Obama Hits the Hill Running
There may be only one President at a time, but for now there appear to be two. Barack Obama arrived in Washington on Jan. 4 and jumped right into negotiations with Congress over an economic stimulus package. Aides say the President-elect is pressing for about $775 billion worth of stimulus over two years, including some $300 billion in tax relief for individuals and businesses. Balanced budgets? Forget about it. On Jan. 6, Obama said: "Potentially, we've got trillion-dollar deficits for years to come." The tax cuts in the package should win over some Republican lawmakers. Struggling sectors such as autos, banking, and homebuilding are excited that Obama may support a measure giving them refunds on past years' taxes. It would lengthen the period for money-losing companies to write off operating losses against previous profits from the current two years to four or five.
Cutbacks at Alcoa
Only a year ago, Alcoa (AA) was getting scolded for not expanding fast enough as commodity markets boomed. Now, with aluminum prices down by half from last summer as customers slash orders, the top U.S. producer said on Jan. 6 it will cut 15,000 jobs, or 15% of its global workforce. It will also chop capital spending by 50% this year. Another commodity biggie is ailing even more: Chemical maker LyondellBasell put its U.S. unit into Chapter 11 on Jan. 6.
Next in the parade of companies unveiling nasty numbers: Intel (INTC). Having already forecast, on Nov. 12, its biggest quarter-on-quarter sales drop, the chip king on Jan. 7 said it now expects fourth-quarter revenue to be worse yet: $8.2 billion, down nearly $2 billion from forecasts in the fall and 20% from the third quarter. Demand for PCs and servers is cratering. Also on the tech front, Verizon Wireless surprised nearly everyone by saying on Jan. 7 that it will tap Microsoft (MSFT), not Google (GOOG), for search and ad services on its phones.
See "Intel Sales Take a Nosedive"
Be careful what you wish for. Carmakers couldn't wait for 2008 to end: U.S. auto sales sank 35% in December, closing out an annus horribilis that saw 13.2 million vehicles roll off the lot, the fewest since 1992. Making matters worse, soaring fuel prices last summer scrambled truck sales, where Detroit makes its richest margins. For the first time since 2000, Americans bought more passenger cars than trucks. Even mighty Toyota Motor (TM) says it will lose money this year. In fact, Toyota's sales are so skimpy that on Jan. 6 the company said it would idle 12 plants in Japan for 11 days in February and March to keep inventory from piling up. And that's the problem. As bad as 2008 was, it might look good compared with 2009.
Whitman Eyes a Run
So what will they call her—The Auctionator? It sure looks as if former eBay CEO Meg Whitman will make a bid to succeed Arnold Schwarzenegger, who can't run again, as California's governor. According to a source close to Whitman, who left eBay (EBAY) earlier this year as the online marketplace struggled, she will make a decision on the 2010 race in four to six weeks. In preparation, she resigned on Jan. 6 from the boards of eBay, Procter & Gamble (PG), and DreamWorks Animation (DWA). Whitman got a taste for politics when she worked on the Presidential campaigns of former boss Mitt Romney and John McCain.
Red Ink at Time Warner
Last year was ugly for a lot of companies, including Time Warner (TWX). But it got a whole lot uglier for the media giant on Jan. 7, when it said it would post a net loss for 2008 instead of previously projected profits. It added that it would likely take a $25 billion impairment charge for the falling value of some businesses, including cable and AOL (TWX). Reasons for the red ink: a legal judgment against the Turner Broadcasting unit; a charge related to a lessee declaring bankruptcy; and building up reserves for potential losses from customers who have gone under.
The CEO Carousel
More bad news from the chicken coop: A month after Pilgrim's Pride (PGPDQ) filed for bankruptcy, the CEO of rival Tyson Foods (TSN) quit on Jan. 5. Dick Bond's exit came as Tyson old-timers such as Don Tyson, son of the founder, and his ally Leland Tollett have recently reasserted authority over the nation's No. 2 chicken processor, whose stock has dropped by half since April as the meat industry suffers its most rotten stretch in decades. Tollett, 71, was named interim CEO. Another corner office changed hands the same day as beleaguered bookseller Borders Group (BGP) replaced George Jones with Ron Marshall, 54.
