Fed: Write-Off 2009

No relief in sight. That's the prognosis from the December Fed meeting, revealed just yesterday, showing we're in for a longer and nastier recession than first feared. The bleak economic outlook appeared to take even some Fed officials by surprise. "Policy makers at the Federal Reserve appeared almost stunned by an economy that was sinking faster than they had expected on almost every front in December, so much so that they even toyed with the idea of not announcing an official target for overnight interest rates," the New York Times writes. The minutes show Fed officials "expect a deep contraction in the first half of the year and slow growth in the second half that won't make up for the losses," the Wall Street Journal writes, amounting to more job losses and further deflationary pressures.

The minutes also reveal that the Fed is focusing again on the inflation/deflation see-saw with renewed vigor. According to the Financial Times, Fed policy makers are toying with the idea of setting more explicit inflation targets to signal to the markets acceptable levels of price increases to jump-start economic growth, price stabilization, and job creation.

Almost on cue, Alcoa yesterday announced it would slash 13 percent of its global work force, cutting 13,500 jobs by yearend in the face of slowing global demand, CNNMoney.com reports. The Pittsburgh Post Gazette goes into explicit detail on Alcoa's massive restructuring, quoting CEO Klaus Kleinfeld as saying the plant closings and job cuts are necessary in these "extraordinary times." Dutch Chemical giant LyondellBasell Industries is also suffering mightily amid the global downturn. It filed for Chapter 11 bankruptcy protection on Tuesday in what the Houston Chronicle is calling "the first major casualty of a recent downturn in the chemical industry." The newspaper writes that there is a Who's Who list of creditors, including: "Germany’s BASF, oil companies including the state-owned Petroleos de Venezuela, commodity trading firms, and chemical transporters like pipelines, railroads and tankers."

Amid all this pain, the markets have shown remarkable buoyancy over the past month. The WSJ reports the Dow is up nearly 20 percent from its November low, and the S&P 500 is up 24.22 percent from November.

Apple has decided to drop the anti-copying restrictions on music tracks in its iTunes Store. By removing its digital rights-management software, the company will for the first time enable downloaders to share music across non-Apple devices. Apple also is dropping its insistence that all songs sell for 99 cents and will allow record companies to set a range of prices for music downloads—something the companies have been demanding for some time. Songs will now be "sold at three price points—$.69 for older songs with limited popularity, $1.29 for hot new records, and $.99 for songs that fall in the middle," writes Business Week. Taken together, these moves "will help shape the online future of the music business," writes the NYT.

The Russia-Ukraine gas spat continues to hit European heating needs just as the continent suffers from frigid winter weather. The BBC reports that "exports of Russian gas to Europe via Ukraine appear to have completely stopped," with both national gas companies blaming each other for the shutdown and Russia arguing that Ukraine is stealing gas intended for countries in Europe. Ten Eastern European and Balkan states have reported a total halt in Russian gas supplies, and both Italy and Austria say they are getting just 10 percent of their normal quota. Both politics and money are at stake in this latest winter energy war, writes the WSJ, noting that while Russia would certainly like to bully Ukraine into regime change, it might be Gazprom's fading oil fortunes—and hence the desire to hike Ukraine's bill—that make this latest dispute harder to resolve.

And, finally, not a day goes by without some new juicy Bernie Madoff development. The WSJ reports today on A1 that 95-year-old philanthropist Carl Shapiro, a longtime friend and mentor to Madoff, lent the disgraced financier $250 million on Dec. 1 in what was evidently a last-ditch effort to keep the operation from crumbling. We all know what happens next. Shapiro has lost a personal stake of $400 million in the alleged Madoff fraud, including the $250 million emergency loan, and his charitable foundation is out $100 million.