The Daily Business Digest

Right from the day Obama administration took charge, they have been only getting more and more bad news. First it was the forced spending of nearly one trillion of taxpayer’s money to save the failing big companies in the banking and insurance sector.

Then it was the continuing housing crisis which forced the Obama administration to work out a special scheme costing billions of dollars to bail out the housing sector. That was followed by the automobile biggies tumbling one after the other due to the crash in automobile sales.
All these things pushed down the popularity rating of Obama and team to all time low last month.
Now after a gap of nearly nine months since taking charge, the first good news for Obama administration has come in a big way. The US GDP has grown by an unexpected 3.5% in July – September 2009 quarter, which is the first positive growth after being in negative growth for the last four quarters.
The Obama administration has sincerely taken full credit for the upswing in the GDP numbers, but has warned that the economic recovery is going to be slow and also a long drawn process. The administration will be releasing the October unemployment numbers next week, which might top 10% level as per experts. And that is not good news for Obama and team.
And that could really play a decisive role in defeating Obama candidates in the midterm elections.

The advent of internet has been changing the way people seeking and accessing data , in the last decade. And things got aggravated in the last few years further with the enabling of access to internet through mobile phones.
Now people are able to search and read through any news, be it global or national or local, in just few clicks through their laptops or mobile phones.
This has been the key reason behind the continuing decline in the sale of printed newspaper sales. The circulation of the top 400 newspapers in US has dropped further by 10% in the April to September 2009 period, versus a year ago number.
The newspaper companies have been forced to raise the prices in order to make up for the lost volumes, and that has also been one of the reasons behind the sharp fall in the circulation numbers. Experts are expecting the circulation numbers in the coming quarters to continue falling, albeit at a lower pace.

The crude oil prices have been remaining in the 65 dollars to 72 dollars band in the last four months, but the continuing flow of positive data in the last few weeks has helped push the prices to a new year high of 80 dollars.
The Chinese GDP growth was reported at a healthy 8.9% for the September 2009 quarter, while South Korea reported a seven and a half year high GDP growth of 2.9% during the same quarter.
Also many US biggies including IBM, Intel, Microsoft, Google, JP Morgan, Goldman Sachs etc., reported spectacular results for the September 2009 quarter. All these developments have helped the crude oil prices to surge by nearly 20% in the last few weeks, and were seen trading nearly at 83 dollars few days back.
In the last two days, the prices have come back to around the 80 dollars mark due to speculative unwinding.
Seasoned analysts of this vital commodity, are expecting the crude oil prices to remain in the 70 dollars to 90 dollars band in the next few months, provided there are no major negative news from US or Europe or Japan.

The internet giant, Google, had indicated few months back that the worst is over for the technology companies and there were only few takers. But the results the company announced last week clearly indicate that the worst is over for Google definitely.
The company has reported a healthy 7% growth in revenue to nearly six billion dollars, and the bottom line has grown nearly 20% to 1.88 billion dollars. The company has seen a 14% rise in the paid clicks and Adsense revenues, which is a very healthy sign. The sharp growth in profitability is also due to the special cost cutting efforts taken by the company in the last few quarters.

The housing sector is the backbone for any economy, and US is no exception. The US housing has been climbing up fast till 2006 and US economy was then at the pink of health.
But the housing sector started falling down from 2007 and it lead the US into deep sub-prime crisis from 2007 end onwards. The housing sector is the best employment generator and it also leads to lot of demand generation for core industries like cement, steel, furniture, electrical items etc.,
The US housing sector has been showing negative growth of over 15% ever since 2008 beginning, and the steep decline is still continuing.
The September 2009 month has seen a whopping 28% drop in the housing starts number versus a year ago figure. That is indeed a sharp drop, and the high level of unemployment coupled with uncertain economic environment is forcing people to postpone or defer their home buying plans.
The government has already done the best possible through a two pronged strategy. First it has brought down the mortgage rates to multi-year lows, which are below 5% now. The second thing that the Obama administration has done is to give a 10% cash rebate (subject to a maximum of $8000) for all the first time home buyers till 30th November 2009.

Barack Obama has already seen his popularity rating going down drastically in the last two months, due to continuing rise in unemployment coupled with no clear signs of recovery. And there is a bigger enemy waiting in the wings, to hit Obama’s popularity further in the coming weeks.

