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Wal-Mart's outlook on soft side; profit up 4%
By Christopher Hinton, MarketWatch
Last update: 4:13 p.m. EST Feb. 19, 2008

NEW YORK (MarketWatch) -- Wal-Mart Stores Inc.'s fourth-quarter profit rose 4%, driven by price cuts and demand for its grocery, health and electronic products, the retailing behemoth said Tuesday.
The world's largest retailer and Dow Jones Industrial Average component also gave an earnings forecast range that met Wall Street's consensus at the upper end.
For the recent quarter, Wal-Mart (WMT: 49.63, +0.19, +0.4%) said it earned $4.1 billion, or $1.02 a share, during the three months ended Jan. 29, up from $3.94 billion, or 95 cents, in the year-earlier fourth quarter.
Excluding one-time items, the retailer said it earned $1.04 a share, ahead of analysts' mean estimate of $1.02 a share as provided by Thomson Financial.
Revenue jumped 8% to $107.43 billion, while same-store sales excluding fuel rose 1.7%.
Shares of the retailing giant advanced 0.4% to close at $49.66, backing off an intraday high of $50.32. The stock is up 2.4% over the past 12 months.
In a post-earnings web cast, Chief Executive Lee Scott said an early strategy to mark down key items in order to lure in customers helped the retailer's sales growth in grocery, health and wellness, and electronic products.
"The combination of price leadership with improved store operations made the difference for Wal-Mart U.S. this year," Scott said.
Performance was also driven by seasonal events, including Thanksgiving and the Super Bowl, helping offset an increase in transportation costs due to higher diesel prices, added Eduardo Castro-Wright, Wal-Mart Stores U.S. president. Fuel costs should remain a headwind for fiscal 2009, he said.
Caution in a tough environment
Looking ahead, the Bentonville, Ark.-based company said it expects a first-quarter profit between 70 cents and 74 cents a share, meeting the Wall Street consensus at the upper end of the range.
For the fiscal year, Wal-Mart forecast earnings in the range of $3.30 to $3.43 a share, again meeting analysts' mean estimate at the upper end.
That's a relief in this "tough environment," said Deutsche Bank analyst William Dreher in an investor note, and reiterated his buy rating for the stock with a $51 price target.
"Wal-Mart shares should perform well this year given their defensive merchandise mix and strong expense management," Dreher said.
Deutsche Bank does have investment banking business with Wal-Mart.
CEO Scott said he has high expectations for the year.
"No one has a crystal ball to look into the economic future, but we know the economy will be a critical factor this year," Scott said. "Some customers were a little more cautious in their spending in January and that was reflected in our U.S. comp sales numbers for that period."
In its most recent sales release, Wal-Mart Stores chalked up a measly 0.5% gain in same-store sales for January, below expectations of 2% growth -- and it was supposed to be one of the winners in a down economy.
Then, late last month, it lowered prices by 10% to 30% on thousands of items in a move it said was to help shoppers save money against a backdrop of economic uncertainties. The savings were targeted especially at purchases for the Super Bowl weekend and were available while supplies lasted.
That, in turn, followed a move to cut prices on over 15,000 items during the end-of-year holiday crush, along with an offer of no interest for 18 months on purchases of $250 or more made with a Wal-Mart credit card.
The strategy seemed to work, at least for a while, as the company outperformed many of its competitors, including archrival Target Corp. (TGT: 52.11, -0.96, -1.8%) during the crucial December sales period.  

Fed willing to cut more but inflation fears linger
Signal swift rate hikes may be necessary at some point
By Greg Robb, MarketWatch
Last update: 2:10 p.m. EST Feb. 20, 2008

WASHINGTON (MarketWatch) -- The Federal Reserve confirmed that it is willing to do more to help the economy find its footing, but warned that nagging inflation worries may necessitate swift rate hikes once growth resumes, minutes of the latest meetings released Wednesday show.
This is only the latest version of a bifurcated message the Fed has been delivering to markets since it began cutting interest rates last August: at the same time it has cut rates because of downside risks, the central bank feels compelled to note that the stubbornly high level of inflation cannot be ignored.
The Fed officials projected headline and core inflation would increase at a faster pace in 2008 than they had forecast in October.
Earlier Wednesday, the Labor Department reported that inflation showed no sign of abating in January, complicating the work of Fed officials.
At the same time, the Fed projected economic growth to slow in 2008 to between 1.3 and 2.0%, down from the 1.8 to 2.5% forecast in November.
Some analysts argue the economy is suffering from stagflation, a period of slow growth and high inflation that first emerged in the 1970s.
Fed officials routinely dismiss this concern, noting that inflation was at double-digit levels in that decade.
But the economic slowdown has failed to dampen inflationary pressures.
Fed officials, who did not seem to agree on much at the two January meetings, were of common mind that inflation statistics since the end of the year were "disappointing," the minutes show.
All of this concern about inflation was in the background to dramatic action by the Fed in January.
The central bank slashed benchmark rates by 1.25 percentage points to 3.0% in two steps: a surprise inter-meeting three-quarters point cut on Jan. 22 and an expected half-point cut after their two-day meeting that ended on Jan. 30.
The FOMC said the rate cuts were needed to bring rates down "to a level that was likely to help the economy expand at a moderate pace over time."
"Still, with no signs of stabilization in the housing sector and with financial conditions not yet stabilized, the FOMC agreed that downside risks to growth would remain even after this action," the minutes said.
Financial markets are betting the Fed will cut rates by a half-point at their next meeting on March 18, and this concern about downside risks fits into that scenario.
But at the same time, the FOMC said that it was mindful of the need to promote stable prices and some members "noted that, when prospects for growth have improved, a reversal of a portion of the recent easing actions, possibly even a rapid reversal, might be appropriate," the minutes said.  

Dollar steady after mixed Fed minutes
By William L. Watts & Lisa Twaronite, MarketWatch
Last update: 2:40 p.m. EST Feb. 20, 2008

SAN FRANCISCO (MarketWatch) -- The dollar was steady after the minutes of the Federal Reserve's last meeting confirmed Wednesday the central bank is willing to do more to help the economy find its footing. But the Fed also warned that nagging inflation worries may necessitate swift rate hikes once growth resumes.
The dollar pared some of its earlier gains that had been spurred by hotter-than-expected U.S. inflation data, which raised concerns the Fed might have to stay its hand regarding further easing of interest rates and put inflation fears on the front burner again.
'This is a key reason why future Fed easings are likely to be less aggressive than past ones.'
— Michael Gregory, BMO Capital Markets
While some investors seized upon the idea that rapid hikes may be needed once growth improves, others zeroed in on lower growth forecasts and heightened downside risks.
The Fed projected headline and core inflation would increase at a faster pace in 2008 than it had forecast in October. At the same time, it projected economic growth to slow in 2008 to between 1.3% and 2.0%, down from the 1.8% to 2.5% forecast in November. Read The Fed.
"Generally, the Fed's downgraded growth forecast, and firmer inflation forecasts will not likely do the greenback any favors, especially with prospects for more rate cuts still in the cards," wrote analysts at Action Economics.
The euro was at $1.4691, compared with $1.4692 shortly before the minutes were released and $1.4726 in late U.S. trading Tuesday. See real-time currency prices.
The pound was buying $1.9418, compared with $1.9419 before the minutes and $1.9476 in late Tuesday's U.S. trading.
The dollar traded at 108.18 yen, compared with 108.19 yen and 107.73 yen in late U.S. trading Tuesday.
The dollar index, which measures the greenback against a basket of six major currencies, was at 76.244, compared with 76.245 before the minutes and 76.043 late Tuesday.
Earlier Wednesday, the Labor Department said consumer prices rose a seasonally adjusted 0.4% last month, led by large increases in energy and food prices but also including gains in underlying core prices. Excluding food and energy prices, the so-called core CPI rate for January rose 0.3%, the biggest gain since June 2006.
The increases in the CPI and core CPI rates were above the median estimates of economists surveyed by MarketWatch. Economists had projected a 0.3% gain in the CPI and a 0.2% increase in core inflation.
"The downside risks to economic growth continue to guide the Fed's hand. But the updrift in core inflation will be a cause for concern," wrote Michael Gregory, economist at BMO Capital Markets.

"This is a key reason why future Fed easings are likely to be less aggressive than past ones," Gregory said.
Lower interest rates usually weigh on a currency, because they reduce the return on assets denominated in that currency.
Also Wednesday, the Commerce Department reported that a small gain in the nation's pace of construction on new homes during January, even as there was no sign of recovery in building permits. Housing starts rose last month by 0.8%, to a seasonally adjusted annual rate of 1.01 million, matching the consensus of economists surveyed by MarketWatch.
On Wall Street, stocks opened lower after the data, but major indexes turned higher and held gains in afternoon trading after the release of the Fed minutes. See Market Snapshot.

Asia, European action

Overnight, the yen had been pushed higher in Asian trading, but Japan's currency then retreated in European activity.
Analysts tied early gains to renewed worries about the fallout from the global credit crunch.
Such concerns have prompted traders to shy away from risky "carry trade" strategies centered on the selling of low-yielding currencies, analysts said.

The British pound remained on the defensive, taking little direction from the release of minutes from the Bank of England's policy meeting earlier this month in which participants voted 8-1 to cut the bank rate by a quarter of a percentage point, to 5.25%.
Panel member David Blanchflower was the lone dissenter, calling for a half-point cut in order to avert a more substantial economic slowdown.  

Crude futures end at new record close of $100.74
By Polya Lesova
Last update: 3:05 p.m. EST Feb. 20, 2008

NEW YORK (MarketWatch) -- Crude oil for March delivery rose 73 cents to finish at a new record closing high of $100.74 a barrel on the New York Mercantile Exchange. Earlier in the session, the March contract, which expired today, hit a record all-time high of $101.32 a barrel.

