East Asia Feels Crisis

The World Bank says that challenges facing East Asian economies in 2008 have multiplied,which will result in hard times for 2009.From an April forecast of 7.4% 2009 growth in the region,the World Bank now thinks East Asia is likely to grow 5.3% in 2009 and 6.5% in 2010.The region's exports are down on slowing demand from the West.The World Bank produces a semiannual forecast for East Asia and the Pacific,excluding Japan,Australia and New Zealand.It is a U.N. agency that provides loans for industrial development and the encouragement of international commerce.Founded in 1945,its official name is the International Bank for Reconstruction and Development.

The Shape of Recovery

Carlos Mendez,of ICP Capital Markets,says we're headed for an L-shaped economic recovery.We'll see higher unemployment for years.We'll have lower consumption for years.By lowering interest rates,the government is basically punishing people for not taking risks.Look for some bargains in the muni bonds sector,Mr.Mendez recommends.

SEC Criticized For Failures

The Securities and Exchange Commission has been criticized for not doing anything to prevent the financial crisis from developing,or seriously looking into the Ponzi scheme of Bernard Madoff that has ruined several investors.Ms.Schapiro says that, clearly,our regulatory system failed to compensate for the failures of market discipline.It failed to appreciate the interdependencies of financial institutions and the risks they shared.It did not allow regulators to stay ahead of this crisis and prevent it from ever occurring.Mary L. Schapiro is 53.Most observers have expressed confidence in her ability to head the SEC,which will be reformed over the next few years in consequence of its recent failures.

Who Is Mary Schapiro?

If Timothy Geithner,the Treasury Secretary-designate, is Mr.Experience,Mary Schapiro,whom President-elect Obama has chosen to head the Securities and Exchange Commission,the financial industry regulator,is Ms.Experience.Appointed by President Ronald Reagan,she served on the commission for six years,rising to the post of Acting Chairman before President Bill Clinton named her to the top job at the Commodity Futures Trading Commission.Currently,she leads the Financial Industry Regulatory Authority,or FINRA,a self-policing organization for the industry.She has worked for them since 1996.

Shop Talk

A special greeting to Idaho,where I advertised this week.You are home to the gray wolf and vast wilderness areas.Beyond that and ski resorts,little is heard about a state which seems so remote back east.No doubt many of you prefer it that way.But the Internet at least makes mass communication a lot more possible than it once was for those who are interested.The Internet is quiet communication.The sound of the keyboard isn't louder than a light breeze in the aspens.It seems suitable for a backcountry environment or a small town.The low rattle of the keys is the breath of untold numbers of meditative individuals in sparsely populated areas.Have a restorative weekend.

Holiday Greetings

A blessed winter holiday season to all my readers,and a special thank you to our military men and women for serving at this special time.It's a true sacrifice.

Automakers Critical To Canada

The Canadian government,on both the national and provincial level,has been watching the U.S. automakers with great concern.The automotive industry is Canada's largest manufacturing segment,directly employing more than 150,000.The industry contributes more than 14% of Canada's manufacturing output,sustaining 12 Ontario communities.In consequence,the Canadian authorities are providing 3.29 billion dollars U.S. in loans to Canadian subsidiaries of General Motors and Chrysler.The federal government will give 2.09 billion,while Ontario will provide another 1.2 billion,said Prime Minister Stephen Harper and Ontario Premier Dalton McGuinty.President Bush is authorizing 17.4 billion in aid to the struggling automakers.Ford Motor Company is not included in the loan packages,as it only needs a back-up line of credit at this time.

Major Institutions Now Secure

Citigroup has a relatively new management team that has had a lot thrown on its plate to deal with,and is dealing with it well,Hank Paulson remarked.We are not expecting another major financial institution to fail.We have what we need to manage the financial crisis.We're doing everything we know how to work with the transition team.The President-elect made a great decision on Tim Geithner.I take great comfort that this is someone who's got great judgement and knowledge which is there,Mr.Paulson said of the Treasury Secretary-designate,with whom he has worked closely throughout the financial crisis.

Banks Should Open Up

It's critical to have our major banks lending,Mr.Paulson stated.They can't be hoarding capital.Were it not for the actions by the Federal Reserve and Federal Deposit Insurance Corporation taken to date,lending would be even less than it is today.Most people say the banks aren't lending enough.Although we don't want to nationalize our banking system,you're gonna continue to see us do more to encourage banks to lend more.Regardless of what you do,banks are not gonna lend as much as you would like.That's what banks do in such conditions,Mr.Paulson admitted.

Paulson Reacts To Cut

We're all very fortunate that we have a Federal Reserve that's willing to do what is necessary,Treasury Secretary Hank Paulson feels.To date,we've stemmed a cycle of financial failures.The president's made a decision that the failure of automakers would not be a good thing,but no single action is gonna be a silver bullet.A lot of consumer finance takes place outside the banking system.I'm worried consumer credit will be cut off.Much of consumer lending is based on the capital markets.The Federal Reserve can rescue banks,but we didn't have the tools to rescue non-financial firms,Mr.Paulson reflected.

IMF Official Examines Cut

John Lipsky,First Deputy Director of the International Monetary Fund,has been taking stock of the Federal Reserve's recent interest rate cut to 0-0.25%.By itself,Mr.Lipsky said,the Fed cut will not do everything necessary to help this economy.In order to restore credit growth,there are three elements that are always necessary:1.liquidity;2.recapitalization;and 3.transparency.Unfortunately,it looks like there's worse ahead of us in the next few quarters.There is a need for aggressive action to put money back into the financial system,but that alone is not enough to restore functionality to it,Mr.Lipsky explained.All the advanced economies are in recession now.They need to take the action necessary to lead the world out of the recession.The U.S. Treasury needs to recapitalize and cleanse the financial system,the IMF official advised.

Shop Talk

Hello,German pilots.I reached out to you recently.I am thinking about flight this week,as the space shuttle is to be retired in 2010,but there is some talk of President-elect Obama extending its lifespan.He should,because it is unfortunate to have a gap between American spaceflight programs.We would have to rely on the Russians alone for some years to supply the International Space Station-at a time when it is just coming into its own.It is impossible to tell for sure when the follow-on to the shuttle will be ready.All kinds of delays can occur in this complex endeavor.The culture of spaceflight will be lost to some extent because one of its major participants will be partially idled for a period of years.It would be something of a setback for everyone,a loss of momentum.The public needs to be involved in space,but that is difficult without ongoing launches.

Rate Decision Today

Today the Federal Reserve issues its interest rate decision at about 2:15 PM Eastern.This could move the markets.The Dow Jones Industrial Average is down 3% month to date, while the S and P 500 Index is down 3.09% month to date.

Bankers Blame Accounting Rule

Mark to market accounting has made the financial crisis worse than it had to be,said Ed Yingling,CEO of the American Banking Association,an industry trade group.Around the world,there's a growing feeling that mark to market is pro-cyclical.We need to look at how collateralized debt obligations are valued.Mark to market doesn't represent the true value of assets.It is incompatible with a banking system that makes long term loans and investments,Mr.Yingling argued.The markets are completely dysfunctional.That accounting rule should not be wiping out billions of dollars worth of capital,Mr.Yingling bitterly complained.

Cubs Sale Goes Ahead

The sale schedule of the Chicago Cubs will stay as announced,owner Sam Zell stated.We've gotten three bids.I do not think the Cubs sale will be impeded by The Tribune Company bankruptcy.As for the rest of the business world,our system is based on debt and equity,and one of those elements-debt-is missing.The business community is suffering from the financial crisis.I think the Troubled Asset Recovery Program will succeed after the first of the year.Should I have bought Tribune? My head only functions looking forward.This crisis too shall pass,the magnate Sam Zell philosophized.

Commercial Real Estate's Health

With a 2006 or 2007,we would not have had any issue at Tribune,Sam Zell maintained.It was a tsunami.Business eroded much faster than we had expected.The biggest problem everyone has right now is a lack of visibility.It's very hard to see how the economy will be next year.When you look at commercial real estate,everything has to come down to supply and demand.Because we haven't built since 2007,that will cushion the blow to commercial real estate.I don't think there will be any diminution of cash flow.There is less excess inventory in office space than in previous crises,said Sam Zell,who is Chairman of Equity Group Investments.

Zell Assesses Tribune Bankruptcy

The Tribune Company recently filed for Chapter 11 bankruptcy.It holds The Los Angeles Times,The Chicago Tribune,The Baltimore Sun,several T.V. stations and the Chicago Cubs baseball team.The team wasn't included in the filing.The firm has suffered a 20% reduction in gross revenue,owner Sam Zell revealed.In the end,my responsibility is to preserve the value of the company and ensure it goes on into the future,Mr.Zell said.The company has significant positive cash flow as long as it's not making debt payments.Going forward,we now have the time to focus on consolidation,Mr.Zell asserted.

Shop Talk Update

It now looks as though Congress will adjourn without reaching agreement on an auto industry rescue.It will be up to the White House to provide aid through the Treasury Department's Troubled Asset Recovery Program,the 700 billion dollars already appropriated for the financial industry.If need be,Congress will reconvene before January 20 to deal with emergencies.Have an informative weekend.

Shop Talk Early Edition

Please note that,because of an appointment,I may not be in on Friday,so I have decided to post today.Congress would like to adjourn for the year,but they have yet to complete a rescue for the automakers.The Democrats have reached agreement with the White House,but the Republicans aren't there to this point.It has been said that they gave plenty of money to the financial industry,so why won't they give a bit to manufacturing?That says something about the standing of manufacturing in America today.The nation was built on factories,but the service sector is predominant in our day.Nonetheless,we should not dismiss the factory workers.Ultimately,we still need the things they make.A little support for manufacturing is in order if we don't want to vaporize into the cybernetic realm.And we don't want a hole in the heartland where the factories are still a daily concern.

Ford Presents Plan

Ford Motor Company has presented its recovery plan to Congress,along with its peers Chrysler and General Motors.Ford intends to return to profitability by 2011,speeding development of fuel-efficient vehicles such as an electric van and an electric car by 2010.The old line firm will devote 14 billion dollars to advanced technology research,while management will forgo bonuses and CEO Alan Mulally works for one dollar a year.Ford will close two plants by the end of the year and plans to sell its Volvo unit.Although Mr.Mulally says Ford has the near term liquidity it needs,it would like nine billion in bridge financing,in case the financial crisis is protracted.One Nobel laureate,Paul Krugman,thinks the crisis may run until 2011.Before the financial crisis,the U.S. auto industry was gaining strength.Now all automakers worldwide are in difficult straits.

