Business Channel 2006-09-29&10-02

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For the second day in a row, the Dow Industrials setting record highs, a triple-digit rally sent the Dows surging past the 11,800 mark for the very first time. This is the NASDAQ Composite rose to a 5-month high. And the S&P 500, it’s surged to its highest level since 2001. So let’s take a look at these historic closing numbers. As you can see, the Dow Industrials jumped 123 points, closing at the record level of 11,850.53. The NASDAQ Composite gained more than 2 percent. Meanwhile, crude oil prices were volatile¹, ending 73 cents higher to settle at $59.41 a barrel, rebounding² from a nearly 16-month intraday low. How about that?

Well, that big day was an understatement on my part. (Hehe…) You know, we were talking a few moments ago about on Pipe 3 we were bringing in this General Motors’ briefing on what happened to all these discussions going on about this potential transatlantic auto³ alliance with GM?

Well, in a word, terminated. General Motors, Nissan and Renault have terminated talks about forming that broad alliance. After 2 months, a very high-stakes discussion. The companies could not agree on the terms of the value of the potential deal. The move comes ahead of the mid-October deadline that both sides had set for a decision.

So do you really know, you know, the dirty details behind this? Why it failed? Why the talks broke down?

Well, I can tell you at least one reason. And that was the size of the payment that GM sought. GM had demanded that Nissan-Renault pay it a so-called control premium⁴ if the three companies had linked up. Executives at GM were reportedly asking for as much as 10 billion dollars in compensation to essentially⁵ make up the difference in what they believed were greater savings⁶ for Nissan-Renault. Talks between GM, and Nissan-Renault had been going on since July 14th. GM was pushed into the talks by its largest shareholder⁷ Kerkorian. He wants Carlos Ghosn, the head of both Nissan and Renault to help restructure GM. GM, which by the way, lost more than 10 billion dollars last year, will now keep working on its own turnaround plan, the one that is favored by its CEO Richard Wagoner. So that’s the best answer I can give you on that one.

And that was a great answer too. But let’s move along now to the chairman of the Federal Reserve. I know he spoke⁸ today. What did he have to say?

Oh, yes. Fed Chief Ben Bernanke, he spoke about the aging US population. And he had a stern warning for Congress and for the President. The warning was, unless social security and Medicare are revamped, the massive burden from retiring baby boomers, some 79 million of them, will place major strains on future generations and the economy.

The decisions we make over the next few decades will matter greatly for the living standards of our children and our grandchildren. If we don’t begin soon to provide for the coming demographic transition, the relative burden on future generations may be significantly greater than it otherwise would have been.

Bernanke did not offer recommendations on how Medicare and social security should be reformed. He also did not comment on the Fed’s policy on interest rates or the stock market rally. The Federal Reserve meets again on October 24th and most economists⁹ believe that policy makers¹⁰ will leave rates unchanged for the third meeting in a row.