Dresdner to rescue $19 billion fund
Allianz says profit off 52% in fourth quarter; dividend hiked 45%
By Simon Kennedy, MarketWatch
Last update: 9:09 a.m. EST Feb. 21, 2008

LONDON (MarketWatch) -- Dresdner Bank, a division of German insurer Allianz, said Thursday that it will provide a support facility for its struggling $18.8 billion K2 structured investment vehicle, joining a growing list of banks that have bailed out funds as a result of the credit crisis.
The announcement came as Allianz (DE:840400) (AZ: 17.44, +0.19, +1.1%) reported a 52% drop in fourth-quarter net profit, hurt by write-downs, but still promised a hefty increase in its dividend, helping its shares gain 2.6% in afternoon trading.
In a brief statement, Dresdner said its move is intended to provide financing to repay all of the fund's senior debt and added the support facility shouldn't have a significant impact on its capital base.
Structured investment vehicles, or SIVs, issue short-term debt while investing in longer-term securities, such as mortgage and credit-card debt. Since the credit crisis accelerated over the summer, many SIVs have struggled to sell their debt, which needs to be renewed every couple of months.
Banks that manage or sponsor SIVs have responded by taking the assets on their balance sheets or guaranteeing to provide liquidity for the funds.
Among other banks that have taken action include Citigroup Inc. (C:), which has taken $49 billion of SIV assets on its balance sheet, and HSBC (UK:HSBA) (HBC:), which last year promised to provide up to $35 billion of funding to two SIVs.
On Wednesday, Standard Chartered (UK:STAN: news, chart, profile) dropped a proposal to rescue its $7 billion SIV known as Whistlejacket after a sharp fall in its asset value triggered a clause that put the fund in receivership.
Dresdner said that the size of the fund has been reduced from $31.2 billion in July 2007 and that more than 90% of the remaining assets are rated Aaa or Aa by credit-rating agencies.
Profit slides
Also Thursday, Allianz said its fourth-quarter profit fell to 665 million euros from 1.37 billion euros, dragged down by write-downs.
Its Dresdner Bank unit reported a net loss of 589 million euros for the quarter, wider than the loss of 194 million euros recorded a year earlier.
At the same time, Allianz said it would raise its dividend by 45% to 5.50 euros a share, but management also warned that conditions will be tough in 2008.
"Allianz is well positioned to also master the challenges in 2008 and again deliver on its medium-term targets," said CEO Michael Diekmann.
"However, financial markets and their future development will have a stronger impact on our business results than usual," he added.  

Get Ready For a Massive Move
Todd Harrison  Feb 21, 2008 9:35 am
                                        §
          §We'll all remember the 2008 tape.

Good morning and welcome back to the flickering pack. On the heels of a fantastic night of ketchup with MV Professor Adam Katz and Happy Hour Honcho Cody Willard, I slink to the drink for another run of fun. The market waits for no one and nothing, we know, condiments included.

Out of respect for time—both yours and mine—I’m gonna tee it up and toss it out there. These are historic times and we’ll one day sit around a campfire telling stories about the 2008 tape.

When that happens, we’ll have the benefit of hindsight. Right now, we need the gift of foresight.

Strap Yourself in Goose!

My greatest strength is knowing what I don’t know. Stay humble, I’ve learned, or the market will do it for you.

What I do know is this: There is a massive disconnect right now between the credit markets and the equity space.

If credit can catch a bid and spreads narrow, we’ll see a fierce upside move that will rival anything in recent memory.

If credit doesn’t improve—or worse, continues to deteriorate—the DJIA could shave 1000-1500 points before most folks know what hits them.

The cynic would say “Great—you’re saying we’ll either rally or sell-off, that’s great value added!”

I would counter that the principal purpose of a trader—and by extension, my role in Minyanville—is to identify, measure and communicate risk.

The rubber band is stretched about as far as it can go. If it snaps back, it’ll poke Boo in the eye. If I snaps period, supply will fall from the sky.

See both sides, Minyans, and position yourself accordingly.

Random Thoughts

   * Coming into this week, I offered that the S&P, INDU and Russell were all tracing out bearish "churning" patterns under respective resistance of 1405, 12800 and 735. That's still the case, noise aside, which makes the technical metric one of Boo’s clues.

   * I'm hearing all about this wall of worry. I "get it" as it pertains to the sentiment surveys but don't see it anecdotally. The VXO is at 26, the S's have been up 3 out of the last 4 weeks and real fear seems to have dissipated, at least for equities (not so much in credit).

   * Everyone always talks about what studs Issac and Doc were but something tells me Gopher was the man with a plan.

   * There is a case to be made for the hyperinflation scenario—it's part of the probability spectrum—and I respect it, along with a potential relief rally if someone kick-saves the bond insurers. Hands over eyes, however, I don't like 'em and I wouldn't be me if I wasn't honest.

   * I'm talking more than trading, so keep that in mind. Jab Jab Jab DUCK jab DUCK jab. That's me, somewhere between Chatty Kathy and AFLAC. It's not sexy but it's sustainable and in this environment, capital preservation is the first step towards prolonged profitability.

   * Ever since Minyan Editor T-Woo blasted Mandy, I haven't been able to get her out of my head. Gimme bamboo under my fingernails, water-board torture, death by Shmoopie... anything except Barry Manilow!

   * The Fed is officially all over the place. They claim to see growth "accelerating somewhat" in 2009 and 2010? They didn't see the sub-prime contagion while it was staring them in the face and they’re resisting the notion of recession to this day. How the heck are we supposed to trust 'em a few years out?

   * Bada Bing, Bada Boom. Crude $100. Gold $1000. What does it say that equities aren't lifting in kind? Perhaps a decoupling of a different sort? Not sure, but interesting nonetheless.

   * You know what I’ve seen a lot of lately? Reactionary chasers who are trading "not to lose" rather than trading to win. In my experience, that's a self-defeating mindset.

   * Wouldn't it have been awesome if The Love Boat traveled to Fantasy Island? I woulda been so all over that!

   * Am I dating myself? Or would it take some CHiPs and Family Ties footage to do that?

   * You don't need to trade every day, you simply need to win a high percentage of the trades you make.

   * OK Terry Woo, I'll lay off... if you PLEASE turn the volume down!

   * Why can't I shake the sense that any monoline bailout will leave the equity holders of MBIA (MBI) and Ambac (ABK) holding a diluted bag?

   * If the banks step up and bail 'em out, isn't that akin to taking money from your right pocket and putting it in your left pocket?

   * Do anchovies get a bad rap?

   * Are you watching Goldman (GS) as the tell of all tells?

   * If the US debt bubble is bigger than Japan's was before its deflationary bust, why is everyone so convinced that we'll fare better than they did?

   * Whatever happened to Linda Ronstadt?


R.P.

U.S. economic indicators off 0.1% in January
Conference Board sees 'weak growth' ahead
By Robert Schroeder, MarketWatch
Last update: 10:15 a.m. EST Feb. 21, 2008

WASHINGTON (MarketWatch) -- The index of leading U.S. economic indicators dipped by 0.1% in January, as weaker stock prices and housing data drove the gauge to a fourth consecutive monthly decline, the Conference Board reported Thursday.
At the same time, the coincident economic indicator index rose 0.1% in January, the new York-based business research organization said. That index measures where the economy is now.
The group's labor economist said the rise in the coincident index shows that the economy wasn't in recession in January.
However, he said, the nation's economy can be expected to remain in the doldrums.
"The change in the leading index, including the duration, intensity and dispersion across markets, suggests weak growth going forward," wrote economist Ken Goldstein.
Five of the ten components that make up the leading indicators -- stock prices, building permits, manufacturers' new orders and nondefense capital goods, and interest-rate spread -- fell in January, according to the Conference Board. They were.
Meanwhile, real money supply, average weekly jobless claims, index of consumer expectations and vendor performance all rose in January. Average weekly manufacturing hours and manufacturers' new orders for consumer goods and materials all held steady.
With January's decline, the leading index has fallen 2% from July 2007 to January 2008. It's the largest six-month decline in the index since early 2001.
In a separate economic report on Thursday, the Labor Department said initial filings for state unemployment benefits trended lower after spiking earlier in the month.
First-time jobless claims declined 9,000 in the week ended Feb. 16 to 349,000, the Labor Department reported. This marked the lowest level of such claims in a month.  

SocGen posts record loss and cuts dividend
Further write-downs in asset-management arm are possible
By Simon Kennedy, MarketWatch
Last update: 10:46 a.m. EST Feb. 21, 2008

LONDON (MarketWatch) -- Societe Generale, the French bank hit by a rogue-trader scandal, on Thursday reported a fourth-quarter loss of 3.35 billion euros, slashed its dividend and warned that its asset-management arm could see further write-downs.
The loss was in line with preliminary figures the firm announced earlier in February, and compares with profit of 1.18 billion euros a year earlier. The group took write-downs of 2.6 billion euros for the year, largely in the fourth quarter, and was also hit by a $7.2 billion alleged unauthorized-trading scandal. See archived story.
But SocGen's (FR:013080: news, chart, profile) management insisted Thursday that its underlying performance has been strong and it has good growth opportunities in Central and Eastern Europe, in particular in Russia.
"The Societe Generale group intends to use the substantial generation of capital by its two core businesses, the French networks and corporate and investment banking, to pursue expansion in its businesses and its markets with strong potential," the bank said in a statement.