When Normalcy Returns

Ben Bernanke,wearing a black suit,white shirt,and a black tie,promised that once financial conditions have become more normal,the Federal Reserve's extraordinary measures will no longer be necessary,and private counterparties will be looked to again for financing.The economy remains under considerable stress,and activity has downshifted further since September.The Fed sees the economy slowing even after financial markets improve.When they do,the Fed's Open Market Committee will ensure that the Fed's balance sheet is normalized in a timely way,Mr.Bernanke reassured.

Gauging the Fed's Deeds

Government intervention is necessary to protect the public interest,Mr.Bernanke asserted,but the offset of financial turmoil has been incomplete.The Fed has taken a number of extraordinary steps,such as the Term Auction Facility,resulting in large increases in the amount of credit available to the banking system.There were also the foreign currency swap line agreements with 14 other central banks,but judging the effectiveness of the Fed's liquidity programs is difficult.Certainly the credit markets would have been much worse without Fed intervention,the Chairman maintained.

Special Access:With the Fed Chairman

Throughout the financial crisis,Ben Bernanke,Chairman of the Federal Reserve,has exhibited quiet leadership.Mr.Bernanke recently shared his reflections on the course of the crisis and what might be done about it.Our nation is being tested by economic challenges,the central banker said,but there are more tools the Federal Reserve could use.The Fed could purchase long term Treasury bonds or agency debt.It could backstop liquidity in financial markets beyond banks.Further rate cuts are certainly feasible,but obviously the scope is limited:the Fed funds rate has already been cut to 0.5%.The rate cuts were rapid and proactive.Nonetheless,the Fed's liquidity programs have failed to return private credit markets to normal,although they have been helpful in lowering some spreads.The market itself must ultimately address financial problems.

Shop Talk

Hello to the Czech Republic,where I advertised this week.You are an ally and have a picturesque capital,Prague.It's good to have you reading today.It's been noted that the price of gas is so low,the economy should be bouncing back already.If your income is in jeopardy,though,and the value of your home keeps declining,the price of gas doesn't matter enough to make you spend more.It helps to have cheap gas,but it just does not save the recessionary day,as much as we might wish for such a simple solution.There is nothing simple about the financial crisis.Hence the public's angry mood.Yet it is the weekend.It's time to think about old cities like Prague or Kiev,perhaps the home of your ancestors.Think about those European days so many of you came from-or at least admire.

Ford In Best Shape

Of the three U.S. automakers,Ford Motor Company is in the best financial shape.According to CEO Alan Mulally,Ford has enough money to make it through next year without government assistance,and may never need it at all.Nonetheless,the old line firm would like some aid to fully ensure it survives,and is appealing to Congress along with General Motors and Chrysler today.Ford introduced six new models at the recent Los Angeles auto show,including a hybrid version of the Fusion.Ford is staking its future on small,fuel-efficient models,rather than the trucks of its past.

A Big Investor's View

Prince Alwaleed bin Talal of Saudi Arabia,a Citigroup investor since 1991,described Citi as a core investment for him.The fact that CEO Vikram Pandit was left in office proves that the government doesn't want to run the company.I expect to see Citi's dividend raised in three years,the prince said.Until then,we are prepared to accept the dividend cut.We need to give Mr.Pandit some time.He's a man of a mission,of strong vision.Citi is still far from being a nationalized entity,Prince Alwaleed insisted.The deal allows a bounce-back if the markets improve.Frankly,the recent share price destruction is the fault of Citi's previous management,His Royal Highness observed.

Customers Protect Citi

Citigroup's deposit base and loan book are growing,Gary Crittenden pointed out.There will be continuous re-engineering of the company,and that's healthy for it.The deal could be a template for other banks.We brought our assets down by 300 billion dollars.Our legacy assets are exposed to the consumer,but our ex-U.S. customers are mostly in the Citigold category,which should mute the impact of the financial crisis,Gary Crittenden maintained.

CFO on the Rescue

Citigroup's Chief Financial Officer,Gary Crittenden,says the rescue package is not a nationalization.Citi's Tier One ratio is among the highest in the industry.The rescue package does not require Citi to increase lending or change strategy.We haven't won or lost,Mr.Crittenden said,just increased confidence that Citi can do what it has to do in this environment.The talks with the government were highly collaborative.We got to a place that was good for the government,the taxpayer and Citigroup.Today we have the strongest capital ratio of any large bank in the financial services industry.We worked hard to get a package that should have some success,the CFO noted.

Focus on Citigroup:Inside the Rescue Package

Citigroup is a firm that is so large and complex,it's difficult to ascertain just how large it is.There are various rankings of it,depending on what factors are considered.Some say it is the largest bank;some say it is second-largest;it has even been described as fifth largest.In any event,it has around two trillion dollars in assets.It's off-balance sheet entities amount to about 1.23 billion dollars.Those are the troubled ones.Citi's Smith Barney brokerage alone has over 15,000 advisors.When Citi's announced job cuts are completed,it will have about 300,000 employees in 106 countries.The U.S. government has fully committed itself to Citi's survival,believing its loss would be devastating to the world economy.The U.S. is injecting a further 20 billion in cash into Citi;is acquiring 27 billion of Citi preferred stock with an interest rate of 8%;and is guaranteeing 306 billion of Citi securities,loans and commitments.No management changes are required of Citi;executive compensation must be submitted to the government for approval;the quarterly dividend must be reduced to one cent a share for the next three years;and job cuts will be global,across Citi's multiple businesses.The government will acquire a 7.8% stake in Citigroup.

Shop Talk

A special greeting to Oregon,where I advertised for the first time this week.I always think of Mount Hood when I think of your state,and the Mount Hood daffodils on the property.They are both tranquil thoughts.Goodness knows we can use such thoughts in the wake of the Mumbai battle.It was a somber backdrop for the American Thanksgiving,but we managed to celebrate anyway,not letting the militants have their way.The uncompetitive National Football League games on T.V. were a joke.That can't be good for ratings or the sport itself.There's a real problem with selecting the teams so far in advance.You can't always tell which teams might be incompetent or dominant in a season. It would probably be best to have the day be more fully-scheduled.If the games turn out to be poor,you could just switch the coverage to another one.

What Geithner Is Like

Tim looks at you and is very frank,telling you what a policy can and cannot do,Mr.El-Erian revealed.He has the self-confidence that comes from years of experience.There is no alternative for government involvement;Mr Geithner understands it has to be targeted and reversible,and that's a good thing,Mr.El-Erian observed.Susie Gharib,co-anchor of Nightly Business Report,has served with Mr.Geithner on the board of trustees of the Economic Club of New York.She describes him as very smart,thoughtful and humble.He is very diplomatic,she said.Mr.Geithner,who is the married father of two,is Mr.Experience.He has served under three presidents and five Treasury Secretaries,holding posts in the Federal Deposit Insurance Corporation,the Federal Reserve and the Treasury Department,where he was Assistant Secretary for International Affairs.He is currently President of the Federal Reserve Bank of New York,helping to resolve the Bear Stearns,American International Group and Citigroup issues.

What Geithner Faces

There are so many moving pieces in the financial crisis,you can't find a bottom,Mohamed El-Erian feels.It's better to have the mindset that we are in a protracted healing process.Stay on the sideline and wait for the crisis to morph.Don't be a hero at this point,Mr.El-Erian counsels.

Who Is Timothy Geithner ?

Mohamed El-Erian,co-CEO and co-Chief Investment Officer of PIMCO,says he met Timothy Geithner,President-elect Obama's Treasury Secretary-designate,in the midst of the Russian and Asian crisis.He is very cool,Mr.El-Erian said.He has the crisis management experience that you need at this point.Hank Paulson,the current Treasury Secretary,and Mr.Geithner have worked together.The more certainty we can get,the more the healing process can go forward in a good manner,Mr.El-Erian thinks.

Bush Leaving Regional Stage

President Bush has probably attended his last regional summit,the Asia-Pacific Economic Cooperation event in Lima,Peru last weekend.Mr.Bush told the Pacific Rim gathering that recovering from the financial crisis will take time,but we'll get there.There are times when government intervention is essential;yet it is also essential that nations resist the temptation to over-correct by imposing regulations that would stifle innovation and choke off growth.The president insisted that free markets,free trade and free peoples are the way out of the crisis.One of the lessons of the Great Depression is the harmfulness of global protectionism.The APEC countries agreed to refrain for 12 months from raising new barriers to investment or to trade.They also endorsed the principles agreed at the Summit on Financial Markets and the World Economy,which Mr.Bush hosted the previous weekend.President Bush met with Russian president Dmitry Medvedev while in Lima.Their talks were described as cordial,but direct and frank,covering the Georgian flare-up,as well as the financial crisis and anti-missile defense in Poland.The two leaders appear to be friends,readily smiling and shaking hands.

Shop Talk

Hello to the U.K.,where I advertised this week.The U.K. and the rest of the world are focused on a truly global firm today,Citigroup,whose stock has fallen below five dollars a share.One of the most impressive aspects of the news is the loyalty of Citi's investor, Prince Alwaleed of Saudi Arabia.His Royal Highness has not only not sold his stake in the financial giant;but increased it from less than four up to five percent.He is more than an investor;he is a great friend.Anyone with an interest in the firm should be thanking Prince Alwaleed for being indefatigable.If only the trading floor of the New York Stock Exchange were inspired by his judgement,instead of bolting like a herd of crazy buffalo.

The Essential Task

The British government will work with our partners to establish a new International Monetary Fund as a sentinel,Prime Minister Brown promised,and to achieve the transparency,integrity and responsibility of the financial system.Confidence in the future is the key to bringing back confidence today.I am confident in the future,Mr.Brown asserted,wearing a white bow tie,white shirt and black dinner jacket,a red poppy on his lapel to commemorate Armistice Day.

The Role of the West

The prime minister,who had been heralded by trumpets,continued his observations:While I see a world that is facing a financial crisis,there is evidence of this new multilateralism at work.Together we can create a new global society.The challenge is to build a consensus for a new global financial system.I believe we in the West should approach these challenges with a degree of humility.The alliance between Britain and America,Europe and America,can and must provide leadership.The election of Barack Obama can only be a source of hope and inspiration.Let that hope be fulfilled with a pact with the rest of the world to lead and fulfill the first truly global society.