IndyMac's New Owners
It's a star-studded lineup: hedge fund heavy-hitters George Soros and John Paulson, plus computer king Michael Dell. They're on the team of investors who agreed on Jan. 2 to buy failed IndyMac bank from the feds. The buyers will pony up $1.3 billion in new capital for a bank with 33 branches and $16 billion in loans.The FDIC will absorb losses above a certain level, and the group will continue the process of tweaking mortgages for 46,000 IndyMac borrowers behind on their payments.
Death of a Billionaire
As the German government squabbles over a stimulus package that should bring more money into consumers' pockets, the credit crunch claimed a prominent victim. Adolf Merckle, 74, estimated to be the fifth-richest man in Germany, killed himself on Jan. 5 by throwing himself under a train. Merckle's holding company, VEM, which encompassed outfits such as generic drugmaker Ratiopharm and HeidelbergCement, was in trouble after Merckle lost hundreds of million of euros speculating on VW shares, while the downturn caused HeidelbergCement shares to plunge. For months, Merckle had been pressed by banks to find bridge loans or sell his core businesses.
Steve's Health Report
Will this finally allow Apple (AAPL) investors to sleep nights? After fretting about Steve Jobs' evident weight loss over the past year, they got reassurance in the form of an open letter from the Apple CEO on Jan. 5. Jobs blamed a "hormone imbalance" that is "robbing me of the proteins my body needs to be healthy." Treatment, he said, will be "simple and straightforward," and he will remain on the job. Doctors who treat patients in similar circumstances—Jobs had surgery for a rare, less lethal form of pancreatic cancer in 2004—say he has an excellent prognosis. Apple the next day announced new policies for iTunes, the top online music store. It will now sell songs for as little as 69 cents, and soon they'll all be free of copy protection.
See "Was Apple 'Adequate but Late' on Jobs?"
One Big Downturn
Get set for "the first truly global recession of the modern economy." So writes Stephen Roach, chairman of Morgan Stanley Asia. Roach says that while the crash began with the U.S. subprime meltdown in the summer of 2007, "there were bubble-dependent growth models in a surprisingly large number of countries—all now bursting." Asia's export bubbles, for instance, were inflated by the U.S. consumer-spending bubble. So he expects the recovery to be slow and anemic at best. (Foreign Policy)
Scandal at Satyam
Just what Corporate India didn't need right now: an accounting scandal at one of its star outsourcers. On Jan. 7, Ramalingam Raju, chairman of Satyam Computer Services, quit and admitted he had cooked the books. Raju said he had overstated cash on hand by $1 billion and inflated profits and revenues in last year's September quarter. Satyam shares sank 78%, and the benchmark Sensex index lost 7.3% that day, as other outsources fretted about how the news would affect their reputations.
See "India's Madoff? Satyam Scandal Rocks Outsourcing Industry"
Natural Gas Face-Off
It's turning into an annual affair: Russia's Gazprom and Ukraine fighting about the price of natural gas. But this time matters got out of hand, and on Jan. 6, Russian Prime Minister Vladimir Putin cut off deliveries to Europe through Ukraine. At one point the two countries weren't far apart—Ukraine said it would pay $235 per 1,000 cubic meters, just $15 less than Russia wanted. So why couldn't they make a deal? Some experts suspect corruption is playing a role.
See "Ukraine and Russia: The Role of a Middleman"
Propaganda is a tricky business. For three cold winters, Venezuelan President Hugo Chávez took delight in distributing free or discounted heating oil to poor families in the U.S. while lambasting President George W. Bush. But on Jan. 5, former Representative Joseph P. Kennedy II, whose Citizens Energy administered the program for Venezuelan-owned Citgo, announced that falling oil prices had prompted the company to ditch the largesse. Whoops—two days later, Citgo said it would continue the program after all, offering 100 gallons for free.