The board proposed a dividend of 0.9 euro a share. The dividend is consistent with its targeted 45% payout ratio, but is down from the year-ago payout of more than 5 euros a share.
Shares in the bank lost 1.3% in afternoon trading, underperforming against sold gains in the broader European markets.
By division, profit in the asset-management and private-banking arm fell 66% to 50 million euros after a substantial outflow in customer investments from money-market funds.
The asset-management business took a 276-million-euro write-down for 2007 after it was forced to ensure liquidity in some of those money-market funds. It said on Thursday that asset management write-downs could continue in the first quarter of 2008 if it has to purchase more assets from the funds.
"Earnings in the asset management activity, which were already hit hard by the crisis in the second half of 2007, are likely to be penalized further at the beginning of 2008 by the bank's decision to guarantee the solvency of some of its dynamic money market funds," said analysts at Natixis Securities in a note to clients.
The corporate and investment-banking arm, which took the trading losses and the bulk of write-downs, swung to a fourth-quarter loss of 3.92 billion euros from a profit of 585 million euros.
The results came a day after a report by an internal committee found 75 red flags had been raised on trades by the alleged rogue trader, Jerome Kerviel. The report also concluded that Kerviel had acted alone.
Analysts at Natixis said revenues at the investment banking arm are likely to register a further decline in 2008 following SocGen's decision to scale-back its trading positions following the scandal.
Elsewhere, profit at its French banking networks dipped 1% to 315 million euros as a benefit from higher interest rates was offset by slower demand for unit-linked life-insurance policies.
Profit in international retail banking jumped 53% to 202 million euros, with the strongest growth in Russia, where Societe Generale has exercised an option to buy Rosbank for $1.7 billion.

Philly Fed continues to weaken in Feb.
Factory activity drops to negative 24, outlook for future grim
By Greg Robb, MarketWatch
Last update: 11:16 a.m. EST Feb. 21, 2008

WASHINGTON (MarketWatch) - Factory activity in the Philadelphia region continued to weaken in February, and the outlook for future activity hit its lowest level in 28 years, the Philadelphia Federal Reserve said Thursday.
The Philly Fed index fell to -24 in February from -20.9 in January. This is the lowest level since February 2001, shortly before the last recession. Read full survey results.
Readings below zero in the diffusion index indicate contraction in the region's factories.
A larger negative number means that contraction is gaining momentum.
Economists expected the index to rebound to about -10. The index had plunged in January from 1.6 in December and analysts believed the drop was overstated.
However, the February reading appears to confirm the weakness at the turn of the year.
The outlook for the future declined to the lowest level since 1990. This index has plunged 57 points in the past four months.
Analysts at Action Economics said it is too soon to know if actual economic conditions are causing the sharp increase in pessimism. Action said it was trimming its first quarter gross domestic product forecast to a slim 0.5% growth rate.
The new orders index rose slightly to negative 10.9 from negative 15.2. Shipments fell to negative 12.2 from negative 2.3.
The prices paid moderated to 46.6 from 49.8. The prices received index fell to 24.3 from 32.0.
The employment index rose to 2.5 from negative 1.5, indicating a slight improvement in the pace of hiring. The workweek index rose to negative 3.9 from negative 16.1.
The index of future activity fell to negative 16.9 from 5.2 in January.
The index for future employment also fell below zero for the first time since 2001.
Earlier this week, the New York Fed said its empire state index dropped to negative 11.7 from 9.0, also below expectations.
The regional indexes are used by economists to gauge the strength of the national report on manufacturing, released by the Institute for Supply Management. The index rose to 50.7 in January from 48.4 in the previous month. Readings over 50 in this index indicate expansion.

Analysts said the two regional indexes suggest the ISM factory index will again dip below 50 in February. The index will be released on Monday, March 3. End of Story  

Microsoft says it will open up to outside developers
Software giant responds to criticisms from regulators, open-source groups
By Benjamin Pimentel, MarketWatch
Last update: 1:01 p.m. EST Feb. 21, 2008

SAN FRANCISCO (MarketWatch) - Microsoft Corp. on Thursday responded to ongoing regulatory scrutiny by saying it will make critical information about its widely-used products more easily available to software programmers, and vowing not to sue those who use the codes for non-commercial purposes.
The move underscores a broad shift for the tech behemoth, as it has sought to present its technology as increasingly open to outside developers and compatible with competing products. Traditionally, Microsoft (MSFT: 28.26, +0.04, +0.1%) has been known for jealously guarding its intellectual property. That's raised the ire of antitrust officials, particularly in Europe.
"Our goal is to promote greater interoperability, opportunity and choice for customers and developers throughout the industry by making our products more open and by sharing even more information about our technologies," Microsoft CEO Steve Ballmer said in a statement Thursday.
The company said it is introducing the changes as a way to comply with a recent judgment of the European Court of First Instance. The software giant has faced stiff legal scrutiny in Europe over interoperability issues related to its products.
However, the European Commission sounded unimpressed with the announcement, saying in a prepared statement shortly after Microsoft's announcement that while it welcomes "any move towards genuine interoperability," the news "follows at least four similar statements by Microsoft in the past on the importance of interoperability."
"In the course of its ongoing interoperability investigation, the Commission will therefore verify whether Microsoft is complying with EU antitrust rules, whether the principles announced today would end any infringement were they implemented in practice, and whether or not the principles announced today are in fact implemented in practice," the commission said.
However, analyst Roger Kay of Endpoint Technologies Associates said Microsoft's announcement "looks like a definitive move toward openness."
"If Microsoft makes its protocols open and freely accessible, then it stands a better chance that they will be widely adopted by developers, open source and otherwise, as well as governments and others who care about standards," he said.
Kay however noted that the announcement "doesn't say it won't continue to develop its own packaged software.... just that others can connect to it [Microsoft's products] more easily and without cost."
Matt Asay, a general manager at Alfresco, an open source management company, said Microsoft is not going totally open source, but the company has taken a major step toward greater openness by enabling its customers, partners and even competitors to create products that can interoperate with the software giant's products.
"They are not making the source codes open, but they are opening the gates that allow you into the compound," he said. "It's a great first step. ... It's a bold move by Microsoft. It's a good indication of Microsoft's self-confidence that it feels it can open up what effectively are its crown jewels and not lobotomize the company at the same time."
Analyst Steve Allen of Sierra Tech Research said Microsoft's announcement is "just the recognition of the end of an era."
"The days of proprietary keys to lock out competition are difficult to enforce," he said.
The key elements in the new software policies include:

   *
     Microsoft will publish documentation for application programming interfaces and communications protocols for its widely-used products. Developers will no longer have to take a license or royalty or other fees to access the information.
   *
     Microsoft will indicate which protocols are covered by Microsoft patents and will issue licenses to those patents on "reasonable and non-discriminatory terms, at low royalty rates."
   *
     Microsoft has also come up with "a covenant not to sue open source developers for development or non-commercial distribution of implementations of these protocols."

Cisco shares rise on Citigroup upgrade
By Benjamin Pimentel, MarketWatch
Last update: 10:51 a.m. EST Feb. 21, 2008

SAN FRANCISCO (MarketWatch) - Shares of Cisco Systems Inc. were up about 3% Thursday morning after Citigroup upgraded the tech giant's shares to a "buy."
Analyst Paul Mansky of Citigroup said Cisco (CSCO: 23.46, +0.26, +1.1%) stock is "attractive to long-term investors" citing "more reasonable" Wall Street expectations and his belief that "the consumer-led downturn will be less sharply felt" in the tech sector compared to the slowdown in 2001-2002.
Cisco recently issued a disappointing outlook which reinforced fears that the economic slowdown could affect the technology industry.
But Mansky said dominant giants such as Cisco are well-positioned to withstand an economic slowdown.
"We find our bias shifting to companies that enjoy duopolistic competitive dynamics, have a global reach and can scale the business without having to build new channels," he said in a research note. He cited other major tech players fitting this description, including Brocade Communications Systems Inc. (BRCD:) and EMC Corp. (EMC:) .
Mansky noted, however, that the upgrade is "not a near-term trading call given our view that fundamentals likely don't trough until July." But he also said he did not see the slowdown being as severe as the 2001-2002 period.
"In contrast to the '01-'02 downturn which was technology led, the current downturn is consumer-led," he said.
Other analysts have noted that while the tech industry will likely feel the impact of a slowdown, the ongoing expansion of the sector, particularly in overseas markets, could help offset the impact of the downturn.  

U.S. stocks beaten down by bearish economic data
By Kate Gibson, MarketWatch
Last update: 1:29 p.m. EST Feb. 21, 2008

NEW YORK (MarketWatch) -- U.S. stocks declined on Thursday after data cast a negative light on U.S. economic growth, quashing early momentum from Citigroup Inc.'s upgrade of Cisco Systems Inc. and Research In Motion Ltd.'s upbeat forecast.

