Friday PM August 22nd, 2008

Warren Buffett predicts more months of economic weakness…Russian court rejects parole bid by former Yukos Oil head Mikhail Khodorkovsky…Advertisers predicted to continue trimming their ad budgets…

Billionaire investor Warren Buffett thinks the U.S. is in a recession. And he predicts that weakness will persist for several more months at least. Interviewed on CNBC, Buffett says lingering effects of the credit crunch are still causing problems for financial firms and the broader economy. Displaying his trademark optimism, Buffett says the U.S. will be doing better five years from now, but could be worse off in five months. Buffett says the federal government will have to assist mortgage giants Fannie Mae and Freddie Mac calling them too big to fail. But he says “they don’t have any net worth.” And he expects more banks will fail, as he puts it, “where the bankers were dumb in what they did.”

Federal Reserve Chairman Ben Bernanke says the financial crisis that has pounded the country–coupled with higher inflation–is taking a toll on the economy and poses a major challenge to Fed policymakers as they try to restore stability. “Although we have seen some improved functioning in some markets, the financial storm that reached gale force” around this time last year “has not yet subsided, and its effects on the broader economy are becoming apparent in the form of softening economic activity and rising unemployment,” Bernanke said in a speech to a high-profile economics conference in Wyoming. Bernanke says the lingering credit crisis is causing rising unemployment and “softening economic activity,” and says the recent drops in the prices for oil and other commodities are welcome, suggesting inflation should moderate this year and next. Even so, he says the inflation outlook remains highly uncertain. He says the central bank will “act as necessary” to ensure that inflation doesn’t get out of control. Bernanke says the current financial and economic environment is one of the most challenging for Fed policymakers “in memory.” The Fed meets again on September 16th.

Attorneys say they’ve settled the last remaining lawsuits filed after a deadly 2005 explosion at a BP refinery in Texas City. More than 4,000 lawsuits were filed following the blast, which killed 15 people and injured more than 170, but attorneys for blast victims announced that the last four cases were settled. Another remaining case had been settled on Monday. All five cases were set for trial next month. The terms of the settlements, as has been the case when other blast-related suits, were confidential.

Federal regulators say Merrill Lynch will buy back up to $7 billion in auction-rate securities over its role in selling the risky bonds to retail investors. Merrill’s preliminary agreement with the Securities and Exchange Commission comes a day after the largest U.S. brokerage agreed with state regulators to hasten its voluntary buyback plan by repurchasing $10 billion to $12 billion of the securities from investors by January 2nd. Merrill also agreed to pay a $125 million fine in that deal. The SEC said the new agreement will enable retail investors, small businesses and charities who purchased the securities from Merrill “to restore their losses and liquidity.”

A Russian court has rejected a parole bid by jailed oil tycoon Mikhail Khodorkovsky. The court in the Siberian city of Chita on Friday denied Khodorkovsky’s appeal for early release from a sentence for tax evasion and fraud. Khodorkovsky formerly headed Yukos Oil and was once Russia’s richest man. He has spent almost five years in jail. He was sentenced in 2005 to an eight-year term and has been eligible for parole for the past ten months.

The University of Houston System Board of Regents has approved a $1.25 billion budget for fiscal year 2009. That’s a 12 per cent increase from last year. The new budget increases financial aid and scholarship funding, increases faculty, finances construction, maintenance and renovation and provides some salary increases.

Former Dynegy trader Michelle Valencia faces a 57-month sentence on seven counts of wire fraud, for reporting false trading data to industry publications, manipulating gas markets. The sentence from U.S. District Judge Nancy Atlas follows another sentence given to former El Paso trader Greg Singleton. He was assessed a 28-month sentence on a single wire fraud count. Valencia’s attorney plans an appeal, saying it’s another case of subordinates going to jail while their supervisors get away. The defense argued that the two were following orders.

An appeals court has upheld a lower ruling in Texas that people can’t sue over wind turbines just because they don’t like how they look. Some landowners sued in 2005 over FPL Energy’s Horse Hollow Wind Energy Center near Abilene. Critics said the turbines were too loud, lowered their property values and ruined their scenic views. Jurors in 2006 ruled in favor of Florida-based FPL Energy. The 11th Court of Appeals says the trial judge did not err because Texas law “does not provide a nuisance action for aesthetical impact.” FPL Energy attorney Trey Cox of Dallas welcomed the ruling. A plaintiffs lawyer didn’t immediately comment. Horse Hollow spans about 60,000 acres in Taylor and Nolan Counties and has more than 400 turbines.

