Misery on the Street
You know things are bad when the President starts talking up equities. Sitting by a fireplace on Mar. 3, Barack Obama said: "Buying stocks is a potentially good deal if you've got a long-term perspective." But it'll take more than soothing words to ease investor panic. The Dow dropped that day to 6726, nearly a 12-year low, before bouncing back 150 points on Mar. 4. One bellwether, GE (GE), decimated its dividend on Feb. 27, and on Mar. 4 its stock sank below 6 for the first time since 1991. It's easy to understand the gloom: Revised data show GDP shrank at a 6.2% annual rate in the fourth quarter. On Mar. 6 the government was expected to report that 650,000 more jobs went poof in February. And consumers have gone cautious, with the savings rate jumping to 5% in January.
More Help for AIG
"If there's a single episode in this entire 18 months that has made me more angry, I can't think of one, than AIG (AIG)," said Fed Chairman Ben Bernanke in Senate testimony on Mar. 3. But he added that he sees no alternative to the bailout, since the insurance goliath is, in essence, too interwoven with the global financial system to fail. Citing such risks, the Treasury Dept. and the Fed on Mar. 2 announced a new $30 billion credit line and other moves to support AIG, which has already soaked up $150 billion in aid. AIG lost nearly $62 billion in the fourth quarter—the biggest red-ink bath in U.S. corporate history. The new moves will give AIG more time to sell off assets and restructure. Ordinary Joes shouldn't feel left out, though. On Mar. 3 the Fed unveiled details of its $200 billion Term Asset-Backed Securities Loan Facility plan, which could loosen auto, credit-card, small-business, and student lending.
See "A $200 Billion Credit-Crunch Buster?"
Rejection in Brussels
In a word: nein! German Chancellor Angela Merkel continued to polish her reputation as a stimulus skeptic by squelching pleas from Eastern members of the European Union. At a Mar. 1 summit in Brussels, Merkel led opposition to a plan by Hungarian Prime Minister Ferenc Gyurcsány for $240 billion to help beleaguered nations that are having trouble paying back debt denominated in foreign currencies. Merkel has a point when she says it's wrong to lump all the new EU members together. While countries such as Latvia or Bulgaria are in dire shape, others that pursued more conservative fiscal policies, such as the Czech Republic and Slovakia, are doing relatively well.
See "Latvia's Crisis Mirrors Eastern Europe's Woes"
Bailouts in Japan?
Toyota (TM) and Honda (HMC) aren't even close to bankruptcy, but that hasn't stopped them asking for help from Tokyo. On Mar. 3 the world's top automaker said it is discussing a loan from the state-backed Japan Bank for International Cooperation that would help it extend financing to customers in the U.S. The next day, Honda said the same. They would be the first carmakers to apply for assistance from JBIC's emergency fund, which is tapping $5 billion from Japan's $1 trillion of foreign reserves this month to lend to Japanese companies that operate abroad. February's U.S. auto sales illustrate again just how badly Toyota and its rivals are sputtering. Toyota's tally fell 40% and Honda slid 38%, while Detroit's Big Three fared even worse: GM (GM) was down 53%, Ford (F) fell 48%, and Chrysler dropped 44%.
See "Auto Bailout: Et Tu, Toyota?" and "Auto Sales: Worst February in 40 Years"
Two to fill the shoes of one? President Obama on Mar. 2 nominated two officials to replace former Senator Tom Daschle, who was supposed to be health czar but had to withdraw over unpaid taxes. Kansas Governor Kathleen Sebelius and private equity adviser Nancy-Ann DeParle will serve as, respectively, Health & Human Services Secretary and White House health policy coordinator. The two have known each other a decade and presumably will operate as a kind of tag team. Their nominations came on the eve of a Washington summit that Obama hopes will jump-start health reform legislation in Congress. Another nominee business will be watching closely: Julius Genachowski, a venture capitalist named on Mar. 3 to run the FCC.
Add one more task to the lengthy crisis to-do list: Find another boss for a staggering mortgage behemoth. On Mar. 2, days after Freddie Mac (FRE) posted a loss of $59 billion for 2008 and said it needs $15.2 billion more in federal aid, CEO David Moffett said he will step down soon—just six months after he took the job. The Wall Street Journal reports that Moffett, who hailed from the private sector, felt hobbled by the need to consult regulators and follow policy dictates he didn't agree with.
Litigious in China
Workers of the mainland, unite with your lawyers! The number of labor-related lawsuits filed in China nearly doubled in 2008, according to official figures. Mass layoffs account for part of the jump: At least 20 million migrant workers have lost their jobs in this downturn, and many got stiffed for pay they were owed. The plethora of lawsuits also arises from a new labor contract law that took effect in January of last year, granting workers more rights. (China Daily)
Although Blockbuster (BBI) hasn't been much of a blockbuster for years, having been hammered by rival Netflix (NFLX), this news sure got investors' attention. On Mar. 3 the video rental chain said it has hired a law firm to help it restructure its debt. Bloomberg News reported that one option being explored is filing for bankruptcy protection, which sent the stock plunging 77%, to 22 cents. But several board members denied that Chapter 11 is an option, and the shares rebounded to 47 cents the next day.
The lesson: Be careful what you write on your blog. According to a briefly posted item from a Microsoft (MSFT) manager, the company has begun testing a new version of its Live Search offering. Code-named Kumo, it will feature new tools, including an on-screen sidebar to help narrow your quest (if you're searching for a musician, it might ask if you want songs, albums, lyrics, or images). Alas, the service is already being panned in the blogosphere as insufficient to the critical task of catching Google. (GOOG)
Madoff's New Gambit
Up to $50 billion of his investors' money may have gone missing, but Bernard Madoff has an idea of what should be done with nearly $70 million in identified assets, including the $7 million penthouse where he is under house arrest: His wife, Ruth, should be allowed to keep them, since they are held in her name and have nothing to do with his alleged fraud, lawyers for the couple contend. The assets include $62 million in bonds and cash. Ruth has not been charged with wrongdoing.
Pharma Loses a Biggie
Drug company executives may need an anti-depressant after the Supreme Court on Mar. 4 ruled 6-3 that FDA approvals do not preempt patients from suing under more stringent state laws. Wyeth (WYE) must now pay $6.7 million to a Vermont woman who filed suit after her arms were amputated because a Wyeth anti-nausea drug was inadvertently injected into an artery. The decision seems to contradict an 8-1 decision last year that said medical device makers are shielded from state lawsuits by FDA approvals. The difference turns on the separate federal laws regulating drugs and devices.
HSBC Slims Down
Europe's biggest bank has a right to feel smug. On Mar. 2, London-based HSBC (HBC) announced 2008 pretax profits of $9.3 billion, a 62% drop from 2007 but way better than the crippling losses suffered by rivals. Yet even the well-funded bank is paring back. On the chopping block is its U.S. personal-finance division, with 6,100 jobs and 800 branches expected to go. The bank also will hit up shareholders for $17.7 billion of extra capital.
The semiconductor sector is used to boom-and-bust cycles, but this one is a doozy. As computer owners hang on longer to their aging machines, researcher Gartner (IT) expects the biggest PC sales decline ever in 2009, with shipments falling 12%, to 275 million units. And with fewer end users, chip sales plummeted nearly 33% in January, to $15.3 billion, according to the Semiconductor Industry Assn. "This is the worst recession the semiconductor industry has seen since its inception," said Intel (INTC) sales and marketing boss Sean Maloney at a news conference on Mar. 2.