The Wall Street Journal-20080117-The Evening Wrap- Stimulating Conversation- Online edition
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The Evening Wrap: Stimulating Conversation; Online edition
Democrats and Republicans, after a chat with Fed chief Ben Bernanke today, may have cleared a key hurdle as they race to develop stimulus measures for a staggering economy.
President Bush has agreed to cool his campaign to extend his signature tax cuts until he and Congress agree to an emergency package to jump-start the economy, a Republican familiar with internal White House deliberations told The Wall Street Journal's Michael Phillips. "They're two different debates," the Republican said of the discussions over a stimulus package and over extension of cuts to individual income-tax rates, estate taxes and other taxes, which are scheduled to expire in 2010. Democratic leaders in Congress had signaled that Republican efforts to link a stimulus package with an extension of the tax cuts would mean a prolonged fight that could bog down the progress of the bill. The White House, which hasn't spoken officially about the details of a stimulus package and its negotiation, said Mr. Bush will outline some of his plans on Friday. He will call for "temporary and effective" measures to boost the economy, White House spokesman Tony Fratto said.
Mr. Bush's speech tomorrow should offer a compelling follow-up to a day where all eyes in Washington seemed focused on the economy. Federal Reserve Chairman Bernanke got events rolling by appearing before the House Budget Committee to share his wisdom with lawmakers. In a brief opening statement, Mr. Bernanke forecast slower growth this year, but not a recession, and said the Fed is "ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks." That statement echoed recent pronouncements pointing to more interest rate cuts, and after his intro, Mr. Bernanke was promptly peppered with questions about the efficacy of different approaches to stimulus. While Mr. Bernanke avoided endorsing specifics of any stimulus plan, he told the committee that such a plan should be quick and temporary so that it won't complicate longer-term fiscal challenges. When asked specifically about the extension of the Bush tax cuts, Mr. Bernanke suggested that permanent tax cuts would offer more in the way of long- term effects, saying immediate efforts at "putting money into the hands of households and firms would be more effective" in treating the economic slowdown. Responding to another question on possibly extending the tax cuts, he said that "tax cuts do not pay for themselves," taking a seeming swipe at supply-side gospel. Mr. Bernanke tossed at least one bone to Republicans, suggesting that making dividend tax cuts permanent would offer some near-term stimulus by boosting financial markets.
At any rate, hashing out the details of a stimulus package remains the purview of politicos, not policy wonks and central bankers. Such haggling was probably on the menu when President Bush and leaders from Congress dialed into a conference call to talk about the shape of the gradually coalescing stimulus package. Citing individuals familiar with the discussions, the Associated Press reported that individual tax rebates, tax breaks for businesses, additional funding for food stamp recipients and the jobless and aid for states to finish construction projects are all being considered as parts of the plan.
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Stocks Dive
An early equities rally mutated into a late-day tumble that resulted in the worst-yet loss of 2008. The Dow Jones Industrial Average dived 306.95 points Thursday, down 2.5%, at 12159.21. All 30 of its components ended lower. The tech-heavy Nasdaq composite index lost 47.69 points, or 2%, to finish at 2346.90. The Russell 2000 was off 2.8%, or 19.34, at 680.57. The small-stock indicator, which includes many companies that rely heavily on a robust U.S. economy, is now off more than 20% from its July highs, the traditional threshold defining a bear market. The Standard & Poor's 500 was off 2.9%, or 39.95 points, at 1333.25, including declines in all its sectors. Treasurys prices moved higher, pushing down yields. Crude oil futures slipped. The dollar was mixed. Shares in Europe ended lower, while Asian shares rose.
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Write-Downs Hurt Merrill
Merrill Lynch swung to a $9.83 billion loss in the fourth quarter, as the investment-banking giant capped a miserable second half by recording a total of $16.7 billion in losses related to subprime mortgages and complex debt instruments. The losses include, among others, a $9.9 billion write-down on collateralized debt obligations, or CDOs, a $1.6 billion write-down in subprime, and a $3.1 billion write-down related to exposure to shaky bond insurers. Also, Merrill announced it has hired former Goldman Sachs executive Noel Donohoe as its chief risk officer.
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GM: Turnaround Has Traction
GM expects high fuel prices and weak consumer confidence to weigh on domestic sales this year, but the auto maker said its long-term turnaround plan is exceeding expectations "on virtually all counts." For the auto industry as a whole, GM sees 2008 global production at about 73 million vehicles, up two million, riding on strength outside the U.S. In the U.S., the company projects 2008 sales will come in slightly above 16 million -- below 2007's 16.5 million.
