Weekend Edition August 01 2008 at 03:18 PM Chi-Chu Tschang and Harry Maurer
Top Stories of the Week
A Shocker From GM
The automaker reported second-quarter results that could hardly have been worse. It lost $15.5 billion, the third-worst quarter in its 100-year history. It's true that some $9 billion in red ink was due to special one-time items, but that still leaves $6 billion-plus in losses on operations. And many of the special items, such as costs related to laying off workers and setting aside more reserves for its former parts-making unit Delphi, have to do with the same slump in sales that led to the operational losses.
GM CEO Rick Wagoner noted that he's raising $15 billion to offset any concerns about liquidity. But the company is still burning through cash at an alarming rate. .
Source: BusinessWeek
Unemployment Heads Higher
The jobless rate in the U.S. is now the highest in four years, at 5.7%, up from 5.5% in June, the Labor Dept. reported. As recently as April, it was just 5%. Payrolls fell 51,000 in July, though that was fewer than analysts had predicted.
Source: Bloomberg
Cloudy Skies for Sun
Shares of Sun Microsystems sank after the company reported lackluster fiscal fourth-quarter results and offered gloomy guidance for the rest of the year. Sun's earnings were down 1.4% from a year ago, which met Wall Street's expectations, but the company said it wouldn't make money in the current quarter and expects a bumpy year ahead. The stock was down TK in midafternoon trading.
Source: Reuters
Sponsor Doubts About the Olympics
With the opening ceremonies for the Beijing Games just days away, multinational sponsors of the Olympics are already looking more critically at whether the payback will be worth it for future Games. Of the 12 global sponsors for the Beijing Olympics, only eight have signed on for the 2012 Summer Games in London. Among the high-profile sponsors who have not committed to renewing deals are Lenovo, Johnson & Johnson and Manulife Financial. Even longtime Olympic supporter Eastman Kodak (EK), a sponsor since 1986, has pulled the plug. "It's just not the best way for us to spend our money," says Kodak Chief Executive Antonio Perez.
Source: BusinessWeek
The Fed's Fear of a Wage Spiral
Although the typical American worker has not received a significant raise all decade, the Fed's policymakers believe they need to be wary of upward pressure on wages. They're haunted by the wage-price spiral during the last big oil shock in the 1970s.
Source: New York Times
Exxon Sets Another Record
Some sectors of the economy are hurting badly, but not the oil majors. Case in point: Exxon Mobil, which posted a profit of $11.68 billion, the richest quarter ever achieved by a corporation. Of course, the previous record, $11.66 billion, was also owned by Exxon, and was rung up in the last quarter of 2007. And believe it or not, Exxon's number disappointed Wall Street, which had expected $12.1 billion in profits. The stock fell 2% on the news and was down about 3% by midafternoon.
Source: CNNMoney.com
More Evidence of a Recession
The Commerce Dept. issued revised figures showing that the economy shrank at an annual rate of 0.2% in last year's fourth quarter. It had previously estimated growth at a 0.6% rate. The main reason for the downward revision was that consumer spending proved much weaker than it first appeared. The report also said the economy expanded at a 1.9% rate from April through June, less than forecast. Meanwhile, the Labor Dept. said that initial jobless claims leaped unexpectedly by 44,000 last week, though some of that jump is attributable to special factors.
Source: Bloomberg
Bristol-Myers Wants Imclone
Consolidation in the pharma sector continues apace. Bristol-Myers Squibb offered $60 a share, or about $4.5 billion, for the 83% of biotech Imclone it doesn't already own. That's a 29% premium over the closing price on Wednesday. Imclone makes the cancer treatment Erbitux. Its stock promptly shot to $65, indicating Wall Street thinks a higher offer is in the cards.
Source: Wall Street Journal
Bush Signs Housing Bill
President George W. Bush signed into law a sweeping rescue package designed to shore up the housing market from its worst slump since the Great Depression and stabilize mortgage giants Fannie Mae and Freddie Mac. The new law launches a $300 billion government initiative to refinance troubled mortgages and boosts oversight of the two mortgage giants. It also expands a line of U.S. Treasury credit for the companies and gives the government the option to take equity stakes if they ran into trouble.
Source: Reuters
Doha Trade Talks Fail
The Doha round of world trade talks collapsed Tuesday in Geneva following almost seven years of contentious, on-and-off negotiations. The nine days of talks in this latest round foundered over disagreements among the U.S., China, and India over agricultural subsidies.
Source: BusinessWeek
Will BA Merge with Iberia?
The two airlines, which already cooperate and own stakes in each other, are holding talks, as sky-high fuel costs and a widespread economic slowdown spur the urge to merge. "The aviation landscape is changing and airline consolidation is long overdue," said BA CEO Willie Walsh.
Source: New York Times
Russo Out at Alcatel
Pat Russo, the CEO of Alcatel-Lucent, announced her resignation on Tuesday after the telecom equipment company reported a worse-than-expected quarterly loss of 1.1 billion euros ($1.73 billion), its sixth in a row. Slumping demand for its CDMA cellular equipment contributed to the loss. Russo will depart by the end of the year. The company also announced the resignation of Chairman Serge Tchuruk, like Russo an architect of Alcatel's 2006 takeover of Lucent.
Source: BusinessWeek
The Ballooning Federal Deficit
The next President will have an unwelcome present waiting for him: a $490 billion federal budget deficit, the highest ever, for the fiscal year that begins on Oct. 1. At least, so says an unnamed Bush Administration official. That deficit number is a lot bigger than the $417 billion President Bush projected in February. It reflects expected lower tax receipts due to the economic slowdown, the cost of military operations in the Mideast, and the outlays for the economic stimulus package. Partly in reaction to the deficit news, the stock market dropped sharply, with the Dow down about 200 points at 2:50 p.m.
Source: Bloomberg
Conversation of the Day: The Frozen U.S. Economy
Reader Jason Brown writes: "Like us here in the South Seas, you're going to have to get used to living on a small island, with uncertain supplies. Look after planet Earth first, yourselves second."
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