Q1 GDP GROWTH OF 0.6%

According to GDP data released Wednesday, the economy grew at 0.6% in the first quarter of 2008.

From TheStreet.com:

The government reported Wednesday that the U.S. economy grew at a rate of 0.6% in the first quarter of 2008, which was basically in line with expectations on Wall Street.

While GDP growth of 0.6% reflects sluggish activity in the U.S. economy as it muddles through a slowdown in the national housing market and a credit crunch on Wall Street, it also suggests that the nation did avoid recession in the first three months of the year, when many investors were predicting that a recession was underway.

FEDERAL RESERVE CUTS FEDERAL FUNDS RATE

As many expected, the Federal Reserve cuts the Federal Funds rate, the rate at which banks can borrow from the Fed on an overnight basis, by one-quarter point on Wednesday. This may be the last rate cut for some time as concerns over inflation may cause the Federal Reserve to hold rates or even raise them going forward.

From The New York Times:

The Federal Reserve, mixing concern about the feeble economy with worries about rising inflation, reduced short-term interest rates Wednesday for the seventh time since September, while signaling a pause in any additional rate cuts for now.

The Fed’s action brought the federal funds rate — the rate it charges banks for overnight loans — to 2 percent, from 2.25 percent, the lowest level since November 2004. It defended that step as necessary to counter the ailing housing sector and the “considerable stress” shadowing financial markets.

The move followed new indications that the economy remained fragile at best. The Commerce Department reported early Wednesday that the economy expanded only 0.6 percent on an annualized basis in the first three months of 2008, short of an overall downturn but still far from healthy.

OIL PRICE DROPS $3; GERMANS PAYING $8.00 PER GALLON FOR GAS

Crude oil prices dropped about $3.00 per barrel yesterday as the U.S. dollar strengthened a bit and traders waited to see what the Federal Reserve will do with interest rates at their meeting later today. Most analysts believe that a quarter-point rate cut is already factored into the oil price and that if the Federal Reserve makes no cut, oil could decline further as the U.S. dollar strengthens.

Think $3.79 per gallon for gasoline is high? Germans are paying the equivalent of roughly $8.60 per gallon for gas now.

From MSNBC:

It is an everyday lottery when it comes to fuel prices at German gas stations. Prices for regular unleaded and diesel gas bounces up and down, often changing twice on the same day. And drivers in this car-loving nation are unhappily dealing with increasing prices at the pump.

Record prices on the international oil markets have driven gas prices across Europe sky high, with a gallon of unleaded gas costing about $8.60 per gallon in Germany. (In Germany, gas is sold by the liter with one liter of unleaded fuel selling for an average of $2.29)

The high prices hit people where it counts – in the wallet.

IS THE UNITED STATES IN A RECESSION? IF SO, HOW SEVERE WILL IT BE?

Two-thirds of economists surveyed by USA Today believe the U.S. is in a recession currently and 79% believe the U.S. will enter a recessionary period at some point in 2008. Most of these economists predict a short, shallow recession. On the other hand, Warren Buffett is on record as saying the U.S. is already in a recession and yesterday stated that "the recession will be longer and deeper than most people think."

USA Today - ECONOMISTS SAY U.S. IS IN A RECESSION
USA Today - BUFFETT: ECONOMY IN A RECESSION, WILL BE WORSE THAN FEARED

CONTINENTAL DECLINES UNITED MERGER OVERTURES

Continental Airlines has declined an option to merge with United.

From USA Today:

Continental Airlines' directors on Sunday opted to stick with a go-it-alone strategy at least for now, rejecting merger overtures from United Airlines to create an even larger carrier than the one that would result from the pending merger of Delta and Northwest.

Continental CEO Larry Kellner, in a message to employees late Sunday afternoon, said the airline's board followed management's recommendation in rejecting a merger path.

Talk of consolidation has swept across the U.S. airline industry since Delta and Northwest went public with their merger talks in January. That pair announced a merger agreement on April 14.

Kellner made it clear in his comments that Continental's management believes that it is stronger as an independent company than it would be if it merged.

WRIGLEY SOLD TO MARS FOR $23 BILLION

Mars is acquiring Wrigley for approximately $23 billion. The deal is being financed in part by Warren Buffett.

From The New York Times:

Mars, the makers of M&M’s, announced a deal Monday morning to acquire the Wm. Wrigley Jr. Company, the chewing gum concern, for about $23 billion. The transaction would create a confectionery behemoth and could pressure rivals into a cascade of other mergers.

The Mars-Wm. Wrigley Jr. deal has an unusually famous financier: Warren E. Buffett. Mr. Buffett’s Berkshire Hathaway is helping finance the transaction, Mars said Monday in a statement. Mr. Buffett has a history with iconic food and beverage businesses. He was an early investor in Coca-Cola and is already a candy owner in Sees Candies.

Under the agreement, Wrigley will become a separate, stand-alone subsidiary of Mars. With $5.4 billion in sales, Wrigley is a world leader in gum and confections.

Shareholders of Wrigley will receive $80 in cash for each share of stock, a premium of 28.1 percent premium over Friday’s closing price of $62.45. The deal has been approved by the boards of both companies.

Berkshire Hathaway will also make a minority investment in the Wrigley subsidiary when the deal closes, Mars said in announcing the deal.

STARBUCKS SLASHES PROFIT OUTLOOK

Starbucks shares fell 12% yesterday when it was announced that the company cut its quarterly and 2008 profit outlook.

From USA Today:

Schultz said in a statement that "the current economic environment is the weakest in our company's history, marked by lower home values, and rising costs for energy, food and other products that are directly impacting our customers."

Fewer customers at U.S. stores triggered a mid-single-digit decline in sales at established stores, called comparable store sales. California and Florida markets, which account for about one-third of its U.S. retail revenue, have been hard hit by the downturn in the U.S. housing market, it added.

As a result, Starbucks reported preliminary second-quarter earnings of 15 cents per share, behind Wall Street analysts' average target of 21 cents per share, according to Reuters Estimates.

Starbucks estimated that costs associated with turnaround efforts and store closures lowered earnings by 3 cents per share in the second quarter, which ended March 30.

Given the continued weakness in the U.S. economy, Starbucks warned that fiscal 2008 earnings per share would be "somewhat lower" than the 87 cents it reported in fiscal 2007, while analysts were looking for a profit of 97 cents per share for the current fiscal year.

"At this time, the company is not providing a more precise expectation due to lack of visibility into near-term economic conditions," Starbucks said in a statement.

ARBY'S TO BUY WENDY'S

Wendy's has been exploring sales options for quite some time and has accepted a bid from Triarc, the parent of Arby's.

From The New York Times:

The owner of Arby’s, the Triarc Companies, said Thursday that it was buying the hamburger chain, Wendy’s International, in an all-stock deal worth $2.34 billion that comes after the burger chain’s board rejected at least two earlier offers by the company.

Triarc, which is owned by the billionaire investor Nelson Peltz, will pay about $26.78 a share for the company, which has about 87 million shares outstanding. The price is a premium of 6 percent over Wednesday’s closing price of $25.32.

UAL POSTS HUGE Q1 LOSS

The parent company of United Airlines posted a loss of $537 million for the first quarter citing a 51% increase in fuel costs as a major reason for the loss.

From The New York Times:

United, based in Chicago, plans to reduce employment by 1,100 by the end of the year, as airlines begin a new round of layoffs. United increased the number of planes it plans to shed to 30, from an earlier estimate of 15 to 20, in hopes of constraining capacity and driving fares up further.

At United, first-quarter fares rose more than 11 percent over the year-ago period, as the carrier reduced domestic capacity by about 6 percent. That sent revenue up 7.7 percent to $4.71 billion for the quarter.

But a $534 million increase in fuel costs, to $1.58 billion for the quarter, led to a loss. The company has $2.9 billion of unrestricted cash and short-term investments, a slimmer cushion than the $3.6 billion it held Dec. 31, 2007.

Of the planned employee cuts, 500 would be managers and 600 union-represented workers, Glenn Tilton, United’s chief executive, said in a recorded message to his workers. “In this extraordinary environment, we recognize the pace of change needs to accelerate,” he said.

United hopes to merge with another airline — Continental Airlines and US Airways are leading candidates — in order to compete against the proposed combination of Delta Air Lines and Northwest Airlines. Tuesday, in his message to workers, Mr. Tilton called industry consolidation “one of the changes required to address the gap between where we stand today and profitability and sustainability.”

RUPERT MURDOCH TO BUY NEWSDAY?

According to The New York Times, Rupert Murdoch's News Corporation has bid $580 million to buy a third New York-based newspaper, Newsday. News Corporation already owns The Wall Street Journal and The New York Post. The deal would violate current FCC regulations and would require a waiver to be granted.

From The New York Times:

As he nears completion of a deal to acquire Newsday from the Tribune Company, Rupert Murdoch appears likely to pose the first significant challenge to the media ownership rule that the Federal Communications Commission recently adopted.

Even without Newsday, Mr. Murdoch was in the process of seeking waivers to continue to control two newspapers (The Wall Street Journal and The New York Post) and two television stations (WNYW and WWOR) in the New York area.

With those waiver requests pending at the F.C.C., the Newsday deal means that Mr. Murdoch must now apply for a waiver to own the two television stations and three newspapers in the same market.

The new rule, approved by a deeply divided commission in December, permits a company to own just one paper and one television station in the same city in the top 20 markets so long as there are at least eight other independent sources of news and the station is not in the top four. (The stations controlled by News Corporation are the fourth- and sixth-largest in the New York market.)