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Tech Earnings Trickle Out
IBM said higher fourth-quarter net was driven by services amid weak hardware sales, providing details on results pre-announced this week. AMD's quarterly loss widened substantially, dragged down by a charge related to its ATI graphics business, as sales were flat at $1.77 billion.
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Housing 'Freefall,' Happier Jobs Data
Home construction plunged 14% in December, tumbling to its lowest point since 1991, while a sign of future groundbreakings also dropped sharply. Builders face weak sales for new homes while the supply of unsold homes hovers high. Ahead of the Commerce Department's release of those numbers, Federal Reserve Bank of Cleveland President Sandra Pianalto described residential investment "in freefall" and said the Fed's rate-setting committee would need to be "highly flexible" at its meeting at the end of the month. In a somewhat encouraging sign, the Labor Department today reported that new jobless claims last week unexpectedly fell to their lowest level in nearly four months.
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Bond Insurer Stocks Plunge
Speaking of bond insurers, shares of MBIA and Ambac sank on news that major credit agencies were considering downgrades of their AAA ratings on bond insurers. Bond insurers have been rocked by concerns they could be hurt by guarantees they've written on complex debt securities that have plunged in value. MBIA shares fell more than 30% today, while Ambac's shares dropped by more than 50%.
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Google Ramps Up Philanthropy
Google's philanthropic arm said it will dole out nearly $30 million to do-good projects such as tapping solar power, preventing plagues and improving public services for the poor. Google's push into philanthropy is being watched closely because of its size and its effort to erase the usual boundaries between the for-profit and nonprofit worlds. Philanthropy experts consider Google to be among the leading edge of donors who are experimenting with this hybrid model.
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Suicide Bomber Targets Mosque in Pakistan
A suicide bomber targeted a Shiite mosque in the northwestern Pakistan city of Peshawar, killing at least three people and injuring 20. The blast comes as minority Shiite Muslims prepare to mark the Ashoura festival, which in previous years has been marred by sectarian violence involving rival Sunnis.
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Time Warner's Broadband Experiment
Time Warner Cable plans to experiment with a new pricing structure for high-speed Internet access that would charge customers based on how much data they download. A spokesman for the second-largest cable provider in the U.S., Alex Dudley, said the trial was aimed at improving the network performance by making it more costly for heavy users of large downloads.
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Wamu Posts Big Loss
Washington Mutual, the country's biggest savings and loan, said it swung to a $1.87 billion loss in the fourth quarter, as it was hurt badly by the sinking value of its mortgage portfolio. In the year- earlier quarter, the Seattle-based company posted a profit of $1.06 billion.
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Elsewhere in the financial sector:
CIT Group Inc. swung to a fourth-quarter loss due to previously announced decisions to boost loan-loss provisions and write off the remaining goodwill from its student-loan business venture.
PNC's net income slumped 53% on charges related to Visa and BlackRock, and surging credit losses.
BB&T's quarterly net grew 64%, due to year-earlier charges, but the company experienced increased levels of non-performing assets and credit losses in the fall and its provision for credit losses more than doubled.
BlackRock's quarterly earnings jumped 90% as the investment- management firm benefited from strong demand for its advisory and alternative-investment services.
Comerica's net income fell 60% on surging credit costs and a year- earlier gain, as the regional banking company felt the sting of its exposure to credit-market woes.
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Protesters, Police Clash in Nairobi
Kenyan police clashed with demonstrators in Nairobi amid protests called by an opposition politician, while demonstrations across the country appeared to be losing steam. Opposition leader Raila Odinga called for three days of demonstrations that began Wednesday. Turnout has been low, though, and there were few of the serious clashes and home burnings that characterized protests immediately after results from the disputed Dec. 27 election were announced.
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Attacks Mount Between Israel, Gaza
Militants in Gaza escalated rocket attacks on southern Israel, who pounded back with air and ground fire, declaring it would not back off until the assaults on Israeli border communities halt. The heightened tensions throw further roadblocks in front of restarted peace talks, even though they don't involved Hamas, which controls Gaza.
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'Frightening and Unknowable'
It seems there's nothing funny about clowns, at least among the younger set. Just check your latest edition of Nursing Standard magazine, which, may I remind you, is "the U.K.'s Best Selling Nursing Journal." It reports that children polled by University of Sheffield researchers -- who were studying how to brighten up the decor of children's hospital wards -- discovered that all of the 250 patients they surveyed, whose ages stretched from four to 16 years old, disliked clowns "with even the older ones finding them scary," Reuters reports. If this survey is to be believed, most kids find clowns about as cheerful as a novel by Camus. Penny Curtis, a senior lecturer in research at the University of Sheffield said the survey "found that clowns are universally disliked by children. Some found them quite frightening and unknowable." ---
The Associated Press contributed to this report.
