Oil regains some ground

Crude prices rise ahead of a government report expected to show another dip in stockpiles.

SINGAPORE (AP) -- Oil prices rose Tuesday after slipping in the previous session to a two-week low on worries about the U.S. economy.
Futures were also supported by expectations a midweek U.S. report on oil inventories would show crude stockpiles fell for the eighth straight week.
Oil inventories are predicted to drop 300,000 barrels in the week ended Jan. 4, according to the average forecast in a Dow Jones Newswires poll of analysts.
Gasoline inventories on average are expected to rise 1.7 million barrels while distillate stocks are tipped to fall 600,000 barrels. Refinery use is expected up 0.2 percentage point to 89.6 percent of capacity.
"The combination of robust demand growth and anemic oil supply growth has underpinned the recent U.S. stock draw and we believe will continue to support further draws in the near future," Goldman Sachs has said in a research note.
Light, sweet crude for February delivery rose 64 cents to $95.73 a barrel in Asian electronic trading on the New York Mercantile Exchange by late afternoon in Singapore.
The contract on Monday dropped $2.82 to settle at $95.09 a barrel.
Comments by U.S. Treasury Secretary Henry Paulson Monday suggesting there is no simple fix for the U.S. housing crisis added to worries about the economy raised by last Friday's Labor Department jobs report. The government's data showed that employers added far fewer jobs last month than expected.
"Year after year as oil has gone up I've told you it was a story of economic growth," wrote Phil Flynn, an analyst at Alaron Trading Corp., of Chicago, in a research note. "By the same token, if the U.S. slips into a recession, then do not expect oil to keep going higher."
"The weakening jobs market in the U.S. has the Fed backed into a corner and the prospect for oil looks about as bearish in 2008" as it has since the days after the Sept. 11, 2001, terrorist attacks, Flynn wrote.
Brent crude for February delivery rose 16 cents to $94.55 a barrel on the ICE Futures exchange in London.
Heating oil futures rose 1.6 cents to $2.6095 a gallon (3.8 liters) while gasoline prices added 1.87 cents to $2.4485 a gallon.
Natural gas futures rose 2.7 cents to $7.906 per 1,000 cubic feet.

Intel bets on mini-PCs

Chip manufacturer will begin shipping processors designed for portable devices that are bigger than a smartphone, smaller than a notebook.

LAS VEGAS (AP) -- Intel Corp. is betting on a big expansion of "ultra-mobile" computing, an idea that could hinge on how many gadgets people are willing to tote around.
In an interview Monday at the International Consumer Electronics Show, Intel CEO Paul Otellini said energy-efficient, Web-connected computers with full keyboards and screens in the 4-inch neighborhood can give people more of what they want from the Internet than cell phones can.
To help stimulate the technology, Intel plans in the next few months to begin shipping processors and associated "chipsets" that demand relatively little power and are smaller than standard PC processors, allowing them to be crammed into tinier devices, which would be built by other companies.
Eyeing a similar market, wireless chip maker Qualcomm Inc. (QCOM, Fortune 500) also has built prototypes of little Web devices. Its chief operating officer, Sanjay Jha, said he expects manufacturers to take up the blueprints and begin selling what he calls "pocketable computers" by the end of this year.
So far, so-called ultra-mobile computers, smaller than average laptops but bigger and more fully featured than most cell phones, have gotten a tepid response.
With the devices' prices often beyond $1,000, many potential buyers have found little reason to scale down from their notebook computers or up from cell phones that have been improving their Web browsing experience.
"How do you make people realize that this is something advantageous to them and different from the notebook experience?" said Richard Shim, an analyst with IDC, a market research firm. "That's the trick. Nobody's been very good at that yet. ... It's not as widely compelling as it needs to be if they want it to compete on the level of a phone or a PC."
But Otellini said such distinctions will cease to matter, especially since small Web devices can incorporate cell phone functions. And he said Apple Inc.'s (AAPL, Fortune 500) iPhone showed that combination devices can be elegant.
"You're projecting an end stage on an early technology," he said. "That's a risky thing to do."
To be sure, even with cell phones in nearly every pocket or purse, another gadget could be appealing if it does something particularly compelling. For example, more and more cell phones play music, but plenty of people also carry MP3 players that do the job better.
In a keynote speech Monday at CES, Otellini tried to show that ultra-mobile PCs - he prefers the name "mobile Internet devices" to better distinguish them from laptops - offer a new kind of information-on-the-go bliss.
He demonstrated how an American traveler to Beijing might use a pocket computer to get real-time navigation tips and instant translations of signs, menus and conversation from Chinese.
Otellini acknowledged that this vision for ultra-mobile computing might not be fully realized for a few years.
For one thing, little PCs need longer battery lives so people can tote them around and use them all day.
Intel also expects that wireless broadband networks based on the WiMax standard will develop much further to enable connectivity on the devices. But Otellini said the computers could also make use of cellular networks.
That is the connectivity route favored by Qualcomm, which is a major supplier to the wireless industry. Jha, the Qualcomm executive, said wireless carriers first will need to come up with more enticing data pricing plans.
Proof that wireless carriers will be crucial is in the weak reception for Sony Corp.'s (SNE) Mylo handheld messaging device. Though it has a full keyboard and sells for around $300, it can go online only in Wi-Fi hot spots, which have limited range.
This is far from the first time Intel has ranged beyond its specialty in PC and server chips in an attempt to diversify - and take the edge off the up-and-down cycles common in the chip business. Past forays that hit dead ends include chips for music players, TVs and cell phones. Intel once even tried selling toy microscopes.
These days, some analysts fear Intel's inventory for PC chips is backing up because of slowing orders from the industry. Intel's shares fell 15 percent last week, vaporizing about $24 billion in shareholder wealth.
Intel (INTC, Fortune 500) also is eyeing home entertainment devices. Otellini introduced a computing-and-graphics-microprocessor combo that can run TVs and set-top boxes.
The company's goal with that product, called Canmore and due out late this year, is to make it easier for people to move Internet content to high-definition TVs.
Otellini said neither that nor the mobile Internet device venture is a mere side project.
"We don't make small bets on anything," he said.

