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Executive Summary

All Eyes on Washington

It's a critical moment in President Barack Obama's first year. Congress returned to the capital on Sept. 8 to tackle a crowded and contentious calendar. First, second, third, and maybe even fourth on the list was health care, of course. The stalled debate over reform has held up progress on most other issues and threatens to damage Obama politically. At press time, his Sept. 9 speech before Congress was expected to stress the measures legislators largely agree on and why they matter to everyone, as well as a defense of the controversial "public option." If Obama regains momentum on health care, Congress will find it easier to move ahead this fall on financial regulatory reforms, moves to reduce foreclosures, and the much-disputed cap-and-trade bill to lower carbon emissions.

The Bonus Battle

Politicians again have bank bonuses in their gun sights. On Sept. 5, the Group of 20 finance ministers meeting in London opined that payouts should be doled out over longer periods and traders should receive nothing if their investments go belly-up. The leaders, though, rejected calls from France and Germany, which want to set caps on remuneration. The group also called on banks to conserve more cash on their books to cushion unforeseen losses but couldn't agree on details. Both issues will be on the agenda later this month when G-20 heads of state reconvene in Pittsburgh, but the discord is such that probably no hard decisions will be made.

Naughty Airbus?

This dogfight isn't over by a long, long shot. Five years after a U.S. complaint was filed, the World Trade Organization issued an interim ruling on Sept. 4 that European governments lavished illegal subsidies on Airbus parent European Aeronautic Defence & Space for the A380 passenger jet. That could help Boeing (BA) and Washington object to other funding for Airbus and theoretically could force EADS to repay billions in past aid. But the WTO is scheduled to rule next year on a counter-complaint alleging unfair U.S. aid to Boeing, and a final decision on the EADS penalties is probably years away. Still, some U.S. lawmakers will try to use the preliminary finding to help Boeing wrestle an Air Force contract from a rival U.S.-European team bidding to supply modified Airbus planes as refueling tankers. And the army of lawyers deployed by both sides will keep on raking it in.

See "Airbus, Boeing: The Fight Isn't Over"

Mexico's Credit Risk

Will Mexico suffer the indignity of a downgrade? Unless Congress quickly cuts runaway spending and raises taxes, the nation's nine-year-old investment-grade credit rating could slip a notch as early as October. President Felipe Calderón on Sept. 8 sent his 2010 budget to Congress, saying it calls for a "drastic and unprecedented adjustment" in spending. Outlays have risen fast in recent years, fueled by fat oil export revenues. But sliding crude prices, a decline in oil production, and an expected 7.7% plunge in GDP this year have left the Treasury scrambling to trim a projected 3% budget deficit, up from 2.1% in 2008. Rating agencies Fitch Ratings and Standard & Poor's (like BusinessWeek, a unit of The McGraw-Hill Companies (MHP) both have negative outlooks on Mexico.

Cell Giants Hook Up

Orange, shake hands with T-Mobile—but just in Britain. France Telecom (FTE) and Deutsche Telekom (DT) said on Sept. 8 that they'll blend their British mobile operations in a 50-50 joint venture that will vault them to No. 1 in the market. Other such moves may follow as European operators look to share the cost of upgrading their networks for the mobile Internet. But regulators may squawk if they think the dealmaking leaves consumers with too few providers to pick from.

See "France Telecom, Deutsche Telekom Create UK JV"

Downsizing a Bank

Once-aggressive Royal Bank of Scotland (RBS), now 70% owned by British taxpayers, is slashing costs wherever it can. On Sept. 8, Reuters reported that the bank has hired Goldman Sachs (GS)

to broker a sale of RBS Aviation Capital, one of the world's biggest aircraft leasing outfits, with almost 400 planes and operations from New York to Hong Kong. The unit is unlikely to fetch anywhere near the $8 billion it's valued at, since similar assets are already on the market but haven't found any enthusiastic buyers.

