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.