"The market is bouncing around as the economic news caused a bit of a sell off," said Peter Cardillo, chief market economist at Avalon Partners.
After rising about 70 points, the Dow Jones Industrial Average ($INDU: 12,311.25, -116.01, -0.9%) erased its gains, with the blue-chip index by early afternoon sliding 115.93 points at 12,311.33.
"The Philly Fed just strengthened the notion of sluggish growth ahead and indicators were soft once again -- that's what took the starch out of the early rise," said Cardillo.
Of the Dow's 30 components, 23 were trading in the red, with General Motors Corp. (GM: 24.27, -1.27, -5.0%) down the most, off 5%.
Technology shares were among the few blue-chips posting gains, with IBM Corp. (IBM: 107.88, +0.03, +0.0%) up 0.1% and Intel Corp. (INTC: 20.46, +0.08, +0.4%) up 0.5%.
The S&P 500 ($SPX: 1,347.05, -12.98, -0.9%) fell 11.5 points to 1,348.53, while the Nasdaq Composite (COMP:2,310.15, -16.95, -0.7%) edged 13.2 points lower to 2,313.9.
The technology sector drew some support from Citigroup's upgrade of Cisco (CSCO: 23.48, +0.28, +1.2%) from hold to buy, with shares of the computer-networking equipment maker recently up 1.4%.
Also, Research In Motion (RIMM: 107.25, +9.34, +9.5%) climbed 9.4% after the maker of the BlackBerry said it expects net subscriber account additions in the fourth quarter to be 15% to 20% higher than the 1.82 million it had previously forecast.
On the New York Mercantile Exchange, crude oil for April delivery, the new front-month contract, declined $2.46 to $97.24 a barrel. On Wednesday, March crude rallied to a new closing high of $100.74 a barrel.
Gold for April delivery surged to a record $952.40 an ounce, with the contract more recently up $11 at $948.8 an ounce. April platinum futures also hit a record, climbing as high as $2,194.80 an ounce, and stood lately at $2,170.0 an ounce, up $31.2, or 1.7%. See Metals Stocks.
The dollar was lower against major counterparts, with the dollar index, which measures the greenback against a basket of six currencies, at 75.52, down from 76.143 late Wednesday.
Volume on the New York Stock Exchange came to 713 million with more than two stocks declining on the exchange for every one that rose. On the Nasdaq, volume topped 560 million, and decliners ran ahead of advancing stocks 8 to 5.
Bears report
The stock indexes pared back their opening advance in the wake of data that included the Conference Board's report of a 0.1% decline in January in its index of leading U.S. economic indicators, with the index's fourth consecutive decline driven by weaker stock prices and housing data.
Separately, the Federal Reserve Bank of Philadelphia reported manufacturing in the region weakened further in February, with the Philly Fed diffusion index falling to -24 in February. The index had plunged to -20.9 in January from -1.6 in December. Readings below zero indicate contraction. The decline was unexpected. Economists were expecting the index to improve to -10.
Ahead of Thursday's opening bell, stock futures briefly added to gains after the government reported a drop in weekly U.S. jobless claims, but they settled back to previous levels soon after. The Labor Department also revised the previous week's claims count higher, offering up a mixed view of the employment picture.
"The continued deterioration in this series suggests that firms have moved from not hiring to outright firing. We look for nonfarm payrolls to rise by a paltry 35,000 in February," said Drew Matus, an economist at Lehman Brothers.
Stocks had another roller-coaster session on Wednesday, closing higher as investors shrugged off U.S. economic data that signaled rising inflation.

Kevin Depew's daily Five Things You Need to Know to stay ahead of the pack on Wall Street:

This morning the Wall Street Journal is trumpeting Stagflation fears on the front page, what it calls a combination of inflation and slowing growth, something we first covered in Five Things back in June, 2006. The Financial Times uses Stagflation on its cover today as well, "Data Fuels Fears of Stagflation." Even the New York Times is in on the gag with a piece titled "That '70s Look: Stagflation."

The last perceived bout with Stagflation occurred in the 1970s. Have we now come full circle from ultra-slim slacks back to bell bottoms? Is this our fathers' Stagflation, or something different?

Our view is that this bout with "Stagflation" is simply part of an ongoing transition from cyclical inflation to deflation. Let us explain.

http://www.minyanville.com/articles/index/a/15995
 

EUROPE MARKETS
RWE, oil pressure European shares
Airlines, autos falls as crude oil stays firm; Lloyds TSB gains ground
By Sarah Turner, MarketWatch
Last update: 7:33 a.m. EST Feb. 22, 2008

LONDON (MarketWatch) -- European equities moved lower Friday, pressured by losses in shares of RWE, Germany's second largest utility, and by weakness in the automotive sector as crude-oil prices stayed stubbornly atop $98 a barrel.
The pan-European Dow Jones Stoxx 600 index (ST:SXXP: news, chart, profile) fell 0.3% to 321.57.
Auto shares trading lower included German mainstays Porsche (DE:693773), down 4.2% and Daimler (DE:710000) (DAI: 82.27, -0.48, -0.6%), down 2.5%.
"Car makers are being badly hurt due to the oil price and concerns over the U.S. economy," noted Lutz Roehmeyer, equity strategist at LLB Invest in Germany.
Although light sweet crude prices have off this week's high of more than $100 a barrel, the contract held relatively firm, trading lately at $98.64 a barrel, up 41 cents.

Airlines are also usually hurt by the stronger oil prices. Shares of British Airways (UK:BAY) fell 2.2%, while Ryanair (RYAAY: 29.53, -1.45, -4.7%) (UK:RYA: news, chart, profile) sank 1.7% and Air France-KLM (FR:003112) lost 1.1%.
Meanwhile, losses in shares of RWE (DE:703712), down 4.8%, pressured utilities.
RWE said it plans to invest 30 billion euros in new plants and equipment in the next five years, but lower-than-expected annual results and conservative projections weighed on the shares.
Also saddled with losses was E.On (DE:761440) . Shares of Germany's biggest utility traded down 2.4%.
"RWE reported very weak figures, and I think that's another reason for the DAX underperforming," said Roehmeyer.
Indeed, the German DAX 30 index (DX:1876534) fell 1.2% to 6,821.92, while the French CAC-40 index (FR:1804546) lost 0.4% to 4,840.69 and the U.K.'s FTSE 100 index (UK:UKX) slipped 0.2% to 5,919.20.
"We are in a narrow trading range, and the market has to decide which way to go. I don't think that we can stay in this range for a long time -- we will have to break out," noted Roehmeyer. He noted that latest indicators are leaning more to the downside.
U.S. stocks on Thursday closed sharply lower as data highlighting the nation's economic slowdown sank early momentum. Stock futures were pointing to a flat open on Friday.
Banks back in the spotlight
Banks were back in the news, but in a more positive way than recently. Shares of Lloyds TSB (UK:LLOY) (LYG: 33.92, +0.06, +0.2%) , for one, rose 4.2%.
The U.K. lender on Friday reassured investors with a 17% rise in net profit, beating market expectations even as it increased write-downs for the year to $545 million.
Other banks performing well included Royal Bank of Scotland (UK:RBS), shares of which added 2.4%, and BNP Paribas (FR:013110), up 1.3%. Royal Bank of Scotland is scheduled to report financial results next Thursday.
Also Friday, a bidding war for U.K. waste-management firm Biffa (UK:BIFF) appeared increasingly likely, with France's Suez Suez (FR:012052) and private-equity firm Terra Firma preparing a counterbid valued at 1.5 billion pounds ($2.94 billion) that would top an already-agreed offer of 350 pence a share, the Financial Times reported.
Biffa's shares rose 1.3% to 369.75 pence in London, while Suez gave up 2.4% in London.  

Banks may recapitalize Ambac to save AAA rating
Capital boost from counterparties may be simpler than splitting bond insurer
By Alistair Barr, MarketWatch
Last update: 6:43 p.m. EST Feb. 22, 2008

SAN FRANCISCO (MarketWatch) -- A group of eight banks that are major counterparties to Ambac Financial Group may recapitalize the struggling bond insurer in a bid to save its crucial AAA rating, two people familiar with the situation said Friday.
The negotiations have progressed in recent days, the people said, on condition of anonymity.
The plan could be unveiled Monday or Tuesday, according to one of the people. But the other person said no firm timetable has been set. Both also noted the plan isn't a done deal.
Barclays PLC (UK:BARC) (BCS:), BNP Paribas (FR:013110), Citigroup Inc. (C:), Royal Bank of Scotland Group (RBS:), Societe Generale (FR:013080), UBS AG (UBS:), Wachovia Corp. (WB:) and Dresdner Bank, owned by German insurer Allianz (DE:840400), are the banks involved in the talks, the two people said.
The group recently hired boutique bank Greenhill & Co. (GHL:) to help with the negotiations.
"We have a lot of alternatives. A capital raise has always been an option to stabilize the rating," said Vandana Sharma, a spokeswoman for Ambac (ABK:), in an interview. "We're trying to do the best by all constituents, including policy-holders, shareholders and counterparties."
Sharma declined to comment on specific plans.
Ambac shares surged 16% to $10.71 Friday.
Other bond insurers also climbed. MBIA Inc. (MBI:) gained 2.4% to $12.18 and Security Capital Assurance (SCA:) rose 2.7% to $1.55.
Splitting up
Bond insurers agree to pay interest and principal on debt in a timely manner in the event of default. The $2.4 trillion business relies on AAA ratings to win new business. But those top ratings are in jeopardy now because of concerns insurers like Ambac and MBIA will have to pay big claims from guarantees they sold on complex mortgage-related securities known as collateralized debt obligations (CDOs).
If the situation gets bad enough, regulators including New York State Insurance Superintendent Eric Dinallo are considering splitting bond insurers in two. That would separate their steady muni bond businesses from the more troubled structured finance units, which are being pummeled by CDO exposures.
Indeed, FGIC, a big rival of Ambac and MBIA, submitted a plan with some of those attributes last week.
However, splitting up bond insurers would be difficult, pitting policyholders against shareholders of the bond insurer holding companies.
"The lawyers have already begun gearing up on that one," said Josh Rosner, a managing director at research firm Graham Fisher & Co.
Injecting capital
So Dinallo and others have also been working on other solutions that focus on attracting more capital into the industry. As part of that strategy, the New York regulator has been trying to persuade big banks that are counterparties to the industry to help boost bond insurers' capital.
Many banks have tried to hedge CDO exposures by buying guarantees from bond insurers in the form of credit default swaps (CDS), a type of derivative. If lots of bond insurers are downgraded or if some collapse, these banks may suffer more write-downs because these CDS contracts will be worth less.
One proposal involves banks injecting roughly $5 billion of capital into specific bond insurers and also providing a $10 billion line of credit.
Another idea involves commuting, or effectively tearing up, CDS contracts between banks and bond insurers. In return for dropping their claims, the banks would get a preferred equity stake in the bond insurer.
"Putting capital into an insurer is more of a contract issue between the companies involved, rather than a regulatory issue," said James Gkonos, vice chairman of the Insurance Practice Group at law firm Saul Ewing. "That would be the simplest and most efficient way to do this."
A forced splitting up of a bond insurer by a regulator such as the New York State Insurance Department would be an "extreme scenario" that would involve public hearings and litigation and take a long time to complete, he explained.
Still, any re-capitalization of Ambac by bank counterparties would present its own problems too, because it could dilute existing investors in the company.
Such a plan would also use up capital that banks may need to help them through other problems thrown up by the global credit crunch.
"Sometimes there are problems that just can't be solved," Rosner said. "At some point, the market is going to realize that there is not always a best solution. There is often just a least worse solution."