A Steep Economic Path

The world today can seem a daunting place,Prime Minister Gordon Brown admitted.Today we rise to the challenge of an open free trade and flexible globalization.It is likely that,in the next two decades,the global economy will double in size.We shall encounter,not just the insecurities we now know about,but the opportunities of tomorrow as well.The livelihoods of British families and businesses are shaped by this ever-more interdependent world,Mr.Brown pointed out in the ornate Guildhall setting.

Special Access:With the Prime Minister

British Prime Minister Gordon Brown recently addressed the Lord Mayor's banquet in the City of London,the British financial centre.These last weeks and months will be studied by generations to come,the prime minister predicted.They will be seen as a time when one chapter ended,and another began.To us falls the challenge of leading Britain through the first financial crisis of the new global age.The range,complexity and impact of these forces have shaped the steps we're taking to the new global society.

Bush Leaving World Stage

President Bush is in the process of taking his leave of international conferences.Mr.Bush hosted the Summit on Financial Markets and the World Economy this past weekend,which he described as a very successful summit.A 44-page statement of principles for preventing financial crises was agreed,such as greater transparency,more participation by emerging markets,the need for new alert systems and closer supervision of financial products and key corporations.The details are to be worked out by a number of working groups.On the other hand,the president indicated there will be further meetings.A meeting is not gonna solve the world's problems,he said,but will help begin a process.President Bush told the leaders that President-elect Obama's transition team has been fully briefed,that the president will work for a smooth transition,and that he hopes the president-elect succeeds.The president thanked the press for covering the summit,then said goodbye with a wave and a smile.

Shop Talk

A special greeting to Massachusetts,the state that is as difficult to spell as Mississippi.The weekend focus,however, will be on Washington,D.C.,where the G20 leaders will be meeting to discuss the financial crisis.The G20 are the biggest of the developed and developing economies.They will look at what new standards may be applied to the global markets,in order to prevent another crisis of this magnitude,and who should apply them.The International Monetary Fund has been mentioned as a prospective regulator.It was intended to take on such a task,it has been said.France and the U.K. intend to play a prominent role in the deliberations this weekend.They are pushing hard to get the problems addressed in short order.The conference is taking place at the National Building Museum,and is expected to be the first of a series.The world has never been so interconnected,yet the structures to manage the interconnections have not been updated for many decades,if they indeed exist at all.

When It Will End

I wish I could say there are compelling stocks,Dan Niles said,but there really isn't one.There's gonna be a lot of layoffs by the end of the year.Q1 of 2009 really scares me.That's the earliest I expect to see stocks bottom.Summer of 2009 is more likely.The layoffs will affect tech consumption.I expect 9-10% unemployment,Mr.Niles predicted.We are currently at 6.5%.These analysts' views are not optimistic for the medium term.Nonetheless,a number of advisers feel that long term investors should continue to dollar cost average into the stock market,taking advantage of the extremely low share prices-even if they may not be at absolute bottom.No one can call that.

How Tech Will Fare

Tech analyst Dan Niles of Neuberger Berman notes that the September-October sell-off caused some tech issues.There will be a lot of cutbacks.Numbers will have to be cut lower for 2009.A president can only do so much.We're in a down business cycle.You can't go out and buy every house on the market,Dan Niles remarked.

Willing To Wager

Meredith Whitney says she will bet you a lot of money that banks will come back for more capital.I think they'll probably cut their dividends again,Ms.Whitney conjectured.Citigroup's share price will go down to the single digits.Stock prices are still way too high.With government support,however,Citigroup could find a mate,Ms.Whitney feels.

Cold Water For Us

Noted analyst Meredith Whitney believes unemployment will reach double digits.Bank revenue will be down by up to seven percent.There will be a protracted period of negative operating leverage.We're going back to a 2001-2002 revenue environment.Estimates for the big banks are coming down.We're in for a rude awakening,resulting in a slow grind-down for these stocks,Ms.Whitney warned.

With Clear Eyes:Medium Term Outlook

Two leading business analysts,Meredith Whitney and Dan Niles,have been giving their medium term outlooks.Ms.Whitney specializes in financial services,while Mr.Niles covers technology.Meredith Whitney,Director of Equity Research at Oppenheimer,says that financials and the economy are so far off the tracks right now,it's hard to see how President-elect Obama could help.If banks modify loans,they will make less,not put capital back into the system.The securitization market isn't coming back.You're gonna actually see mortgage contraction.You're gonna see credit taken away from consumers by a large degree.We've never seen that before,Ms.Whitney observed.

Shop Talk

Hello to Taiwan,our old friend.The miles between us are many,but the bonds are strong.Today you will be watching with us as President-elect Obama gives his first news conference just over an hour from now,having conferred with his economic advisers.Few presidents-elect have had to deal with so many crises.Most Americans have gotten behind him,regardless of their political views.They're giving him time to present and implement his ideas.If they don't work,he'll be accountable in good time.Governor Sarah Palin of Alaska is still in the news.She is such a striking individual,there's little chance she will fade into obscurity.She's one of the few interesting conservatives.Her geographic knowledge apparently had gaps,but that is typical of Americans under 50.Geography hasn't been emphasized enough in recent decades.She's a quick study,in any event.Please note that I will not be publishing on Tuesday in observance of Veterans Day.Veterans,thank you for serving.I will try to publish later in the week.

Looking At the History

Alfred Goldman of Wachovia Securities has been reflecting on October.It was a big sell-off,with the S and P 500 Index down about 20%.It was the greatest level of fear I've seen in my whole career,Mr.Goldman said.Corporate earnings are gonna be miserable,but he market is oversold.Hopefully the market will rally when the new president is known.These are probably the best values I've seen in the past forty-eight and a half years,the distinguished analyst noted.You look at the history of this country since 1776,and you selectively start buying-with some cash on the side in case of hiccups,Mr.Goldman advised.He likes John Deere(DE) and Illinois Tool Works(ITW).

New Oriental Leads Field

New Oriental(EDU) is the leading provider of language instruction in China.The firm provides instruction in English,Japanese,Korean,German,French and Italian to over 4.5 million students.Classes are held in 41 schools and 207 learning centers,and materials are distributed in 22 bookstores and over 5,000 third party bookstores.Instruction begins at age five,according to Louis Hsieh,the Taiwan-born Chief Financial Officer,who was raised in California.

Federal Reserve United

By a rare unanimous vote,the Federal Reserve has cut its key interest rate by o.5, to 1.0%.It can cut the rate all the way to zero if it chooses to.In its statement,the central bank noted that industrial output has weakened,but inflation is expected to moderate to levels of price stability.While recent actions have helped,downside risks to growth remain.Slow foreign economies will hurt U.S. export prospects.Recently,the Fed has expanded its balance sheet-unlike in the Great Depression,when the Fed contracted it.Today,the Fed has over 700 billion dollars in its account.And it has extended swap lines to 14 countries.A swap line provides U.S. dollars in exchange for foreign currencies,in order to increase confidence.Swap lines of 30 billion dollars each have been granted to Brazil,Mexico,South Korea and Singapore.

Exxon Scores Largest Profit

Exxon Mobil reported the largest profit in the history of the world.Q3's record oil prices helped the Irving,Texas firm achieve a 58% increase in net income,to 14.83 billion dollars.The increase amounted to 2.86 a share.Revenue was 137.74 billion,up from 103.34 billion year over year.Exxon(XOM) plans to maintain current production levels,although the targets will be reviewed in March of 2009.It intends to spend 30-40 billion a year on exploration.The recent slump in demand,as well as down time for maintenance,are expected to cut Exxon's Q4 earnings by about 0.5 billion dollars.

Shop Talk

Welcome to new readers in Australia and New York,where I advertised this week.My newsreel colleagues and I work constantly to keep you well-informed,so you can make the best decision for your circumstances.Among those contributing matters of fact to my own research are The Associated Press,Bloomberg,The Washington Post,BBC and MarketWatch,as well as CNBC and The Wall Street Journal.None of us works in a vacuum,which is ultimately for your benefit.I am grateful to all of my fellow business editors and writers for their continual inspiration and assistance.As we approach the U.S. elections,we notice how many polls there are today.The number of national polls has gone from 55 in 2004 to 177 in 2008,but the only poll that counts is the one taken in the voting booth.That is the one that will influence our businesses and investments.

CalSTRS Is Buying

The second largest pension fund in the U.S.,the California State Teachers' Retirement System,or CalSTRS,is getting to the point of being shell-shocked,Chief Investment Officer Christopher Ailman revealed.Even so,we're actually investing.We put about one billion dollars into the market last week.These are bargains that you don't want to pass up.We're just stepping in.Wall Street is overreacting.I'm still worried about Europe.If we don't see the credit market continue to thaw,that would make me worry.Wall Street has already priced in a 30-40% earnings decline.You're still gonna have negative news,but you've got to digest through that.The circuit breakers are too wide,and the market has too much emotion.Wall Street is looking at the fourth quarter projections.I am confident in the American consumer getting through the financial crisis,Mr.Ailman affirmed.

The Hedge Fund Effect

Hedge funds serve wealthy individuals and institutions.It is believed they are responsible for about half the recent market declines.There had been 31 billion dollars in hedge fund redemptions as of last week.Typically these redemptions occur late in the day,when half of the recent market declines have occurred.There may be many more of these forced sales ahead.Indeed,up to a third of the 10,000 hedge funds may disappear altogether.Their investors want to cash out,so the fund managers must go on selling the funds' holdings,dragging the market down in the process.

A Determined Executive

Dow Chemical(DOW) has managed 388 consecutive quarters of no dividend cuts,Andrew Liveris said.This CEO will never cut the dividend,he swore.Our stock price is absolutely ludicrous.We're gonna remain strong.We've got tremendous financing arranged for our Rohm and Haas deal.We've got financial flexibility to do more this year,such as share buybacks.The stock price is divorced from the reality of the company,Mr.Liveris insisted.

Looking For Relief

Dow Chemical's portfolio is half commodities-based,half specialties,CEO Andrew Liveris explained.The commodities part has come down in price.There isn't one customer out there who isn't asking for cuts-even specialties customers.In some cases,even they are getting price cuts.Post-Olympics China has slowed down considerably,but local stimulus in China, such as infrastructure projects, will help.They're looking at 8-9% Gross Domestic Product.Frankly,I think the emerging world is gonna help us out of this crisis,Mr.Liveris conjectured.

Focus on Dow Chemical:Navigating the Crisis

Dow Chemical CEO Andrew Liveris said that hurricanes took out 80% of the firm's U.S. capacity,but now he can use different hydrocarbon feedstock because of demand destruction from the financial crisis.Price power is very poor.You have to manage costs,manage capital to keep yourself through this,keeping your long range plan in mind.Europe is in just as bad of a shape as the U.S.,Mr.Liveris observed.