The big companies of Wall street, like Goldman Sachs and Morgan Stanley were bailed out by Obama’s administration under the guise that these companies are too big to fall. Obama used billions of dollars of tax payer’s money to bail these companies out.
These companies ended up paying the bonus for last year, under the pretext these bonuses were part of the salary packages agreed at the beginning of the year. Obama administration at the end of the day was never able to stop these companies from making billions of bonus payouts to their employees, in spite of being on ventilator support with taxpayer’s money.
Now, these companies have made huge profits in the last six months of this year, and have already announced bonus payouts which are totaling over 130 billion dollars. Again Obama does not have any tool in place to stop this payment, which is an indirect way of paying out these inefficient and reckless employees , at the cost of taxpayer’s money.
Ideally, Obama must have allowed one or two more of these companies to go under, and used that as a reason for bringing serious reforms for the industry. But he has lost all that opportunity and now he is absolutely at the receiving end.
Wall street companies have always been merciless to the wrong policies of the government, and they are expected to continue with that attitude.
While just a million people might receive over 130 billion dollars of bonus money, over 57 million social security benefit receivers would receive just 14 billion dollars of one time benefit. So Obama is all set to be pulled down by these 57 million people plus millions of people who cannot digest this disparity.

The third quarter of 2009 seems to be the best in the history of Google in terms of net profits. The company has turned out 1.6 billion US dollars of profits in the September 2009 quarter, thanks to increasing internet advertising revenues and also the shrinking role of Yahoo and Microsoft in the internet space. A 27% increase in net profits for a Google sized company during an uncertain period for the economy, is indeed a wonderful and laudable achievement.
The internet domain leader has also been paid off handsomely for the special cost cutting efforts taken in the last ten months. More and more companies are now cutting down on their Television and paper media advertisements and are moving on to internet advertising.

And internet advertising has to be routed through a dominant player like Google if you want to ensure good returns for your advertising spends. And Google straight away wins on this count, and whether there is full fledged recovery in the US economy or not, Google will be able to increase it’s revenues in the next few quarters.
The Google shares have been able to help the Dow Jones hit the coveted 10000 mark this week and it is likely to push the Technology sector stocks upwards in the coming weeks.
Google is already working on improving the range of products that it offers for it’s millions of customers across the world. A leading analyst firm has already put a target price of $700 for the company shares by 2010 March.

The results from Intel were better than the estimates of analysts, and so were the results from JP Morgan chase. But the results from Bank of America was totally disappointing when the bank reported a massive one billion US dollars loss for the September 2009 quarter, due to major write offs for bad debts across segments.
The results from Goldman Sachs was again exemplary and the company is all set to fight it out with the US government for the record bonus amounts to be paid out to the employees.
But the results from General Electric was far below the analyst estimates when the sales was down by nearly 20%. And the profits slided at a massive 45 percent due to decline in real estate and consumer lending activities. The immediate outlook is also not so rosy for General Electric, while Goldman Sachs is expecting to improve the performance in the current quarter.
The results from Citi group is also way below the expectations of the investors and it may take a longer time to get back to good health. There is even a possibility for the Citigroup to go the Lehman Bros way, if the US economy were to falter again in the coming months.
So overall, the results from various US biggies are not that rosy, and investors would do well to wait for some more clarity on the economic front, before putting in their hard earned money in stocks and corporate bonds.

The Dow Jones Index is the barometer of the state of the US economy, and it was languishing below 7300 points at the beginning of this year at the peak of the economic crisis. And over the last few months, the Dow Jones index has been moving up slowly and steadily, with every positive news flow.
The US big banks started reported good results for the June quarter and now the “better than expected” results from Intel and JP Morgan have been guiding the Dow Jones index to the record high level of 10000 points.
Today the market was able to achieve this feat, and experts tracking the stock market opine that the Dow Jones might be in the 9000 points to 11000 points for the next three months. Post that the actual trend of the Dow Jones index will depend on the US economic recovery. If there is a marked recovery in the economy, then the Index might go beyond 11000 points, and on the other hand, if there is a slippage in the green shoots, then the index might slip below 9000 points. So it would be prudent to put fifty percent of your cash into equities and keep the balance for bargain hunting at a later date.

The American Insurance Group went nearly bankrupt last year at the peak of the financial crisis, and the Obama administration took the bold (rather risky) step of pumping in over 182 billion dollars into the company, and helped it to survive.
The AIG has since then been able to reduce the losses and is now in the process of identifying assets for sale over the next one year. The AIG has to repay the loans to the government, and hence it has now started to sell it’s Taiwan based Life Insurance Unit to a group of investors, for 2.15 billion dollars.
Primus Financial and China Strategic Holdings Limited are going to buy 98% stake of AIG in the Taipei based unit. The money is expected to help out AIG in repaying the loans slowly and also fund the working capital requirements. Only in the month of July 2009, AIG sold it’s auto unit for two billion dollars.
Over the coming months also, we can expect AIG to sell various arms in order to become financial viable. The first and foremost requirement for that is to repay the balance loan from the US government running currently at over 170 billion dollars.
And with the stock markets and the money markets limping back to normalcy, AIG will be able to get better rate for it’s assets.