This week anyone with a car is telling the same story: Where were you when you saw regular unleaded at less than $2 a gallon? (New Market, Virginia, in my case.) People are talking about it like they were Noah catching sight of Mt. Ararat--the flood of high prices is over. Except, well, it's not. According to a new report by the International Energy Agency, over the last year investment in oil and gas exploration has tanked, resulting in a $60 billion shortfall.
Momentarily doffing my business-beat hat, I want to highlight a strange article in the New York Times this morning. “For South, a Waning Hold on National Politics,” reads the headline, and the gist of the piece is that Southern voters, by backing McCain this election, have proven that their backward ways are increasingly irrelevant to the American scene. There are lots of good quotes from the usual suspects—Merle Black, Tom Schaller—and lots of interesting anecdotes.
As Obama has made clear, bailing out the auto industry is a key priority in his economic recovery agenda. There’s already $25 billion in low-cost loans approved for Detroit, but that money is tagged specifically to help the industry retool to meet higher fuel-efficiency standards. So Democrats have been pushing the White House to tap the $700 billion bailout package for more. The case for some sort of bailout is strong: GM may not have enough cash to make it through next year, and Chrysler may be running out of cash as well.
Obama will announce his Treasury secretary nomination in the next few days, and the safe bet is on Larry Summers or Timothy Geithner. But an almost equally important pick will be his SEC chair. After a remarkable period of reform under William Donaldson, the commission has languished under Chris Cox. To his credit, Cox didn’t do as much damage as people expected--he resisted efforts to de-regulate aggressively, at times clashing with the Commission’s free-market fanatic, Paul Atkins.
In case you get tired of reading election coverage, yesterday Edmund Phelps had a fascinating (if dense, to a lay reader) piece on the legacy of John Maynard Keynes in the Financial Times. After rolling out a compelling critique of the British economist, though, Phelps warns of efforts to revive Keynesianism in the wake of the financial crisis: Yet it must be asked whether a massive shift from private to state investment would not damp the conception, development and adoption of new commercial ideas for innovation.
In case you needed any evidence, the credit crunch is now working full steam through the economy: U.S. manufacturing hits a 26-year-low, per the Washington Post, and car sales are at their lowest in 25 years, per the Financial Times. Meanwhile, a Federal Reserve survey shows credit growing even tighter. It appears I spoke too soon yesterday when I said that Treasury’s rejection of General Motors’ aid request was a sign it was not going to expand lending beyond banks.
Following on the heels of an optimistic piece in the New York Times about green jobs in the Rust Belt comes a Financial Times report that investors are fleeing the energy sector. This means less money to improve the country’s ailing power infrastructure, and probably even less to push into renewable power generation. Which only underlines the need for an infrastructure stimulus package from Washington. The Wall Street Journal provides new details about the FDIC’s aggressive management of banking-sector mergers.
It’s not the most important financial story right now, but the clever (or too clever by half) corner by Porsche in Volkswagen stock gets an excellent write up, and break down, from The New York Times’ Floyd Norris. Separately, Brad Delong has been talking about it for days on his blog. For those interested in financial history, this is one for the books. Just some Friday fun, at the expense of others: Watch CNBC’s Charlie Gasparino, who was supposed to provide the end-of-day wrap up, instead says: “Whadda I got? Shoot the capitalists.
Let’s hope yesterday’s half-point rate cut worked. At 1 percent, the Fed can’t go much lower. Technically, of course, it can go to 0 percent, then try alternatives, like targeting the rate at monthly or yearly periods, instead of overnight. But even the current rate is a historic low, and pulling out even bigger guns would probably take a renewed crisis to justify. Going further could even spark a renewed panic itself if investors felt the Fed was going overboard or knew something they didn’t.
Time was, a major upward swing in the market followed by a half-point cut by the Fed would send American investors on a buying spree. But that time has probably passed. Today Ben Bernanke and Co. are expected to make another interest-rate cut, but market futures were trending down nonetheless. Is that because they don’t expect it to do much? Because they’re withdrawing from yesterday’s frenzy? Or are they reacting to the renewed drop in home prices and abysmal consumer confidence?