Shop Talk

A special greeting to Virginia,where I advertised this week.Virginians are getting ready to vote.They won't let the media and the pollsters decide for them.There are many who have already declared victory,but maybe Virginia will surprise them.Some of my ancestors were Virginians,so I'm right at home with them.The stock futures threw a fit this morning,so I wasn't at ease then.In Japan,the Nikkei lost almost 10%.Things have settled down a bit,but we still have to get through the dreaded three o'clock hour.That's when all the forced selling comes in.Hopefully we can stay above the intraday low of October 10.So far,that has been a sturdy bottom for the market.

Libor Is Down

The London Interbank Offered Rate,or Libor,has been declining recently.From well over 4%,the 3-month rate has fallen to 3.83% as of this morning.It is the rate banks charge each other for loans,and its decline indicates a thawing of the credit markets.Governmental action around the world is beginning to have a positive effect on the banking system.

Wellpoint Is Ready

Health insurer Wellpoint(WLP) is ready for whatever the U.S. presidential election brings.CEO Angela Braly says the firm will work with either candidate.With 35 million members in its 14 Blue Cross plans,served by more than 42,000 employees,Wellpoint is the largest U.S. health insurer.Founded in 1944,the Indianapolis company is known for its stock buybacks in support of the share price.Wellpoint is a holding of billionaire Warren Buffett's Berkshire Hathaway.

The Legacy of the Crisis

The banking system is at the heart of every market economy;where we're going to is a world where the banking system is slimmer,de-risked,and with less return on equity,Mohamed El-Erian believes.We are turning the banking system into a utility,because the public cannot accept privatizing gain,while socializing risk.When the tide comes down,it exposes good things that you want to buy,but you've shaken the trust of the retail side.It will take time to heal.We shouldn't expect a linear recovery;it's gonna be a bumpy recovery,Mr.El-Erian predicted.

The Nature of the Crisis

This was a crisis of the system as a whole,according to Mohamed El-Erian.The policy response goes beyond an attempt to stabilize markets.We are in the midst of a major policy regime shift.It will be a gradual and fragile process,a protracted one.The policy regime shift cannot repair all the damage the system suffered.Policy response can change the drivers of markets.No one seems to be turning to the International Monetary Fund for advice.This is the sort of crisis that is at the heart of what the IMF was set up to control,in Mr.El-Erian's opinion.

Emerging From the Crisis

Mohamed El-Erian,co-CEO and co-Chief Investment Officer of PIMCO,feels that the U.S. financial rescue plan is the right plan.This is the appropriate response.The financial authorities need to act with overwhelming force.It's the right move in terms of design.We're starting to see the markets heal.The plan is necessary and sufficient,but the damage is so deep,you don't turn on a dime.It's gonna take time.The measures are coming in at every level of the capital structure.Institutions will have to re-tool,Mr.El-Erian thinks.

Shop Talk

Hello to Canada,where I advertised this week.It's fine to have you here,good neighbors.The aviators among you are surely among Canada's leaders.It takes a lot of skill and ambition to be a pilot-that's for sure.A business publication couldn't do better than to reach out to aviators.They have good executive qualities.No doubt many,if not most of them,have some interest in business news.Owning and operating aircraft is a business in itself.Have a rewarding weekend.

Alberta Seeks Skilled Workers

Even in these times of financial crisis,the Canadian province of Alberta needs skilled workers.It has instituted the Alberta Immigrant Nominee Program,a fast track to permanent residency status for such workers.The province says it has the strongest and fastest-growing economy in Canada.It needs skilled workers immediately.For information,log on to AlbertaCanada.com/h1b.

Problem Rooted in Leadership

Carl Icahn,billionaire investor and Chairman of Icahn Associates,thinks that the real problem is how we Americans treat our executives.They are more accountable overseas.Investors are getting the short end of the stick.The boards of directors aren't doing their job.I think that the crisis you have today is a problem of trust,Mr.Icahn said.The reason it's such an exacerbated problem is all these derivatives.The market has gone down a toboggan path.The simple solution is,you guarantee the banks' unsecured debt on the balance sheet.What I've been doing is watching and worrying,but bank debt is extremely cheap.There are also some stocks that are extremely undervalued.In a normal recession,there wouldn't be this preponderance of margin calls.A margin call is a stock sale forced by a creditor if he or she thinks you won't be able to pay him back the money you borrowed to buy the stock.There are trillions of dollars of derivatives out there,the candid Mr.Icahn pointed out.

Fed Has Done Well

Roger Ferguson,former Vice Chairman of the Federal Reserve and current CEO of TIAA-Cref,feels that the challenge of the financial crisis is the absence of credit availability and confidence.The financial rescue plan is designed to address that.I do not think there is a magic bullet,Mr.Ferguson said.I give my former colleagues at the Federal Reserve quite high marks.They've been flexible and used a number of tools.We may have several months to go before we can blow the all-clear signal,Mr.Ferguson cautioned.Keep the long view;don't panic;seek objective advice,the chief executive counseled.

Recovery May Be Prolonged

Even if the stock market bottomed last Friday,that is no assurance it will bounce back to its peak anytime soon.As of the opening bell this morning,the market was down 34% from its peak just over a year ago.Past stock market crashes have dragged on for more than a decade.The 1929 crash wasn't erased until the mid-1950s.The aftereffects of Japan's 1990 crash continue to this day.And the bear market of 1967 didn't resolve until 1982.Volatility can roll on and on,discouraging all but the hardiest investors.On the other hand,even if this is a prolonged recovery,that doesn't mean your portfolio will take that long to recover.Only if you invested all your money at the peak of the cycle would you have to wait decades to be made whole.Your portfolio's recovery will most likely be staggered, if you invested in many positions over a number of years.The market fell 40%,but your portfolio didn't,if you built it up over time,entering the chart at various points.There are also dividend payments that your portfolio accrues while the market climbs back up.Things may not be as bad for you as the media are portraying.

Shop Talk

A special greeting to California.I advertised there this week.Your economy is as big as that of many countries.Representatives of many countries are meeting in Washington this weekend to work on the financial crisis.The International Monetary Fund,World Bank and G7 group of industrialized countries will all be discussing the global economic dislocation.President Bush will meet with the G7 finance ministers tomorrow morning.It's possible some concrete steps will result.In any event,there's a chance that the U.S. stock market has finally bottomed.This morning it opened with a nearly 700 point dive,followed by some recovery:the sign of a classic capitulation,the climax of a bear market.There's a bit more financial hope this weekend than there has been in some time.

Treasury Accepting Bids

The U.S. Treasury is now accepting bids for financial rescue plan managers.The winners will be announced on Wednesday.They are to begin working on Saturday.The plan is aimed at the credit market,rather than the stock market.It is designed to restore confidence to lending institutions.Neel Kashkari,a former Goldman Sachs executive,is interim head of the effort.Mr.Kashkari,35,was Assistant Secretary of the Treasury for International Affairs.

The View From Citi Smith Barney

John Manley of Citi Smith Barney thinks the rescue plan just signed into law will help the U.S. economy.We don't want to repeat the mistakes of the late 1920s and 1930s.We need government intervention.Although the employment number means the economy is weaker than we thought,the system is still basically sound,Mr.Manley feels.The government is doing the right things.We're digging our way out of a crisis,Mr.Manley said.Citi Smith Barney likes Johnson and Johnson(JNJ).It's a very high quality investment,in their opinion,for the long term.They also like Kimberly- Clark(KMB),which is very,very sensitive to commodity prices-meaning they are benefiting now from their recent decline.ConAgra Foods(CAG) is very well-run,with very stable growth.It is perfectly positioned for the times we are in,according to Citi Smith Barney.

Buyers Note Service Slowdown

The Institute for Supply Management also reported a decline in U.S. service sector activity.The service sector represents about 80% of the U.S. economy.Purchasing managers logged a reading of 50.2 for September,as opposed to 50.6 for August.That's a little better than a Reuters poll of economists had projected.The economists thought the service sector would come in at 50.0.Nonetheless,the service sector number marks the fifth straight monthly decline in the sector.It hasn't done that since 2003.Inflation in the sector was the lowest for a year,probably reflecting a decrease in commodity prices.The service sector index covers results from hotels,restaurants,banks and airlines.The Institute for Supply Management is located in Tempe,Arizona.Its purchasing manager surveys are important to economic policy makers.

Drop in Manufacturing Index

The Institute for Supply Management,a buyers' trade group,has released its monthly manufacturing sector index-a key gauge of U.S. economic health.The September number was the lowest since 9-11,dropping to 43.5 from 49.9 in August.A reading below 50 indicates contraction of the sector.Order backlogs,employment,deliveries and inventories all fell in September.The ISM survey revealed a contraction in electrical appliances,machinery,apparel,furniture and transportation equipment.

Shop Talk

Hello to New Jersey,where I advertised this week.It is the home of many financial professionals,such as those of CNBC.It looks like we will have the quietest weekend in some time.We have forgotten what a normal weekend is.Maybe we will miss the excitement.I suppose we shall watch the presidential race.Two years of nonstop presidential politics will soon come to an end.The Inauguration will be a summit of history.All the ruckus will be forgotten then.

Buffett's New Bank

Warren Buffett,the Omaha billionaire,has added Goldman Sachs(GS) to his Berkshire Hathaway(BRKa)holdings.Calling Goldman an exceptional institution,Mr.Buffett will acquire five billion of perpetual preferred shares,yielding 10%,plus warrants for another five billion of common shares of Goldman,which recently became a commercial bank.Goldman CEO Lloyd Blankfein says they have a great relationship with Mr.Buffett.His investment is a strong validation of Goldman's future prospects,Mr.Blankfein asserted.Goldman went to the Federal Reserve with its request to become a commercial bank the weekend of September 19-21.On September 21,the central bank approved the request,waiving the normal 30-day waiting period.Now Goldman can access the Federal Reserve's Discount Window for loans,but will also be tightly regulated.Mr.Buffett revealed that if he hadn't thought the government would act on a rescue plan,he wouldn't have made the investment.He is thankful to Treasury Secretary Hank Paulson for having the imagination to step up with a plan.The government stands to make a profit from buying distresed assets,in Mr.Buffett's opinion.We were facing an economic Pearl Harbor,the revered investor reflected,referring to the Japanese attack on Hawaii in 1941 that drew the U.S. into World War II.