Stocks reverse day's losses on word of Ambac plan
Last-minute surge leaves Dow and S&P with modest weekly gains
By Kate Gibson, MarketWatch
Last update: 4:51 p.m. EST Feb. 22, 2008

NEW YORK (MarketWatch) -- U.S. stocks on Friday turned solidly higher in the final minutes of trading on word a rescue could be in the works for struggling bond insurer Ambac Financial.
"According to CNBC, a bailout by banks of Ambac could be announced as soon as Monday or Tuesday," said analysts at Action Economics.
Shares of Ambac Financial (ABK:) jumped more than 18% after CNBC reported a plan by several big banks to bail out the company and save its crucial AAA rating.
After posting gains at the start, and then losses throughout most of the session, the Dow Jones Industrial Average ($INDU:) gained 96.72 points to 12,381.02, giving the blue chips a weekly gain of 0.3%.
Of the Dow's 30 components, 24 traded higher, with American International Group Inc. (AIG:) up the most, closing 2.7% ahead.
The Dow's largest decliners included technology titans Intel Corp. (INTC:), down 2.4%, and Microsoft Corp. (MSFT:), off 1.5%.
'The market is unsure of the longer-term direction of the U.S. economy.'
— Robert Pavlik, Oaktree Asset Management
The S&P 500 gained 10.58 points to 1,353.11, a count that left it with a modest weekly advance of 0.2%.
The technology-laden Nasdaq Composite (COMP:) climbed 3.57 points to 2,303.35, leaving it with a weekly loss of 0.8%.
Weighing on the tech sector was Intuit Inc. (INTU:), off 9.2%, after the software company reported a drop in quarterly profit Thursday.
Financial follies
Stocks had posted losses for much of the session, with financials hit hardest, helped along by Fannie Mae (FRE:) and Freddie Mac (FNM:), both of which turned lower, with Fannie Mac down 4.1% and Freddie Mac off 0.3%, after downgrades from neutral to sell by Merrill Lynch analysts.
"We had to follow the negative news; it's the perfect storm of bad news for financials," said Art Hogan, chief market strategist at Jefferies & Co.
Trading volume on the New York Stock Exchange topped 1.4 billion, and advancing stocks outran declining issues 3 to 2, while more than 1 billion shares exchanged hands on the Nasdaq, and decliners topped advancers nearly 5 to 5.
On Thursday, the major U.S. stock indexes fell more than 1% after data highlighting the slowing economy sank early optimism on the technology sector.
"I think the driver is going to be -- and has been for awhile -- the kind of yin and yang between inflation and recession," said Paul Nolte, director of investments at Hinsdale Associates.
"There's a tug of war between folks that believe that we're at or near a bottom, and want to start to look through the first half to the second half, and price in earnings. Then there's a second group that doesn't believe in the 'E' in P-and-E levels, and believes every rally should be sold," said Hogan.
Heavy metal
In commodities trade on the New York Mercantile Exchange, oil prices shifted course, with April-dated light crude rising 58 cents, or 0.6%, to $98.81 a barrel. For the week, crude gained $3.31, after closing above $100 twice during the week. See Futures Movers.
Elsewhere on the Nymex, gold futures closed with a modest loss, but soared more than $40 on the week, with gold for April delivery dropping $1.40 to end at $947.8 an ounce.
In the forex market, pressure continued against the greenback, with the dollar index at 75.49, down from 75.615 in late U.S. trading on Thursday. See Currencies.
Overseas, European equities looked set to end with gains, as higher food and bank stocks offset weakness from auto makers and from Germany's second-largest utility, RWE.
In Asia, most markets retreated, with Japanese stocks pushed down by exporters including Honda Motor Co. and Canon Inc.

Investors seek calmer waters amid bailout hopes
Anticipated Ambac rescue plan, worries about economy to influence trading
By Nick Godt, MarketWatch
Last update: 12:03 a.m. EST Feb. 23, 2008

NEW YORK (MarketWatch) -- Investors hope that a last-minute plan to bail out ailing bond insurers next week will spark optimism for a market that has remained plagued by the ongoing credit crisis and worries that the economy is on the brink of recession.
Stocks rallied late Friday, reversing earlier sharp losses, on reports that a plan by several big banks to bail out struggling bond insurer Ambac Financial (ABK:) could be unveiled early next week.
"This leaves us with a very positive entry into next week," said Ken Tower, chief market strategist at Covered Bridge Tactical. "This is what the market had been waiting for the past several weeks."
After falling 120 points earlier in the session Friday, the Dow Jones Industrial Average ($INDU:) reversed steam and closed up 96 points to 12,381. The rebound in the blue-chip average was powered by its financial components -- notably insurance firm AIG (AIG:).
The S&P 500 index ($SPX:) gained 10 points to 1,353, while the Nasdaq Composite (COMP:) rose 3 points to 2,303.
The Friday rally also helped stocks to mostly reverse weekly declines. For the week, the Dow industrials gained 0.3%, the S&P advanced 0.2%, while the Nasdaq fell 0.8%.
"For the past week and a half, we've had a lot of bad news but the stock market had resisted the obvious temptation to go down hard, and was looking for a rally," Tower said. "A resolution [to the bond insurers' problem] is the last catalyst that this market was looking for."
Bailout
Bond insurers Ambac and MBIA (MBIA:) have come under increasing pressure from an ongoing credit crisis, which also threatens to push the economy into recession.
Credit agencies have delayed a decision to downgrade the insurers' ratings until the end of February, leaving room for several large banks and New York state regulators to come out with a rescue plan.
On Friday, news channel CNBC reported there had been significant progress on the plan, which would bolster the company's capital to save its crucial AAA rating.
Rough economic waters
"It has become increasingly harder here to anticipate each day's trading action," said Robert Pavlik, chief investment officer, at Oaktree Asset Management. "All of this volatility is because the market is unsure of the longer-term direction of the U.S. economy."
Prior to Friday, the market continued to experience rough waters amid concerns that the economy continues to decelerate sharply while inflation pressures, mostly through commodity prices, are flaring up.
On Thursday, the Federal Reserve Bank of Philadelphia reported manufacturing activity weakened further in February, reaching its lowest level since the last recession, while the outlook for future activity hit its lowest level in 28 years. See full story.
"Based the on economic data we've seen, there's no reason to believe we're going to get any relief next week," said Paul Mendelsohn, chief investment strategist at Windham Financial Services.
While the Federal Reserve indicated it would continue to cut interest rates to boost the economy, investors are also increasingly concerned that inflation pressures might make it harder for the central bank to proceed. Over the past week, crude oil prices topped $100 a barrel while metals and other commodities reached record highs.
The January consumer price index on Wednesday also revealed higher-than-expected price pressures in the pipeline.
Next week, investors will receive more data on inflation with the January producer price index due on Tuesday. Thursday will also provide clues on personal income and spending.
January existing-home sales data will be released Monday, while new-home sales come out Wednesday. Last Tuesday, building permits, a forward-looking indicator, fell 3% for January, suggesting "continued construction cuts ahead as builders struggle with stubbornly high inventories and weak demand; the housing pain looks set to continue," said Michelle Meyer, a Lehman Brothers analyst.
Also key for the market will be durable-goods orders for January, a gauge of consumer and business spending on big-ticket items, to be released Thursday.
Another reading of fourth-quarter growth will be released on Thursday. The initial estimate of the gross domestic product pinned growth at 0.6%, "which is not that from zero," said Windham's Mendelsohn.
Fed policy
Fed Chairman Ben Bernanke is also due to testify on the U.S. economy to the Senate Banking Committee on Thursday.
"We've already heard what the Fed has to say, that they'll continue to cut rates until they see this event is through," Mendelsohn. "They said they might have to hike quickly after to fight inflation, but for now there's little they can say to influence this market."
The hard economic data, he said, should continue to provide direction for investors.  

