The BBC picks up on the continuing global stock market travails with news that Japan’s benchmark Nikkei index fell 3 percent in afternoon trading. Yesterday saw the Dow drop 345 points on “mixed retail sales, lower oil prices and dour labor market readings,” writes CNN Money —all amplifications of a slowing global economy and plunging it back into bear territory notes the Wall Street Journal.
It’s not just the big old economies that are struggling. The Financial Times tells us that Russia’s central bank yesterday was forced to prop up the ruble after foreign capital—some analysts say as much as $21 billion—was pulled out of the country in response to Moscow’s military action in Georgia. Meanwhile China is feeling the fallout of its own foreign adventure in dollarland. The New York Times reports that China’s central bank needs new capital due to its $1 trillion spending spree of U.S. Treasury bonds and mortgage securities. “Those investments have been declining sharply in value when converted from dollars into the strong yuan, casting a spotlight on the central bank’s tiny [$3.2 billion] capital base,” it writes. This Chinese cash crunch is a delicate topic and is likely to mean China is disinclined to let the yuan continue rising against the dollar, which would further devalue its holdings.
The FT reports that bank stocks plummeted after the European Central Bank announced a crackdown on abuses of its bank liquidity operations that will raise the risk of owning debt, notably for “financial firms that have developed too great a dependence on cheap funding from the bank.” Analysts estimate the ECB directive will further squeeze banks, increasing the “pressure on them to do more expensive longer-term funding.” One of the troubled banks cited by the FT for “gaming the system” by using asset-backed securities to obtain ECB funds is Lehman Brothers. Now the NYT tells us that Lehman is “working toward a radical solution in its fight for survival: Splitting itself into a ‘good’ bank and a ‘bad’ one.” Essentially, the bank is contemplating offloading $30 billion of its riskiest holdings into a new publicly traded company while keeping its strongest investments in-house, using those to attract a cash infusion from investors.
The WSJ reports that Dell is “trying to sell its computer factories around the world” as it seeks to shape a more competitive business model based on using contract manufacturers to produce its PCs. While that might sound like taking cloud computing a tad too far, the lean and mean production model is part of a growing industry trend. At present Dell “finds itself lagging rivals in wringing the most savings by outsourcing operations to production partners,” most likely in Asia, says the WSJ. Meanwhile Sony has a problem that Dell remembers all too well. The Japanese electronics giant announced a recall of 438,000 Vaio PCs “due to possible overheating that could burn users,” says the FT. Sony shares fell 4 percent Friday on the news of this reincarnation of an issue that in the past has affected Apple and Dell PCs using Sony batteries.
The NYT reports that Altria Group (formerly Philip Morris) is in “advanced talks” to buy UST, maker of Skoal and Copenhagen smokeless tobacco brands, for more than $10 billion. Smokeless tobacco is one of the few areas of the tobacco business that is still growing, says the NYT, but Altria failed to launch a successful smokeless product around its Marlboro brand. Negotiations are due to continue through the weekend though the NYT cautions that, just like Sony Vaios, the deal could still go up in smoke.
Finally, if you are an industry looking for a $50 billion bailout from the federal government, it helps to be located in the crucial swing states of Michigan and Ohio. CNN Money tells us that the loan package proposed by the GM, Ford, and Chrysler has the support of presidential candidates Barack Obama and John McCain along with the Bush administration, even though the “program may not necessarily save a member of the Big Three from eventual bankruptcy.”