Marketplace: News Archives

Thursday, December 14, 2000

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It's Thursday, the 14th of December. I'm David Brancaccio.

The General Services Administration handed over the electronic passkeys to presidential transition offices George W. Bush's transition team today. Also part of the deal is a 5.2 million dollar government account to be used to get 6,000 political appointees in place and the next administration going. This may be the last blank check the Bush administration will get. The rest of the spending must go through the Congress, including an evenly-split senate. Despite calls for unity from both the president-elect and his vanquished challenger last night, the bruises of the post-election fight will take time to heal. Plus, the economy appears to be weakening. All of this will play a role as President Bush tries to move forward with his economic agenda. Stanley Collander, a federal budget expert at Fleischmann Hillard, says there will most likely be a tax cut, just not as big as Bush might have hoped.

Collander: "The big 1.3 trillion dollar tax cut is a lot more than the economy can stand right now without reigniting inflation, or at least getting the federal reserve worried about it. There's not enough money to pay for it - the surplus isn't as big as anticipated. Under those circumstances, the Bush administrationis gonna be looking at smaller, more targeted and policy-oriented cuts, like ending marriage penalties, ending estate taxes, and that kind of thing..."

The daily confessions continue on Wall Street. Today, JP Morgan and Chase Manhattan are the latest to warn about sagging profits in the months ahead. Investors were rattled, unhappy with what's turning out to be a very bleak Pre-announcement season, as marketplace's Michelle Brier reports...

Brier: "This time last year, about 200 companies were warning Wall Street they'd miss the mark on their fourth quarter earnings. But with most actual profit reports still more than four weeks away, we've already heard from over 300 companies expecting lower earnings ahead. And the warnings are no longer confined to the much-maligned technology sector, says Bryan Piskorowski at Prudential Securities…"

Piskorowski: "We've seen Fed Ex preannounce, Maytag preannounce, and Whirlpoo,l to name a few. And then the financials, JP Morgan and Chase today, so you are seeing this throughout the whole economy."

Brier: "The list is getting longer and broader as more companies feel the pinch of a slowing economy, says economist Chris Lowe at First Tennesse Markets.

Lowe: "Instead of GDP growth of 8 percent like what we had at the end of last year, or 6 percent like we had in the first quarter of this year, we are looking at GDP growth of less than 3 percent in the fourth quarter, maybe even only two percent and that is having a profound impact on profit margins."

Brier: "The usual culprits - sluggish sales and higher operating costs - are partly to blame for the weaker earnings, but Lowe says a build up of inventory, in retail and in manufacturing, is also at fault. The stockpiles that are costing companies money today were assembled after demand far outpaced supply for many goods this time last year. In New York, I'm Michelle Brier for Marketplace."

Dimsdale: "To get regulatory approval, AOL and Time Warner have agreed to give other internet service providers equal ability to sell their wares on Time Warner's extensive cable lines. Cable is so far the best way for fast computer access to the Internet from home. Federal regulators negotiated the concessions in an effort to keep the new technology open and competitive. The huge company's sacrifices have taken some of the luster from AOL's potential profits, at least according to some analysts. AOL's stock price has dropped nearly a third since the proposed merger was announced back in January. But Yale management professor Barry Nalebuff says the combined AOL and Time Warner will still be able bundle its advantages into an attractive - and competitive - package for consumers."

Nalebuff: "AOL has a whole series of phone numbers, so when I'm traveling around the world, I'll be able to access them - not just at home. By connecting that with cable TV options, by putting in various movies ... who knows? They could throw in magazine subscriptions by the time we're done with this."

Dimsdale: "The Federal Communications Commission now becomes the final hurdle for AOL/Time Warner ... one that's expected to be easily surmounted before the year is out. The FCC is likely to require AOL to open up its Instant Messaging service to competitors. In Washington, I'm John Dimsdale for Marketplace."

Myrow: "Because Energy Secretary Bill Richardson stepped in, California is unlikely to have rolling blackouts this week. But Governor Gray Davis and Senator Dianne Feinstein want the feds to take further steps, such as seting a regional price cap on wholesale electricity because of concern the state's two largest utilities are facing bankruptcy. Pacific Gas and Electric and Southern California Edison won't say they are nearly broke, but they admit their lenders are nervous about extending more credit. Tom Higgins, with Edison International, Southern California Edison's parent company."

Higgins: "Well, I hope FERC will act, but that's not enough. We need action by state policy makers and state regulators and we need the state to take these actions as quickly as possible."

Myrow: "In particular, the utilities want the California Public Utilities Commission to let them raise consumer rates, as happened in San Diego. Doug Heller of the Foundation for Taxpayer & Consumer Rights smells a rat."

Heller: "I don't think the utilities are really going to go bankrupt. Their parent companies are flush with cash as a result of the whole deregulation process. Only recently have things turned south on them. And they're playing a game of chicken with California regulators. They want to threaten us with bankruptcy so we can bail them out."

Myrow: "Even if that's true, it's not worth finding out, according to Arthur O' Donnell. He's editor of the independent newsletter California Energy Markets."

O' Donnell: "This would be as if a Ford or IBM declared bankruptcy. The state doesn't have any interest in seeing that happen, so they're going to go out of their way to make sure that doesn't happen."

Myrow: "O' Donnell does worry that the energy suppliers are being unfairly demonized for things like high natural gas prices, tough environmental rules, and the terms of deregulation written up four years ago. For Los Angelenos, the staggered implementation built into the bill is turning out to be an unexpected blessing. LA's Department of Water & Power isn't suffering one bit. In Los Angeles, I'm Rachael Myrow, for Marketplace."