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AUGUST 13, 2007
Edited by Michael Arndt Bear Markets And Bear Funds What topsy-turvy times these are. After pushing the Dow Jones (DJ ) industrial average over the 14,000 mark for the first time in mid-July, investors have gone into semi-panicked retreat, anxious that credit woes are leaking beyond the subprime mortgage market. The index started a new month on Aug. 1 by rocketing 150 points, to 13,362, after skidding 146 points just the day before. Worries about housing seem well-founded. American Home Mortgage Investment (AHM ) warned on July 31 that it had run short of cash and was staring at liquidation. As if that weren't bad enough, a third Bear Stearns (BSC ) hedge fund heavy into the mortgage market ran into trouble. This one isn't as leveraged as the two Bear hedge funds that collapsed in early July, wiping out $1.6 billion in investor equity. So far, the New York firm says it has no plans to close the fund, which has $900 million in assets, but it did block investors from pulling out their money. Investors mauled Bear's stock, which was down 28% for the year. New Cell-Phone Option Frustrated with your cell-phone provider? The Federal Communications Commission is trying to shake up the wireless market. On July 31 the FCC adopted a plan pushed by Google (GOOG ) that would give cell-phone users the right to use any handset with whatever provider they choose in a new spectrum of the American airwaves that'll go up for auction before next January. See "The FCC's Wireless Redial"   GM Moves Up And Down Just a week after Ford surprised Wall Street with a second-quarter gain, rival General Motors pleased investors with a better-than-expected $891 million profit of its own on July 31. But the good news from Detroit didn't last long as all three U.S. carmakers reported on Aug. 1 that their sales dropped big-time in July. GM's sales fell 22%, Ford's 19%, and Chrysler's 8%. The only consolation for U.S. carmakers was Honda and Toyota also saw July sales decline. J&J Axes 4,800 Baby lotions are hot, drug-coated stents are not. Johnson & Johnson (JNJ ) announced on July 31 that it would lay off around 4,800 people in its struggling pharmaceutical and heart-device divisions, or 4% of its total head count. The cuts could save as much as $1.6 billion a year by 2008. Demand for stents has fallen after studies suggested the tiny artery-opening tubes cause dangerous clots in some patients. Ex-Qwest CEO Gets Prison Joseph Nacchio, a former chief executive of Qwest Communications (Q ), was sentenced on July 27 to six years in federal prison for insider trading. He was also ordered to forfeit $52 million and pay a $19 million fine. Nacchio, 58, was convicted in April of selling shares in the Denver-based telecom in early 2001, knowing it would not make his financial targets. Fare-Fixing Airlines Admitting it had rigged fares for four years, British Airways was fined roughly $550 million on Aug. 1 by authorities in the U.S. and Britain. Another conspirator, Korean Air, also owned up to price-fixing and was fined $300 million in the U.S. Virgin Atlantic Airways and Lufthansa (DLAKY ) were let off without fines after coming forward voluntarily, though they must compensate passengers for inflated prices. Hedge Fund Folds Oops. After betting wrong on corporate bond yields—they didn't fall against Treasury bond rates after all—Sowood Capital Management, a $3 billion hedge fund formed by former managers of Harvard University's endowment, said on July 30 that it had lost more than half its value and would close. Among the losers: Harvard, which had anted in $500 million. Chicago-based competitor Citadel Investment Group said it would buy the leftovers. Japan Rebukes Abe Japan's government is looking shaky. On July 29 disgruntled voters embarrassed Prime Minister Shinzo Abe by turning the upper house over to the opposition Democratic Party of Japan. With Abe's Liberal Democrats still dominant in the more-powerful lower house, Abe is in no immediate political danger. But an unhappy electorate could push him and his party out in the coming months. See "Japan: Abe Premiership Panned by Voters" Northwest Cancels Flights Ten weeks after emerging from Chapter 11, Northwest Airlines (NWACQ ) is having trouble taking off. Finding itself short of pilots, the carrier scrubbed more than 300 flights—6% of its schedule—on July 27-30. It ran into a similar crunch at the end of June. To avoid a threepeat, Northwest pared its August schedule by 4% and said it would recall pilots laid off during its bankruptcy and add at least 250 new hires. Malone vs. Carlyle? Wheeler-dealer John Malone could well trip up Carlyle Group in the private equity giant's nearly $20 billion offer for British cable outfit Virgin Media (VMED ). Malone's Liberty Global (LBTYA ) holds cable systems in several European countries and is looking for fresh deals. With market volatility hobbling private equity buyers, now might be Malone's moment to spring. Diabetes Drug Can Stay GlaxoSmithKline (GSK ) dodged a bullet on July 30 when a Food & Drug Administration panel voted to allow the drugmaker to continue to sell diabetes drug Avandia, though with new warnings that it may raise the chances of heart attacks. Avandia, the world's best-selling oral treatment for Type 2 diabetes, ran into trouble in May when it was linked to a 43% rise in heart attacks. Handshake Of The Week After months of hemming and hawing, the board of Dow Jones agreed to a takeover by Rupert Murdoch's News Corp. (NWS ) for $5 billion and the assumption of some $600 million in debt. The agreement on Aug. 1 lacked any competing bidders, but it certainly did not lack for drama. Ultimately, shares representing more than half of the Bancroft family's controlling stake voted in favor of the deal. As with the sale of many family-controlled companies, an intensely private clan saw its internal conflicts spill into the public—in large part on the front page of The Wall Street Journal—as family members agonized over the decision. That choice was complicated by the vocal distaste some prominent family members expressed over Murdoch's brand of journalism. The crowning irony, though, is that it is Murdoch who is likely to invest in expanding the Journal and that layoffs would have been more than likely had Dow Jones stayed independent, owing to its sagging financial results. See "Dear Rupert…"
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