The architect of the rule, Kevin J. Martin, the chairman of the commission, has made clear that there is a strong presumption against granting waivers.

The Newsday deal also becomes public as Congress takes up a measure that would restore the old ownership rule, which generally restricted a company from owning both a newspaper and a television station in the same city, unless the F.C.C. granted a waiver.

GAS PRICES AT INFLATION-ADJUSTED HIGH

The price for a gallon of gasoline averaged $3.508, surpassing the inflation-adjusted high of $3.413 of 1981.

From USA Today:

The average price for regular gasoline across the USA was a record $3.508 a gallon Monday, eclipsing the inflation-adjusted peak of $3.413 set in March 1981, when the average was $1.417, according to the U.S. Energy Information Administration.

Separately, AAA and the Oil Price Information Service reported a U.S. average of $3.503 Monday, up 1.2 cents overnight and first time above $3.50.

The two surveys emphasize what Americans already know: However it's measured, gasoline is more expensive than it's ever been. That hurts.

MERGERS AND HIGH FUEL COSTS MAY MEAN FEWER CHEAP FLIGHTS

With Delta and Northwest seeking approval on a merger and rumors swirling about Continental seeking a merger partner in both United and American, competition in the airline industry in the United States is declining. Add high fuel costs and you have a recipe for higher fares.

From BusinessWeek via MSNBC:

n the three decades since the airline industry was deregulated, the flying public has received a free ride, or at least close to it. Thanks to debilitating price wars among airlines seeking an edge over competitors, U.S. airfares have plunged more than 50 percent in real terms since 1978 — giving rise to $49 flights and turning a form of travel that once was the province of the wealthy into the great proletariat pastime.

But when the CEOs of Delta Air Lines and Northwest Airlines sealed their merger accord with a handshake on April 15, the moment probably marked the end of the era of cheap travel. In this new age, major airlines could achieve the critical mass needed to raise fares enough to start recouping some of the $29 billion in losses they've suffered since 2001.

OIL TOPS $115 AS U.S. DOLLAR NEARS $1.60 PER EURO

Oil traded at over $115 per barrel yesterday and early today as the U.S. dollar sank to nearly $1.60 per euro. Some are $3.80 per gallon retail for gasoline in the near future.

From AP via MSNBC:

Crude oil futures fluctuated Thursday after moving past $115 per barrel and hitting an all-time high in overnight electronic trading on a weaker dollar and supply concerns.

Overall, crude prices have jumped more than 4 percent this week, in part due to the falling dollar, as well as a host of supply and demand concerns in the U.S. and abroad.

The combination of all these factors will push oil prices even higher in coming weeks, said James Cordier, president of Tampa, Florida, trading firms Liberty Trading Group and OptionSellers.com.

"I think we're going at least to $125 (per barrel)," Cordier said. "That'll probably translate to about $3.80 (a gallon for gasoline) at the pump."

RETAILERS TAKING STEPS TO AVOID BANKRUPTCY

Sharper Image and Levitz Furniture have declared bankruptcy recently and many more retailers such as Zales, Foot Locker, and Ann Taylor are taking steps to try to avoid it.

From The New York Times:

The consumer spending slump and tightening credit markets are unleashing a widening wave of bankruptcies in American retailing, prompting thousands of store closings that are expected to remake suburban malls and downtown shopping districts across the country.

Since last fall, eight mostly midsize chains — as diverse as the furniture store Levitz and the electronics seller Sharper Image — have filed for bankruptcy protection as they staggered under mounting debt and declining sales.

But the troubles are quickly spreading to bigger national companies, like Linens ‘n Things, the bedding and furniture retailer with 500 stores in 47 states. It may file for bankruptcy as early as this week, according to people briefed on the matter.

Even retailers that can avoid bankruptcy are shutting down stores to preserve cash through what could be a long economic downturn. Over the next year, Foot Locker said it would close 140 stores, Ann Taylor will start to shutter 117, and the jeweler Zales will close 100.

Whether more chains file for bankruptcy or not, it will be hard to miss the impact of the industry’s troubles in the nation’s malls.

J. C. Penney, Lowe’s and Office Depot are scaling back or delaying expansion. Office Depot had planned to open 150 stores this year; now it will open 75.

The International Council of Shopping Centers, a trade group, estimates there will be 5,770 store closings in 2008, up 25 percent from 2007, when there were 4,603.

Charming Shoppes, which owns the women’s clothing retailers Lane Bryant and Fashion Bug, is closing at least 150 stores. Wilsons the Leather Experts will close 158. And Pacific Sunwear is shutting a 153-store chain called Demo.

DELTA/NORTHWEST MERGER WILL HAVE TO CLEAR SEVERAL HURDLES

Delta and Northwest may intend to merge, but before that can happen, they will have to deal with union concerns and overcome antitrust regulatory hurdles.

From AP via Yahoo:

If Delta and Northwest are going to complete their deal to create the world's largest airline, they'll first have unions to cajole, politicians to placate, and antitrust regulators to convince.

Two of Northwest's largest unions immediately declared their opposition.

Most importantly, the airlines will need antitrust approval from federal regulators. In 2001, an attempted merger of United Airlines and US Airways fell apart amid antitrust concerns. Executives at Delta and Northwest said they are aiming to close their deal by the end of this year, which would be before the end of the merger-friendly Bush administration.

The takeover announced Monday calls for the combined airline to be named Delta, remain based in Atlanta, and be run by Delta CEO Richard Anderson. If the share-swap becomes final, Delta shareholders will get a bigger company, while Northwest shareholders would get a 16.8 percent premium over Monday's closing stock prices. Based on those prices, the deal values Northwest at more than $3.6 billion.

BLOCKBUSTER AGGRESSIVELY PURSUING CIRCUIT CITY

Blockbuster has offered over $1 billion for electronics retailer Circuit City.

From AP via The New York Times:

Blockbuster Inc. said Monday it has offered to pay more than $1 billion for struggling Circuit City Stores Inc., but the nation's second biggest consumer electronics chain questioned whether the movie-rental company can finance the deal.

Blockbuster Chief Executive James Keyes said combining the companies would create a chain that could sell portable devices and entertainment for them, much like Apple Inc.'s stores.

Keyes said the offer is supported by Blockbuster board member Carl Icahn, who could be a source of financing for the deal.

Circuit City shares climbed 35 percent in morning trading.

Blockbuster, which hopes to enlist Circuit City shareholder support for its bid by disclosing previously private communications with Circuit City's leaders, has had troubles of its own competing with online movie rental operators like Netflix Inc.

Circuit City said it has exchanged information with Blockbuster but wasn't convinced how the movie-rental chain would finance its offer. Circuit City advised its shareholders to take no action until the company board reviews the bid.

Blockbuster said in its February letter it is willing to pursue alternative deal structures which would enable Circuit City shareholders to receive stock. The company would expect to fund the takeover with borrowings and issuance of additional stock through a rights offering to existing shareholders.

Blockbuster says that it requested a response by Feb. 21, but, to date, Circuit City has failed to provide due diligence necessary to allow Blockbuster to make a definitive takeover proposal. Blockbuster is asking for such information as Circuit City's long-term corporate strategic plan and outlook, detailed store-level performance data and current inventory aging schedules, among other items.

GOOGLE/YAHOO ALLIANCE LIKELY WOULD NOT PASS REGULATORY SCRUTINY

As Yahoo explores ways to avoid being taken over by Microsoft, partnering in some way with Google keeps coming up; however, any deal between market leader Google and number two Yahoo would be looked at very closely by the Justice Department.

From Reuters:

Yahoo Inc's attempt to form an alliance with Google Inc to stave off Microsoft Corp could run into more trouble with antitrust regulators than Microsoft's unwelcome takeover bid.

While Yahoo is seeking a business partnership with Google -- unlike the outright merger that Microsoft wants -- legal experts say any deal between the world's two largest Internet search services will draw heavy scrutiny from U.S. and European competition regulators.

"The Justice Department would certainly want to take a serious look at that because it would mean that a firm that would want to take advertisements or to place advertisements (online) would have only one place to go," said Aaron Edlin, who teaches law and economics at the University of California at Berkeley.

Google held a 59.2 percent share of the U.S. Web search market in February, compared with Yahoo's 21.6 percent and Microsoft's 9.6 percent, according to research firm comScore.

AMERICAN AIRLINES CANCELS MORE FLIGHTS

American Airlines canceled approximately 200 flights on Saturday, bringing the total for the week to over 3,000 flights canceled.

From MarketWatch:

Altogether, the Fort Worth, Texas-based carrier has canceled more than 3,000 flights since Tuesday when it grounded its MD-80 fleet after the Federal Aviation Administration said the plane's wiring in its wheel wells wasn't bundled properly.

The decision removed more than 39,000 seats from the carrier's service fleet and stranded tens of thousands of customers.

The flight cancellations are expected to have cost AMR more than "tens of millions of dollars," Chief Executive Gerard Arpey said in a news conference on Thursday.

MICROSOFT SETS APRIL 26 DEADLINE FOR YAHOO

Microsoft has set an April 26th deadline for Yahoo to approve Microsoft's takeover offer, now valued at $41 billion. If Yahoo does not accept the offer by the deadline, Microsoft has confirmed that it will pursue a hostile takeover at a lower price. Yahoo CEO Jerry Yang maintains that the $41 billion offer is simply too low.

From USA Today:

Yahoo (YHOO), facing a late April deadline from Microsoft (MSFT) to accept its $41 billion buyout offer, on Monday said that it does not oppose a deal with the world's largest software maker but wants a sweetened bid.