Same old song? Inflation, growth worries dominate
For the week ahead, economists await fewer home sales, hotter PPI
By Laura Mandaro, MarketWatch
Last update: 1:28 p.m. EST Feb. 24, 2008

SAN FRANCISCO (MarketWatch) -- This week's U.S. economic data will likely keep up the theme of higher inflation and a sluggish manufacturing environment, interspersed with comments from Federal Reserve Chairman Ben Bernanke on how the Fed is handling its fix-it job.
A report on existing home sales starts off the week. Fewer already lived-in homes likely made it to a closing sale last month, say economists, who have used lackluster data on pending home sales as a guide. Home owners likely sold 4.8 million units in January. That seasonally adjusted annual rate would make for a nearly 2% decline from the prior month, says a MarketWatch consensus of economist estimates. See Economic Calendar
"Although mortgage rates are low relative to historical standards, the expectations of lower prices will probably keep many buyers on the sidelines for a time," Michael Moran, chief economist for Daiwa Securities America, wrote in a note Friday.
The pace of January new home sales, due out Wednesday, also likely slipped as convulsions in the credit market continued to make it too difficult or too expensive for borrowers to get some types of loans.
On Tuesday, the Labor Department will release its estimate on how wholesale inflation fared in January. After last week's surprise pickup in underlying consumer prices, economists are anticipating another toasty reading on inflation. Energy prices may have slid, some economists say. But agricultural and other commodity prices likely pushed up the index.
Economists polled by MarketWatch are anticipating the producer price index rose 0.4% in January, a reversal from December's drop. They expect underlying wholesale prices, or prices excluding food and energy, kept to a 0.2% growth rate.
"Most other price measures have shown acceleration in January, and we expect the core PPI to do the same," said economists Brian Bethune and Nigel Gault of Global Insight.
Wednesday brings another reading on the resilience of U.S. manufacturers in the face of slowing consumer spending.
Durable goods orders in January likely dropped 3.8% in January and reversed from December's surprise 5% gain. A lot of that swing in orders for big-ticket items has to do with Boeing Co.'s (BA:) order book. The Chicago aircraft manufacturer closed out the year with an impressive surge in commercial airplane bookings. These dropped off in January, to 65 planes from 287 in December. Defense orders, which also boosted December's reading, are poised for a reversal as well.
With aerospace and defense orders providing some turbulence, economists will be digging through the numbers for one figure -- capital goods orders that exclude defense and aircraft -- that should give a better view of how the manufacturing sector is doing.
Friday's major report switches to the consumer, or rather the size of consumers' wallet. Personal income is expected to have inched up 0.2% in January, a slower pace than December's. The report on consumers' take-home pay, which includes income from dividends and rentals, will likely reflect weak readings from last month's employment report.
"Dividend income is likely to continue advancing, and rental income has increased briskly in recent months, but personal income in total will probably be restrained by the slow results for wages and salaries," said Daiwa's Moran.
With no pop expected from incomes, consumer spending is expected to have kept to a 0.2% pace. Economists are forecasting a retail inflation gauge in the same report, the core PCE index, to have accelerated to 0.3% from 0.2% in December.
Rising apparel and medical care prices likely boosted the inflation barometer to that "uncomfortably high" level last month, says Bank of America Corp. economist Peter Kretzmer. He forecasts that year-over-year, the core PCE index rose 2.2%, putting it near the upper end of the Fed's newly raised forecast for core inflation this year.
The Fed
Concerns over persistent increases in price growth, even stripping out volatile food and energy prices, are likely to feature in Fed comments over the week.
Bernanke headlines a cast of Fed speakers with testimony Wednesday before Congress. Investors will be listening for whether the Fed will keep its concerns over economic growth on the front burner and inflation worries on the back. Any sign that the Fed will take a break from its rate-cutting tactics because it's getting more worried about inflation is likely to lower market forecasts for more big rate cuts.
"The market is still pricing in a 50 basis-point Fed rate cut on March 18, but prospects for further hefty rate cuts through the spring are becoming cloudy," noted BMO Capital Markets economist Michael Gregory.
Since it started cutting rates, the Fed has lowered the fed funds rate by 2.25 percentage points to 3%. In just over one week in January, it slashed rates by 1.25 points.
In speeches and statements, Fed members have largely agreed that the downside risks to growth trump the dangers of inflation.
Minutes from the Federal Open Market Committee's January meeting, released last week, showed policy-makers ready to cut rates further if economic prospects sour more than they are expecting. They lowered their outlook for economic growth this year to between 1.3% and 2%, down from the 1.8% to 2.5% forecast in November. Still, policy makers said they found readings on inflation "disappointing."
"Although the downside risks to economic growth will continue to guide the Fed's policy hand ... a keener eye will be kept on inflation," predicted Gregory.  

Nordstrom, Lowe's, Sotheby's
By MarketWatch
Last update: 11:42 a.m. EST Feb. 23, 2008

SAN FRANCISCO (MarketWatch) -- Among the companies whose shares are expected to see active trade in Monday's session are Nordstrom, Lowe's, and Sotheby's.
Fashion specialty retailer Nordstrom Inc. (JWN:) is expected to report fourth-quarter earnings of 90 cents a share, according to analysts polled by FactSet Research.
Lowe's Companies (LOW:), the second-largest home improvement retailer in the world, is projected to report fourth-quarter earnings of 25 cents a share.
Sotheby's (BID:) is forecast to post earnings of $1.49 a share in the fourth quarter.
Donaldson (DCI:) , provider of air and liquid filtration systems, is likely to post fiscal second-quarter earnings of 42 cents a share.
Luxury hotel and restaurant owner Orient-Express Hotels (OEH:) is estimated to report earnings of 20 cents a share in the fourth quarter.
LDK Solar Co. (LDK:) , manufacturer of multicrystalline solar wafers, is expected to report fourth-quarter earnings of 41 cents a share.
FirstEnergy (FE:) , a diversified energy company, is forecast to report earnings of 94 cents a share in the fourth quarter.
Shanda Interactive Entertainment (SNDA:) , a China-based interactive entertainment media company, is estimated to post earnings of 45 cents a share in the fourth quarter.
Tesco (TESO:) , manufacturer of technology-based solutions for the upstream energy industry, is likely to report earnings of 22 cents a share in the fourth quarter.
After Friday's closing bell, Genentech Inc. (DNA:) said the U.S. Food and Drug Administration granted an accelerated approval for Avastin, in combination with paclitaxel chemotherapy, for the treatment of patients who have not received chemotherapy for their metastatic breast cancer. Accelerated approval means that the FDA must still review data on the drug before granting full market approval. The approval is based on a Phase III study that showed that Avastin in combination with paclitaxel chemotherapy resulted in a 52% reduction in the risk of disease progression or death. Avastin is already FDA-approved for colorectal cancer and non-small-cell lung cancer.
Watch list
A group of eight banks that are major counterparties to Ambac Financial Group (ABK:) may recapitalize the struggling bond insurer in a bid to save its crucial AAA rating, two people familiar with the situation said. The negotiations have progressed in recent days, the people said. The plan could be unveiled Monday or Tuesday, according to one of the people. But the other person said no firm timetable has been set. Both also said the plan isn't a done deal yet.
Aon Corp.'s (AOC:) Aon Re Global agreed to acquire Gallagher Re's U.S. and U.K. reinsurance brokerage business for an initial payment of $30 million in cash and an additional payment for revenue generated in the 12 months following the close of the transaction. The insurance and brokerage consulting company said with the acquisition, it will now have a larger presence in the U.S. accident, health and life insurance markets, along with enhanced capabilities in the U.K. specialty, casualty and financial institutions business.
Humana Inc. (HUM:) said its board approved a stock buyback of up to $150 million. The company had about 170 million shares outstanding as of Dec. 31.
A top Microsoft Corp. (MSFT:) executive told the software giant's employees that the proposed merger with Yahoo Inc. (YHOO:) would combine two cultures with "a passion for great engineering." Kevin Johnson, president of Microsoft's platform and services division, also said that if the merger moves forward, the software company plans to maintain locations in Washington State and in Silicon Valley.
Time Warner Inc. (TWX:) expects to cut more jobs in its magazine publishing division in the first quarter, resulting in $10 million to $20 million in expenses, the Associated Press reported, citing a regulatory filing by the company. Time Inc. spokeswoman Dawn Bridges told the AP that the job cuts affected fewer than 100 people, and that most of them had already occurred in various parts of the company.

http://biz.yahoo.com/ap/080130/economy.html  

Renditeschrauber vom Potomac (EuramS)
Unauffällig, schlank, ehrgeizig: Der US-Mischkonzern Danaher wächst rasend schnell – und macht Aktionäre mit einem Plus von durchschnittlich 25 Prozent im Jahr glücklich

von Stephan Bauer

Nicht mal ein Firmenemblem schmückt die schlichte Glasfront des Bürohauses in Washington. Im zwölften Stock des Komplexes in der Pennsylvania Street haben die knapp 50 Beschäftigten der Zentrale der Danaher Corp. ihren Arbeitsplatz. Die Größe des Firmensitzes und der glanzlose Auftritt deuten auf ein mittelständisches Unternehmen hin. Doch hinter der unscheinbaren Fassade steckt ein multi­nationaler Mischkonzern, der Milliardenumsätze macht. So klein die Kernmannschaft um Vorstandschef Lawrence Culp auch ist, so groß ist ihr Ehrgeiz: "Wenn wir eine Schlacht knapp gewinnen, freuen wir uns. Und wir denken darüber nach, wie wir das nächste Mal souverän siegen", gibt Culp die Denke vor.

Schlank und schlagkräftig ist Danaher, und es ist das vielleicht unbekannteste Konglomerat der Welt. Seine Spitzenleute gelten als äußerst medienscheu. Von den Strategen und Gründern, den Brüdern Steven und Mitchell Rales, existieren nicht einmal aktuelle Bilder. Der Grund: 1985 berichtete das US-Wirtschaftsmagazin Forbes unter der Zeile "Firmenjäger in kurzen Hosen" despektierlich über die einstigen Jungunternehmer. Seitdem meiden die Milliardäre die Öffentlichkeit.

