Oil Takes a Swipe at $100
It was a not-so-nice round number to start off the new year: Crude futures touched precisely $100 a barrel on Jan. 2 in trading on the New York Merc before closing at $99.62, up $3.64. Predictions of slippage in U.S. inventories contributed to the surge, as did attacks on installations in Nigeria. That wasn't all: Analysts cited turmoil in Pakistan, tension between the U.S. and Iran, and more exacting emissions standards for gasoline, which make it tougher for oil refiners to keep up with demand. What happens next depends on global growth. If it remains brisk, triple-digit oil could be here to stay. But weakness could lop $10 or $20 off the price. One warning sign came on Jan. 2, when the Institute for Supply Management said U.S. manufacturing shrank sharply in December.
A Lackluster Christmas
Shoppers made a game effort in late December even though higher gasoline prices robbed them of spending power. Same-store retail sales in the week ended Dec. 29 were a slim 2.3% higher than a year earlier, after a 2.8% increase in the previous week, according to the International Council of Shopping Centers and UBS (UBS). For November and December combined, the council estimates sales rose a little under 2.5% from a year earlier.
Oilfield-services provider Schlumberger (SLB) is cozying up to Big Oil's biggest rivals: state-owned producers. While the majors typically want to own rights to reserves—and take a share of the profits—Schlumberger works as a hired gun for a fixed fee, an approach the national companies like. But the company's interest in working on a risk/reward basis, and its privileged access, may be setting up a conflict with some of its most important customers.
Active in Omaha
Warren Buffett's billions seem to be burning a hole in his pocket. In nearly back-to-back deals, the Sage announced on Christmas Day that he will spend $4.5 billion to acquire 60% of the Marmon industrial group from the Pritzker family. He followed that up on Dec. 28 by saying he's moving into the bond-insurance business by shelling out $436 million to buy NRG, the reinsurance unit of ING Group (ING). On Marmon, he's planning in six years to snap up the entire privately held 125-company group, which generates $7 billion a year in sales. In bond insurance, he plans to offer coverage for government paper.
See "Bonded by Buffett"
Housing: Still a Mess
Don't bet on housing to shore up its foundations this year. Sure, sales of existing homes rose 0.4% in November, the first increase in nine months, according to a Dec. 31 report by the National Association of Realtors. But there's a 10-month overhang of supply at the current pace of sales. The Census Bureau said on Dec. 28 that new-home sales plunged in November by 9% from a month earlier, reaching a 12-year low.
Dubai Rolls the Dice
Islam may frown on gambling, but that isn't keeping Dubai from striving to be a player in Las Vegas. State-owned investment company Dubai World said on Dec. 28 that it bought 5 million more shares of MGM Mirage (MGM), the world's No. 2 casino company, raising its stake to 6.5%. The price: $424 million. Dubai last summer bought 14.2 million shares in the casino company controlled by Kirk Kerkorian as part of a $2.7 billion deal that included 50% of MGM Mirage's CityCenter project in Vegas. Dubai World plans to take a board seat at MGM Mirage as soon as it lands regulatory approval.
The mortgage market meltdown is creating a problem for communities around the country: a surging number of vacant and abandoned homes. Borrowers commonly flee homes when they go into default. But in some cases banks are abandoning the houses, too, after determining that their value is so low that it's not worth claiming them. In Buffalo and Cleveland, efforts are afoot to hold the lending industry responsible for spreading urban blight, and the tactics could provide a model for other regions.
The Surging Yuan
Surprise—Beijing appears to be heeding the screams of its trading partners. China's central bank has let the yuan climb to the highest point since a peg to the dollar ended in July, 2005. The yuan, which closed at 7.2934 to the dollar on Jan. 2, has gained 2.33% in the past two months, about a third of its 6.9% rise for all of 2007, or double the pace of 2006. And Beijing may widen the trading band.
Inspired by Apple (AAPL), PC makers are making fashion statements at that geekfest in the desert, the International Consumer Electronics show, which runs in Las Vegas from Jan. 7 to 10. Some highlights: Lenovo (LNVGY) is introducing splashy notebooks—super-svelte and colorful. Hewlett-Packard (HPQ) will hawk its Blackbird 002, a black-clad desktop gaming PC. And Netherlands-based Tulip is showing off ultra-high-end notebooks that look like expensive purses and are intended for wealthy, middle-aged women. The idea is to segment PCs the way Detroit does cars.
Jay-Z Leaves the House
Maybe rapping is just more fun than paperwork. Jay-Z, aka Shawn Carter, on Dec. 27 announced his retirement as CEO of Universal Music's hip-hop label, Def Jam Records, in what appears to be a breakdown in contract talks. Jay-Z had a three-year run in which he signed or nurtured such stars as Rihanna, Kanye West, and Ne-Yo. With 25 Grammys to his credit, Jay-Z will stay on as an artist with Def Jam's Roc-A-Fella label. He's branching out into hotels and night clubs, having just opened the 40/40 club in Las Vegas.
Will Mike Run?
New York Mayor Michael Bloomberg's lips say "no, no, no." But his eyes, and his unnamed aides, say "yes, yes, yes," as the billionaire considers whether or not to run for President as an independent. The mayor has said he's not interested, but he showed a little leg on Jan. 2, denouncing the entire crop of Republican hopefuls on the eve of the Iowa caucuses. On Jan. 6 he will travel to Oklahoma for a session with Unity '08, a group pushing for a bipartisan ticket.