"We are not opposed to a transaction with Microsoft if it is in the best interests of our stockholders," CEO Jerry Yang and Chairman Roy Bostock wrote in a letter to Microsoft CEO Steve Ballmer. "Our position is simply that any transaction must be at a value that fully reflects the value of Yahoo, including any strategic benefits to Microsoft, and on terms that provide certainty to our stockholders."

In a letter to Yahoo on Saturday, Ballmer questioned why Yahoo continues to resist Microsoft's overtures absent a deal with another corporate suitor.

"Our proposal is the only alternative put forward that offers your shareholders full and fair value for their shares," Ballmer wrote. He argued that Microsoft's bid has grown stronger as the economy has weakened and that Yahoo shareholders support the takeover bid.

ASIAN INFLATION IMPACTS U.S.

With so many cheap goods imported from China, Vietnam, South Korea, and Japan, as inflation increases in those countries, shoppers at places like Wal-Mart in the United States are going to pay higher prices, putting pressure on U.S. consumers and increasing U.S. inflationary pressures.

From The New York Times:

The free ride for American consumers is ending. For two generations, Americans have imported goods produced ever more cheaply from a succession of low-wage countries — first Japan and Korea, then China, and now increasingly places like Vietnam and India.

But mounting inflation in the developing world, especially Asia, is threatening that arrangement, and not just in China, where rising energy and labor costs have already made exports to the United States more expensive, but in the lower-cost alternatives to China, too.

“Inflation is the major threat to Asian countries,” said Jong-Wha Lee, the head of the Asian Development Bank’s office of regional economic integration.

It is also a threat to Western consumers because Asian exporters, even in very poor countries, are passing their rising costs on to customers.

IRANIAN PRESIDENT AHMADINEJAD URGES OPEC TO QUIT PRICING OIL IN U.S. DOLLARS

Currently, oil sold by OPEC nations and traded globally is priced in U.S. dollars. President Ahmadinejad (along with Venezuela's Hugo Chavez) has urged OPEC to quit pricing oil in dollars. If another currency was used instead of the dollar, demand for dollars would decline, leading to further weakening of the already very weak U.S. dollar.

From AP via MSNBC:

According to the Iranian government's Web site, Ahmadinejad told OPEC Secretary General Abdalla Salem el-Badri the cartel "should establish a joint bank as well as having joint currency."

Oil is priced in U.S. dollars on the world market, and the currency's depreciation has concerned producers because it has contributed to rising crude prices and eroded the value of their dollar reserves.

Iran has repeatedly urged OPEC members to shift sales away from dollar. But Iran's proposal to trade oil in a basket of currencies is not supported by enough OPEC members, which include staunch U.S. allies such as leading producer Saudi Arabia.

UNEMPLOYMENT RATE FOR MARCH HITS 5.1%

Employers cut 80,000 jobs in March and the unemployment rate climbed to 5.1%, the highest rate since the aftermath of Hurricane Katrina was felt in September 2005. This is the third consecutive month of job losses (the fourth if you only include private non-governmental jobs). So far this year 232,000 jobs have been lost.

From The New York Times:

The nation’s employers eliminated tens of thousands of jobs for the third month in a row, the government reported Friday, and top Democrats immediately called for new measures to help suffering American workers.

After the early-morning report from the Bureau of Labor Statistics that 80,000 jobs had disappeared in March, the speaker of the House, Nancy Pelosi, said she would propose a second economic stimulus package. Hers would supplement the $150 billion measure that includes the mailing of tax rebates to millions of Americans beginning next month.

FOREIGN MARKETS SHOW THAT WHAT GOES UP IS SURE TO COME DOWN

Stock bubbles bursting are old news in the United States as most U.S. investors experienced the painful technology bubble burst several years ago. Now, some foreign markets that had experienced gains of up to 500% in two years have started to burst, as well, yet many investors in those countries were unprepared for the severe downturn.

From The New York Times:

A year ago, investors like Guan Ling were ebullient. Chinese share prices had climbed over 500 percent in the span of two years, setting off a nationwide stock buying frenzy.

That was last year. The Shanghai composite index has plunged 45 percent from its high, reached last October. The first quarter of this year, which ended Monday with a huge sell-off, was the worst ever for the market.

Other parts of Asia are as bad, or worse. In India, stock prices have plunged 31 percent in Mumbai; they are off 31 percent in Japan and a whopping 53 percent in Vietnam, another booming economy. Angry investors have burned a securities regulator in effigy in Mumbai, and some are in tears in Ho Chi Minh City, Vietnam.

“I’m getting out of the game,” said Yuan Yuan, 23, a researcher at a fund company in Shenzhen who also invests on his own. “The game is over. Big institutions pulled out first, only leaving the small investors.”

In China, the government fears that angry investors can be a social problem. And so while the state-run media report on the ups and downs of the market, and even warn investors of the risks and pitfalls of investing, the press does not usually report on investors’ anger.

“Actually there are a lot of complaints, but the Chinese media can’t report this,” says Mr. Guan, the former real estate company owner.

Now, in the brokerage house corridors — corridors of pain — one can hear complaints about all the market flaws: the government doesn’t regulate the stock market and it participates in it by allowing mostly big state-owned companies to go public.

There are also complaints about insider trading, stock manipulation, and big investors with government connections, pumping and dumping stocks on small investors.

BERNANKE TAKES GRIM VIEW ON ECONOMIC GROWTH POSSIBILITIES

In testimony this morning before a Congressional committee, Federal Reserve chairman Ben Bernanke stated that economic growth was likely to be minimal and that contraction of the economy was possible in the first half of the year. Mr. Bernanke's comments now seem to be in line with those of most reputable economists, who for some time have been stating that it is not only possible, but likely that the United States GDP would contract in the first half of the year. If this does happen, it would become an official recession.

From The New York Times:

Over all, Mr. Bernanke said, “It now appears likely that real gross domestic product will not grow much, if at all, over the first half of 2008 and could even contract slightly.”

While he said growth would likely recover in the second half of the year, and return to a “sustainable pace” in 2009, he warned that the current turbulence made the economic outlook difficult to predict.

“The uncertainty attending this forecast is quite high and the risks remain to the downside,” he said.

FEBRUARY IS ANOTHER BAD MONTH FOR CONSUMER SPENDING

The Commerce Department reported this morning that consumer spending, which accounts for two-thirds of total economic activity, was up 0.1% in February. When adjusted for inflation, consumer spending was flat. This would seem to lend more credibility to the claim that the United States is entering into a recession, as many economists have been saying recently.

U.S. DOLLAR AT $1.5779 PER EURO, EXPECTED TO WEAKEN FURTHER

The U.S. dollar traded at $1.5779 in late trading today and some are expecting it to fall past $1.60 if the Federal Reserve lowers interest rates at the April 30th meeting. The Fed is widely expected to lower rates at least a quarter of a point and perhaps a half point or more at that meeting, or perhaps even before, in an effort to use monetary policy to stimulate the economy. So far this year, the dollar has fallen by 7.5% against the euro.

FEBRUARY CONSUMER INFLATION IS FLAT

The Consumer Price Index came in flat this morning, showing no change in consumer prices from January through February. According to The New York Times, economists had expected an increase of 0.3%.

Core inflation, which excludes food and energy, also came in unchanged.

From AP via The New York Times:

Consumer inflation, which had been pushing relentlessly higher, posted its mildest reading in six months in February as the costs of energy and food moderated. The relief was expected to be short-lived, given that energy prices have resumed their upward climb.

The better-than-expected February inflation reading will likely be reversed in coming months, considering the big surge in energy prices in recent weeks. Crude oil hit a record high this week above $110 per barrel and gasoline pump prices jumped to a national record of $3.267.

U.S. DOLLAR HITS NEW LOW VERSUS EURO

The dollar weakened further Thursday, hitting a new low of $1.5644 to the euro. In addition, Venezuela appears to be experimenting with requiring that payments for oil be made in euros instead of dollars. If this were to catch on and spread to other OPEC nations, demand for the dollar would plummet, causing accelerated weakening of the dollar and further strengthening the euro.

From Reuters:

The dollar extended losses late on Thursday, hitting fresh record lows against the euro, in selling driven by technical factors.

The euro rose to $1.5644 against the dollar for the first time since it was launched, according to Reuters data. It last traded at $1.5627.

Late on Thursday, Reuters reported that Venezuelan state oil company PDVSA is requiring payment in euros in a recently opened fuel export contract, citing a trader who has purchased a cargo under the contract.

CARLYLE CAPITAL FUND COLLAPSES UNDER STRAINS OF LEVERAGE

It can be difficult to make sense of the collapse of a private equity fund, but when you look behind the curtains and see that there really was never much to see in terms of equity, it can cause one to question the sanity of the financial markets. For example, for every $1 of equity Carlyle Capital had, it borrowed $31 additional to invest. That meant if the investments were good, everyone was happy - loans were repaid, investors made money, and company executives made fat bonuses; however, when markets and investments soured, the fund was destined to collapse. Perhaps it is time to step in and begin some serious regulation of these private investment vehicles as it isn't only the investors in those funds that get burned when they go bad. Instead, a ripple effect is felt throughout the global financial markets and everyone shares a small piece of the loss. Sadly, this is likely one of many failures to come.

For more on Carlyle Capital's implosion, read this article at The New York Times.

NEW $5 BILL MAKES DEBUT

The redesigned $5 bill will begin circulating today. The bill is designed to foil counterfeiters who have taken to bleaching the $5 bill to remove the ink and then printing a $100 bill on top of it. One prominent feature of the new $5 bill is the use of purple ink. For more info on the redesigned bill visit the Department of the Treasury's page that lists all of the security features.

