Magazine

A Gold Medal Quarter?


After slowing late last year, the U.S. economy is accelerating in 2006 like a four-man bobsled on a straightaway. Some experts figure first-quarter growth may exceed a 5% annual rate, up from the 1.1% initially reported for the fourth quarter of 2005. Both consumers and business seem revved up: On Feb. 14 the Commerce Dept. said retail sales grew an eye-popping 2.3%, seasonally adjusted, from December to January, aided by the warmest January on record. And on Feb. 15 the Fed said factory output rose a solid 0.7% in January.

This means the Fed will likely lift the federal funds rate another quarter point, to 4.75%, at its Mar. 27-28 meeting, the first with Ben Bernanke as chairman. Bernanke played it cool in Feb. 15 testimony, simply saying "I concur" with the Greenspan Fed's statement that more tightening may be what the economic doctor ordered.

See "Chairman Bernanke Goes Up the Hill"

The Gulf of Mexico ought to look mighty good to oil companies these days. Even with oil below $58 a barrel on Feb. 15, the lowest close in nearly two months, and natural gas costing less than half what it did in December, prices remain high enough to support risky ventures. And as The New York Times (NYT) revealed on Feb. 14, the industry will benefit from an estimated windfall of $7 billion over the next five years from a policy that lets producers off the hook for royalties. So how come there are only 75 rigs at work in the Gulf, down almost 25% from a year ago, according to Baker Hughes? (BHI) Partly we can thank Misses Katrina and Rita, but a major factor is overseas competition for ocean rigs. For now, Washington's pricey incentives probably won't spark much new supply.

Is money management more trouble than it's worth? Merrill Lynch, (MER) which said on Feb. 15 that it's selling its asset management unit to BlackRock, (BLK) apparently thinks so, and other banks and brokerages could soon take the same path.

Touch?! Score one for the European Union in its decade-long duel with Washington over how the U.S. taxes exporters. On Feb. 13 a WTO appeals panel ruled that certain tax breaks are illegal. The downside for U.S. business: Exporters of products such as textiles, steel, and electrical machinery could be skewered with up to $4 billion in Euro-tariffs. The upside: Most of the $145 billion in breaks that Congress O.K.'d in 2004 -- the last time it tried to fix the export-tax mess -- will stick. The U.S. has three months to appeal.

Download fever: That's the tune industry execs dance to these days. Warner Music (WMG) said doubled downloads helped hike first-quarter net by 92%, while overall music sales fell by 2% as folks shied away from CDs. And RealNetworks (RNWK) boogied to a record $325 million in annual revenues thanks to 50% more downloads and subscription sales through its Rhapsody service.

See "RealNetworks Is Game for Games"

No one can accuse Warren Buffett of being a shrinking director. In his 17 years on the Coca-Cola (KO) board, he helped shove two struggling CEOs into early retirement and engineered an 11th-hour veto of a deal to buy Quaker Oats. But on Feb. 14 the 75-year-old investment legend announced plans to step down in April. (He'll hang on to Berkshire Hathaway's (BRK) 8.4% stake.) Buffett is pushing ex-Gillette CEO James Kilts as his successor, though with former Dow Chemical (DOW) CFO Pedro Reinhard and SunTrust Banks (STI) exec Maria Elena Lagomasino also set to step down in April, leaving Coke with only two minorities on its board, the beverage giant may decide that diversity is it.

The former CEO of once-trendy Internet portal Livedoor may be hearing another kind of door clang shut behind him. Japan's 33-year-old Net guru, Takafumi Horie, was indicted on Feb. 13, together with the former CFO and two others, for allegedly cooking the books. Horie could face fines and prison time. Since Livedoor's collapse began on Jan. 16, it has lost $6 billion, or 90%, of its market cap and will probably be delisted by the Tokyo Stock Exchange.

Bulging bank accounts in Silicon Valley look a mite slimmer because of sinking Google (GOOG) shares. After a torrid 2005, in which the search titan more than doubled to a peak of 475 on Jan. 11, the stock has plunged 28%, closing at 342 on Feb. 15. Investors changed their minds after weak fourth-quarter numbers made them look closely at Google's dependence on search. Still, at a market cap of $101 billion, the company's valuation has clicked up more than 300% since its IPO 18 months ago.

A valentine it wasn't. On Feb. 14, U.S. Trade Representative Rob Portman issued a report that marks a rare break in the Bush Administration effort to cool anti-Chinese rhetoric. Portman says China refuses to play by trade rules, so the U.S. will ratchet up pressure on Beijing to curb piracy, cut hidden subsidies, and open its own markets. The report came just days after word that the U.S. trade deficit hit a record $725.8 billion in 2005, including a $201.6 billion gap with China. Portman didn't ask for new powers to retaliate, so his latest isn't likely to blunt Capitol Hill's push for more sanctions.

See "China's Changing Economic Balance"

It's been a year since the ouster of Carly Fiorina, and new Hewlett-Packard (HPQ) CEO Mark Hurd is making the most of what she left for him. Crisp restructuring and smoother operations helped HP blow past Street expectations for its first quarter, posting 30% brawnier profits. Hurd has also nabbed new talent and has segments such as laptops and photo printing gear steaming. The stock jumped nearly 4% in after-hours trading on Feb. 15.

His legions of enemies like to call him Dr. Evil, but that doesn't stop Richard Berman. The Washington lobbyist and PR maestro for the fast-food industry just launched the Center for Union Facts, an attack Web site. While he won't name his backers because "we are talking about union people who have allegedly been involved in crime in some cases, so nobody wants to be targeted," Berman took out full-page ads on Feb. 14 intended to stymie labor's stepped-up recruitment. His line: Many unions are corrupt and fail to benefit members. The in-your-face campaign is vintage Berman. Over the years the cigar-chomping ball of fire has helped liquor makers go after Mothers Against Drunk Driving for proposing stiffer alcohol limits for drivers and raged against minimum wage hikes for the National Restaurant Assn. Last year he dissed the "food police" in a drive for soda makers that targeted "obesity myths." Harsh? Sure. Why shouldn't Big Business have its own Michael Moore?


Hollywood Goes YouTube
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