Magazine

Housing Cracks


A pneumatic hammer couldn't nail homebuilders any worse. Customers who once mobbed their open houses are suddenly scarce, and inventories of unsold homes are piling up -- so builders are sawing off construction. On Sept. 19 the Commerce Dept. reported that starts on new homes fell 6% in August from July to a seasonally adjusted annual rate of 1.67 million. The decline was about twice as big as economists had predicted.

It's probably not the bottom, either. A day earlier the National Association of Home Builders announced that its market index for September, based on a survey of members, had fallen for an eighth straight month to its lowest level since February, 1991. The mounting pessimism indicates that builders are likely to cut back even more in the months ahead. So far, Wall Street seems to be taking it in stride.

Buoyed by cheery news on both the inflation and growth fronts, Ben Bernanke and the other Fed policymakers on Sept. 20 decided to leave their benchmark rate at 5.25% for the second meeting in a row, and there's reason to think they may sit tight for a good while.

Good grief, Chrysler (DCX) too? For the past year, many observers thought Chrysler had evaded the red ink and downsizing moves afflicting GM (GM) and Ford (F). But on Sept. 15, DaimlerChrysler's unit said it will lose $1.5 billion in the third quarter because of slow truck sales, health-care costs, and pricey commodities. The company chopped production by 16% for the second half of the year and may eventually turn to permanent job and output cuts. On the same day, Ford unveiled a more drastic repair plan than it had described in January. It will close two more factories -- bringing the list slated for shuttering to nine -- speed buyouts for 30,000 factory workers, and slash 14,000 white-collar jobs. It also said it had held talks with GM about an alliance but that the idea went nowhere.

See "Turnaround Time at Chrysler--Again" "No Shotgun Wedding for Ford and GM" "How Do You Save a Car Company?" In early September, Hewlett-Packard (HPQ) sent shock waves from Silicon Valley to Wall Street with news that it had spied on its own directors and staff in efforts to track down news leaks. Turns out that was just for starters. Gumshoes answering to Chairman Patricia Dunn and General Counsel Ann Baskins also tailed board members, installed spyware on a reporter's computer, surreptitiously obtained information on some 240 phone accounts of employees, directors, reporters, and their families, and even mulled infiltrating newsrooms. Dunn, Baskins, and outside counsel Larry Sonsini will testify before Congress on Sept. 28.

As CEO of Motorola (MOT) spinoff Freescale Semiconductor (FSL), Michel Mayer created remarkable value out of a money-losing chipmaker that seemed a perennial also-ran. On Sept. 15 a group headed by Blackstone Group agreed to pay $17.6 billion, a mammoth 33% premium, to take Freescale private. They're betting Mayer can squeeze still more juice out of products that constitute the smarts in everything from cell phones to cars -- and add acquisitions to create a tech power. Can Mayer-the-turnaround-guy become Mayer-the-magician?

Results have been plug-ugly at cosmetics maker Revlon (REV) this year -- and last year, and the one before that. So few were surprised on Sept. 18, when Revlon said CEO Jack Stahl would step down to "pursue other interests." Stahl joined the already struggling company four years ago from Coca-Cola (KO), where he won a sweet reputation as a brand manager. But his efforts to beautify Revlon, which is controlled by Chairman Ronald Perelman, flopped. His successor, the fourth CEO in seven years, is former CFO David Kennedy. Elsewhere, on Sept. 20 insurer AIG (AIG) said that one of the most respected names in banking, Robert Willumstad, would take the helm as chairman in November.

Sometimes hedge funds aren't too swift at hedging. Connecticut giant Amaranth Advisors on Sept. 18 revealed losses of more than half its $9 billion in assets on disastrous bets in the natural gas market. The fund, founded by Nicholas Maounis, bought contracts expecting prices would rebound from recent lows. But with a mild hurricane season and ample supplies, the rebound never came, shooting Amaranth's portfolio full of holes. Since the losses were confined to one niche in the energy pits, broader markets stayed cool.

Yahoo! (YHOO) drew a chorus of boos from investors on Sept. 19 after CEO Terry Semel said slowing ad sales could whack third-quarter results. It's the third time this year the Internet portal has announced setbacks. This one sent shares plummeting 11%, to $25.75. Yahoo said the culprit was mainly auto and financial-services advertising.

Got game? Nintendo (NTDOY) plans to have plenty of them for the Nov. 19 debut of its Wii next-generation console. Rival Sony (SNE) expects its PlayStation 3 to be in short supply when it launches on Nov. 17, but Nintendo execs say they'll have lots -- plus nearly three dozen games and the ability to download games of yore. And Wii will be priced to move, at $250, half the cost of the cheapest Sony system and well below Microsoft's (MSFT) $400 Xbox 360.

See "Will Nintendo's Wii Strategy Score?"

Billionaire dealmaker and one-time cable mogul John Malone never met a tax break he didn't love. With the potential to save $3 billion in capital gains under the arcane IRS "cash-rich asset" rule, Malone is negotiating to swap his 19% stake in News Corp. (NWS) for that company's 38% stake in satellite TV operator DirecTV (DTV). No matter that the satellite biz has been losing altitude to cable of late. Malone likes DirecTV's cash flow that will enable him to -- what else? -- add debt to do more deals.

Andrei Kozlov, deputy chairman of the Russian central bank, had just finished playing soccer on Sept. 13. Leaving the stadium, he and his driver were met by two men who gunned them down, a reminder that Russia can still be a nasty and dangerous place. The murder, probably a contract killing, raises serious questions about Russia's ability to tackle business-related violence and to persevere with reforms to its murky banking industry. Kozlov had spearheaded a campaign to clean up the sector, yanking the licenses of dozens of banks suspected of unsound or illegal activities. The message sent by his killers to regulators: Continue at your peril. President Vladimir Putin has vowed to press on with the crackdown and has ordered senior police officers to cooperate with central bank officials. But skeptics fear that whoever arranged the hit on Kozlov may never be caught. The killers of Forbes's Paul Klebnikov, an American journalist shot in Moscow two years ago, have not been found.

See "Top Russian Banker Assassinated"


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