liquidity, may have to double or triple that amount.

The financial and real estate businesses are probably cannot be save from deep recessions within their sectors of the broader economy, but that does not mean that other parts of the system cannot be fire-walled and supported. The package the government is putting into place should put several hundreds dollars in tax rebates into the hands of most Americans. That may well spike consumer spending up and prime the pump for a resuscitation of the buying habits that pushed GDP up for several years.

In the background, the price of oil has moved to $106 and may go higher. The dynamics of consumption in Asia and flat supply out of OPEC mean that oil may not come down. Goldman Sachs analysts wrote that the price of crude could spike above $150 to $200.

The Associated Press recently asks and answered "What happens as gasoline prices in particular increase? The fear is that Americans, forced to pay more money for gasoline and overwhelmed by other economic issues, will continue to hunker down".

That means that there may be a second "recession" is the offing, one that pushes beyond the financial and housing crisis and threatens a number of other large industries which have a large portion of their costs or their customers costs tied up in the price of gasoline. First among these are airlines, auto companies, and retailers. Beyond the obvious, petroleum is used in the manufacture of a number of other products like plastics and other petro-chemical based components.

To make a case which is more to the point, $4 gasoline could easily eat up a tax rebate of several hundreds dollars, especially for people who drive a car.

Douglas A. McIntyre

Posted on: March 9, 2008 – 9:31 am in Oil & Gas

US Pushes Bio-fuels Into Europe

According to The Guardian "The US is flooding Europe with subsidised biofuels that threaten to destroy Europe’s domestic refining market, the head of the biofuel company D1 Oils warned today as its shares lost a third of their value."

They should be happy it may bring down the cost of gas.

Douglas A. McIntyre

Posted on: March 9, 2008 – 6:46 am in Agriculture

VW Plans To Overtake Toyota (TM) And GM (GM) In Worldwide Sales

Bold words. VW says that by 2010 it can produce 10 million vehicles and pass Toyota (NYSE: TM) and GM (NYSE: GM) as the world’s largest car company. According to the Times "To those who suggest that closing a 3m vehicle gap (Toyota produced 9.4m last year) is a very tall order, company management explains that, in 2006, the number of conventional passenger cars made by Volkswagen and Toyota was fairly similar – 5.2m for Volkswagen and 5.5m for Toyota – and that the difference is made up by 4×4s, “people carriers” and light trucks."

Volkswagen only recently introduced a full range of these multi-purpose vehicles. They will play an important part in its future growth

VW may find that things don’t go as planned. As a new entrant to the pick-up and SUV markets, the company will find global competition for not just Toyota and GM, but also Ford (NYSE: F), Nissan, and Honda (NYSE: HMC). Most large countries also have local car manufacturers who may not be anxious to give up a large piece of their business.

While VW may have a chance to get a reasonable piece of the auto sales in huge countries like China, it has almost no market share in the world’s largest car-buying nation, the US. Taking away business from a desperate company like Ford and a successful company like Toyota may be nearly impossible.

Douglas A. McIntyre

Posted on: March 9, 2008 – 6:33 am in Autos, , , ,