M&A: Still Going Strong
Each day seems to bring word of another collapsed buyout, but reports of M&A's death are greatly exaggerated. Announced mergers reached $4.4 trillion globally in the first 11 months of 2007, setting a record, says a McKinsey report. While the volume of private equity deals fell by more than 50% in the second half as credit markets seized up, corporate activity stayed robust. Cross-border deals made up 40% of M&A volume, up from 20% in 2000. And hostile takeovers are back in vogue. (Mckinseyquarterly.com)
A Merger in the Ditch
Here's one of those dead deals: General Electric Capital (GE) on Jan. 1 gave up on its $1.7 billion acquisition of New Jersey-based vehicle leasing firm PHH. The merger was contingent on GE selling PHH's mortgage operations to private equity powerhouse Blackstone Group (BX). Blackstone had said it was having trouble finding the money, given all the problems in mortgage land. PHH has asked GE to pay a $50 million break-up fee.
Sallie's Bad Bet
Staggering student lender Sallie Mae (SLM) raised $2.9 billion in a stock sale that closed on Dec. 31. Most of the money is needed to pay off a derivatives deal with Citibank (C) in which Sallie essentially bet its own stock price would keep rising. But Sallie quickly needed to come up with cash to repurchase 44 million of its shares that have tumbled 66% from their 52-week high in July to a Jan. 2 close of 19.36. Sallie told investors on Dec. 31 that it cost the company roughly $1.1 billion to settle the deal.
Google Finds a Friend
Can these two behemoths help each other get even bigger? Google (GOOG) will provide search, e-mail, and other Web services to Japan's largest wireless phone operator, NTT DoCoMo (DCM), according to The Nikkei on Dec. 25. The deal would give the search shogun access to NTT's 48 million "i-mode" mobile Net-service customers. Despite Google's kingly share of search queries in the U.S., it trails Yahoo! (YHOO) Japan in that country. Meanwhile, NTT has been losing subscribers to KDDI and SoftBank Mobile. Neither company will confirm the deal yet.
Going After Alitalia
Air France-KLM may soon add some Italian flavor. The Franco-Dutch carrier, Europe's largest, was chosen by the Italian government on Dec. 28 as preferred bidder for a controlling stake in Alitalia. Air France-KLM now has eight weeks to work out details of the purchase, which faces resistance from unions and some politicians who want to keep the chronically unprofitable carrier in Italian hands.
See "Can Air France-KLM Rescue Alitalia?"
Fresh Cash for Merrill
The latest storm-tossed Wall Street outfit to grab a life preserver thrown by foreign investors is Merrill Lynch (MER). CEO John Thain said on Dec. 24 that the firm raised up to $6.2 billion in a private placement with Singapore's Temasek Holdings, a sovereign fund, and Davis Selected Advisors, a respected money manager in Tuscon. Merrill expects the transactions, which represent an ownership position of less than 10%, to close by mid-January. Morgan Stanley (MS) and Citigroup (C) inked similar deals in recent weeks.
When it came to natural disasters, 2007 wasn't a disaster. Losses from floods, cyclones, wildfires, and the like came to $75 billion, according to Munich Re, which compiles an annual tally. While that figure is double that of 2006, it's short of the $220 billion clocked in 2005 due to Hurricanes Katrina and Rita. Nonetheless, the German reinsurer predicts climate change will exact a rising toll: The number of catastrophes rose to 950 in 2007, the highest since Munich Re began keeping track in 1974. (munichre.com)
A Death in Pakistan
She had survived an assassination bid just weeks before, when she returned to Pakistan from exile. And on Dec. 27, Benazir Bhutto, the U.S.-supported opposition leader, was killed at a campaign rally for the January parliamentary elections. Her supporters blame President Pervez Musharraf, while he pointed the finger at extremists linked to al Qaeda. As violence blazed across this key U.S. ally, Musharraf on Jan. 2 postponed the elections until Feb. 18, no doubt partly to prevent her party from receiving a massive sympathy vote.
See "No Time to Desert Musharraf"
Apple's Movie Move
While Apple rules digital music, far fewer folks use iTunes to get movies, partly because they have to pay $10 or more to buy them outright, rather than rent them. But according to the Financial Times, Steve Jobs is expected to announce a deal on Jan. 15 with Twentieth Century Fox (NWS) and possibly other movie studios to let consumers pay a few bucks for the right to watch over a limited time period. With sales of high-definition DVD players languishing, analysts say Apple's move could turbocharge a digital distribution market that has yet to go mainstream despite the efforts of Amazon.com (AMZN), Microsoft (MSFT), and Wal-Mart (WMT)—which shuttered its online movie store on Dec. 21.
A few weeks ago, Kenya seemed to be one of the most hopeful spots in Africa, with 5% growth, widespread literacy, and even the beginnings of a startup scene in Nairobi. But those gains were in danger after widespread mob violence broke out following President Mwai Kibaki's claim of victory in an election that foreign observers said was flawed. The victims belonged primarily to Kibaki's Kikuyu tribe, which has benefited the most from his administration. Diplomats were pressuring Kibaki to allow a recount. A peaceful solution might preserve hope that Africa will get a bigger piece of the global emerging-markets boom.
This Deal May Not Fly
Not so fast, 3Com (COMS). The federal Committee on Foreign Investment in the U.S. may deepen its investigation of a proposed sale of the company over worries about the Chinese government's role. The transaction can't go through without the CFIUS imprimatur. China's Huawei Technologies wants 16.5% of 3Com, while majority investor Bain Capital would get the rest. The Financial Times, which reported the sharper CFIUS scrutiny on Jan. 1, noted that 3Com supplies anti-hacking technology to the Pentagon, raising national security concerns.