Today's Readings List

COMMODITIES
Riding the rollercoaster
Economist, 11-Dec-08

For the six leading firms reviewed by The Economist, cash spent on deals in those two years (2006-07) accounts for four-fifths of their total net debt of $136 billion.... From their peak, analysts’ forecasts of operating profits next year have dropped by 30-50% for all six firms, leaving less cashflow than expected to support debt. Share prices have plunged too, so that net debt is comparable to, or well above, the firms’ market capitalisations....That (capex reduction), along with adequate liquidity for at least five of the six, makes survival likely. It also raises an intriguing question. The deals of recent years mean these industries are more concentrated and indebted than ever before. That in turn has forced huge, rapid cuts in actual and planned capacity, which could stabilise prices faster than in past downturns. It is a glimmer of hope during these bleakest of times.

IF A rollercoaster keeps cranking upwards for long enough it can be tempting to relax your grip—just for a moment. The bosses of some of the world’s biggest basic-materials firms did exactly this and are now suffering. Lulled by expectations that industrialisation in China and other developing countries would ensure sustained demand, leading firms in the steel, cement and mining industries have entered the recession with far more debt than is normally viewed as prudent ...


MEDIA
Broadcasting gloom
Economist, 11-Dec-08

Most forecasts for next year say that ad spending in America will decline by 5% or more....carmakers and dealers normally spend around $20 billion a year on advertising... Analysts at BMO Capital Markets predict that total spending on television ads will fall by almost 9% next year. Only newspapers, where a decline of 12% is expected, are forecast to fare worse...ZenithOptimedia, an arm of Publicis Groupe, another big agency, predicted this week that 89% of all growth in advertising spending between 2008 and 2011 will take place in developing countries.

THE Super Bowl is one of the biggest events on the advertising calendar, as companies vie to produce the most memorable and innovative ads. The battle for the National Football League’s ultimate prize attracts more viewers than anything else on American television and provides a “symbolic pulse-taking” for the advertising industry every February, says John Frelinghuysen, an analyst at Bain and Company, a consultancy. But this year the patient is in poor health. All the advertising slots for the 2008 Super Bowl had been sold by the end of November 2007, despite the $2.6m price of each. For 2009 the price has risen to $3m, but at least ten slots (out of 67) are still looking for a buyer ...

RETAILING
Rising Retailer Threat: Liquidations
WSJ, 12-Dec-08

4,632 announced store closings thus far; apparel (26.4%), others (23.4%), jewelry (18.1%), home entertainment (17.6%) and food & beverage (14.5%).

Retailers grappling with the grimmest holiday shopping season in decades face another threat: a boom in liquidation sales by competitors ...

TAXES
Swiss Gain as Tax Plan Dims Bermuda's Allure
WSJ, 12-Dec-08

The move to Switzerland will help the companies preserve the tax benefits they had in Bermuda and the Cayman Islands, while using Switzerland's tax treaty with the U.S. to shield them from possible adverse legislation from the incoming administration and next Congress. Bermuda imposes no corporate income tax. Switzerland has a corporate income tax, but doesn't levy it on profit earned by subsidiaries overseas.... The shifts to Switzerland carry some risk. Standard & Poor's announced Thursday it would remove Transocean from the S&P 500 stock index, as happened to ACE when it moved earlier this year.

Several big U.S. companies are reincorporating from Bermuda to Switzerland, helping them avoid expected legislation aimed at corporations located in tax havens ...