What's Important in the Financial World (6/19/2012)

The international capital markets refuse to give Spain a break as faith in its ability to solve its own financial problems has faded to black. The country issued three billion euros of 12- and 18-month bills. The rate paid on the 2.4 billion euros of 12-month was 5.074%. Spain continues to face the problem that it cannot sustain borrowing costs with interest rates at that level. Outside support from the European Union and International Monetary Fund now appears absolutely necessary. Spain’s banks will receive a 100 billion euro package of assistance. That amount does not create a measure of what Spain will need. Given the current recession there and the unemployment rate of 25%, a Spanish bailout could run into the hundreds of billions of euros.

IMF Fund Grows

In an important sign of support for the euro crisis, China increased its contribution to a new IMF fund to $43 billion. That brings that level of the crisis facility to $456 billion. The fight will begin shortly about what role the IMF money will play in bailouts, and whether the terms on which it will lend money can be similar to EU nations, particularly Germany. Bickering over this kind of matter has led to belief that help for Europe’s weakest countries will not be forthcoming soon. “Countries large and small have rallied to our call for action, and more may join almost doubling our lending capacity,” IMF Managing Director Christine Lagarde. What she could not express is how little leverage she has to use the money without wide cooperation with the other parties that will fund aid.

German Economic Expectations

German economic expectations plunged, based on numbers from the ZEW research firm. The news may make it even harder for Angela Merkel to convince voters and politicians that the largest economy in Europe should spend tens of billions of euros to rescue its neighbors. The stats operation reported:

The ZEW Indicator of Economic Sentiment for Germany has decreased by 27.7 points to a level of minus 16.9 points in June 2012. This is the indicator’s strongest decline since October 1998. The worsening of the situation in the Spanish banking sector and the insecurity about the outcome of the Greek general election, which had been lasting for most of the survey period, are likely to have contributed to the sharp decline of the indicator.

The data could not have been much worse.

Cuban Sells Facebook

Mark Cuban, multimillionaire and founder of Broadcast.com, which he sold to Yahoo! (NASDAQ: YHOO) many years ago, told CNBC that he has sold all of his investment in Facebook (NASDAQ: FB). Cuban is seen as a thought leader in the Internet industry, so his decision, and public disclosure of it, is another vote of no-confidence for the social network company that had one of the largest IPOs in U.S. history. Cuban, who owned 150,000 shares told CNBC:

I already sold it, I took my hit, my thesis was wrong. I thought we would get a quick bounce just about the excitement about the stock. I was wrong, and when you are wrong you don’t wait, you just get out. So I took a beating and left.

Fuel Prices Still Dropping

Gasoline prices continued to plunge along with oil. Crude prices recently reached an eight-month low. The AAA Fuel Gauge report showed that the national average for a gallon of regular gas was $3.497, down from $3.505 yesterday and $3.690 a month ago. Debate remains about whether the drop will cause Americans to drive more this summer, which is usually a sign they are comfortable to spend money on vacations. More important is the argument over whether the overall U.S. economy will be helped by the drop. Many economists believe the U.S. could enter another recession, or at least GDP growth could drop sharply, if financial problems in Europe worsen.

Douglas A. McIntyre