Banking Trade Group Annoyed

Ed Yingling,President and CEO of the American Banking Association,a trade group,has denied that the financial crisis is a banking malaise.This is not a crisis in the FDIC-insured banking field;it is a Wall Street crisis,he insisted.These banks by and large are in good shape,Mr.Yingling said.We have an industry with almost 1.5 trillion in assets.A lot of this crisis is just speculation on Wall Street,Mr.Yingling remarked bitterly.

Focus on Banking:FDIC Takes Action

When depositors made a run on Washington Mutual,withdrawing some 16 billion dollars U.S.in a hurry,the Federal Deposit Insurance Corporation took control of the institution,selling it to J.P.Morgan Chase for 1.9 billion dollars U.S..WAMU executives were surprised by the move.JPM assumed all assets,posting a welcome message on WAMU's website.All holders of WAMU debt and equity were essentially wiped out.The acquisition gave JPM more than 5400 branches and the largest U.S. depository base.It will result in 1.5 billion in pretax savings by 2010.There is a 10% overlap of JPM and WAMU operations.JPM will also raise eight billion of capital by a share offering,and it will write down 31 billion in bad WAMU holdings.Once again,JPM was a godsend,helping the government manage the financial crisis,having earlier purchased failed investment bank Bear Stearns.It is doubtful,however,that JPM could handle anything else in the near future,making a rescue plan all the more necessary.Jamie Dimon is CEO of J.P.Morgan Chase.The FDIC acted again Sunday night,taking control of Wachovia Bank(WB),and selling its banking operations to Citigroup(C).Wachovia will retain its brokerage and wealth management units.Citi is paying 1.00 of Citi stock per Wachovia share.Sheila Bair is Chairman of the FDIC.

Shop Talk

A special greeting to South Korea.Dear allies,it's good to have you here today.We will always be especially close,bound together by the Korean War history.That was 1950-1953,for the younger readers.This weekend the attention will be on Capitol Hill,where America's leaders are stuggling to contain the financial crisis.Democracy is contentious in the best of times,and this certainly isn't one of those.Congress hopes to have legislation for the crisis ready by 6PM Eastern on Sunday,when the Asian markets begin to trade.Tonight,though,most Americans will watch the presidential debate,which will cover the financial crisis,but probably other issues as well.There will be plenty to fill all the reporters' notebooks this weekend.

Australia Stabilizes Markets

Australia has joined the U.S.,U.K. and Germany in banning the practice of short-selling,which is a kind of betting that a stock will fall.On Monday,Australian authorities expanded the ban to include not only naked short-selling,which is the most aggressive form,but covered short-selling as well.The ban won't apply to some hedging positions.Investment bank Babcock and Brown had complained about the short-selling of its shares.It rallied 70% at the news of the expanded ban on the practice.Meanwhile,Morgan Stanley(MS) and Goldman Sachs(GS) are to become commercial banks.The last two large,independent investment banks in the U.S. will acquire a depository base and be subject to Federal Reserve supervision,in a bid to secure their futures.Goldman Sachs will be known as Goldman Sachs Bank U.S.A..

Citi Will Be O.K.

Merideth Whitney,an analyst with Oppenheimer,thinks that Citigroup(C) will make it through the financial crisis.Ms.Whitney,who accurately predicted a Citi dividend cut earlier in the year,says the firm is selling assets to make sure it can stay in business.It is not in a precarious position,Ms.Whitney feels.Citi has 200 million customers in more than 100 countries.Almost 50% of its business is outside the U.S..Of its non-U.S. business,almost 35% is in emerging markets,which the company sees as its growth engine.Besides retail banking,Citi offers credit cards,brokerages,investment banking and hedge funds.

A Worried World

Last week was an emotional one in the financial world,and that emotion spilled over into the general public.Federal Reserve Chairman Ben Bernanke's face was ashen and etched with cares.He had never looked so concerned.The U.S. central banker looked as though he bore the world on his shoulders.Indeed,he and his colleagues at the Treasury department and Securities and Exchange Commission did.The President of the Federal Reserve Bank of New York,Timothy Geithner,has worked very hard behind the scenes.President Bush has stayed informed and made statements,but delegated details to experts such as Mr.Geithner.More than a few eyes misted over last week,touched by the huge events they were witnessing.Art Cashin of UBS,who works at the New York Stock Exchange,said there was a sense of general fear in the air.We've never seen a series of institutions disappear rapidly;there were isolated instances in the past.This has been a great place,and I feel badly for those laid off and their families-and I miss many of them.We may be morphing into a whole new financial world.The world I knew is changing,and I doubt if it will ever come exactly back,the distinguished Wall Street veteran lamented.

Shop Talk

A special greeting to Illinois,where I advertised this week.It's good to reach the heartland today.It looks like another busy weekend for business writers and editors.The U.S. government is in high gear on the financial crisis,as are other governments around the world.We came so close to global collapse,we don't want to think about it.Only this concerted effort can pull us out of these historic problems.It's definitely the right road.

Where This Leaves Us

Shane Oliver of ANP Capital Investors in Sydney,Australia thinks we are 85% through the bear market.We are probably near the bottom of share prices.Stocks are very cheap now.Mr.Oliver likes the telecom and consumer staples sectors.Peter Redward of Barclays Capital(BCS) says the Federal Reserve is doing all it can to make sure that Lehman Brothers unwinds its positions systematically.Ultimately,the market has to work as well.Earnings multiples have to come down because of widening credit spreads.At this point,financial markets are leading the economy.Before,it was the other way around.In consequence,the economic dynamics we've had are unlikely to continue.Countries such as South Korea and India are vulnerable because of their current accounts deficits,Mr.Redward feels.Today the Federal Reserve releases its interest rate decision.This could be a market-mover.In any event,shares of McDonalds(MCD) and Johnson and Johnson(JNJ) were up this morning.

A Joint Response

Money Center banks have pooled their resources to ease the financial crisis.An international consortium of 10 of the big banks,including Citigroup(C),Barclays(BCS),Credit Suisse(CS) and Deutsche Bank(DB), have each put seven billion dollars U.S. into the fund.Any of them are allowed to borrow up to a third of the 70 billion to shore up their balance sheets and avoid ratings downgrades.

Balance Sheets Shrink

The U.S. economy is repricing credit right now,Mohamed El-Erian continued.There is no perfect response to the credit crisis.The credit meltdown will hurt U.S. employment.The unthinkable is now thinkable in this market.This is a world of very high risk,but also opportunity.This is not a time to seek lots of risk.Herd behavior is typical of markets.Expect to see more banks access the Federal Reserve's discount window.At this time,three balance sheets are all deleveraging:1.the housing market;2.the financial system;3.US. households.Probably there will be a resolution of the crisis in 2009,Mr.El-Erian conjectured.

El-Erian Scopes the Crisis

Mohamed El-Erian,co-CEO and c0-Chief Investment Officer of Pimco,has been scoping out the current financial crisis.The U.S. financial system doesn't have enough capital for the crisis,he said.You either sell assets or businesses.We're in the midst of a big deleveraging process.Fast changes caught the system unawares.When there is uncertainty about the system,liquidity dries up.The process will continue,resulting in a slimmer,less leveraged financial system,with a lot of banking system consolidation.Banks will go bust or merge to survive.The financial system will get slimmer over time.Europe is having issues as well.It's a global phenomenon.

Shop Talk

Today I extend a special greeting to Washington,D.C..I advertised there this week.I've been advertising in many foreign countries,so I want to turn to American cities as well.I can't take them for granted just because they're my own.Reporters will be working through the weekend as another investment bank crisis reaches a climax.Lehman Brothers(LEH) is expected to be purchased over the weekend.The story would be in the shape of the deal.Asian markets would register the first reaction to it on Sunday evening.

A Humble Leader

The enemy is trying to increase the perception of insecurity among the Afghan people,General Schloesser believes.We are working against it,increasing the freedom of the roads,he said.I have very low numbers of troops in certain areas of RC East.I can't hold it.We're going to need more help in surveillance.None of this is a surprise to Washington.I am optimistic that,over a period of months,we will get what we need.I am humbled to work with your sons and daughters,as well as the Afghans,General Schloesser stated.They know why they're here.They remember 9-11,the soldier concluded.

Pakistan Is Helping

In recent days there has been a lessening of violence in upper Northeast Afghanistan,because of the success of the Pakistan military in Peshawar,Pakistan,which is next door.There has been a 20-30% uptick in enemy activity so far this year,however,compared with 2007.General Schloesser encourages the Pakistan military to expand its operations.I do believe they're doing their best to get after it,the general said.It's a slow win.It's not the way the Afghan and American people would like to see us win the war.I'd like to do it in a more robust way,General Schloesser admitted.

Special Access:With the General

Thursday is the seventh anniversary of the 9-11 attacks on the United States.Those attacks set off the recession of 2001.National security has a definite economic impact,so I am observing this anniversary with a military update on the Global War on Terror.Major General Jeffrey Schloesser,U.S. Army,is Commander,Combined Joint Task Force 101 in Afghanistan.In a teleconference with reporters at the Pentagon,General Schloesser,wearing his camouflage uniform,noted that there are several Islamic militant groups fighting in Afghanistan.Even the LET,a Kashmiri terrorist group from India,is among them.Al Qaida is serving as ideological ringleader and helping with funding the groups.These militants join together in their quest for a radical Islamic regime in Afghanistan,from where the 9-11 attacks were planned,prepared and directed.There are 7,000-11,000 of them in Eastern Afghanistan.Some of them are expected to remain in the country over the winter,so that they can resume their attacks more quickly when spring arrives.We are not losing the war,General Schloesser feels,though we need to proceed in a more timely manner.The enemy cannot win-even with what we have now.

Insurance Firms Strong

According to Steve Weisbart of the Insurance Institute,insurance companies have plenty of capital.Premiums have gone up because re-insurance went up dramatically in the wake of hurricanes.Re-insurance is the insurance that insurers buy to cover big payouts.It's hard to know how subprime has affected insurers,Mr.Weisbart thinks.The subprime problem has probably affected them very little.They tend to be very conservative investors,the insurance expert revealed.

Shop Talk

I advertised in Singapore this week.A special greeting to you in one of the great financial centers of the world.Sunday is Google's tenth anniversary.Happy anniversary to one of the Web's most essential firms.It has given me a lot of assistance,and I appreciate that.