Microsoft to buy Norwegian search firm

Software giant offers to buy enterprise search provider Fast Search & Transfer for $1.2 billion.

LONDON (CNNMoney.com) -- Microsoft Corp. said Tuesday it will offer to buy Norwegian enterprise search firm Fast Search & Transfer.
The deal values the Oslo-based company at about $1.2 billion (6.6 billion Norwegian kroner).
Microsoft (MSFT, Fortune 500) will offer 19 Norwegian kroner a share, which represents a 42 percent premium to the Jan. 4 closing share price of Fast Search & Transfer.
Fast Search's board has recommended its shareholders accept the offer. The deal is expected to close in the second quarter.

Father of Bush tax cuts: Recession likely

Harvard economist Martin Feldstein says more tax relief, deeper Fed rate cuts needed if U.S. is to avoid recession.

NEW YORK (CNNMoney.com) -- Martin Feldstein, the Harvard economist credited with being one of the fathers of the Bush administration tax cuts, says the U.S. economy is now likely to slip into a recession, and that avoiding one will take a new round of tax cuts and interest rate cuts from the Federal Reserve.
Feldstein is president and CEO of the National Bureau of Economic Research (NBER), the organization charged with determining when the economy is in a recession and when it is growing. He told CNNMoney.com that he had thought the chance of a recession was about 50-50 even before last week.
But he said he now believes a recession is likely, as he pointed to both a report from the Institute of Supply Management showing manufacturing activity in decline for the first time in almost a year, and Friday's December jobs report that showed a jump in the unemployment rate to a two-year high.
He did not give a new percentage for the chance of a recession, saying that will depend on what both the Federal Reserve and Congress and the administration do in response to the weakness.
"It's not just clear that lower interest rates and monetary policy more generally will have enough traction because of conditions in the credit market," he said when asked if the Fed could hold off a recession. "We should have some fiscal stimulus to back that up."
Feldstein made his remarks the same day President Bush gave a speech in Chicago in which he said that economic indicators are "increasingly mixed," and he acknowledged that many Americans are growing anxious about the economy. But the president argued the economy itself is resilient.
The president did not propose any kind of short-term economic stimulus package in his comments, as some had expected, although he argued that it was important not to raise taxes and called for making permanent the tax cuts he passed early in his administration that are due to expire after he leaves office.
Feldstein said he was not surprised that there was no plan laid out on Monday, saying he expects to see it in the State of the Union address. He said an extra $300 tax credit for each tax payer, similar to what was passed in 2001, would only be a good first step this time, and that some kind of deeper cuts might be necessary if the economy starts to lose jobs.
"The precise mix is not as important as a decision that what the economy needs is an additional amount of fiscal stimulus on top of the lower interest rate. That can be a cut in personal taxes, it can be a business investment credit of the sort we had in 2003 or some combination of the two," he said.
Feldstein served as chairman of the Council of Economic Advisers during the Reagan administration. He has served as president and CEO of NBER since leaving that post in 1984, as well as serving on Harvard's faculty. He has given notice that he will be retiring from NBER in June of this year.
Feldstein said that the NBER generally waits at least six months after the economy goes into recession to meet and assign a date to the start of the downturn, and that it is nowhere near ready to call such a meeting. But he said that some stimulus is needed, even if it turns out that the economy continues to grow, albeit at a weak rate.
"What's clear is even if the economy doesn't go into a full scale recession it will be a slow year, one that would benefit from a fiscal stimulus like a $300 (tax credit.) If we're going to actually going to slip into negative GDP, I would want to see more than that."
While he did not serve in the Bush administration, he was an advisor to the campaign and was seen as a leading force in shaping the administration's tax cut strategy, as well as its push to privatize social security. He also served as the faculty advisor for several top members of the Bush administration's economic team when they were working on their doctorates in economics.

