MarketWatch First Take

Breaking news commentary for Jan. 15, 2009

 • Intel issues a fudgy outlook in a cloudy environment
 • Mary's quite contrary agenda unveiled in Washington
 • Chavez welcomes back Big Oil Amigos
 • Time to impose conditions on bailouts
 • J.P. Morgan's results reflect environment, not management
 • Trichet strangely detached from economic crisis

Intel's cloudy outlook not a good sign
Commentary: Chip giant trying to play it both ways
Last Update: 5:53 PM ET Jan 15, 2009

SAN FRANCISCO (MarketWatch) - Intel Corp.'s grim fourth-quarter results Thursday were anticipated by investors, after the company had twice warned, but some were still hoping a ray of sunshine would brighten the clouds of the current economy.
Pas de chance. The world's largest chip maker said, in typical corporate derriere-covering, that "due to the economic uncertainty and limited visibility," Intel (INTC:
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Then in an about-face, Intel added that for internal purposes only, it figured first-quarter revenue would reach roughly $7 billion (which would be down about 28% from first quarter 2008 of $9.7 billion). Glen Yeung of Citigroup said in a brief note that this outlook is down from consensus estimates of $7.29 billion.
It seems Intel officials are trying to give investors something, but they just don't want to be held accountable for it. Talk about having your cake and eating it, too. See Intel story.
Either way, a fudgy internal outlook or no outlook at all is not a good sign. The chip business, like the rest of the world economy, is in a severe downturn. Typically, when companies say they have no visibility, it means they don't see much of anything ahead in terms of improving demand.
Yeung also noted that the company may be including write-downs of excess inventory in its outlook. He found one comforting factor, however, in the company's non-guidance. "Proven to be accurate, it is in line with our preview and does suggest a deceleration of quarter-to-quarter declines."
Investors are clearly watching for whatever the bottom of this cycle is, but it does not appear to be here yet.
— Therese Poletti

Schapiro's plan
Commentary: Nominee to head the SEC favors some out-of-character reforms
Last Update: 4:13 PM ET Jan 15, 2009

NEW YORK (MarketWatch) - Mary Schapiro, the best regulator money can buy and President-elect Barack Obama's pick to lead the Securities and Exchange Commission, on Thursday gave more than a hint of the reforms she would press for if she gets the job.
Testifying at her confirmation hearing, Schapiro shot back at critics who say she pursued small violations at small firms while large-scale abuses — Bernie Madoff, toxic mortgage-backed securities, capital failures at Lehman Brothers and Bear Stearns — went unchecked by her regulatory body, the Financial Industry Regulatory Authority. See story on Schapiro's record.
Schapiro argued that FINRA has taken on the big brokerages by cracking down on products and practices deemed harmful to investors. See story on confirmation hearings.
She also outlined some new regulatory ideas such as:
  • Pooling Wall Street cash to pay for ratings on securities. That would temper conflicts of interest some say are responsible for overrating what ended up being worthless securities.
  • Strengthening Washington's role in regulating insurance and their non-insurance businesses. Insurance companies are almost entirely regulated by states.
  • Regulation of hedge funds.
Schapiro is a career regulator who has drawn fire for being too accommodating to the industry. She was the architect behind the merger of the NASD and part of NYSE Regulation a couple of years ago, a move that the industry favored, and is considered highly compensated, drawing $3 million as FINRA chief.
But the Mary Schapiro on display Thursday would be blast of energy at a sleepy SEC if she followed through on those reforms. If the old Schapiro shows up, it will be business as usual and that could be good or bad, depending on whom you believe.
- David Weidner

Venezuela beckons
Commentary: Chavez welcomes back Big Oil Amigos
Last Update: 2:40 PM ET Jan 15, 2009

SAN FRANCISCO (MarketWatch) - Comrades! Let's kiss and make up.
President Hugo Chavez, according to the New York Times, is quietly inviting Big Oil back to Venezuela to bid on new development projects. Two years ago, he was rudely shredding existing production sharing agreements with those same companies to give a bigger share of the revenue pie to state oil company Petroleos de Venezuela SA.
Exxon Mobil (XOM:
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That was then. Times have changed. So has the price of oil, falling to a four year-low. That means Venezuela faces a huge drop in revenue from its oil exports. It also means less cash for the social programs that keep Chavez in power.
So what oil company would be crazy enough to seriously consider Chavez's latest invitation?
Simple answer: Most of them, including the likes of Chevron (CVX:
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Venezuela has a long history of thumbing its nose at Big Oil. It was among the founding members of the Organization of Petroleum Exporting Countries and nationalized its oil industry in the 1970s. They have alternately excluded and included foreign oil companies over the years, tapping their technological expertise to reverse production declines.
Through it all, Venezuela has what it takes to keep those companies coming back for more. They have the oil.
Most Americans know about Chavez and his incendiary politics because of our addiction to his oil, much like we know about neighboring Colombia because of cocaine. Unless we somehow beat this addiction, oil will continue to be a strategic resource and Venezuela still sits on plenty of it. The country remains the world's fifth-biggest oil exporter and, despite all the friction, still accounts for nearly 9% of U.S. oil imports.
When crude soared last year past $100 a barrel, Chavez was a well-funded, noisy revolutionary. He's much quieter now that it's down around $35 a barrel. As much as he might hate it, he knows he needs to bring back outside experts to boost output on aging oil fields and open new ones in the remote Orinoco River basin.
Companies will heed his call because survival in the oil business requires long-term planning. Fields take years to develop and decades to deplete whereas firebrand leaders come and go. Big Oil knows that, and over the past century they have gathered plenty of expertise not only in the field, but also dealing with some of the world's most slippery regimes.
— Jim Jelter