Intel Expands Leading Edge

Stacy Smith is Intel's Chief Financial Officer.He describes himself as an enthusiastic generalist,not an engineer.Mr.Smith has seen Intel's operating profit rise more than 60%.Intel is working on efficiency and reducing costs.The weak dollar has helped its sales around the world,Mr.Smith revealed.Despite the economic uncertainty,we've seen relatively strong business,he added.Companies are investing for productivity even in economic uncertainty.The shift toward mobile pcs benefits us.We did five billion dollars U.S. of buybacks in the first half of the year.We get a lot of free cash flow in our business.We've seen a pretty normal climate across our business through the second quarter.Every year,we're putting in more capacity at that leading edge,so we can continue to innovate,the CFO noted.The company employs 81,800 people worldwide.It is the world's largest semiconductor manufacturer.Besides The Widget Channel,it has begun research on electricity generation and transmission.As well,Intel has partnered with Dreamworks on a 3D animation project.

Inside Intel:The Widget Channel

The long-sought integration of the Web with TV may soon become reality.Yahoo(YHOO) and Intel(INTC) have partnered to promote an offering called The Widget Channel.It consists of icons of widgets that scroll across the bottom of a TV screen.If you click on an icon,you will see Web content such as eBay auctions or weather reports on the left side of the screen.This service is enabled by a new Intel chip and Yahoo software.It is expected to be avilable by early next year.Even if your TV provider hasn't endorsed the service,you will be able to purchase a device that connects to a cable box and use it anyway,Intel says.

Newfoundland's New Field

The Canadian province of Newfoundland and Labrador has finalized arrangements for development of its Hebron oil field,which is about 217 miles-or 350 kilometers-off its southeast coast.Hebron follows the province's three other oil fields of Hibernia,White Rose and Terra Nova.Project leader is Chevron(CVX),with a 26.63% stake.Also involved is Exxon Mobil(XOM),with the majority 36.04% stake.The province itself owns a 4.9% stake.The field is expected to yield 700 million barrels over 20-25 years,generating revenues of 20 billion dollars Canadian at 87 dollars U.S. a barrel.Hebron may be operational by 2016.

Shop Talk

I advertised in Portugal this week.A special greeting to you,dear NATO allies.I have added a new link to my list.It is Since 1910.com,a merchant of fine diamonds and diamond jewelry,listed as Diamonds and diamond jewelry.In the U.S. and Canada,it is Labor Day weekend.Have an informative holiday.Monday will be a good chance to study the overseas markets.

Where Europe Is Today

We're still in the middle of a substantial financial turmoil,according to Axel Weber of the European Central Bank's Governing Council,and it's very hard to say there's light at the end of the tunnel.Firms have to be competitive in any environment.They have to live with exchange rates.The ECB focuses on price stability,the rapidly-speaking central banker stated.

The Toll of Oil

Energy prices have taken a toll,in the view of Axel Weber,Deutsche Bundesbank President.There's little monetary policy can do about the price rises.The medium term is clouded by inflation risks that we simply have to take care of,said Mr.Weber,relaxing in a royal blue shirt.We really don't see a credit crunch,but weaker credit growth,he added.

Into the Euro-zone

Axel Weber,President of the Deutsche Bundesbank,the German central bank,and a member of the European Central Bank's Governing Council,has been reflecting on the ECB's July .25 increase in its key interest rate.Our argument was,we saw a substantial rise in the risk of inflation,Mr.Weber said.The move we did has to be seen against the substantial inflation risk.We've largely predicted a weaker second quarter in Europe,because the first was so strong.We see a weak spot in the summer-somewhat of a dry spell,but growth will be reasonable.Things will change maybe not until next year,Mr.Weber speculated.

A Stark Inflation Picture

The U.S. Producer Price Index was up 9.8 year over year for July.That is the highest increase since 1981.The core number was up 3.5 year over year-the highest rise since 1991.The July PPI was up 1.2,and the July core number was up 0.7.The German PPI also saw the biggest increase since 1981.Not only are consumer prices high;the businesses consumers buy from are confronting steep inflation as well.Havens from inflation include gold stocks such as Kinross Gold(KGC),a Canadian mining firm with international operations,and the iShares Lehman Brothers TIPS fund(TIP),which contains U.S. Treasury inflation-protected securities.

Shop Talk

This week I advertised in Saudi Arabia.To you of the Kingdom,my wishes for God's favor-blessed be His name.The Beijing Olympics are almost over.What will Olympics fans do then?I suppose we will dream of the Vancouver winter games in 2010.At least we won't have to wait four years for the next Olympics like we used to.

A Moment of Pride

NBC Entertainment is obviously the one piece we need to improve on,CEO Jeff Zucker continued.We're paying the people of NBC Entertainment to go with their gut.NBC has been a part of GE for 21 years.They've been a fantastic parent.I hope it continues for at least another 21 years.The fact that we're tracking ahead of the 2004 Athens Olympics,given what's happened to network television,is a tremendous accomplishment.The Chinese have a lot to be proud of.The Olympics hold a special place in my life.It's just an honor to be part of the Olympics,Mr.Zucker exclaimed.

NBC and GE

We need to embrace one another,Jeff Zucker,CEO of NBC Universal,said of his network and its parent company, General Electric(GE).We've had a very active 16 months in trying to reshape NBC Universal.The fact is,Jeff Immelt,CEO of GE,has been very clear that NBC is a very important part of GE.When the pipes work,there's nothing like it.Nobody has spent more on the media space than GE has on NBC Universal the past 16 months,Mr.Zucker revealed.Telemundo,the Spanish language network,remains an incredibly important part of NBC-U.It's been harder than we thought it would be to develop it.We need to continue to improve there,but I'm confident that will happen,Mr.Zucker asserted.

The Digital Moment

Record numbers of fans have been turning to NBC Olympics.com,CEO Jeff Zucker noted.It is a watershed moment for NBC.One of the great things is the tremendous use of our digital properties.We're going to come out of this Olympics with great digital knowledge.There's no question we still have to learn how to monetize the digital page views,Mr.Zucker admitted.

Inside Media:The Power of a Network

Jeff Zucker,CEO of NBC Universal,has been reviewing the first week of his network's Olympics coverage.It's been a great week for NBC Universal,Mr.Zucker concluded.The ratings have been terrific.Advertisers have asked to be let into the party.The great story is,this shows the power of network television.The pipes work.If you put on programs people want to watch,they'll show up.NBC paid 900 million dollars U.S. for exclusive access to the games.We've been able to bottle that excitement since the opening ceremony.NBC-U is providing 3600 hours of coverage,75% of it live,over its seven networks.

Shop Talk

I advertised in Switzerland this week.My best regards to the Swiss and all my readers.Congratulations to all the Olympic athletes and the Chinese hosts.So far,everyone in the games has won a gold for good behavior.Late summer needs this bit of color.

China's Growth to Continue

China's growth will not slow further after the Olympics.The slowdown this year has been on account of exports dropping and government policies,says Tom Quinn of The Jordan Company,a private equity firm.Growth for 2007 was 11.4%.The forecast for 2008 is 8-10%.The Shanghai Composite Index is down 48% this year.The Chinese government needs to continue improving the standard of living.China has 350 years worth of coal in the ground.There is tremendous investment in infrastructure such as railroads and highways.China must develop the central and northern parts of the country,Mr.Quinn indicated.

Belief in the Olympics

According to CEO Neville Isdell,Coca-Cola is the number one brand in Olympic sponsorship.There is no immediate return in sales,but eventually there will be an uptick.We really believe the Olympics is beneficial to the world and the Chinese people.We're so proud to be a part of it.China is moving in the right direction,Mr.Isdell feels.There's always a downside to everything,he admitted,addressing China's human rights record.Nothing works absolutely perfectly,the CEO acknowledged.Besides the Olympics,Coca-Cola is benefiting from China's rapid urbanization.The company is extremely multinational,with 80% of its business being outside of the United States,which may protect it from U.S. economic problems.

Focus on China:The Coca-Cola Connection

Coca-Cola CEO Neville Isdell sees the Beijing Olympics as a long term branding opportunity.China is our fourth largest market,he said.We're using this to communicate with the Chinese people.Coca-Cola(KO) sponsored the torch relay,which was a huge success in China.The Chinese drink 24 Cokes a year,but they will eventually drink 150 a year.We see greater growth from teas and coffee,as well as Minute Maid juice,the CEO predicted.

Dubai Invests in Canada

Two Dubai enterprises have bought a 20% stake in Canada's Cirque du Soleil.Cirque founder Guy Laliberte will retain control over the circus,which is based in Montreal.The terms of the deal were not disclosed.The state-owned enterprises,Nakheel PJSC and Istithmar World Capital PJSC,are units of the Dubai World holding company.Nakheel is a property developer,and Istithmar is an investment enterprise.Dubai is one of the United Arab Emirates.

Shop Talk

I advertised in the United Arab Emirates this week.I extend a special greeting to you,Arab friends and allies.Your country becomes more important in the business world every year.It's great to host you today.I would also like to remember Michael Metz of Oppenheimer,who died yesterday.A distinguished analyst,Mr.Metz was a frequent guest on business television.He began his career in 1959,but remained active through old age.We shall miss him very much.

Domestic Weakness,Global Strength

The global infrastructure growth continues,GE CEO Jeff Immelt believes.There are tough times ahead vis-a-vis the U.S. consumer.Housing has to stabilize in order to feel like we have a consumer that wants to buy again.We don't see a slowdown in the global economy.These environments continue to be robust.We see in Mubadala a company like ourselves,the spirit of learning that still exists,Jeff Immelt explained.

The Full Power of GE

We shouldn't overdo partnerships,GE CEO Jeff Immelt continued,but when we do them,we put the full power of the company behind them.We are attractive to the best of the best because we have this unique structure as a country and a company.We want to bet on a multitude of energy technologies.Renewables have to be in the lead.We're investing that way.Abu Dhabi is building a renewable energy enterprise,thinking 10-20 years ahead.I agree with almost everything Boone Pickens says,Mr.Immelt added.Khaldoon al Mubarak,CEO of Mubadala,said that his firm is a GE in the making.This is a wonderful start today.

Capitalizing on Strength

The alliance of GE and The Mubadala Company gives GE more capacity for its great originators,says GE CEO Jeff Immelt.The intention is for a full-fledged joint venture.This allows us to strengthen the company where it is already strong.The deal gives us a better opportunity to minimize risk and maximize return.The joint venture capitalizes on the strengths of both companies,Mr.Immelt observed.