DOLLAR HITS NEW 12-YEAR LOW VERSUS YEN

The U.S. dollar hit a 12-year low versus the Japanese Yen in trading today, dropping to 99.8 yen and settling in around 100. In the past 24 hours the dollar has weakened 1.6% against the Japanese yen, which will make Japanese-manufactured goods more expensive in the U.S. when paid for with U.S. dollars. In turn, American-made goods will be less expensive to Japanese consumers who will pay in yen.

From The New York Times:

We are entering dollar crisis mode," said Derek Halpenny, currency economist at BTM-UFJ in London.

"Looking at the markets there is a complete loss of confidence and that's because the markets are concerned over the U.S. financial sector and ultimately what the (Federal Reserve) will be forced to do to support that sector," he said.

JANUARY TRADE DEFICIT IS $58.2 BILLION

Imports and exports hit all-time highs in January as imports came in at $206.4 billion with exports totaling $148.2 billion. With the price of oil at $107.52 this morning and consistently closing over $100 per barrel, expect March to set a new record for imports.

From The New York Times:

The United States' trade deficit grew larger in January as imports -- including crude-oil prices -- zoomed to all-time highs.

The latest snapshot of trade activity, reported by the Commerce Department on Tuesday, showed that the country's trade gap increased to $58.2 billion. That was up from a trade shortfall of $57.9 billion in December and was the highest since November.

Imports of goods and services climbed to a record high of $206.4 billion in January. The United States' voracious appetite for imported crude oil, where prices skyrocketed to the loftiest on record, figured into the increasing demand for overall imports.

The trade gap widened even as exports of U.S.-made goods and services totaled a record high of $148.2 billion in January. The declining value of the U.S. dollar, relative to other currencies such as the euro, is helping to make U.S.-made goods cheaper and thus more attractive to foreign buyers.

63,000 JOBS LOST IN FEBRUARY

The February jobs report showed that 63,000 jobs were cut in February, yet the unemployment report showed that the unemployment report improved from 4.9% to 4.8%. How? Because the unemployment report does not count anyone who quits looking for work and a good many people who are unemployed have quit looking in this difficult job market.

From USA Today:

Employers cut jobs for a second month in February while the unemployment rate fell as more people quit looking for work in the weakening job market, the government said Friday in a report that led to further calls of a 2008 recession.

From The New York Times:

The worst fears of consumers, investors and Washington officials were confirmed on Friday, as deepening paralysis on Wall Street collided with stark new evidence of falling employment and a likely recession.

In a report that was far worse than most analysts had expected, the Labor Department estimated that the nation lost 63,000 jobs in February. It was the second consecutive monthly decline, and the third straight drop for private-sector jobs.

Though monthly payroll data are notoriously volatile and subject to revision, the jobs report was so bleak that many of the few remaining optimists on Wall Street threw in the towel and conceded that the United States was already in a recession.

BUFFETT WORLD'S RICHEST PERSON

Warren Buffett passed this good friend Bill Gates and Mexican telecom monopolist Carlos Slim Helu to become the world's richest person with $62 billion in wealth.

From Forbes:

The number 13 has long been considered unlucky by superstitious people around the globe. How fitting, then, that Bill Gates' reign as the world's richest person ends after his 13th year at the top.

Despite being worth $58 billion, $2 billion more than last year, Gates is now just the world's third-richest person, ceding the top spot ranking to his good friend and partner in philanthropy, Warren Buffett, whose net worth jumped $10 billion to $62 billion. (All stock prices and net worth valuations were locked in on Feb. 11.) Ranked No. 2 is Mexican telecom tycoon Carlos Slim Helú, whose fortune has doubled in just two years to $60 billion.

PRESIDENT BUSH AND OPEC TRADE BARBS AS OPEC MAKES NO CHANGE IN OUTPUT

Yesterday President Bush criticized OPEC by saying "Understand the consequences of high energy prices. I think it's a mistake to have your biggest customers' economies slowing down as a result of higher energy prices." His statement was likely more than a criticism, it was intended to encourage OPEC to commit to increasing production at its meeting today. It did not work, as OPEC voted to keep output at current levels.

After the OPEC meeting today, OPEC President Chakib Khelil said, "If the prices are high, definitely they are not due to a lack of crude. They are due to what's happening in the U.S. There is sufficient supply. There's plenty of oil there." He went on to say that the global oil market is being impacted by "the mismanagement of the U.S. economy." His mismanagement comment seems to be a reference to the policies that are causing the U.S. dollar to weaken to what some are finding to be uncomfortable levels.

As of 10:15 a.m. Central, light sweet crude it trading at $102.66 on the NYMEX, up $3.14.

From AP via Yahoo:

Khelil said crude stocks were well within their five-year average and the 13-nation group was not inclined to either boost or reduce its current output of about 32 million barrels a day. OPEC satisfies roughly 40 percent of the world's demand for crude.

"In truth, OPEC's decision not to pump more oil is a reflection that supply is relatively good," said Anthony Sabino, a professor of business at St. John's University in New York.

"What is driving oil prices up to the stratospheric level of over $100 per barrel is the U.S. economy, now undeniably in recession," he said. "It's not so much the price of oil is going up -- it's that the value of the U.S. dollar, sad to say, is slumping."

Oil shot up a dramatic 19 percent last month as the falling dollar prompted speculators and other investors to shift cash to crude and other commodities as a hedge.

Key cartel members said this week that prices in the $85 to $90 per barrel range would be optimal.

The 13 OPEC members are Algeria, Angola, Ecuador, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela.

SERVICE SECTOR PERFORMS BETTER THAN EXPECTED IN FEBRUARY

The Institute for Supply Management (ISM) reported this morning that the index of non-manufacturing activity came in at 49.3, up from January's 44.6. The 49.3 reading is still slightly negative in that a reading below 50 points toward contraction, but it is very close to 50 and well above what analysts expected. Analysts surveyed by Dow Jones had predicted 46.5, while analysts polled by Reuters had expected 47.5. The relatively positive news started an early rally on Wall Street with the Dow Jones Industrial Average (DJIA) up 0.61%, the Nasdaq up 0.89%, and the S&P 500 up 0.74% at 10:07 a.m. Central.

YAHOO MAY DELAY ANNUAL MEETING IN AN EFFORT TO THWART MICROSOFT TAKEOVER

The New York Times is reporting that Yahoo is considering several options in an effort to avoid being taken over by Microsoft, including delaying their annual shareholder meeting. The twists and turns of this deal get more interesting by the day.

From The New York Times:

Yahoo is considering several options, including a plan to postpone its annual meeting, people close to the company said on Tuesday.

Microsoft had been preparing to nominate a slate of directors to the board of Yahoo by next Thursday, the deadline for mounting a proxy contest. On Wednesday, Yahoo said it was extending the deadline for nominating directors until 10 days after the announcement of a date for its annual meeting — but gave no indication when that announcement might come.

Under the laws of Delaware, where Yahoo is incorporated, a public company cannot go more than 13 months without holding an annual meeting. Yahoo held its annual meeting last year on June 12.

The delay could leave room for Microsoft to reach a negotiated, friendly deal with Yahoo, which would be made much more difficult if Microsoft decided it needed to pursue the proxy contest. On the other hand, Yahoo’s continued maneuvering might just harden Microsoft’s resolve.

Yahoo’s investors could take the view that by postponing the meeting the company is disenfranchising its shareholders. The move could lead to lawsuits from Microsoft or from Yahoo shareholders.

HOW BAD ARE THINGS AT CITI?

Citigroup lost $9.83 billion in Q4, in part due to $18 billion in writedowns. Now, after raising over $14.5 billion in new funding from Saudi Prince Alaweed, the Kuwait Investment Authority, and the Abu Dhabi Investment Authority, it seems Citi needs more capital or it is in big trouble.

From MarketWatch:

Sameer Al Ansari, Chief Executive of Dubai International Capital told delegates at a private equity conference that it will take more than the combined efforts of the Abu Dhabi Investment Authority, the Kuwait Investment Authority and Saudi investor Prince Alwaleed bin Talal to save the bank.

"It's going to take more than that to rescue Citi," Ansari said. He added that more write downs are expected and that Gulf investors would be required to bolster Citi.

Al Ansari said "it would take a lot more money to rescue Citigroup." A spokesperson for Citi was unable to comment immediately when called Tuesday.

BERNANKE ASKS BANKS TO FORGIVE PORTION OF MORTGAGES

From Bloomberg:

Federal Reserve Chairman Ben S. Bernanke, battling the worst housing recession in a quarter century, urged lenders to forgive portions of mortgages for more borrowers whose home values have declined.

``Efforts by both government and private-sector entities to reduce unnecessary foreclosures are helping, but more can, and should, be done,'' Bernanke said in a speech in Orlando, Florida today. ``Principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure.''

WARREN BUFFETT SAYS U.S. IS IN A RECESSION

Although the technical definition of a recession is two consecutive quarters of negative growth in GDP, so it is not yet possible to officially declare that we are in a recession, billionaire businessman Warren Buffett told CNBC that the United States is in a recession "by any common-sense definition."

From USA Today:

Billionaire Warren Buffett says the U.S. economy is essentially in a recession, even if it hasn't met the technical definition yet.

Buffett said Monday on CNBC-TV that reports he gets from the retail businesses owned by his holding company, Berkshire Hathaway, show a significant slowdown in purchases.

ISM REPORT SHOWS DECLINE

The Institute for Supply Management (ISM) issued its February report that showed that the index of national factory activity declined from 50.7 in January to 48.3 in February. A reading below 50 indicates contraction and is a negative sign.

