10.2.14: Obama Boasts, Draghi Disappoints, Musk Teases
Today and Tomorrow in Business
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With recent polls indicating that Republicans are trusted more than Democrats to manage the economy, President Barack Obama sought to set the record straight in a speech at Northwestern University. He boasted of accomplishments including the longest stretch of private-sector job creation in U.S. history, a revitalized manufacturing sector and auto industry, a shale-gas revolution that has made the U.S. the world's leading oil and gas producer, a dramatic slowdown in health-care cost increases, and a budget deficit below 3 percent of gross domestic product, down from 10 percent when he took office. Yet because the average household hasn't seen a pay increase in 15 years, much of this is lost on voters who head to the polls next month. That's why many political analysts continue to predict Democrats will lose control of the Senate and may give up more seats to the Republican majority in the House.
Obama didn't mention this, but corporate executives who assail his economic policies are exaggerating, at best. Almost six years into Obama's administration, companies in the Standard & Poor's 500 Index have the lowest debt-to-earnings ratio in at least 24 years, $3.59 trillion in cash and marketable securities, and record earnings per share. The recovery, in sharp contrast to weak growth in Europe and Asia, has seen an almost threefold gain in the S&P 500 Index since March 2009.
European Central Bank President Mario Draghi's big announcement on the central bank's new asset-buying strategy to stave off deflation was, um, a big disappointment. Yes, the ECB will buy bonds, but only those backed by private-sector loans, a pool of assets that may be too small to have much of an effect on Europe's struggling economies. Unlike the Federal Reserve's quantitative-easing program, the ECB won't be buying government debt -- for now. Draghi wouldn't say how much the ECB will buy during the program's two years, only that it might fall short of the $1.3 trillion he signaled earlier. Policy differences probably explain the ECB's hesitation, especially from Germany, which fears it would be left with the tab if countries defaulted on debt the ECB purchased.
Oil supply is outstripping demand. The main international benchmark for oil prices, Brent crude, hit a 28-month low, while the U.S. benchmark, West Texas Intermediate, dropped below the $90 mark for the first time since April 2013. The latest sell-off comes after Saudi Arabia, in a fight for market share, lowered its selling prices for November. The U.S.'s emergence as a major oil producer -- at 8.5 million barrels a day in August and another 3 million in liquids from natural gas, it now bests Russia and the Saudis in output -- combined with new production from Libya and Iraq, explain why prices keep plummeting. Weak demand from China and Europe also play a role.
He already owns planes and trains; now he has automobiles, too. Billionaire investor Warren Buffett unveiled plans for his Berkshire Hathaway Inc. to buy Van Tuyl Group, the fifth-largest auto dealership company in the U.S., with $8 billion in annual sales. He sees long-term value in auto dealerships -- a highly fragmented market that he could help to consolidate. And if that doesn't work out, many auto dealerships are sitting on prized real estate. Buffett already owns car insurer Geico Corp., railroad Burlington Northern and NetJets Inc., the charter-plane company.
Elon Musk, in a mysterious Twitter post, said he would unveil a new product called "D" next week, along with "something else." The Tesla Motors Inc. chief executive officer attached a picture of a garage door marked with a D that was open just enough to show the contours of a vehicle inside. The picture also showed the date Oct. 9. Besides the Model S electric sedan now on sale, Tesla has announced plans to debut the Model X electric sport-utility vehicle in 2015 and the Model 3, a smaller, more affordable sedan by 2017. Some analysts think the D refers to an all-wheel drive feature on some Tesla cars.
The world economy is threatened by a "new mediocre" of low growth for a long time, warned Christine Lagarde, managing director of the International Monetary Fund. The global economic recovery is "brittle, uneven and beset by risks," she said, signaling cuts to the IMF's global outlook for 2015 as emerging economies suffer a slowdown that threatens to spill over into already-sluggish growth in advanced countries. She expects the U.S. and the U.K. to have the strongest growth.
Russian President Vladimir Putin is fighting to keep rubles inside Russia, yet today scotched rumors that he is considering capital controls or currency-exchange restrictions. He also shrugged off the effect of international sanctions, suggesting they will only lead Russia to trade more with China and India. Capital outflows, which could reach $100 billion this year, compared with $61 billion in 2013, have skyrocketed because of international sanctions over the conflict in Ukraine. The ruble sank 14 percent against the dollar in the three months ended Sept. 30, the worst quarter since 1999 and the biggest drop among global currencies.
And Don't Forget
- Obama travels to Princeton, Indiana, to discuss the economy at Millennium Steel Service.
- U.S. Labor Department releases payrolls report tomorrow at 8:30 in Washington. Employers probably accelerated hiring in September, says a Bloomberg survey, after expanding head counts at the slowest pace of the year in August. The jobless rate is projected to hold at 6.1 percent.
- Other economic data out Friday include U.S. trade balance; U.S. Institute for Supply Management's service-sector index; China's non-factory purchasing managers' index; and Hong Kong's PMI.
Chicagoans love hotdogs. Nothing new there. But when Doug Sohn announced he was closing his hotdog stand tomorrow, lines formed deep in the night to get one last taste of his exotic fare, featuring hot dogs stuffed with escargot, foie gras and rattlesnake. Fans brought lawn chairs, card tables, poker chips, sleeping bags and booze to help pass the wait of up to eight hours. A spot in line popped up on Craigslist for $300. "And nobody," the AP reports, "entertains the idea for even a second that this is the least bit crazy."
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