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Executive Summary

So Long, Fritz

The rumors had been buzzing for weeks: Fritz Henderson's driver's-seat days were numbered at General Motors. After all, Chairman Edward Whitacre Jr., former boss of AT&T (T), seemed to be doing the steering, along with a highly independent board that had spurned one of Henderson's key decisions. So the unceremonious ouster of Henderson on Dec. 1 wasn't exactly a shocker. The newly constituted board apparently concluded that the 25-year veteran was too closely linked to the clunky old GM to undertake the redesign that's needed. Now the search for a new CEO begins, and Whitacre promptly told employees that it could take as long as a year. Meanwhile, there seem to be an awful lot of hands on the wheel. Private equity executives on the board have proven vociferous, say insiders. And critical issues loom: how to repair the European business, burnish the brands, design new models, and build a management team.

Drama in Dubai

It was widely known that glittering Dubai, land of the indoor ski slope and the palm tree-shaped artificial islands, was suffering financial trouble. But this much trouble? On Nov. 25 the emirate, led by Sheikh Mohammed bin Rashid Al Maktoum, said it would seek a six-month halt in payments on $18 billion in debt owed by state-controlled Dubai World. Both the government and Dubai's main financial backer, Abu Dhabi, studiously avoided pledging that they would stand behind company debt, even if the company was an arm of the state. That gave investors the shakes about all emerging markets and cast a pall over Dubai's ambitions to be a regional financial center. After a one-day sell-off on world bourses, most recovered with ease. But stock indexes in the Persian Gulf region dropped and stayed down, as did the price of United Arab Emirates debt securities. Holders of $3.5 billion in bonds issued by Nakheel, a Dubai World real estate unit, banded together to resist any attempt to change the terms. But don't count Dubai out: This cash crunch could prove to be a blip.

Shoppers Do Their Bit

As might be expected with the U.S. economy mending but joblessness holding north of 10%, consumers staged a mixed performance over the Black Friday weekend. The National Retail Federation reported on Sunday, Nov. 29, that more shoppers hit stores and Web sites than in 2008 but spent less freely, leaving total outlays at $41.2 billion, slightly up from last year. But online-only sales numbers displayed some proper holiday cheer, rising on Black Friday and Cyber Monday by 11% and 13.7% respectively, according to researchers Coremetrics and comScore (SCOR). This early spending spree might not herald a better holiday season: Shoppers may have simply opted to amass more gifts early to take advantage of discounts, analysts say.

See "Online Retailers: An Early Holiday Peak?"

Expensive Escalation

President Barack Obama's addition of 30,000 troops to the American force in Afghanistan, which was announced on Dec. 1, will push the cost of the two post-September 11 wars past $1 trillion. Obama's $30 billion estimate for the surge in the current fiscal year triggered much gnashing of teeth among both political parties. Unlike in previous years, Congress is trying to account for the cost of the Iraq and Afghanistan wars in the annual budget bill, not in one-off supplementary allocations. At least one Democrat suggested a special tax, while Republicans would like to deploy unspent stimulus funds.

Modify Those Loans!

When the Treasury Dept. unveiled a voluntary, paperwork-heavy foreclosure prevention program early this year, many observers scoffed that its offer of $1,000 a year to lenders that ease mortgage terms would have little impact. And so it has proved, leading Treasury Assistant Secretary Matt Barr to scold recalcitrant banks on Nov. 30 and threaten that they'll "suffer the consequences" unless more loans are modified faster. The Treasury insists that the effort is on track: Some 650,000 borrowers have won temporary breaks on their payments—averaging $576 a month—though 20% of those haven't filed any of the paperwork needed to receive longer-term help, and 37% have filed only partial paperwork. Some 375,000 could get long-term reductions by yearend, but only if banks hustle, officials said. Now Washington is demanding daily reports and sending in "SWAT teams" to look over servicers' shoulders; banks that drag their feet could be subject to financial penalties. The number of homeowners who are already in foreclosure or at least 90 days past due on their loans currently tops 4 million.

India Sizzles

Take a look at India, and one might be tempted to think the global downturn is done for. For the quarter ended Sept. 30, gross domestic product grew at a splendid and surprising 7.9% rate, the best since 1996. True, the economy had never really buckled, even in the midst of last year's maelstrom, because a well-targeted $80 billion stimulus kept growth rates close to 5%. Now, though, comes the tricky part. Does New Delhi, which has cut interest rates by 4.25% since October 2008, start rolling back tax cuts that have pushed the deficit to nearly 12%? Or does it keep kicking the economy into action and risk having its debt downgraded to junk? Stay tuned.

