U.S. ECONOMIC/FINANCIAL NEWS
U.S. Dollar Continues To Sink, as Gold Rises
The U.S. dollar hit a three-year low against the euro, as the price of gold soared to new heights. The dollar dropped to $1.0487 per euro at the close of trading Jan. 8, having fallen as low as $1.0534 per euro, its weakest since November 1999; and fell to 119.06 yen. Gold jumped $6.60 to $354.30 per ounce, the highest closing price since April 1997.
GM: Pension Costs To Triple, Profits Slide in 2003
General Motors says pension costs will triple in 2003, and profits tumble, as it cuts projected investment returns, Bloomberg reported Jan. 9. The world's largest automaker, whose underfunded $76-billion pension fund (covering almost 650,000 active and retired workers) is the biggest in the U.S., lowered the projected growth rate for assets in its retirement account from 10% to 9%after its pension fund lost 7% of its value in 2002 because of the stock-market collapse. The lower growth rate caused the estimated pre-tax pension expense this year to jump to $3 billion, from $1 billion in 2002. As a result, GM said it expects earnings to fall about 26%. The pension deficit, according to GM, doubled to $19.3 billion at the end of last year, compared with $9.1 billion at the end of 2001.
"GM is just the first crack in the dike," said an analyst quoted by Bloomberg.
Imagine what GM's underfunded statusand profitwould be, were the company to acknowledge the reality of the stock-market death spiral. Phantom pension earnings, according to one estimate, accounted for 69% of profit reported by U.S. companies in 2001.
New Year Opens With Surge of Layoffs
U.S. companies announced 1.467 million job cuts in 2002. Firms said they intended to slash more than 92,900 jobs from their payrolls in December, a 41% drop from the 157,500 planned layoffs in November, but "not ... an indication of a downward trend," according to employment research firm Challenger, Gray & Christmas.
Buyout of Beth Steel To Force Huge Layoffs
Forty percent of Bethlehem Steel's workforce will be laid off when ISG acquires the company, the Cleveland Plain Dealer said Jan. 7. Buy-out expert Wilber Ross, a former top executive for Rothschild financial interests, who created ISG to pick up the bankrupt LTV Steel at bargain basement prices in 2002, has posted an official $1.5-billion bid for Bethlehem's assets. It is an open secret in the industry that the deal involves the layoff of at least 40% of Bethlehem's current 12,000-person work force and the imposition of a labor contract identical to that just negotiated between ISG and the United Steelworkers of America, drastically reducing pensions and health benefits, and eliminating many work rules.
Ross is repeatedly quoted in the media boasting about the productivity of ISG with its greatly reduced work force and "more flexible" work rules. Both the current Bethlehem management and the union justify the deal and the layoffs on the dubious grounds that everyone will be even worse off if Bethlehem simply goes under. While it appears to be a done deal, official acceptance by Bethlehem's management and approval by a Federal bankruptcy court are still required.
The combination of the two companies would result in the largest single integrated steel producer in the United States and create a model which would dominate what's left of the industry.
AT&T To Cut Thousands More Jobs; 4Q Profits Threatened
AT&T will slash 3,500 more jobs, and report $1.5 billion in expenses, likely wiping out fourth-quarter profits, the company announced Jan. 6. The largest U.S.long-distance phone company, said the majority of the job cuts (4.9% of its workforce)in addition to the 10,000 positions shed in the past two yearswill occur at the division that sells phone and data services to businesses, and mainly affect managers. The job cuts will cost $240 million. The company will also lower by $200 million the value of its high-speed Internet network; and take a $1.1-billion charge to write down its 69% stake in AT&T Latin America, which may file for bankruptcy protection.
Alcoa Reeling from Aerospace Meltdown; 8,000 Jobs To Go
Alcoa, hit by the collapsing aerospace industry and falling aluminum prices, will jettison another 8,000 jobs, mainly at businesses that supply makers of aircraft and power-plant turbinesand sell some packaging, chemicals, and construction businesses in order to reduce debt. The world's largest aluminum producer said its fourth-quarter loss widened to $233 million.
Factory Orders Down as Businesses Cut Capital Spending
U.S. factory orders fell in November for a third month in four, as businesses cut capital spending, the Commerce Department stated Jan. 7. New orders for U.S. manufactured goods dropped 0.8% in November, compared to October, to $319.3 billion, led by a decline in transportation equipment. Orders for non-defense capital goods, excluding aircraft, which is an indicator of business spending plans, tumbled by 2.6%. "There is no pickup in investment spending, and it doesn't look like it's going to pick up any time soon," said an economist at Dresdner Kleinwort Wasserstein.
Health-Care Costs Dominate Labor-Industry Negotiations
Rising health-care costs have become the number one issue at the bargaining table, as medical costs rise and employers demand higher premiums from employees, USA Today reported Jan. 9. Up to 17,500 General Electric workers may be out on strike by this week, if GE's demand for concessions on health-care payments is not modified. GE's demand would hike co-pays for specialists from $15 to $25, and emergency-room visits from $30 to $50. When Boeing workers threatened a strike last summer, increased health-care premiums were a key sticking point. When they settled, "No one liked the [Boeing] proposal, but the economy is so bad hereand 30,000 Boeing workers had been laid offthat people were afraid to strike," an International Association of Machinists District leader said.
By spring-summer 2003, contracts will be negotiated for auto, telecommunications, and state employees. It is expected that these negotiations, too, will include health-care concessions as a number one issue.
Home Foreclosures Edge Up to Record Levels
U.S. home foreclosures rose to 1.15% of over 34 million mortgages at the end of the third quarter of 2002up from 1.13% in the second quarter, according to the Mortgage Bankers Association of America, in a report released Jan. 7. The previous high was 1.14% in 1999. Moreover, the foreclosure rate on so-called subprime loans, held mainly by low-income people, rose to 8.58%. Overall, the percentage of mortgage loans that are delinquent (at least 30 days past due) fell slightly to 4.66% at the end of September, down from 4.77%subprime loans had a delinquency rate of 14.28%.
Wall Street Police Blotter
*Former Adelphia Communications accounting director Timothy Werth pleaded guilty to fraud in Manhattan Federal court on Jan. 10. Werth entered a guilty plea to one count of securities fraud and one count of conspiracy to commit securities, wire, or bank fraud, charges which carry a combined maximum of 15 years in prison. Under a plea agreement, requiring him to cooperate fully and truthfully in the government's case against the bankrupt cable TV operator's founder John Rigas and sons, Werth could receive a lighter sentence.
*Tenet Healthcare has been sued by the U.S. Justice Department for $323 million, for filing false Medicare claims from 1992-98, that improperly classified illnesses to inflate reimbursement from the government program. The lawsuit, filed in Los Angeles on Jan. 9, accuses Tenet of manipulating diagnosis codes for pneumonia, septicemia, and other illnesses, a practice known as "upcoding." The Justice Department charges, for example, that about 70% of Tenet's Medicare claims for a certain kind of pneumonia were falsely coded to a diagnosis that had a $4,000 higher reimbursement.
Federal investigators, in a separate probe, are looking into why a disproportionate number of Tenet's patients have been classified as "outliers," a term for patients requiring care that costs more than the average payment rate, and triggers larger Medicare reimbursements.
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