OIL SETS NEW RECORD HIGH

Oil is trading at over $103 per barrel this morning and has risen as high as $103.95.

From The New York Times:

Oil prices surged to a new record high Monday as the dollar weakened to another low against the euro.

Light, sweet crude for April delivery rose $1.93 to $103.77 on the New York Mercantile Exchange after earlier rising as high as $103.95. That's higher than the price of $103.76 that many analysts believe oil hit in 1980, when adjusted for inflation into 2008 dollars.

Oil's most recent run into record territory has been driven by the greenback's slump against other world currencies. Crude futures offer a hedge against a falling dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the dollar is falling.

U.S.-BRAND AUTOS NOT AS RELIABLE AS JAPANESE VEHICLES

Only six of the top 33 most-reliable automobiles were American-brand vehicles, while 23 were Japanese. Does this mean that American workers are not focused on quality, or since many Japanese-brand autos are made in the U.S., could it be that design flaws are the culprit? Check out this NBC News report to learn more.

MORE GLOOMY ECONOMIC REPORTS ISSUED FRIDAY

Consumer spending after adjusting for inflation was flat in January for the second consecutive month. And, the Reuters/University of Michigan consumer sentiment numbers were the worst since 1992.

From USA Today:

The Commerce Department said consumer spending posted a 0.4% rise in January. However, all that gain came from a surge in inflation. Taking away the effect of higher rices, spending showed no gain in January or December.

Consumer sentiment dropped to a 16-year low in February on worries about declining incomes and rising unemployment, the Reuters/University of Michigan Surveys of Consumers showed.

Adding to the grim view, consumer expectations for the future also hit a 16-year low, while worries about their ability to makes ends meet and the overall economy were as bad as they have been in decades, the survey said.

SMALL AND MIDSIZE BANKS STRUGGLE DUE TO REAL ESTATE DOWNTURN

How many banks of failed in the past four years in the United States? Four. How many are analysts saying might fail soon? Up to 50 according to this New York Times article.

Fortunately, we handle bank failures very well in the United States. How do I know? My bank was one of the four that failed and it was closed for one weekend, during which time I had access to all of my money because ATM and debit card transactions were not shut off. The bank closed on Friday evening and on Monday morning another bank had taken over, after the Office of Thrift Supervision intervened.

EUROPEAN UNION REGULATORS FINE MICROSOFT $1.3 BILLION

The European Commission fined Microsoft $1.3 billion for failing to comply with a 2004 judgment that found the software giant guilty of abusing its market dominance. This fine brings the total Microsoft has paid due to European Commission rulings to $2.5 billion.

From The New York Times:

Microsoft had earlier been fined after the commission determined in 2004 that the company had abused the dominance of its Windows operating system to gain unfair market advantage. The commission imposed the new fine Wednesday, it said, because the company had not met the prescribed remedies after the earlier judgment.

“Microsoft was the first company in 50 years of E.U. competition policy that the commission has had to fine for failure to comply with an antitrust decision,” the European competition commissioner, Neelie Kroes, said in a statement.

Microsoft said it was “reviewing the commission’s action.”

The company, the world’s biggest maker of software, said in a statement that the commission had announced in October 2007 “that Microsoft was in full compliance with the 2004 decision, so these fines are about past issues that have been resolved.”

WRIGLEY FIELD NAMING RIGHTS MIGHT BE SOLD

Chicago billionaire Sam Zell said in an interview on CNBC that he will not hesitate to sell the naming rights for Wrigley Field, home of the Chicago Cubs.

From AP via The Chicago Tribune:

Zell said he plans to sell the Cubs and Wrigley separately and in his own time frame. He also disclosed that Major League Baseball has approved "four or six" potential ownership groups and that any one of them would be fine.

The sale of the team has been delayed by Zell's plan to sell the team and the stadium separately, and to have a state agency acquire and renovate Wrigley

PRODUCER PRICES UP 1% IN JANUARY

The Producer Price Index (PPI) was up a whopping 1.0% in January due to rising energy, food, and medicine prices. The gain was more than double what economists had been expecting.

From USA Today:

Producer prices were up 7.4% from January of last year, the steepest climb since October 1981, the Labor Department said.

The worse-than-expected performance is certain to capture attention at the Federal Reserve. Fed officials have chosen to combat a threatened recession by aggressively cutting interest rates, believing that they have room to do so because weak economic growth will keep a lid on prices.

WHERE DOES YOUR CANDIDATE STAND ON ECONOMIC ISSUES?

Do you know where the presidential candidate you support stands regarding the mortgage mess, taxes, and jobs?

Which candidate has proposed a 5-year freeze on the adjustment of rates for adjustable rate mortgages?

Which candidate has proposed spending $10 billion to help those who are about to lose their homes to foreclosure?

Which candidate would abolish the IRS, eliminate incomes taxes, and establish a 23% national sales tax?

Which candidate would renew the Bush tax cuts and further cut taxes for corporations?

Which candidates would raise income taxes on individuals making $250,000+?

Find the answers to these questions and more by viewing this NBC News video.

HIGHER FOOD PRICES HURT CONSUMERS

Retail food prices increased 4% in 2007, the largest increase in 17 years. This NBC News video examines the issue.

SOCIALISM/COMMUNISM IN CUBA: A CLOSER LOOK

Will things change in Cuba now that Fidel Castro has resigned and his brother Raul has taken over? This NBC News report shows that many Cubans are fed up with a poor economy and limited freedoms and are willing to voice their displeasure openly, something they would have been very hesitant to do in the past.

HOME PRICES DROP FOR 5TH STRAIGHT MONTH

More negative news from the housing market came out today in the home sales and prices report issued by the National Association of Realtors this morning.

From Reuters via USA Today:

The pace of existing home sales fell in January to a 4.89 million unit annual rate, lowest level in nearly a decade, while prices slid and inventories swelled, the National Association of Realtors said Monday.

The median price of a single-family home — half sold for more, half for less — slid below $200,000 to $198,700 the report says.

The inventory of homes for sale rose 5.5% to 4.19 million units at the end of January, which represents about 10.3 months' supply at the current sales pace. The national median home price fell 4.6% from a year ago to $201,100.

The drop in sales and the fifth straight decline in prices underscored the continued pressure facing housing, which is struggling to emerge from its worst slump in a quarter-century.

VISA IPO COULD RAISE $18.8 BILLION

Visa is going public in an initial public offering that could raise nearly $19 billion, which would break the record of $10.6 billion by AT&T Wireless Group set in 2000.

From The New York Times:

The company filed with the U.S. Securities and Exchange Commission to sell 406 million Class A shares at $37 to $42 each, resulting in $15 billion to $17.1 billion of proceeds. Visa said it might sell another 40.6 million shares to meet demand, boosting the IPO's potential size to $18.8 billion.

A successful IPO would surpass the $10.6 billion offering in 2000 by AT&T Wireless Group. San Francisco-based Visa plans to list on the New York Stock Exchange under the symbol "V."

Visa is controlled by about 13,300 member banks and finance companies. Many of these are struggling with mounting credit losses, and some with capital shortfalls.

"There could be added volatility (in Visa shares) if some of the member banks begin to sell their holdings, perhaps to shore up capital," Fifth Third's Augustine said.

SOCIAL ENTREPRENEURSHIP = DOING WELL AND DOING GOOD

Milton Friedman, Nobel Laureate in Economics, once said, "the business of business is business." This famous quote gets to the heart of his argument that businesses exist to maximize the wealth of their owners and for no other reason.

Today, there is a growing group of entrepreneurs who disagree with Friedman's ideas regarding the role and purpose of a business. Corporate Social Responsibility (CSR) has entered the lexicon, as has social entrepreneurship. Both focus on a business doing well for owners, but also doing good for society.

If you are interested in social entrepreneurship, starting and running a business for personal gain and profit while also having the business play a role in the betterment of society, you should spend a few minutes reading this article:

A Capitalist Jolt for Charity by Steve Lohr in The New York Times

Mr. Lohr takes a closer look at ePals, a for-profit business that seeks not only profit, but to also play a role in improving education around the globe.

PENSION FUNDS SUE YAHOO FOR TURNING DOWN MICROSOFT OFFER

Two pension funds have sued Yahoo and its Board of Directors claiming that they neglected their financial duty to shareholders in an attempt to avoid being taken over by Microsoft.

From USA Today:

The lawsuit was filed in Delaware Chancery Court on Thursday by lawyers representing Detroit's police and fire retirement system and general retirement system, as well as "all other similarly situated public shareholders."

According to the lawsuit, Yahoo's board is pursuing "value-destructive" third-party deals in an effort to fight off Redmond, Wash.-based Microsoft, which on Feb. 1 announced a takeover bid of $31 per share in cash and stock, a 62% premium over Yahoo's previous day's closing price.

"Yahoo's directors cannot 'just say no' indefinitely to legitimate acquisition offers," the lawsuit reads. "Likewise, Yahoo's directors cannot pursue transactions that do not require shareholder approval for the primary purpose of making Yahoo unattractive to Microsoft."

WHERE WILL GAS PRICES GO?

There is quite a bit of debate over the direction of gas prices as we prepare to enter the high-demand spring season. Some analysts believe gas prices may go over $4.00 per gallon, but others cite huge inventories as a reason for their belief that gas prices will fall more in line with the Energy Department's prediction of $3.40.

From AP via BusinessWeek:

Gas prices jumped Friday to their highest level since June, a possible preview of what many analysts believe will be a record spike in pump prices this spring.

But the current price surge could be short-lived. While gasoline has risen sharply in recent days in response to oil's dramatic climb to a new record above $101 a barrel, gas supplies have quietly grown to their highest level in 14 years.

