Jun 25, 2012

Oil Falls as Global Economy Stalls

Grupo Modelo, the maker of Corona beer, is up strong this morning as Anheuser-Busch InBev is close to acquiring the remaining stake in the company for $12 billion.  The deal values Modelo at $20 billion and further expands the branding and reach of the world’s largest beer maker.

A long running question during the Euro crisis has been whether backstopping all of Europe will take a toll on Germany.  The answer is yes, and now bunds are beginning to reflect that concern.  After bottoming at 1.12% a month ago, the yield on 10-year bunds are now approaching 1.6% as institutions have been aggressively selling the securities.  The German populace hasn’t been supportive of throwing a lifeline to the periphery, and if voters feel they are being impacted by providing this support, leadership could find themselves soon unemployed.

Economic growth in India has been weak, and the recently collapsing rupee has put pressure on businesses carrying foreign loans.  Because of the lack of a liquid capital market, businesses in India have historically relied upon foreign sources of capital for growth.  The decline in the currency is pushing borrowers to the limit.  The Indian government and central bank are preparing to take actions designed to bolster the value of the rupee. 

In a “be careful what you ask for” decision, it appears that cities, states and local-government entities will be required to disclose their previously hidden pension obligations.  Recent changes to US accounting rules will force the disclosures, heretofore buried in a blizzard of paperwork.  The revised standards are expected to shed more light on the explosion in underfunded public pensions. 

The Supreme Court is expected to rule on Obamacare later this week.  Experts seem to think there’s a 60/40 chance the individual mandate will be overturned, in effect rendering the legislation dead. 

In response to declining demand from weakening global economic activity, oil prices have declined 22% over the past two months.    Gasoline in California has broken below $4 per gallon for first time in nine months, easing pressure on consumer pocket books just as the summer driving season begins. 

In a bit of bright news, new home sales came in at 369K, a rise of 7.6% month over month and better than expectations of 347K.  

Have a great day


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