Sweet on Cadbury

A bidding war in a candy store: That's what Kraft Foods (KFT) surprise $16.7 billion offer for Cadbury (CBY) could turn into. The British confectioner quickly spurned the Sept. 7 bid, and analysts expect Kraft, the world's No. 2 food purveyor after Switzerland's Nestlé (NSRGY), will have to come up with more sugar. A deal would create a candy company with 15% of the global market, matching Mars, which acquired gum giant Wrigley in 2008. Other possible players include Nestlé and Hershey's (HSY), which could team up to avoid antitrust issues, with the Swiss company taking Cadbury's gum brands, such as Trident, and Hershey's keeping the chocolate. Analysts pointed out that Kraft's lofty debt level could prevent it from tossing more cash into the deal recipe.

See "Cadbury's Key Ingredient: Gum"

Setbacks for Google

Pssst—contrary to popular belief, Google (GOOG) isn't irresistible. The search behemoth lost yet another high-profile executive on Sept. 6 when the head of its Chinese operation, Kai-Fu Lee, announced he's quitting. He plans to create Innovation Works, a high-tech incubator in China. The departure is seen as a blow to Google's effort to end its also-ran status behind local leader Baidu (BIDU). On another front, Google offered relatively minor concessions to European regulators grumpy about its plan to digitize millions of out-of-print books. Google's settlement of a class action brought by U.S. authors and publishers is scheduled for a Manhattan federal court hearing on Oct. 7.

See "Interview: Google China's Kai-Fu Lee Debuts Innovation Works"

Cuomo vs. BofA

Reason No. 43 Why Ken Lewis Wishes He Hadn't Bought Merrill Lynch: Frustrated by what looked like efforts to stonewall, New York Attorney General Andrew Cuomo on Sept. 8 threatened to bring securities fraud charges against Bank of America (BAC) executives over their "failures" to disclose Merrill's mounting losses and bonus payouts ahead of a key shareholder vote last December. In a letter to the Charlotte (N.C.) bank, a top Cuomo aide chided BofA for "hindering" investigators from interviewing the bank's attorneys after saying it relied on their opinion that BofA didn't have to disclose any more than it had already. In a response, the bank lambasted Cuomo for making "spurious and false allegations" and said it has met all disclosure obligations.

The Bruised Dollar

Enough already with the flight to safety. The U.S. dollar fell almost to a one-year low on Sept. 9 as investors, who fled to the greenback during the financial crisis, decided they're readier for riskier plays. The Dollar Index, which tracks the value of the buck vs. a basket of six major currencies, is down more than 13% since its March high, according to Bloomberg. And who could be more pleased than gold bugs, who drove bullion north of $1,000 an ounce in intraday trading on Sept 8. Gold closed that day at $995.40, an 18-month high.

You've Got...a New Boss

There was a time when AOL (TWX) e-mail ruled the world—remember "You've got mail"? Looking to pump some pizzazz into its fading service, the portal on Sept. 8 tapped Brad Garlinghouse, the Yahoo! (YHOO) alum who helped that company's e-mail grab the No. 1 spot in the U.S. Garlinghouse will oversee AOL's e-mail and instant messaging products and its Silicon Valley operations. He's best known for an internal memo dubbed the "peanut butter manifesto," in which he candidly took Yahoo's top brass to task for spreading efforts too thinly across many scattered businesses. Sharp focus would certainly be a thing of beauty to freshly minted AOL CEO Tim Armstrong, who's working to reverse his company's fortunes as it prepares to be spun out from parent Time Warner (TWX) later this year.

See "AOL: We've Got Garlinghouse"

Are Emerging Markets Headed for a Golden Age?

"Volatile" is one of the clichés used to describe emerging markets. And no wonder, given the roller-coaster performance that developing country economies turned in during the 1980s and 1990s.

But whipsawed investors can take heart from an article in the September issue of the Far Eastern Economic Review. In it, UBS (UBS)

Economist Jonathan Anderson argues that the developing countries are poised for a new golden era that in many ways resembles the 1960s and '70s. During those years, growth averaged 6% a year, compared with less than 4% for the U.S. and Europe. Then came the 1980-82 recession, and for the next couple of decades the emerging world actually sank.

Developing countries are weathering the downturn much better this time, confounding expectations that as demand for their exports dried up, growth would be thrown off track. Why is that? Because they steered clear of leverage. While industrialized nations were piling on debt, most countries in the developing world—particularly governments—were paring back. UBS expects emerging markets to grow at an average rate of 5% to 6% over the next five years, compared with an anemic 1.5% to 2% for advanced economies. (Far Eastern Economic Review)

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