The Stimulus Plan Gathers Speed
The House says $819 billion. The Senate, so far, says $900 billion. But whether it's enormous or even more enormous, President Barack Obama's stimulus package looks set to sail through Congress. The House passed it Jan. 28 on a mostly party-line vote, with Republicans grousing about being frozen out of the process. Signs of a more collegial atmosphere surfaced in the Senate, which tacked on a one-year fix to prevent the Alternative Minimum Tax from whacking more folks. Meantime, Treasury Secretary Timothy Geithner, fresh from confirmation on Jan. 26, promised to exclude lobbyists from bailout spending decisions and pull back the curtain on the arcane process of awarding funds to banks. And the Fed, meeting on Jan. 27-28, repeated that it's ready to buy long-term Treasuries but won't do so yet, which seemed to disappoint bond traders.
Black Monday for Jobs
Offering more evidence that 2009 may make 2008 look like a picnic, a dozen big companies in the U.S. and Europe announced layoffs on Jan. 26 adding up to more than 76,000. Among them were many household names: Caterpillar (CAT), 19,500 employees, or 17% of its global workforce; Home Depot (HD), 7,000; ING (ING), 7,000; Philips Electronics (PHG), 6,000. Still more companies joined the chorus over the next couple of days, including Starbucks (SBUX), with 6,700. Small wonder that the Conference Board's consumer confidence index hit an all-time low in January—and remember, that survey was taken before Jan. 26.
The Mess at BofA
Ken Lewis may feel like he dodged a bullet, as the Bank of America (BAC) board expressed support for him after its Jan. 28 meeting. But enraged shareholders continued to question whether the CEO knew what he was doing when he agreed to buy Merrill Lynch (MER) last September. Merrill, it turns out, had many billions more losses festering than it appeared at the time—losses that forced Lewis to go back to Washington for a second helping of financial aid. Then came the public-relations disasters: news that Merrill paid out $4 billion in bonuses just before the takeover closed, and that Merrill Chief John Thain spent $1.2 million redecorating his office in the midst of last year's crash. Thain resigned on Jan. 22, but a number of shareholder lawsuits have been filed against BofA, and critics are saying Lewis' days at the helm are numbered.
A Win for the Greens
President Obama has been busily signing executive orders overturning Bush Administration policies. In a move that delighted environmentalists and California lawmakers, on Jan. 26 he told the Environmental Protection Agency to reevaluate California's request to reduce greenhouse gas emissions from cars and trucks. The California petition, supported by 13 other states, essentially would require vehicles in all those states to get better fuel economy—about 35 miles per gallon by 2016 and more than 40 by 2020. The White House also signaled it would boost national standards higher than the minimum—35 mpg by 2020—imposed by a 2007 energy bill. U.S. automakers objected that meeting such standards would send the price of cars soaring.
Pfizer Gets Bigger
Pfizer (PFE) has long been the world's top drugmaker, and it aims to stay that way. On Jan. 26 it said it will shell out $68 billion in stock and cash for Wyeth (WYE). That's Pfizer's third major acquisition since 2000 and will help make up for billions in revenues that will go poof when cholesterol-buster Lipitor loses patent protection in 2011. One side effect of the deal: job cuts, of course. Pfizer said the merger will eventually wipe out 20,000 jobs, or 15% of the combined workforce, with Pfizer itself shedding 8,000 right away. The takeover could also set off a new fever of drug industry consolidation as rivals race to muscle up.
See "Pfizer CEO: Wyeth Takeover Will Be Different"
No one expected this earnings season to be anything but dismal, and so it is proving thus far. Two cases in point from bellwether behemoths: Microsoft (MSFT) on Jan. 22 posted a quarterly net income drop of 11% from the year before and said it would jettison up to 5,000 employees over the next 18 months—the company's first major layoffs ever. A day later, General Electric (GE) reported that fourth-quarter net earnings sagged by 44%, although they met expectations. Shares in both companies tumbled on the news. On Jan. 27 credit-ratings agency Moody's (MCO) added to investors' concerns by placing GE's long-term debt ratings under review for a possible downgrade.
See "GE Rattles Investors"
Wells Absorbs a Hit
Another big bank is still gushing red ink—but its stock rallied anyway. Wells Fargo (WFC) on Jan. 27 posted a bigger-than-expected fourth-quarter loss of $2.55 billion. The main culprit: Wachovia (WFC), the troubled lender that Wells recently absorbed, lost $11 billion in the quarter. So why did Wells' stock jump 20%? Partly because it pledged to maintain its dividend and take no more cash from the feds, but also because Washington appears poised to create a "bad bank" to sop up toxic assets.
Taking Aim at Visas
The slump could make things tougher for U.S. companies hoping to hire foreign workers. Iowa GOP Senator Chuck Grassley, in a Jan. 22 letter to Microsoft CEO Steve Ballmer, asked the software giant to "protect" U.S. jobs and instead cull expats on H-1B visas as it lays off 5,000 workers. Grassley, along with Senator Richard Durbin (D-Ill.), is looking to reintroduce a 2007 bill that would toughen criteria for H-1B visas for skilled workers, a move that could boost costs for U.S. business as well as Indian outsourcing outfits with stateside operations. (The Economic Times of India)
Let Them Eat Big Macs
The swelling ranks of jobless can't afford to dine out like they used to. While that's bruising full-service restaurants, austerity is usually a plus for McDonald's (MCD). The chain, which has been playing up its cheap eats, said on Jan. 26 that same-store sales jumped 7.2% worldwide in the fourth quarter, while operating income rose 11%. To pump up its numbers further in 2009, McDonald's said it will spend $2.1 billion on construction, including 1,000 new outlets.
Ponzi, Ponzi Everywhere
Bernard Madoff may have pulled off the mother of all Ponzi schemes, but the downturn seems to be exposing lots of smaller-fry variants. On Jan. 26, for example, Nicholas Cosmo, suspected in a $380 million scam, surrendered to federal authorities on Long Island. The next day, FBI agents arrested Arthur Nadel, a Florida hedge fund adviser accused of bilking clients of tens of millions of dollars. Other cases in Florida, Georgia, Idaho, and Pennsylvania have recently come to light. Why now? Because in a downturn, investors often try to get their money out—and there's no new cash coming in to pay them.
Hour of the Discounters
Romanians, like consumers the world over, are in the market for bargains these days. The Jan. 27 edition of BusinessWeek Romania reports that while most retailers operating in the country are freezing new store openings or shuttering existing outlets, discounters are in expansion mode. Germany's Rewe alone will spend roughly $60 million this year to open 35 new Penny Market and XXL stores in Romania. One reason discounters such as Rewe and compatriot Tengelmann are thriving: their portfolios of well-priced house brands.