Time to impose conditions on bailouts
Commentary: Bank of America should pay the cost for U.S. aid
Last Update: 11:45 AM ET Jan 15, 2009

WASHINGTON (MarketWatch) - The federal government must rescue Bank of America from failure, but the bank should pay the price for its excessively risky behavior.
According to a report in the Wall Street Journal, the government is preparing to invest billions more in Bank of America (BAC:
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, , ) to help it cover losses from acquiring Merrill Lynch and Countrywide. See full story.
The government can't just let Bank of America fail. The destruction that followed the collapse of Lehman Bros. in September shows the folly of letting the law of the jungle rule. But neither can the government continue to reward bad decisions.
Most people think that people who ran failed companies are failures, not heroes.
It's time for the Treasury and the Federal Reserve to impose serious penalties on the bankers who've endangered the global economy before they hand out billions more of the taxpayers' money. The executives, board members and shareholders who took on too much risk should pay for their failure of judgment.
Any new money from the government should come with tough restrictions on executive pay, a ban on payment of dividends, a restriction on using the money for further mergers, and requirements that the bank leverage the public's investment by lending to credit-worthy borrowers frozen out of the economy right now.
Most importantly, the government needs to become a full partner with the banks that depend on it for survival. The taxpayers need decent return on their investment, and need to know precisely where the money is being spent. And the government needs to start breaking up these companies that are deemed too big to fail.
The first half of the Troubled Asset Relief Progam wasn't spent wisely, so it's no surprise that the TARP is massively unpopular with both the public and with lawmakers who were fooled once into voting for it.
If the government does the right thing now, it could not only prevent another chaotic bank failure, but it could rescue its strategy for rescuing the banking system. A tough TARP that prevents systemic disaster without rewarding those who put us in danger would be a big step forward.
— Rex Nutting, Washington bureau chief

Dimon's still in the rough
Commentary: Don't lump J.P. Morgan's results with its competitors
Last Update: 11:01 AM ET Jan 15, 2009

NEW YORK (MarketWatch) — The news out of J.P. Morgan Chase & Co. is not good, but don't blame the bank.
It's rough out there in the financial world. The economy is sputtering. Jobs are being lost. The real estate market is on life support. Companies are running into trouble. That's a deadly combination for a bank that makes its living by financing growth for corporations and consumers.
For the better part of 2008, J.P. Morgan's (JPM:
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The bank was doing well enough that Jamie Dimon, chief executive, was able to build his franchise by acquiring two competitors while keeping capital needs manageable.
The results announced Thursday suggest J.P. Morgan's balance sheet still isn't of the toxic variety when compared to that of Citigroup Inc. (C:
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The "acquisition of Washington Mutual and Bear Stearns look favorable and will likely add to profitability in '09," said Stuart Plesser, an analyst at Standard & Poor's equity group. "Capital ratios look strong relative to peers, with a tangible equity ratio of 3.8%, obviating, in our opinion, the need for additional capital at present." See full story on J.P. Morgan results.
J.P. Morgan is ready. It just needs the rest of the marketplace, the economy and its peers to follow its lead.
- David Weidner

ECB strangely detached from economic crisis
Commentary: As euro-zone seizes up, Trichet resolutely focuses on inflation
Last Update: 9:42 AM ET Jan 15, 2009

LONDON (MarketWatch) — The European Central Bank cut interest rates by 50 basis points to 2% Thursday, in line with analyst expectations, but probably not in line with what's needed to salvage Europe's rapidly deteriorating economy.
Not long ago such a move would have been seen as dramatic. But Thursday's action was merely the expected action of a central bank that remains somehow aloof from economic realities.
ECB president Jean-Claude Trichet explained the move as a finely balanced decision. He said it weighed the slumping economic outlook in Europe against medium-term prospects for the re-emergence of inflation in the second half of the year, while also taking into account stimulus efforts by national governments in the Euro-zone. See related story.
For all the nuance and balance, the fact is Europe's in a lot of trouble.
Trichet himself acknowledged that Europe is experiencing a "significant slowdown" and risks to growth remain weighted to the downside.
That's putting it mildly.
European industrial zone output plunged in November at an annualized rate of 7.7%, marking the third straight month of accelerating declines.
European auto sales also fell to their lowest levels in 15 years in 2008. See full story.
Greece has seen its sovereign debt rating get cut, and other Euro-zone members are facing the same possibility, which will make it more expensive to pay for stimulus programs in Europe's worst hit economies.
Consumer sentiment and purchasing measures are also hitting fresh lows, and credit markets remain compromised by the financial crisis, especially given the fresh fears emerging from the latest round of results from major banks.
Yet for all that, Trichet appears strangely focused on the oil price barometer, apparently fearful that the one thing that's actually making consumers feel a little better, lower energy prices, may go away quickly.
Lower energy prices are certain to go away eventually. The question is whether they go away because growth has returned, or because supply has had to fall to make up for lower demand. The former is clearly preferable, but it won't happen without more help from Europe's Central Bank.
— Tom Bemis, assistant managing editor
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