See "India's Economy Shows Surprising Growth"

Easy Money in Japan

A mere two weeks after Bank of Japan Governor Masaaki Shirakawa warned that cheap credit in the wealthy nations risked inflating bubbles in emerging markets, the BOJ itself plumped for easier money. Why? The fast-climbing yen and a new round of deflation threaten to strangle Japan's nascent recovery. After an emergency meeting on Dec. 1, the bank's monetary policy board, under pressure from Prime Minister Yukio Hatoyama's Democratic Party administration, said it will offer $115 billion in short-term loans to commercial banks at an interest rate of just 0.1%, accepting government and commercial bonds as collateral. The next day, the bank injected $11.5 billion into short-term money markets, the first such operation in a year. Critics, however, wasted no time in lambasting the moves as too timid.

The BusinessWeek/YouGov Optimism Meter: Angst Over Equities

The Optimism Meter, a proprietary measure of sentiment and expectations, economic statistics, and market forecasts, fell to 42 on Dec. 1 as the 12-month outlook for stocks turned more negative. The meter has dropped from a high of 47 on Nov. 18. Developed to track shifts in outlook among individuals, professional investors, and economists, the meter gauges optimism about jobs, markets, and growth.

* Calculated using consumer polling, economic forecasts, and financial markets data; 0=lowest and 100=highest

Data: YouGov, Bloomberg, BusinessWeek

Nokia Sues Again

Make good handsets—and have a good team of lawyers handy, just in case. That seems to be Nokia's (NOK) philosophy lately as the world's biggest cell-phone maker has waxed downright litigious. Several months ago it sued Apple (AAPL) for patent infringement. On Dec. 1 it announced suits in Britain and the U.S. against 11 display manufacturers for price fixing. Nokia claims it paid suspiciously high prices for LCD screens between 1996 and 2006 and will seek undisclosed damages. The filing comes a year after the Justice Dept. fined several display makers $585 million for colluding on prices.

Down and Up at AIG

There's no rest for the weary at American International Group. On Nov. 30 a report by research firm Sanford C. Bernstein spotlighted a shortfall of $11.9 billion in reserves at AIG's property and casualty operations. That knocked 14% off the stock price. But the next day shares bounced partly back on the announcement of a plan to repay $25 billion of AIG's loan from the Federal Reserve Bank of New York. The deal sets up two special-purpose vehicles to pave the way for an IPO or sale of two major life insurance businesses, and the bank will be first in line for payback from the proceeds. That chops the insurer's credit line at the bank from $42 billion to $17 billion. All told, the government's assistance to the company stands at $120.7 billion.

The Peacock May Fly

It cost a bit more than General Electric (GE) had hoped—$800 million more, to be precise—but this deal appears to have cleared the decks for Comcast's (CMCSA) takeover of NBC Universal. On Dec. 1, after a week's stalemate, French telecom giant Vivendi agreed to sell its 20% stake in NBC Universal to 80% owner GE for $5.8 billion, up from the initial offer of $5 billion. That should allow GE to merge NBCU, comprising the TV network, Universal Pictures, and a brace of cable channels, with Comcast's channels in a complex setup that would give Comcast 51% control and GE 49%. The merger could be announced by Dec. 3.

Black Friday May Be Losing Some Magic

For all the media attention focused on Black Friday, there's new evidence that it's getting a little gray for retailers. "No longer is Black Friday a single-day phenomenon," argues Marshal Cohen, chief industry analyst at market researcher NPD Group.

A new report titled "The Anatomy of Black Friday 2009," based on an NPD survey of 1,800 U.S. consumers, indicates that Americans are ever more inclined to spread out their shopping over the entire holiday shopping season, both in stores and online. One reason that's especially true this year is that big-name retailers, including Wal-Mart (WMT) and (AMZN), launched discounts and other promotions as early as October. But hard-core bargain hunters may be disappointed. In 2008 desperate retailers slashed prices up to 75% on their entire inventory, sacrificing profits in the process. The norm this year are discounts of 40%, and only on selected goodies, says Cohen.

NPD identified another trend that may bring tidings of joy and good cheer to the nation's beleaguered retailers. Americans are showing signs of "frugal fatigue." A full 63% of those surveyed said they purchased something for themselves on Black Friday in addition to gifts for loved ones, with many saying they felt the need to reward themselves for holding back all year. (NPD Group)

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