Advertisers will continue trimming their advertising budgets, according to a survey by the Association of National Advertisers, as reported by the Houston Business Journal. Most polled say they are already being challenged with identifying cost savings or reductions with current advertising. Ten per cent of those surveyed say marketing budgets might be cut by over 30 per cent.

Frugal grocery shopping habits developed this year may continue even after the economy improves, according to Toronto-based Precima, as reported by the Houston Business Journal. In fact, 82 per cent in the retail analyst’s nationwide survey plan to continue cooking at home instead of eating out. Eighty per cent plan to use coupons as much as possible. About 54 per cent intend to continue buying generic or store brands.

The president of Brazil’s state-run oil company says the United States must exploit offshore resources while limiting environmental impact. Petroleos Brasileiro President Sergio Gabrielli says that the current debate over offshore drilling in the U.S. is important, but adds, “you can’t leave those resources untapped.” Gabrielli said that Petrobras would significantly reduce the environmental risk at its offshore operations in the Gulf of Mexico in 2010 by deploying drilling ships that can detach from the wells in case of a hurricane. Petrobras is a world leader in deep-water drilling and the company claims to produce oil with minimal environmental impact.

Direct foreign investment in Mexico has fallen and officials blame it partly on the U.S. economic downturn. Mexico’s Economy Department says direct foreign investment fell to $10.5 billion in the first six months of this year. That’s a 20 per cent drop from the same period a year before. Still, the amount puts Mexico on target to reach its $20 billion goal for 2008. More than half of Mexico’s direct foreign investment comes from the United States. The European Union follows with a third of all investment, and Canada provides eight per cent. More than 40 per cent of the investment went toward manufacturing.

Goodyear Tire & Rubber has received a judge’s permission to make a $1 billion contribution into a health care trust fund for retirees. Akron-based Goodyear agreed to creation of the voluntary employees’ beneficiary association trust in a deal ending a nearly three-month United Steelworkers strike that began in October 2006. Goodyear has been waiting to fund the trust until U.S. District Court Judge John Adams completed a review and gave approval. Goodyear’s obligations for providing health care for union-covered retirees will be transferred to the trust. The company’s one-time contribution will be made from existing cash reserves and available credit lines.

Private refiners aiming to extract helium from a pipeline allegedly got improper deals with the U.S. Bureau of Land Management Office in the Texas Panhandle. The deals alleged by the U.S. Interior Department could cost U.S. taxpayers more than $100 million. The Interior Department says the bureau’s Amarillo office made deals with four refiners who take crude helium from the pipeline that runs from a field northwest of Amarillo to central Kansas. Interior says the bureau also allowed the refiners to garner huge profits by overcharging for construction equipment. The refiners formed a private shell company in 2000, four years after lobbying Congress on behalf of a law that privatized production and refining of helium. The report didn’t identify the private company involved in the helium agreements, but BLM officials confirmed to the Washington Post that Amarillo-based Cliffside Refiners was the subject of the investigation.

An elderly Fort Worth woman fighting a natural gas pipeline to be placed beneath her front yard has settled with the company. Jerry Horton, who will be paid $15,500, said she only agreed to give up the right-of-way after realizing there was almost no legal way to stop the company. Thursday the 72-year-old woman said she’s heartbroken and had to sign. It was the same day as her court appearance for a condemnation hearing. Officials with Texas Midstream Gas Services, a division of Chesapeake Energy, have said the line will be bored beneath the front yards of 44 homes and vacant lots. The Fort Worth Star-Telegram reports little surface disruption is expected. According to the settlement agreement, the line will be at least 20 feet deep and Texas Midstream will replace any of Horton’s trees that die within six months.

The number of rigs actively exploring for oil and natural gas in the United States rose by eight this week to 1,998. Of the rigs running nationwide, 1,594 were exploring for natural gas and 395 for oil. Houston-based Baker Hughes reports nine were listed as miscellaneous. A year ago, the rig count stood at 1,816. Texas remained unchanged. Baker Hughes has tracked rig counts since 1944. The tally peaked at 4,530 in 1981, during the height of the oil boom. The industry posted several record lows in 1999, bottoming out at 488.

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