Many analysts believe gas prices will rise this spring to new records near $3.75 or $4 a gallon. But not everyone agrees.

[President of energy consultancy Ritterbusch and Associates, Jim] Ritterbusch, for example, thinks the high level of supplies, and an eventual decline in oil prices, will pull pump prices down. He doubts prices will rise as high as $3.75 without a major overseas supply disruption or domestic refinery outage.

AVERAGE WORKER WORSE OFF IN REAL TERMS

After adjusting average worker earnings in the past 12 months for inflation, which is a term called "real earnings", workers actually lost 1.2% compared to the previous year. How is this possible? According to the Bureau of Labor Statistics (BLS), earnings increased 3.2% from February 1, 2007 through the end of January of 2008, while inflation increased at a rate of 4.3%, leaving workers with less buying power even though they earned more money.

From USA Today:

Inflation-adjusted earnings for average workers have fallen 1.2% over the last year, the Bureau of Labor Statistics said Wednesday, as higher food and fuel costs have eroded purchasing power.

Earnings adjusted for inflation — also known as real earnings — have fallen for eight of the last 13 months and were down 0.5% in January compared with December, according to the labor statistics agency.

Average weekly earnings were $592.74 in January, or roughly $30,800 a year. While that's about $1,000 a year more than workers averaged in January 2007, inflation has increased at a rate of 4.3% for the same period, outpacing the 3.2% earnings gain.

JOBLESS CLAIMS 4-WEEK AVERAGE WORST SINCE HURRICANE KATRINA

While many "news" organizations will no doubt be blasting the headline "JOBLESS CLAIMS FALL", responsible ones will be leading with "4-WEEK JOBLESS CLAIMS AVERAGE WORST SINCE HURRICANE KATRINA SPIKE".

From USA Today:

The Labor Department reported Thursday that the number of new jobless claims dropped by 9,000 last week to a total of 349,000, but analysts noted that claims offices in California were open for only four days last week because of a state holiday.

The four-week average for claims, which gives a better picture of labor market trends, rose to 360,500. That was the highest level since claims spiked in October 2005 in the aftermath of Hurricane Katrina.

Analysts said the rise in the four-week average was depicting a labor market that is coming under increasing strains because of the slowing economy.

The economy shed 17,000 jobs in January, the first monthly job loss in more than four years. Analysts believe that the unemployment rate, which currently stands at 4.9%, will rise to 6% before the current slowdown has run its course.

STAGFLATION MAY BE BACK

We are all aware of the definitions of inflation and deflation, price increases and decreases over time; however, there is another 'flation, stagflation, which many college students today are not familiar with, but those who lived through the 1970s wish they could forget. Stagflation is made up of two words, stagnation and inflation. The stagnation refers to a stagnating economy, in other words one in which there is slow or no growth. That is combined with inflation to form stagflation, a period of slow or no growth and rising prices, an unpleasant combination that the United States has been happy to avoid for decades, but one that may be happening again right now.

From The New York Times:

Lately, many people are hearing an echo — faintly perhaps but distinctly audible — of the stagflation of the 1970s.

Even as economic growth sags, oil and gasoline prices are surging to new heights. Gold is on the rise, along with the prices of such basic commodities as wheat and steel. And on Wednesday, with the latest government report on consumer prices, there are signs that overall inflation, after years of only modest increases, may be breaking out of its box.

“They are cutting rates with a bill to be paid later," said John Ryding, chief United States economist at Bear Stearns. “The question is not, will we get inflation, but how much will it cost to stuff the genie back in the bottle. This has the feel of 1970s stagflation.”

Over the last 12 months, consumer prices are up 4.3 percent on average, according to the Labor Department. The core index of consumer price inflation, which excludes food and oil, was 2.5 percent higher in January than a year earlier, significantly above the Fed’s unofficial comfort zone of a 1 to 2 percent underlying inflation rate. That’s a far cry from the double-digit inflation rates that battered the economy at times in the 1970s, but still worrisome.

CONSUMER PRICE INDEX UP 0.4% IN JANUARY

Consumer prices rose more than expected in January led by sharp increases in food, gasoline, and transportation. This data shows that inflationary pressures are gaining, causing many to predict that the Federal Reserve will be forced to keep key interest rates at current levels or potentially raise them, thus fighting inflation, but potentially causing the economy to stall or worse during what many already see as a weak economy.

From The New York Times:

The Consumer Price Index rose 0.4 percent in January, a bigger gain than economists had predicted. Over the last 12 months, the index has surged by 4.3 percent, one of the highest year-over-year rates in decades, the Labor Department said.

The rise was led by increases in the costs of food, gasoline, shelter, and transportation. The so-called core inflation rate, which excludes food and gasoline prices, ticked up 0.3 percent last month.

The core rate is 2.5 percent above its level in January 2007, above the Fed’s recognized comfort zone ceiling of 2 percent.

SHARPER IMAGE FILES FOR CHAPTER 11 BANKRUPTCY PROTECTION

Sharper Image filed for chapter 11 bankruptcy protection late Tuesday. The filing is an effort by the company to continue operations while renegotiating with creditors and likely restructuring the company to emerge as a healthy business. The filing indicates that the company has $251.5 million in assets, $199 million in debts, and $700,000 cash on hand.

From USA Today:

Sharper Image is in a severe liquidity crisis," Chief Financial Officer Rebecca Roedell said in a separate filing.

She said the company has suffered from increased competition, narrowing margins, litigation, lower consumer and market confidence, tighter credit from suppliers, and poorly performing stores. "The foregoing has been compounded by the ever-tightening and volatile credit and financing markets," she added.

Sharper Image has seen its sales decline steadily since 2004, and it has posted net losses in fiscal 2005, 2006, and 2007.

MICROSOFT EXPECTED TO WAGE PROXY FIGHT TO GAIN CONTROL OF YAHOO

Reports are surfacing that indicate that Microsoft will wage a proxy fight to gain control of Yahoo after its $31-per-share offer, valuing the company at the time at nearly $45 billion (now roughly $41 billion due to a decrease in Microsoft's stock price), was turned down.

What is a proxy fight? It is an effort to gain control of the Board of Directors to force change. In this case, Microsoft will urge shareholders to vote to elect new directors who are Microsoft-friendly, replacing the directors who voted down Microsoft's offer. If Microsoft is successful at ousting the current board and replacing them with one that favors Micrsoft, the $31-per-share offer, or one that is slightly higher, would almost certainly be accepted.

Most proxy fights are unsuccessful, but this one has a decent chance since all of Yahoo's directors are up for reelection at the same time, as opposed to having a staggered election in which only one or two board members can be replaced in a given year.

From The New York Times:

In an escalation of its fight for Yahoo, Microsoft will authorize a proxy fight at the Internet company this week, people briefed on the matter told DealBook.

The move, expected to cost about $20 million to $30 million, was Microsoft’s alternative to raising its $44.6 billion bid and is seen as a less expensive way to put pressure on Yahoo’s board. Yahoo rejected Microsoft’s original offer as undervalued.

Yahoo’s board is vulnerable in a proxy fight. Yahoo does not have a staggered board, so all of its directors are up for nomination this year. And, per its bylaws, in a contested election, directors are elected by a plurality of votes cast.

INFLATION HEATS UP IN CHINA

Consumer inflation in China was reported at 7.1% today, while producer inflation was reported to be at 6.1% on Monday in a separate report. Both measures are annual inflation rates that compare prices in January of 2007 to January of 2006. Some economists believe these figures actually underreport true inflation in China due to the price controls that have been put on some products by the government.

For comparison, the United States consumer inflation rate reported through the Consumer Price Index (CPI) was 4.1% in 2007 versus 2.5% in 2006, while the Producer Price Index (PPI) was 6.3% in 2007 versus 1.1% in 2006.

From The New York Times:

Yu Yongding, the influential director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences and until 2006 a member of the monetary policy committee of China’s central bank, said that high inflation in January meant that the Chinese government was likely to continue pursuing austerity policies.

To fight inflation, China is likely to allow its currency to “appreciate continuously” so as to hold down the cost of imports, despite signs that economic slowdowns in the United States and elsewhere may cool demand for Chinese exports, Mr. Yu said.

“Inflation is the No. 1 enemy for China,” he said in a telephone interview. “It’s affordable for us to sacrifice a little on the growth side to bring inflation under control.”

Chinese exporters are trying to pass on their rising costs to overseas customers, which could contribute to inflation in the United States and Europe.

BRITISH GOVERNMENT TAKES CONTROL OF TROUBLED BANK

The British government announced today that it is taking control of Northern Rock, the ailing mortgage lender it propped up with $107 billion in loans and guarantees last year.

From The New York Times:

The government rejected two takeover proposals for the lender, which ran into trouble last year because of a money shortage that followed a subprime mortgage crisis in the United States. The government was forced to shore up the company with about £55 billion, or $107 billion, in loans and guarantees.

“The government has completed its review of the two detailed proposals received,” Alistair M. Darling, chancellor of the Exchequer, said at a news conference in London on Sunday. “But in current market conditions, we do not believe that they deliver sufficient value for money for the taxpayer. The government has therefore decided to bring forward legislation to take Northern Rock into a period of temporary public ownership.”

The Virgin Group under Richard Branson and the current management of Northern Rock had both submitted takeover proposals to the government’s adviser, Goldman Sachs, before a deadline earlier this year. Both suggested repaying the loans partly by issuing new shares. Mr. Darling said on Sunday that neither proposal had met all of the government’s objectives of securing financial stability, depositors’ money and taxpayers’ funds.