Inside the Deal:GE and Abu Dhabi

General Electric(GE) and The Mubadala Company,a state-owned enterprise of Abu Dhabi,have formed an eight billion dollar U.S. partnership.The companies will cooperate in commercial finance,research on clean energy and water,and expanding aircraft engine service and repair in the Middle East.They already have a strong partnership.Their aim is high growth opportunities in the Middle East and worldwide,making shared capital commitments to new joint ventures and investment funds.

Decision Week

This week several central banks are making interest rate decisions.Today at 2:15 PM Eastern,the Federal Reserve issues its decision.On Thursday,the European Central Bank and the Bank of England report their decisions.Markets could be moved by these events.Raising rates tends to control inflation,yet dampen growth.

Shop Talk

People are reading this in Sterling,Virginia and Plainview,New York.My readers are true workers.Even in July,they are busy checking into everything.That is appreciated.Have a relaxing weekend.

Of Things Known and Unknown

U.S. Treasury Secretary Paulson admitted that the thing we don't know is,is there fraud going on,is there collusion.I won't have a view until I see the evidence,Mr.Paulson stated.Naked short-selling is wrong anywhere.Our banking system is safe and sound.I don't think you're going to see any insured depositors lose a penny.The most important thing we can do to support the dollar is have confidence in our economy,he added.In a black suit,light blue shirt and red tie,and seated before a backdrop of U.S. Treasury seals,Mr.Paulson held that America's long term prospects are strong compared with any other economy.

The Importance of Housing Reform

The housing correction needs to run its course,U.S. Treasury Secretary Hank Paulson believes.Only at that time will we be entirely through this period of stress in the financial markets.One key in the housing crisis is having mortgage finance available.Housing reform is more important in magnitude than anything else.I'm focused on the job in front of me,not what happens after the U.S. presidential election.The more flexible the authorities are,the more confidence there will be in the marketplace.Government shouldn't try to impede the correction in housing,the Secretary continued.

Special Access:With the Treasury Secretary

U.S. Treasury Secretary Hank Paulson says he is speaking,and he listens.One of the things they're going to hear is,keep marking to market,and if you need to,go out and raise some capital.Banks need to keep marking books to assets.We are seeking to show stability for the capital markets.If necessary,the Treasury is ready to put capital in the Government-Sponsored Enterprises Fannie Mae and Freddie Mac,which are so important to the stability of the capital markets,the former Wall Street executive said.

More Struggle Ahead,Economists Say

The National Association for Business Economics has released the results of a survey of economists.According to the participants,the U.S. may avoid a recession,but growth will be anemic for the rest of 2008.Jobs and capital spending will be stable,as industry demand is rising across the board.The economy will be struggling for a few more quarters.Selling prices rose at the highest rate since Q1 of 2007.Higher materials costs were reported by 75% of the participants,which is a record.Increased capital spending was expected by 40% of the economists,which is down only 2% from Q1 2008.Overall,the NABE survey charts a difficult but passable road in the medium term.This week,Gross Domestic Product and employment reports could move the markets.

Shop Talk

People in Cary,North Carolina and Roubaix,France are reading this.It's good to have you and all my readers along on the knowledge journey.I am committed to working through the problems,not pretending they aren't there.In that way,we will be better at the end of the crisis.Being an idealogue would not yield anything but hot air.Have an enriching session.

The Last Bear

The last bear market was from 2000-2003.It lasted a total of 31 months.During that bear market,there were six rallies,which lasted from two to four months each.The current bear market arose about a year ago.It could extend as far as 2010,given the depth and breadth of the financial crisis,and the difficulty of owning up to it.

Citigroup Trends Better

Citigroup(C),the largest U.S. financial company,has reported its Q2 results.The firm suffered a loss of 2.5 billion dollars,or .54 a share.For the past three quarters,Citi's losses have been shrinking.In recognition of this ,Deutsche Bank(DB) has upgraded Citi's stock.Its Q2 results were in line with most banks that have reported earnings,says Richard Bove of Ladenburg Thalmann.Its other sources of income are great enough to cover the losses in its loan portfolio.The banks as a group are lending plenty of money;their margins are not in distress;and they are gaining deposits.The industry is in much less trouble than people think.It has more equity,more reserves,more loans and more deposits,Mr.Bove indicated.Shares of Asian regional banks rose on Monday,their first chance to respond to Citigroup's news.On the other hand,there can still be setbacks for Citi and the other banks,investors should realize.The financial system has been shaken hard,so recovery will be a jagged process.

Michigan Saves the Dream

The state of Michigan is addressing the economic crisis.Governor Jennifer Granholm says that,for the state,we're doing everything we can to encourage refinancing of mortgages,rather than foreclosure.When you combine the auto industry restructuring and 4.00 a gallon gasoline,together with the economic downturn,it's a triple whammy for the citizens of the state.Since 2000,Michigan has lost 400,000 jobs.Michigan will be announcing its Save the Dream effort of 14 initiatives-especially in the alternative energy industry.For me,it's all about diversifying this economy,Governor Granholm explained.

S and P Top Performers

The Q2 top performers in the Standard and Poors 500 Index were Massey Energy(MEE),up 57.25,or 156.8%;and Jabil Circuit(JBL),up 6.75,or 73.5%.

Shop Talk

I have readers in Sparta and Englishtown,New Jersey.Welcome to you and all my business friends.Thank you for learning.Have a restful weekend.

A Candid Admission

Speaking candidly,NBC Universal CEO Jeff Zucker admitted that its theme parks are suffering from the weak U.S. economy.Attendance and DVD sales are not what they've been.Nonetheless,box office and T.V. advertising are still strong.The video content on recently-acquired Hulu is premium,quality content,so advertisers are supporting it-unlike YouTube,Mr.Zucker stated.As for the parent corporation,Mr.Zucker said that,in the past 12 months,General Electric has been incredibly supportive of NBC Universal.GE CEO Jeff Immelt has made it clear that NBC-U is an important part of the GE portfolio.There's no question that consumer-facing businesses are struggling right now,Mr.Zucker said.I think it'll hold up pretty well for us,and the flip side is that we're making acquisitions,the media executive pointed out.

Acquisition Part of Big Move

The Weather Channel is the third most-distributed cable network,NBC Universal CEO Jeff Zucker noted.NBC-U has worked with co-acquirer The Blackstone Group before-on its Orlando theme parks.They have a lot of history with them,Mr.Zucker said.Launched on May 2,1982,The Weather Channel reaches 96 million homes.They have been great in their space,have owned their space for a long time.We're just thrilled they're a part of the NBC family,Mr.Zucker enthused.Although NBC remains an important part of NBC-U,there's been a big move-we've really moved to become a cable network company.The real strength of the company has become the cable portfolio,and that's going to continue in the years ahead,Jeff Zucker predicted.

Weather Channel Deal

NBC Universal,a division of General Electric(GE),is acquiring The Weather Channel from Landmark Communications for 3.5 billion dollars.The Blackstone Group(BX) and Bain Capital are also participating in the acquisition.Jeff Zucker,CEO of NBC-U,says that they are a news and information company.The cable portfolio is the backbone of who they are.NBC-U owns MSNBC,CNBC,Bravo,USA Network,Oxygen and Sci-Fi.The digital unit of The Weather Channel,weather.com,fits in NBC-U with 40 million unique monthly visitors.The deal,which is expected to close by the end of 2008,is leapfrogging NBC-U into whole new areas,Mr.Zucker maintains.They get a great strategic asset at a very fair price.

NASDAQ Top Performers

The NASDAQ top performers for Q2 were Marvell Technology(MRVL),up 6.78,or 62.3%;and NII Holdings(NIHD),up 15.71,or 49.4%.

Shop Talk

I have readers in Frederick,Maryland and Peterborough,U.K..Welcome to you and all my readers.You have stayed in the financial community at a difficult time.History has shown that is truly the best course.I have added a link to Checks,labels and stationery by Current,a popular printer of personalized items.I am pleased to list them on my site.

The EU is Leading

In white shirtsleeves and a purple tie,Prime Minister Brown stated that the European Union is the world leader in development aid.As well,it is the leader in climate change reform,and in the quest for a trade deal.If we can't get one in the next few weeks,it may elude us for many,many months-if not longer.We've got to show this deal to a world that is becoming increasingly protectionist,Prime Minister Brown reflected.The iShares MSCI UK fund(EWU) gives investors exposure to the British economy.

A Massive Shift

Prime Minister Gordon Brown,who has been in office a little over a year now,observed that we are witnessing a massive shift in the world economy.It is a shift of power to Asia.The challenge of this global change is to make it both inclusive and sustainable.We are seeing the worst food shortage in 30 years.The worst thing we can do is cut the subsidies to developing countries.It would be a huge mistake to cut that aid,Mr.Brown warned.In Britain's case,we will soon be 80% dependent on other countries for gas.We have a once in a generation chance to reduce our dependence on oil.We will soon become the world's leading offshore wind energy producer.We're dealing with a massive expansion of demand for oil from Asia.China is building 100 airports a year and 1,000 cities a year,while adding 10 million cars a year.We need a new green revolution in the developing countries.You will need a body the size of the World Bank to ensure the flow of money to the developing countries for implementing climate change reform,Mr.Brown estimated.

Special Access:With the Prime Minister

Speaking with the British Liaison Committee of the House of Commons,Prime Minister Gordon Brown said the off-balance sheet activities of some banks,and the writedowns that are taking place,should never have happened.There are reforms to the financial system that are necessary,such as improved transparency,improved bond rating agencies,and a better system of global supervision of the financial flows of multinational firms.We've got no proper early warning system for the world economy.We need to be better at dealing with financial stability at a global level.Action has already been taken to improve the flow of money by the Bank of England,which has injected funds into the system.

Top Performers

The top performers in the Dow Jones Industrial Average for Q2 were Chevron(CVX),up 13.77,or 16.1%;Wal-Mart(WMT),up 3.52,or 6.7%;and Exxon Mobil(XOM),up 3.55,or 4.2%.

The B in KB Home

Eli Broad,who built Sun America and sold it to AIG for 18 billion dollars U.S.,says he thinks some of the writedowns being taken by financial firms are excessive.Mr.Broad,who also co-founded KB Home(KB Home) with Kaufman,gave his perspective on the current situation.He's not sure we're in the final innings of the financial crisis.We may be in the middle innings.Housing has to stabilize before we can recover.Consumer confidence continues to sink,and he doesn't think that will change until next year.AIG stock could be a very attractive buying opportunity once things settle down,in Mr.Broad's opinion.