Abseits der Medien feilen die Rales-Brüder weiter an ihrer Wachstumsstory. Das jüngste Kapitel haben sie gemeinsam mit Vorstandschef Culp gerade durch die Übernahme des US-Messgerätekonzerns Tektronix geschrieben. Für den Ausbau der Sparte Industrieausrüstung griff das Trio tief in die Schatzkiste des Konzerns und schulterte zudem neue Kredite. 2,8 Milliarden Dollar zahlte Danaher – ein Drittel mehr als der Börsenkurs von Tektronix. Kritik aus der Finanzbranche, man kaufe gelegentlich zu teuer ein, tut dem Vorwärtsdrang der Truppe aus Washington jedoch keinen Abbruch. Im Schnitt bringt es Danaher beinahe alle zwei Monate auf eine Übernahme. Seit der Gründung 1980 ist der Konzern quasi von null auf elf Milliarden Dollar Umsatz gewachsen. Auch im vergangenen Quartal legte die Wachstumsmaschine wieder um 20 Prozent zu.
Trotz kostspieligen Shoppings stimmt die Bilanz für die Aktionäre: In den vergangenen 20 Jahren haben Anleger einschließlich Dividenden im Schnitt fast 25 Prozent pro Jahr mit der Aktie verdient.

Sogar Berkshire Hathaway, der Mischkonzern von Börsenlegende Warren Buffett, kann da nicht mithalten. "Wir holen mehr aus unseren Beteiligungen raus als andere", sagt Culp. Hinter der selbstbewussten Aussage steckt keine Arroganz, sondern eine ausgeklügelte Strategie. Denn das Erfolgsgeheimnis von Danaher liegt im stetig anschwellenden Geldstrom. Jahr für Jahr wächst der sogenannte Free-Cashflow des Konzerns. Finanzchef Daniel Comas hat somit beständig mehr Geld für Investitionen oder Zukäufe übrig. So können es sich die Amerikaner leisten, fünf- bis sechsmal im Jahr immer größere Fische an Land zu ziehen. Wegen der zuletzt im Weihnachtsquartal wieder glänzenden Cashflow-Zuwächse verzichtete die Ratingagentur Standard & Poor’s übrigens trotz der Tektronix-Übernahme auf eine Herabstufung. Der Name ist somit Programm: Am River Danaher, einem kleinen Fluss in den Bergen Montanas, hatten die ehemaligen Firmenjäger Steven und Mitchell Rales der Legende nach beim Forellenfischen die entscheidende Idee – kaufe ein Unternehmen, mache es so rank und schlank wie eine Forelle und kaufe mit dem frei werdenden Geld neue Firmen. Das kleine Unternehmen wuchs schnell, inzwischen zählt das Imperium, an dem die Rales-Brüder rund 20 Prozent halten, über 600 Töchter. Die Produkte des industrie­lastigen Konglomerats reichen dabei von der Heimwerker-Bohrmaschine über industrielle Mess- und Kontrollsysteme bis zum Zahnarzt-Equipment.

Der Alltag in den aufgekauften Firmen ist vom Angleridyll in den Rocky Mountains indes so weit entfernt wie das Flüsschen Danaher vom Potomac in Washington. Statt Vogelgezwitscher und Wildbachrauschen lauschen neu akquirierte Manager zunächst intensiv der Firmenreligion. Auf einer mehrwöchigen Rundreise durch die Danaher-Welt vertiefen sich die Zöglinge in das Danaher-Business-System, kurz DBS.
Das hauseigene Managementprinzip ist so etwas wie eine Spezialdiät, die die Amerikaner allen Zukäufen verpassen. DBS geht jeglicher Verschwendung an den Kragen, ob es sich nun um unnütze Arbeitsschritte, überflüssiges Inventar oder ineffiziente Produktionsabläufe handelt. "DBS ist wie ein Werkzeugkasten. Es geht zunächst um ganz einfache Dinge, wie etwa einen aufgeräumten Arbeitsplatz", erklärt Alexander Granderath, Europa-Chef von Danaher und zugleich Geschäftsführer des medizintechnischen Ausrüsters KaVo aus Biberach. Ganz allein haben die Rales-Brüder ihren Werkzeugkasten jedoch nicht erfunden. Das Prinzip geht auf das japanische "Kaizen" zurück, der stetigen Verbesserung aller Arbeitsabläufe, wie sie einst Autobauer Toyota erfolgreich auch in den USA einführte. Farbige Markierungen in den Danaher-Fabriken geben etwa den Platz für jedes einzelne Werkzeug vor. Jeder Handgriff muss sitzen. Der Arbeitsfluss, der Workflow, soll schließlich optimal sein, damit der Geldstrom anschwillt.

Über die Organisation der Produktion hinaus hat Danaher inzwischen innerhalb des DBS auch Werkzeuge entwickelt, die abstraktere Vorgänge optimieren – etwa die Einbindung der Kundenwünsche in die Gestaltung der Produkte. "Wir setzen solche Werkzeuge in einwöchigen Kaizen-Veranstaltungen in die Praxis um. In einer Woche kann man viel bewegen", sagt Europa-Chef Granderath.
Trotz des tief greifenden Wandels, dem sich die neuen Töchter ausgesetzt sehen, will Danaher kein Problem mit der Abwanderung von Führungskräften haben. "Die Manager unserer Zukäufe bleiben zum allergrößten Teil", sagt Granderath. Immerhin hören die Danaher-Leute bei den wochenlangen Sitzungen ebenfalls aufmerksam zu und greifen clevere Ideen der übernommenen Firmen auf. Die besten landen als neue Werkzeuge im Danaher-Koffer. "Sobald die Leute das feststellen, sind sie meist sehr schnell an Bord", berichtet Granderath.

Noch läuft die Integration des jüngsten Zukaufs Tektronix. Doch das Team um Boss Lawrence Culp hat sich bereits in den nächsten Übernahmekampf gestürzt. Es geht um Whatman, einen britischen Hersteller von Laborausrüstung. Culp würde die Briten nur zu gerne seiner Medizintechniksparte einverleiben, dem jüngsten Betätigungsfeld des Mischkonzerns. Unter den Sparringspartnern ist übrigens auch General Electric, das größte und mächtigste Industriekonglomerat der Welt.
Das kann teuer werden. Doch der Geldstrom bei Danaher dürfte auch in diesem Jahr mächtig anschwellen. Und ein Firmenschild für die Zentrale ist auch nicht eingeplant.  

 

Visa proposes would would be richest U.S. IPO
By Steve Gelsi, MarketWatch
Last update: 7:55 a.m. EST Feb. 25, 2008
NEW YORK (MarketWatch) -- Visa Inc. has set its sights on generating the largest proceeds ever raised in a U.S. initial public offering, proposing Monday a whopping $18.8 billion deal that will likely begin trading on the New York Stock Exchange within the next several weeks.
The San Francisco card giant plans to offer 446.6 million Class A common shares, including 40.6 million shares for underwriters in a traditional "green shoe" portion of the deal.
At the top of the proposed pricing range of $37 to $42 a share, Visa's IPO would raise some $18.76 billion, easily eclipsing the $10.6 billion raised by AT&T Wireless in 2000 as the richest-ever U.S. IPO.
Visa plans to trade on the NYSE under the symbol V, according to a Securities and Exchange Commission filing made early Monday.
Visa's total market capitalization will weigh in at $38 billion with a total of 967 million shares outstanding.
Details of the IPO could help stoke bullish sentiment to start the trading week as Visa stakes its future as a public company despite turmoil in the financial sector and bearish conditions in the stock market this year.
It's also debuting on the heels of big gains by MasterCard Inc. (MA: 199.65, -3.83, -1.9%) , which has doubled to $200 from $100 in the past year.
For 2007, Visa reported an adjusted loss of $861 million on operating revenue of $5.2 billion. For the seasonally important three months ended Dec. 31, Visa's net income amounted to $424 million on revenue of $1.5 billion.
AT&T Wireless held the No. 1 slot with $10.6 billion raised in 2000, followed by $8.7 billion for the 2001 IPO by Kraft Foods (KFT: 31.41, +0.04, +0.1%) , $5.5 billion for United Parcel Service (UPS: 71.98, +0.09, +0.1%) in 1999, $4.6 billion for CIT Group (CIT: 24.51, -0.22, -0.9%) in 2002 and $4.4 billion for Conoco in 1998.
Blackstone Group (BX: 15.68, -0.04, -0.2%) raised $4.1 billion last year, the richest IPO since the $2.8 billion offering launched by Genworth Financial (GNW: 23.13, +0.02, +0.1%) in 2004.
While mega-sized deals have been relatively rare in the U.S., other countries have seen major IPOs.
Petro China (PTR: 149.39, -1.68, -1.1%) , for one, raised $9 billion in its stock-market debut last year as it eclipsed Exxon Mobil (XOM: 88.21, +1.04, +1.2%) in market cap.

PAUL B. FARRELL
11 reasons Bernanke's recession lasts till 2011
Timing the next bull: Kick-start it in 2008? Or is it a long secular bear?
By Paul B. Farrell, MarketWatch
Last update: 7:32 p.m. EST Feb. 25, 2008
ARROYO GRANDE, Calif. (MarketWatch) -- Remember that hot 1973 Stealer's Wheel song marking the end of the Nixon era? "'Cause I don't think that I can take anymore. Clowns to the left of me, jokers to the right, here I am stuck in the middle with you!"
It's still a perfect metaphor. Testifying before Congress: Fed Chairman Ben Bernanke on the left. Treasury Secretary Henry Paulson on the right. The American public stuck in the middle.