Under the government ownership plan, the taxpayers’ outstanding loans to Northern Rock will be repaid in full with interest, Mr. Darling said. The private sector alternatives did not meet this test, he said.

USDA RECALLS 143 MILLION POUNDS OF BEEF

In the largest beef recall in Unites States history, the Department of Agriculture is recalling 143 million pounds of beef processed at Westland/Hallmark Meat Co., a California slaughterhouse.

From USA Today:

Officials said it was the largest beef recall in the United States, surpassing a 1999 ban of 35 million pounds of ready-to-eat meats.

The federal agency said the recall will affect beef products dating to Feb. 1, 2006, that came from Chino-based Westland/Hallmark Meat Co., which supplies meat to the federal school lunch program and to some major fast-food chains.

Secretary of Agriculture Ed Schafer said his department has evidence that Westland did not routinely contact its veterinarian when cattle became non-ambulatory after passing inspection, violating health regulations.

"Because the cattle did not receive complete and proper inspection, the Food Safety and Inspection Service has determined them to be unfit for human food and the company is conducting a recall," Schafer said in a statement.

Federal officials suspended operations at Westland/Hallmark after an undercover video surfaced showing crippled and sick animals being shoved with forklifts.

Two former employees were charged Friday with animal cruelty. No charges have been filed against Westland, but an investigation by federal authorities continues.

TRADE DEFICIT FALLS IN 2007

After five consecutive years of record trade deficits, the deficit shrank 6% in 2007.

From the Commerce Department's Press Release at the Bureau of Economic Analysis:

For 2007, exports of $1,621.8 billion and imports of $2,333.4 billion resulted in a goods and services deficit of $711.6 billion, $46.9 billion less than the 2006 deficit of $758.5 billion. For goods, exports were $1,149.3 billion and imports were $1,964.9 billion, resulting in a goods deficit of $815.6 billion, $22.7 billion less than the 2006 deficit of $838.3 billion. For services, exports were $472.5 billion and imports were $368.5 billion, resulting in a services surplus of $104.0 billion, $24.2 billion more than the 2006 surplusof $79.7 billion.

The goods and services deficit was $711.6 billion in 2007, down from $758.5 billion in 2006. As a percentage of U.S. gross domestic product, the goods and services deficit was 5.1 percent in 2007, down from 5.7 percent in 2006.

MORE MICROSOFT & YAHOO NEWS

Many analysts believe it will be very difficult for Yahoo to avoid the $31 per share Microsoft takeover bid as no new bids have emerged. Yahoo continues talks with other potential friendly partners including Rupert Murdoch's New Corp., which owns MySpace, and AOL, but deals with either seem like a long shot.

From The New York Times:

Can Yahoo avoid being gobbled up by Microsoft?

Many analysts say it is increasingly unlikely.

While some of those conversations [with potential white knight partners AOL and News Corp.] continue, no deal has emerged and a growing chorus of analysts and investors say it is improbable that anyone will come up with an offer that is more attractive to Yahoo shareholders than Microsoft’s, which was originally valued at $31 a share.

“It seems like Yahoo’s strategic options are relatively limited,” said Mark Mahaney, an analyst with Citigroup. “It is hard to see a scenario that could create as much value for shareholders as quickly as a Microsoft offer.”

From USA Today:

Microsoft CEO Steve Ballmer appears to be under rising pressure by big shareholders to make the $31-a-share opening offer stick. One reason: Paying $35 to $40 a share for Yahoo would drive down Microsoft's projected earnings through its 2011 fiscal year, says Robert Breza, tech stock analyst at RBC Capital Markets.

Yahoo on Monday rejected the $31-a-share offer, giving rise to speculation that it is courting a white-knight investor, such as AOL or News Corp. (NWS), to help it stay independent. A source briefed on the matter says talks to sell a 20% stake to media giant News Corp. are highly unlikely to result in anything. The source requested not to be named because talks are ongoing.

A tie-up with AOL would boost Yahoo's online advertising efforts but be expensive to consummate, says Shahid Khan, principal analyst at IBB Consulting Group. "It may distract Yahoo from getting its own act together," says Khan.

Jeffrey Lindsay, an analyst at Sanford C. Bernstein, says reported talks with potential white knights are "a ploy to drive up Microsoft's bid offer." Lindsay expects Microsoft to hold firm for now at $31, then perhaps up the bid to $35 or $36 within two weeks. "The pressure will really be on Yahoo to accept," he says.

Ballmer's next move may be to rally big shareholders to back a hostile takeover bid, says David Mitchell, senior vice president of IT research at Ovum. That could take the form of a tender offer made directly to shareholders or a proxy fight to win control of the Yahoo board.

PHILADELPHIA FED'S SURVEYS SIGNAL A RECESSION

The Federal Reserve Bank of Philadelphia released results of its Survey of Professional Forecasters and Anxious Index today with both pointing toward a recession. The Survey of Professional Forecasters asks economists to predict the possibility of GDP contraction in the current quarter while the Anxious Index asks the same for the next quarter. A score of higher than 40% is considered a sign that a recession is likely. The Survey of Professional Forecasters score was 47% while the Anxious Index was 42.9%. How accurate have the surveys been in predicting recessions? Since 1968 there have been six recessions. Both surveys have predicted all six.

Federal Reserve Bank of Philadelphia's Survey of Professional Forecasters and Anxious Index.

CHAVEZ COMMENTS RATTLE OIL MARKET

Venezuelan President Hugo Chavez made threats on Sunday to cut off oil sales to the United States in retaliation for U.S.-based ExxonMobil seeking court assistance in settling a dispute with Chavez and Petroleos de Venezuela and a British court freezing as much as $12 billion in Petroleos de Venezuela's assets. The dispute centers around the nationalization of oil rights that ExxonMobil owned.

From USA Today:

If you end up freezing (Venezuelan assets) and it harms us, we're going to harm you," Chavez said. "Do you know how? We aren't going to send oil to the United States."

Mike Fitzpatrick, vice president of energy and risk management at MF Global, says is is hard to weigh the comment. "How much credence you want to give him is always a question mark," Fitzpatrick said.

But traders were clearly worried about the potential cutoff of Venezuelan oil. Light, sweet crude for March delivery jumped $1.82 to settle at $93.59 a barrel on the New York Mercantile Exchange after spiking to $94.72 earlier, a one-month high.

Word of power outages at a Valero Energy refinery in Delaware City, Del., and a Citgo Petroleum refinery in Lake Charles, La., also helped push prices higher. Both plants were being restarted Monday, Dow Jones Newswires reported.

Traders were unnerved by new violence in Nigeria, Africa's largest oil producer and a major supplier to the U.S. On Monday, gunmen attacked a naval vesselescorting petroleum industry boats, killing one sailor and injuring another. Militant attacks have cut Nigeria's oil output by nearly one quarter in the past two years, helping send oil prices to all-time highs.

Concerns about supply disruptions temporarily drew investors' focus from the weakening U.S. economy, which had been the market's dominant theme. Worries that the economy is slowing, and demand for energy is falling, pushed oil prices down from a record above $100 a barrel in early January to nearly $86 in recent weeks.

GM REPORTS QUARTERLY LOSS

General Motors reported a loss of $722 million for Q4, which works out to $1.28 per share. In the fourth quarter of 2006, the company reported a profit of $950 million, or $1.68 a share. The company blamed the big swing on losses at GMAC, the finance arm of GM, and a general slowdown in vehicle sales.

Be careful of reading too much into this loss. Excluding one-time items, GM reported a profit of $46 million, or 8 cents per share, on revenue of $47.1 billion. Revenue for auto sales was $46.7 billion, which is $3 billion more than Q4 last year.

GM also announced that it will offer a buyout of all U.S. UAW members. The buyout offer goes as high as $140,000 for those with the most experience and highest salaries, but comes with the high price tag of having to give up future health care and other retirement benefits. GMs goals it to get more highly paid workers to leave so that they can hire replacements who will make approximately half as much due to the new collective bargaining agreement allowing a two-tier wage system.

YAHOO REJECTS MICROSOFT'S OFFER

Yahoo officially rejected Microsoft's $44.6 billion takeover bid stating that it was too low.

From The New York Times:

“After careful evaluation, the board believes that Microsoft’s proposal substantially undervalues Yahoo including our global brand, large worldwide audience, significant recent investments in advertising platforms and future growth prospects, free cash flow and earnings potential, as well as our substantial unconsolidated investments,” the company said in a statement.

[If Microsoft decides to continue to pursue Yahoo it] may have an easier time than it could have had two weeks ago: since then, millions of Yahoo’s shares have traded hands to short-term-oriented hedge funds that typically favor a quick sale, as opposed to value investors who hold shares for the long term.

Microsoft could also decide to make an offer directly to shareholders, called a tender offer, which would put more pressure on Yahoo’s board to negotiate. At the same time, Microsoft could also set a deadline for its bid, known as an “exploding offer.”

And if Microsoft decides to make this a nasty battle, it could start a proxy contest to oust Yahoo’s board at its next election; it would have until March 13 to nominate a new slate of directors.

NEXT YEAR'S WAR IN IRAQ AND AFGHANISTAN TO COST APPROXIMATELY $170 BILLION

According to testimony yesterday by Defense Secretary Robert Gates, military operations in Iraq and Afghanistan will cost approximately $170 billion above and beyond the $515.4 billion already budgeted for regular Pentagon expenditures in the next fiscal year. On a per day basis, that calculates to roughly $466 million per day in costs for the military actions in Iraq and Afghanistan, about $1.4 billion per day for regular Pentagon expenditures, and about $1.866 billion per day in total.