A Builder of Businesses

Eli Broad,a billionaire investor who,with his associates,owns a 4% stake(27 million shares) in American International Group(AIG),has been evaluating the company's prospects.He thinks new CEO Bob Willumstad is up for the job.He's met with him,and will meet with him again.Mr.Broad believes former CEO Martin Sullivan is a good man in commercial insurance,but AIG needs greater strength in finance and investment.It's going to get that soon.AIG's retirement and investment businesses have done well for it.The firm is manageable.It's a great franchise,with great core earning power,Mr.Broad said.

What Kind of Bear Market?

Q2 has just ended,and earnings reports will soon be rolling in,so investors are wondering what lies in store for them.Analyst Phillip Roth of Miller Taback notes that we just completed a bear market in May,and we're on the way down again.It's an average bear market,which means going down to 1175 on the S and P 500 Index.It's not a killer bear like the market of 2000-2002,but the commodity markets haven't weakened at all.It could take a while before long term rates drop,which is the condition for a new bull market.If we get down near my target and we see no break in long term rates,I'm going to lower my target,Mr.Roth promised.In a bear market,there may be good days interspersed with the legs down.

Shop Talk

We are in the summer holidays.A special greeting to our military men and women.Because of a fiber optic cable disruption,I was unable to post yesterday.I am sorry for any inconvenience.Have a good holiday at cottage,home or wherever you are.I will not be in on Friday,Independence Day.

Shop Talk

People in Los Angeles,California and Eindhoven,Netherlands are reading this.So are many others.All the best to all of you.If I am in on a Friday,I will try to post Shop Talk.So far,it's working out.Really,it's something extra.I can give you a shout-a shout to my new partner,Tiger Direct Canada,as well.They are on my link list now.

Consumers May Hurt Tech

Cautious consumers may hinder technology firms in the second half of the year,Dan Niles of Neuberger Berman thinks.Mr.Niles pointed out that housing prices are down 14% year over year,and homeowners won't be able to refinance.As well,the biggest impact of high oil prices hasn't been felt yet.Drivers are taking an extra hit of 450 billion dollars U.S..We don't know how consumer demand for tech products will be,Mr.Niles added.By early July,their tax rebate checks will be spent,so back to school and Christmas sales could be tough.He's constantly talking to Chief Information Officers,and they're ratcheting back their tech purchase plans.It is not a good picture right now.Nonetheless,he sees promise in selected firms,such as MEMC Electronic(WFR),which makes solar wafers;eBay(EBAY),as people are looking for bargains;and Apple(AAPL),which is launching a new iPhone.It's the most defensive in the portfolio Neuberger Berman has been for several years,Mr.Niles noted.

What the Floods Mean

Gary Thayer of Wachovia Bank(WB) has been studying the impact of the recent flooding in America's Midwest.Over the next year,the resulting spike in commodities will mean an 80% increase in corn prices.It will probably push food inflation over 5%-maybe to 6% or so,Mr.Thayer said.The damage to Iowa is pretty close to that of the 1993 floods.Probably we will see a distortion in economic data for the next few weeks because of the floods.From this point going forward,we're going to be getting concrete data,as opposed to anecdotes.The floods will probably affect us for the rest of the year,Mr.Thayer predicted.Crop losses are projected at over three billion dollars U.S.,and it's too late to replant.

Alcatel-Lucent Wins Suit

Alcatel-Lucent(ALU),the world's largest telecom equipment maker,has won a patent infringement lawsuit against Microsoft(MSFT).A U.S. District Court awarded the Franco-American firm 511.6 million dollars for infringement on two patents by Microsoft.It was a rare bit of good news for ALU,which has been struggling with the late 2006 merger of Alcatel with Lucent Technologies,as well as flat demand for telecom equipment.Their situation is further complicated by the strength of the euro against the U.S. dollar.The impact of the euro-dollar rate on their revenue is very large,Chief Financial Officer Hubert de Pesquidoux said.Although ALU,led by CEO Patricia Russo,is cutting 12,500 jobs and other costs,they have had to offer discounts to maintain market share,negating the savings achieved.The company continues to provide its customers with all their hardware needs,including mobile and fixed networks,as well as Internet television.The stock has been trading below 10.00 U.S. for many months.Microsoft said it will appeal the award.

Shop Talk

I have readers in Murrieta,Sunnyvale,San Francisco,San Diego,Cupertino,and Mountainview,California,as well as Vancouver,BC.It's good to have you along on the knowledge journey.It's the first day of summer in the U.S. and Canada-the first full day is actually tomorrow-so I wish you a pleasant one.I also greet my partners AdSense,LinkShare and Financial Times Press.

Jersey Trains Packed

New Jersey's commuter trains are bursting at the seams.Ridership was up 5% in Q1.Richard Sarles,head of New Jersey Transit,said they are buying double-decker train cars,which will transport more riders at less energy cost than adding standard rail cars.The agency's ultimate goal is to double the number of trains to 46 per hour,and build a new tunnel to New York City-at a cost of more than seven billion dollars U.S..The tunnel will take 10 years to build,Mr.Sarles said.Many other states are seeing an increase in commuter passengers as the price of gas skyrockets.

Lehman Demotions

Lehman Brothers(LEH) has demoted Chief Operating Officer Joseph Gregory and Chief Financial Officer Erin Callan.Ms.Callan's demotion has drawn mixed reactions.William Smith of William Smith Asset Management was bitterly critical of her.Everything Ms.Callan said for the past six months has proven to be false,he alleged.They recently sold their shares of Lehman because they lost confidence.They are not buying them back,either.On the other hand,Jon Najarian of Option Monster.com said he didn't think Ms.Callan was treated fairly.She seemed to him very honest and forthright.She really believed what she was saying.Some think Lehman Brothers cannot survive as an independent entity,now that the subprime crisis has changed the investment banking landscape.As for Ms.Callan,she has reportedly left the firm and is taking the summer off,only having served as CFO for six months.

Industrialized Leaders See Threats

The finance ministers of the Group of Eight industrialized nations,which include the U.S.,U.K.,Japan,France,Germany,Italy,Canada and Russia,are alarmed by surging oil and food prices.These prices pose a threat to the world economy as a serious challenge to stable growth,with serious implications to the most vulnerable and global inflationary pressure.Meeting over the weekend in Osaska,Japan,the ministers stated that tight supply and increasing demand was the main factor in high oil prices,though geopolitics and speculation were also to blame.U.S. Treasury Secretary Hank Paulson noted that oil production capacity hadn't risen in 10 years.The oil-producing countries should open themselves up to more exploration and production.British Chancellor of the Exchequer Alistair Darling said what we need to do,as a matter of urgency,is to increase supplies.Italy's finance minister,Giulio Tremonti,described the effect of speculation as enormous,and wants to increase the margins required of oil traders.The G-8 ministers also praised two new funds to help developing countries fight global warming.They said they remained vigilant in the face of uncertainty and downside risks in the world economy.They will take appropriate actions,individually and collectively,to secure stability and growth at home and abroad.

Shop Talk

Welcome to all my readers,from Montreal to Beijing and all points in between.I work under deadline pressure,so small errors are to be expected from time to time.When these occur,I correct them as soon as possible.The day of publication should be considered a first edition.As many of you know,I publish two other blogs,Extra Content and International Daybook,and you can visit them via link.Welcome also to Financial Times Press and LinkShare,which you may reach via link as well.

Honeywell Aerospace Deals

The Aerospace Division of Honeywell International(HON) has been prospering lately.It has just signed a 50 million dollar U.S. contract with Air Asia,and its 2.2 billion profit makes up nearly half of Honeywell's total.Half of the division's after-market business is in North America.It provides specific applications for airplanes,as well as upgrades for fuel efficiency and safety.Division chief Robert Gillette says they'd like to look at expanding globally,though it's a challenge with the weak U.S. dollar.Honeywell Aerospace is selling its parts business to BE Aerospace(BEAV) for just over one billion dollars.

Bernanke Provides Context

Speaking at Harvard University,Ben Bernanke,Chairman of the U.S. Federal Reserve,has put the current situation in historical context.So far,the U.S. economy has dealt with the oil shock pretty well,Mr.Bernanke said.The Fed has learned the lessons of the 1970s.Maintaining a commitment to price stability remains a top priority.Fixing inequality by limiting economic dynamism is a step in the wrong direction.Inflation today is significantly higher than he would like,but is lower than in the 1970s.There is little indication of the beginnings of a wage-price spiral today.Inflation is up 1% this year,compared to 6% in the 1973 oil shock,which was a result of war in the Middle East.Still,the rise of some inflation expectation indicators is of significant concern to the Federal Reserve,the central banker noted.Crude prices today are up more than four-fold,much like the 1970s,but the economic slowdown today is more due to housing and financial problems than to the price of oil,Mr.Bernanke reflected.

Jersey Helps Lehman

Lehman Brothers(LEH) is raising six billion dollars U.S. in new capital.Investors include the New Jersey Division of Investment,the state's pension fund.Common and preferred stock offerings will also be made.The capital is for general corporate purposes,Lehman said.The investment bank said it will report a Q2 loss of 2.8 billion dollars in a few weeks.It is Lehman's first loss since being spun off from American Express(AXP) in 1994.Lehman is in the process of deleveraging.Risk positions hvae been redeuced by 30%,commercial mortgages by 20%,and resaidential mortgages by 20% as well.In consequence,Lehman's profit and price to earnings ratio will be lower than they historically have been.

The True Impact

Dow Chemical CEO Andrew Liveris summed up the true impact of soaring energy costs as a resetting of the value chain.The fact that 85% of proven U.S. energy reserves are off-limits for environmental reasons is ludicrous,Mr.Liveris feels.It would be O.K. to drill in the outer continental shelf.Countries such as Norway are already doing this without causing environmental destruction.The cap and trade system,which is now before the U.S. Congress and amounts to a tax on the biggest polluters,is a necessary evil.It's the only thing that will reward good behavior at the emissions end.The energy crisis is one of the most complex issues that mankind has presented to itself,Mr.Liveris observed.

Dow Chief Explains

The candid CEO of Dow Chemical(DOW),Andrew Liveris,has expressed bitter criticism of the U.S. government's failure to adopt an energy policy.We are in a true energy crisis,and U.S. competitiveness is losing ground as a result,Mr.Liveris said.Higher energy costs are causing Dow to have difficult discussions with its customers.Feedstock and energy costs have continued to rise from their Q1 high.Dow utilizes one million barrels of oil a day to convert into useful products.The company is essential to the value chain.They have to pass price increases on.It's one of the few things they can do.Overwhelmingly,everyone in the value chain downstream from Dow has said thank you:now they can raise their prices in turn,Mr.Liveris revealed.