Last summer they assured us the subprime-credit crisis was "contained." We now know that was a big lie. They knew, had the facts, early warnings, lied and are still lying. More proof? They just told Congress: "America will avoid a recession." New data tells a different story.
Clowns to the left ... jokers right ... stuck in the middle ... can't take it anymore.
But we have to, we have to hang on at least 10 months more, praying they won't do too much more damage. But I'm afraid they will: more lies, blunders and incompetence will drag out this bear. Like the song says: "Got a feeling something ain't right."
Read the new InvestmentNews, a professional journal for financial advisers. The lead headline grabs you: "Bad times for stocks could last many years." A long secular bear.
Do you believe it? That's the big question today: When's the next bull? How long will the bear last? And forget Washington's rhetoric about "no recession." The truth is, you can call it a "bear," "slow growth," a "downturn," a "recession" -- call it whatever you want. Timing's the real question. How long will it last? When will it bottom? 2008? 2011?
Test your timing skill. You tell us, what'll drag this out 30 months, like in 2000-2002? Or shorten it? Here are 11 critical factors for your timing equation, things that could make this bear-recession shorter or longer. You tell us. Add a comment. What's your prediction: How long before the next bull?
1. Stagflation: Bernanke's no-win Achilles heel
Reading Fed-watcher William Fleckenstein's new book, "Greenspan's Bubbles: The Age of Ignorance at the Federal Reserve," you get the feeling that for 18 years America's banking system was run like a "new age" hippy commune, by a Ayn Rand free spirit who believed "anything goes."
Now the Fed's run by a college professor and Fleckenstein says he's "in over his head." Except this is the real world, a $13 trillion economy in a $48 trillion world, not a college seminar on economic theory.
In the 1970s Nixon faced a similar problem, convinced then by Fed Chairman Arthur Burns: "No one ever lost an election on account of inflation." Wrong! Low rates generated inflation not growth. That stagflation triggered a bear/recession. Is Professor Ben trapped, repeating history?
2. Housing-credit meltdown: We've got a long way to go!
It's far from over folks and still spreading: Years of inventory, foreclosures, building slowdown, risky bond insurers, weak rating agencies, funds holding bad debt, freezing exits and fuzzy math on values. Yet Bernanke and Paulson still live in a Washington bubble of wishful-thinking fantasies.
Economic realists say what's needed is a massive $1.6 trillion demand-driven program (that's the record cash Corporate America's hoarding) not a dinky $160 billion supply-side "appease the voters" giveaway that ends up increasing the odds of a lengthy Nixon/Burns style bear-recession.
3. Commodities: World's new reserve 'currency,' not dollars
Forget paper money and IOUs. Commodities are the world's new "currency:" Hard stuff like oil, grains, metals, gold. And that means America is financing the growth of our enemies, surrendering our long-term economic power for short-term oil-guzzlers and plastic toys. We are responsible for making Russia and China into threatening world powers. Buffett warned us. We're selling the farm, piece by piece.
4. Toxic derivatives: World's $516 trillion ticking time bomb
Derivatives are great for deal-by-deal risk management in a $48 trillion GDP world. But leverage them 10 times over across the globe and we got a financial "weapon of mass economic destruction."
Bill Gross warns that the world's new unregulated "shadow banking system" is printing new money, now at $516 trillion, out of thin air, with no "central banks of last resort" backing up the "Frankenstein" monsters they've created.
5. Massive debt: Everywhere, trade, federal, states, local
America's Comptroller General David Walker, Congress's head accountant who is leaving his position next month, warns our government is "bankrupting America." Using unethical accounting worse than Enron's. Fiscal responsibility lost. He sees "striking similarities" with Rome. Both parties are gluttons in a spending orgy.
We spend-spend, load debt on future generations, then use accounting gimmicks to hide our greedy excesses: Hidden earmarks. Supplemental war appropriations. Meaningless IOUs after stealing from Social Security.
6. America's new 'pushers:' Banks feeding consumer addicts
Trader's Daily captured it perfectly: "Never underestimate the power of the superpsycho, hyper-spending American consumer. Where there is no cash, they will sell their soul. Or just charge it. Let's just not think about what it all means for credit-card debt down the road."
Meanwhile, the credit meltdown is making banks desperate for money. A recent Chase credit-card commercial fuels consumer addictions: Wife wants bigger television. Husband smiles. They shop to the pounding drumbeat of Queen's hit 80s song: "I want it all, I want it all, I want it all ... and I want it now!" Tag line: "Chase what matters!" Yes, Chase debt, all you addicts. Forget saving, spend like there's no tomorrow.
7. More wars: Pentagon predicts bigger, costlier conflicts
The Pentagon's internal studies see a perfect storm accelerating wars worldwide: Global population growth, limited natural resources and global warming. Our war machine is exploding. The Pentagon gets over 50% in the new federal budget. We're only 21% of the world's GDP, yet spend 47% of the world's total military expenditures.
Our power-hungry mindset is becoming self-destructive, suicidal. Remember Nixon strategist Kevin Phillips' warning: "Most great nations, at the peak of their economic power, become arrogant and wage great world wars at great cost, wasting vast resources, taking on huge debt, and ultimately burning themselves out."
8. Greed: Wall Street and Corporate America's defining 'value'
Values start at the top. But the top won't change for 10 months. Leadership, statesmanship and character are vanishing. Five short years ago Corporate America and the mutual fund industry were consumed by greed. How quickly we forget.
It's worse today. We see greed consuming not just Wall Street's clueless CEOs, but the entire industry: Outrageous bonuses of $38 billion amid mega-billion write-offs. Fire sales of billions more American equity to sovereign nations.
From the top down, greed is driving America from bubble to bubble. Wall Street's already fueling the next bubble, trading on a volatile market.
9. Democracy failing: America now run by 35,000 lobbyists!
Forget government "of the people, by the people, and for the people." Adam Smith's "invisible hand" is now a small group of 35,000 highly paid, greedy lobbyists demanding handouts. They run America from the shadows, for those at the top of the economic food chain and vastly outnumber Washington's 537 elected officials.
Nationally there's an estimated quarter million lobbyists, with hundreds of millions of dollars to buy favors in campaign contributions. Politicians talk "change," but America's lobbyists will still be working for their special interest clients in 2009. And they'll fight all "changes."
10. America's already in a recession, and in denial
This year's elections will be a huge factor in lengthening the recession. Our lame-duck government will delay action on critical issues. It reminds me of my days counseling addicts and alcoholics. Change never happens until they admit they have a problem. Same here.
Paulson and Bernanke cannot admit there's a recession. They'd have to take blame for America's failed policies. And congressional Democrats are weak co-conspirators in this meltdown. Nobody has the guts to take responsibility. They're all like addicts and alcoholics, in denial, giving lip-service to "change," while they blame the other guys and support ineffectual stimulus plans.
Vote for whomever, but this lame-duck mindset plus lingering partisan rancor will push any recovery at least into 2009, probably delay the next bull till 2010 or 2011.
11. Class warfare: Superrich vs. Main Street America
No matter who wins, the presidential campaign is warning us: A major battle's coming between "the rich and the rest;" over taxes, benefits, cuts, power.
For years the media collaborated with Wall Street and Corporate America, hyping "Ownership, the New American Dream," where everyone benefits, shares the wealth, gains a piece-of-the-action, ownership in "The Dream" through the magic of housing, stocks, growth, profits, retirement plans. But the housing-credit contagion killed the dream.
Yes, the superrich did get richer. But "the rest" didn't. And they're waking up to a widening gap. A backlash is brewing and will explode ... delaying a recovery and a new bull.
Clowns to the left, jokers right, we're stuck in the middle. Can't take it anymore? Add a timing comment. Tell us: When's the recovery? Next bull? Late 2008? Not till 2011?

THE FED
Fed more worried about growth than prices: Kohn
Inflation pressures are likely to moderate, central bank's No. 2 says
By Greg Robb, MarketWatch
Last update: 1:45 p.m. EST Feb. 26, 2008
WASHINGTON (MarketWatch) -- Despite signs that inflation actually strengthened in January, the nation's weak economy and fragile financial markets remain a bigger threat than higher prices, said Donald Kohn, vice chairman of the Federal Reserve Board.
"I do not expect the recent elevated inflation rates to persist," Kohn said in a speech prepared for delivery Tuesday at the University of North Carolina at Wilmington.
'I expect the run-up in headline inflation to be reversed and core inflation to edge lower over the next few years.'
— Donald Kohn, Federal Reserve
"In my view, the adverse dynamics of the financial markets and the economy have presented the greater threat to economic welfare in the United States," Kohn said.
Kohn said growth in the first quarter of 2008 was looking "very sluggish," after the last three months of 2007 were simply "sluggish."
"These have been difficult times for the U.S. economy," he said.
The housing market slowdown and financial market turmoil has spilled over more broadly into the economy. Growth has slowed, unemployment has increased, borrowers and lenders are facing problems, and the financial markets have been disrupted.
In face of these challenges, the Fed has cut interest rates aggressively -- by fully 2.25 percentage points since the latter half of January.
Kohn said that reductions in the federal funds rate could not forestall the period of economic weakness. Rather, policy "can limit the fallout" on the economy brought about by the turmoil in financial markets," he added.
Whether the Fed has done enough "is a question this policymaker will be weighing carefully over coming months," Kohn said.
At the same time, inflation has risen, Kohn said.
There is some evidence that higher food and energy prices are passing through into core consumer prices. The January consumer-price and producer-price reports both showed signs of strong inflationary pressure coming from the usual sources -- food and energy inputs -- but also from several core prices. See comprehensive economic coverage.
Kohn, for one, said he doesn't think this trend would last: "I expect the run-up in headline inflation to be reversed and core inflation to edge lower over the next few years."
Labor-cost increases have remained quite moderate, he noted. Kohn's forecast assumes that energy and other commodity prices will level out as well.
Fed chief Ben Bernanke is scheduled to testify on Wednesday and Thursday about monetary policy in front of members of Congress.
Kohn's views are generally thought to be closely aligned with Bernanke's.
Risks remain
In his speech, Kohn still acknowledged that adverse risks to this scenario "abound."
"Uncertainty could trigger an even greater withdrawal from risk-taking by households, business, and investors, resulting in more pronounced and prolonged economic weakness," he said. "Events beyond our borders could continue to put upward pressure on inflation rates."
Against this backdrop, Kohn said the Fed "will do what is needed" to foster growth and stable prices.