From The New York Times:

The military operations in Iraq and Afghanistan could cost $170 billion in the next fiscal year over and above the $515.4 billion regular Pentagon budget that President Bush has proposed, Defense Secretary Robert M. Gates said on Wednesday.

Mr. Gates gave that estimate in testimony before the Senate Armed Services Committee after cautioning the panel that any estimate would be dicey, given the unpredictability of war.

“Well, a straight-line projection, Mr. Chairman, of our current expenditures would probably put the full-year cost in a strictly arithmetic approach at about $170 billion,” Mr. Gates said in response to questions from Senator Carl Levin, the Michigan Democrat who is the head of the committee.

“While the monetary cost is not the most important part of the debate over Iraq or Afghanistan, it does need to be part of that debate, and the citizens of our nation have a right to know what those costs are projected to be,” Senator Levin said.

BANK OF ENGLAND CUTS RATE, ECB HOLDS STEADY

The Bank of England, the central bank of the United Kingdom, cut its key interest rate from 5.5% to 5.25% today while the European Central Bank (ECB) held firm at 4.0%. This is the second rate cut for the Bank of England while the ECB has been at 4.0% since June of 2007.

From USA Today:

Many say the bank [ECB] may have to cut rates later this year despite the rising level of inflation in the 15-nation euro zone — a bloc of more than 318 million people that accounts for more than 15% of the world's gross domestic product.

The Bank of England's decision was expected given that its governor, Mervyn King has acknowledged that the bank is facing a "difficult balancing act," with inflationary pressures from higher energy and food prices and a falling British pound weighed against data showing slowing economic activity and turbulence on financial markets.

"The prospects for output growth abroad have deteriorated and the disruption to global financial markets has continued," the Bank of England said in the statement explaining its rate cut.

PRODUCTIVITY INCREASES IN Q4

On Wednesday the Labor Department reported that productivity increased at an annualized rate of 1.8% for the fourth quarter. That compares unfavorably with the 6% gain in productivity in the third quarter, but was better than most economists had predicted and was in line with the 1.6% productivity gain for all of 2007.

From The New York Times:

Ian Shepherdson, chief U.S. economist at at High Frequency Economics, said he looked for productivity to slow further in 2008, reflecting an extremely weak economy in the first half of the year.

For the year, productivity rose by 1.6 percent, a slight rebound from a 1 percent gain in 2006 but both years were well below the average annual increases of 3.2 percent turned in from 2000 through 2004.

Productivity determines whether living standards can rise because it allows businesses to pay their workers more because of their increased output without having to raise the cost of their products, which increases inflation.

The country went through a two-decade period of stagnant increases in productivity following the oil shocks of the early 1970s. However, starting in 1995, productivity began showing bigger improvements, reflecting all of the investments that had been made in computers and other efficiency-enhancing equipment.

Economists are currently debating whether that substantial gain in productivity is now waning or whether the slowdown is just a temporary reflection of the deterioration of the overall economy.

PRESIDENT BUSH THREATENS VETO OF BILL THAT DOES NOT GRANT TELECOM FIRMS IMMUNITY

Many telecommunications firms complied with government requests for access to telephone conversations, records, and emails, all without FISA court warrants. Now, those firms face at least 40 civil lawsuits for illegally providing that access without warrants. President Bush has urged Congress to grant retroactive immunity to the telecom firms who cooperated with the government.

For more on this issue please read Bush Threatens Veto in Surveillance Laws in USA Today.

SERVICES SECTOR CONTRACTED IN JANUARY

The Institute of Supply Management index of activity outside the manufacturing sector (essentially a survey of the service sector) contracted in January for the first time since March of 2003. This is being perceived as a negative sign for the economy and may signal that the United States is already in a recession. Wall Street did not look favorably on the report as the Dow Jones Industrial Average fell 370 points, losing 2.9% of its total value.

From USA Today:

The Institute for Supply Management said its index of activity outside the manufacturing sector fell to 41.9% in January from 54.4% in December.

The drop was the biggest plunge in the 10½-year history of the index and pointed to the first decline in service-sector activity since March 2003. Numbers below 50 suggest contraction; those above suggest expansion. New orders and employment plummeted.

The service sector accounts for nearly 90% of U.S. economic activity.

The service-sector data were the latest in a series of downbeat numbers. Friday, the government said employers cut jobs in January for the first time in 4½ years, while on Monday the Federal Reserve said banks had tightened lending standards. Tuesday, the International Council of Shopping Centers said sales at retail chain stores in January likely were the worst for the month since records began nearly 40 years ago.

The numbers have some economists, even the relative optimists, saying the chances of a U.S. recession have risen.

ANHEUSER-BUSCH BUD SPOT RATED BEST SUPER BOWL AD

For the 10th consecutive year Anheuser-Busch aired the top-rated Super Bowl ad according to USA Today.

From USA Today:

The Patriots' streak was broken, but Anheuser-Busch's was not.

In the high-stakes world of Super Bowl advertising, it aired the best-liked Super Bowl ad for a record 10th-consecutive year, according to results of USA TODAY'S exclusive Super Bowl Ad Meter real-time consumer focus group testing.

Unlike many of its previous winners, A-B's big winner this time didn't tickle the funny bone, but it certainly plucked the heart strings.

The ad featured a Dalmatian who becomes personal trainer to a dejected draft horse eager to make the team pulling the famous Budweiser beer wagon.

PROGRESS REPORTED IN WRITERS' STRIKE

Published reports indicate that most major hurdles have been cleared in the strike of television and film writers that has lasted more than three months. Many observers expect the strike to be settled in the next week or two.

From The New York Times:

Writers walked out on Nov. 5 after failing to reach a new contract with producers in months of difficult bargaining. Talks resumed briefly in December, but quickly broke off again. The latest round of talks came more than two weeks ago in the wake of a tentative contract agreement between producers and the Directors Guild of America.

That deal confronted many of the same issues that have troubled writers — including difficult questions related to pay for digital distribution of shows and movies — and paved the way for Friday’s movement toward a deal.

A final sticking point had been compensation for ad-supported television programs that are streamed over the Internet after their initial broadcast. Companies were seeking a period during which they could stream such shows without paying a residual, and wanted to peg payments for a year of streaming at the $1,200 level established in the directors’ contract. Writers were seeking 1.2 percent of the distributors’ revenue from such streams, to ensure they would participate in any revenue gold mine discovered on the Web. How that issue was finally resolved in the informal talks remained unclear.

IRISH SPURN PLASTIC BAGS

After a tax on plastic bags that is now the equivalent of 33 cents per bag was imposed in 2002, Irish consumers spurned plastic bags in favor of more environmentally friendly choices.

From The New York Times:

In 2002, Ireland passed a tax on plastic bags; customers who want them must now pay 33 cents per bag at the register. There was an advertising awareness campaign. And then something happened that was bigger than the sum of these parts.

Within weeks, plastic bag use dropped 94 percent. Within a year, nearly everyone had bought reusable cloth bags, keeping them in offices and in the backs of cars. Plastic bags were not outlawed, but carrying them became socially unacceptable — on a par with wearing a fur coat or not cleaning up after one’s dog.

Drowning in a sea of plastic bags, countries from China to Australia, cities from San Francisco to New York have in the past year adopted a flurry of laws and regulations to address the problem, so far with mixed success. The New York City Council, for example, in the face of stiff resistance from business interests, passed a measure requiring only that stores that hand out plastic bags take them back for recycling.

But in the parking lot of a Superquinn Market, Ireland’s largest grocery chain, it is clear that the country is well into the post-plastic-bag era. “I used to get half a dozen with every shop. Now I’d never ever buy one,” said Cathal McKeown, 40, a civil servant carrying two large black cloth bags bearing the bright green Superquinn motto. “If I forgot these, I’d just take the cart of groceries and put them loose in the boot of the car, rather than buy a bag.”

INFLATION IN CHINA LIKELY TO INCREASE INFLATION IN U.S.

For years Americans have come to rely on inexpensive imports from China, and China has happily delivered. Inflation, long tame in China, is roaring again and American consumers can expect to pay higher prices for Chinese imported goods this year.

From The New York Times:

American consumers could see prices increase by as much as 10 percent this year on specific products — including toys, clothing, footwear and other consumer goods — just as the United States faces a possible recession.

In the longer term, higher costs in China could spell the end of an era of ultra-cheap goods, as well as the beginning of China’s rise from the lowest rungs of global manufacturing.

Chinese imports constitute 7.5 percent of spending by Americans on consumer goods, but they make up much bigger shares of several popular categories, including about 80 percent of toys, 85 percent of footwear, and 40 percent of clothing.

While no reliable figures exist on average Chinese wages, experts say that factory wages have risen 80 percent or more in many coastal areas in recent years, with the lowest wage about $125 a month.

To reduce costs, some factory owners are considering moving to inland China, where wages are lower, or to other parts of Asia, like Vietnam and Indonesia.

BIG THREE U.S. OIL COMPANIES COMBINED AVERAGED $233 MILLION PROFIT PER DAY IN Q4

Exxon Mobil announced this morning that it posted a quarterly profit of $11.66 billion for Q4, the largest operating profit ever posted by a U.S. company. That works out to roughly $130 million in profit per day for the quarter.

In related industry news, Chevron announced this morning that it posted a net income of $4.88 billion for Q4. Chevron is the second-largest oil company behind Exxon Mobil. On January 23rd, ConocoPhillips, the third-largest oil company, announced net income of $4.37 billion for Q4.

Combined, these three companies averaged profits of $233 million per day in the fourth quarter of 2007.