AmEx gets CEO pay right

With its new incentive plan for Ken Chenault, the card giant has created a better model for executive comp.

(Fortune Magazine) -- Through a rare alignment of the planets, the subject of CEO pay may get extremely hot in a few months. If it does, I'd advise four key groups - CEOs, board members, government officials, and presidential candidates - to study the remarkable grant of stock options that American Express's (AXP, Fortune 500) board recently gave CEO Ken Chenault. Members of all those groups have made stupid pay-related moves in the past, and here's a lesson in how to avoid doing so again: Chenault's new pay package is a model for how to smartly incentivise a CEO.
The planetary alignment is this: The U.S. economy will most likely be in a deep slowdown or a recession by spring, leaving Americans feeling financially insecure. At just that time, proxy season will reveal that at least a few CEOs got staggering pay despite big problems at their companies. (Remember Hank McKinnell's nearly $200 million exit package from Pfizer last year after the stock fell 40% during his tenure?) And in the midst of it all, presidential candidates will be working intensely for votes. When exactly the same circumstances combined in 1992, one result was the tax law change that makes executive salaries that are more than $1 million a year nondeductible to the company. It pleased voters but distorted pay packages and achieved nothing worthwhile.
Now AmEx's board has figured out a way to give their CEO potentially huge money while making it highly defensible and even laudable. On Nov. 30 the board gave Chenault options on 1,375,000 shares and announced its intention to give him the same number again on Jan. 31. If it all happens as planned, that will be 2,750,000 shares - a mega-grant by any definition. Chenault, of course, has an excellent record running AmEx. (He was on the cover of the Oct. 1, 2007, issue of Fortune, titled "How to Be a Great Leader.")
But the timing is intriguing. On Nov. 30 the Citigroup board was seeking a successor to Charles Prince, and you have to assume that Chenault - with no known subprime problems - was on the short list of candidates. Did AmEx's board dish up a giant option grant to keep him?
An AmEx spokesman will not say whether Chenault was offered the Citi job, only that Chenault had previously made clear he wasn't interested in it. A complex options grant like Chenault's would be almost impossible to assemble and consider on short notice; AmEx's spokesman says it resulted from three months of board discussions. Of course it might have been developed over a period of months and had some zeroes added at the last minute to keep Chenault onboard.
It doesn't matter now. What's key is the way the grant is structured. The first surprise is that it's an options grant at all. Options were all the rage in the '90s as the market roared, but lost favor after the bust. They've been replaced in CEOs' hearts by restricted stock, which is worth money even if the stock price goes nowhere. Since options are worth money only if the stock rises, a big grant is notable at a time when the market looks expensive by many measures and the economy is weak.
Even more striking are the extraordinarily high hurdles the board requires Chenault to clear if he's to get any of those options. To receive the full grant, he must beat several goals over the next six years, an unusually distant time horizon. AmEx's earnings per share must grow at least 15% a year on average, revenues must grow at least 10% a year, return on equity must average at least 36% per year, and total return to shareholders must beat the S&P 500 average by at least 2.5% a year. Chenault can receive a fraction of the grant for lesser performance, but below certain limits, which are still quite high, he gets nothing.
Now consider a couple of scenarios. Chenault misses all the targets but the market booms, returning 10% a year, and AmEx stock matches it. After their full term of ten years, his options would be in the money by $258 million - but he wouldn't get any of that. Why? Well, AmEx's stock presumably rode a rising tide, and his shareholders could have done just as well with an index fund while exposed to less risk. Alternatively, the market returns just 6% a year, in line with what many experts predict, but under Chenault's leadership AmEx hits all the targets and the stock returns 9% a year. Chenault collects a pretax gain of $222 million after a decade - an awful lot, but his shareholders are $35 billion richer than if they had chosen an index fund, and he's a hero.
In either scenario, compensation lines up with performance. That's a goal that CEOs and boards should aim for, and that politicians should vow not to hinder as they try to feel voters' pain this spring.