The market expected the global recession to decimate Japanese automakers' profits, but few expected their second-half losses to be so huge. Now the question is whether whopping output and capital spending cuts will even allow them to break even next year.

Honda Motor (nyse: HMC - news - people ) looks on course to post an operating loss in the second half to the tune of at least 120.0 billion yen ($1.4 billion), on the severe demand slump and surge in the value of the yen. This would be the company's first half-year operating loss in over a decade. Japanese automakers are scrutinizing all their pipeline investments for possible delays or cancellation, slashing output and jobs, and looking to wrangle price cuts from steelmakers and other suppliers.

On Wednesday, Honda Motor slashed its full-year operating profit forecast by 67.0%, in the third such guidance cut this year. It estimates earnings for the year ending Mar. 31 to come in at 180.0 billion yen ($2.0 billion), down from a previous guidance of 550.0 billion yen ($6.2 billion). The forecast earnings represent a 81.0% plunge from last year. It also signifies a larger-than-expected loss in the second half since Honda posted a first-half operating profit of 302.9 billion yen ($3.4 billion).

"We see no sign of a recovery," Honda president Takeo Fukui said at a press conference. Honda's shares fell 108 yen ($1.22), or 5.5%, to 1,865 yen ($21.09) in Tokyo trading on Wednesday.

"The magnitude was quite a bit bigger than anyone was looking for," said Christopher Richter, Tokyo-based analyst for CLSA. "This does not bode very well for the next fiscal year." On Wednesday morning, the Nikkei reported that Honda would slash its guidance to 300 billion yen ($3.4 billion), which was already below Wall Street expectations. Instead, Honda predicted just over half that.

Honda said it expected sales to have fallen 13.0% for the year, because of a collapse in demand from the U.S. and Europe. The yen's surge to decade-highs against the dollar and euro has dealt a further devastating blow to Japanese exporters by eroding their overseas earnings. Honda said it would cut its dividend to 11 yen (12 cents) per share for the October-December period, down from 22 yen (25 cents).

"We're not expecting any of the makers to meet the forecasts they set after the first half," Richter said. "I don't think we're done with bad news for automakers."

Ford Motor is suffering from guilt by association. The automaker has $15 billion or so in the bank and billions more in credit lines, is not looking for a year-end bailout and still gets splashed with mud. Every day I hear the TV news people, the stars like CNBC's Maria Bartiromo, lump General Motors, Ford and Chrysler together as facing bankruptcy. In Ford's case, this is just not true.

Alan Mulally, the chief executive Ford imported from Boeing (nyse: BA - news - people ), has moved smartly since he gave up his wings. He mortgaged assets (for $24 billion) and signed up credit lines two years ago before all the current turbulence.

He also sold Jaguar, Land Rover, Aston Martin, some of Ford's Mazda (other-otc: MZDAF.PK - news - people ) stake and has put Volvo on the block. You can disagree or agree, maybe some of these operations could still have turned into winning assets, but Mulally decided Ford did not need the problems right now.

Unlike GM, Ford has no surplus car lines, which means it avoids both heavy spending to keep too big a lineup up-to-date and endless lectures from Wall Street know-it-alls who say to get rid of them. Excluding Volvo, which Ford hopes to sell, and Mazda Motor, in which it has only a minority stake, Ford has only two dealership channels in this country: Ford and Lincoln/Mercury.

Both Ford and GM are unlike Chrysler in that they have robust foreign operations. For Ford, Europe and South America earned $2.5 billion pre-tax in the first nine months this year. Those markets are slowing, yes, but they are strong businesses. Europe is providing the small-car knowledge and engineering that Ford needs in the U.S.

Yes, Ford has asked for a government-backed credit line, just in case the economic downturn gets much uglier, and is asking for some of the government cash that Congress already appropriated for updating plants and making fuel-saving vehicles. On the other hand, Ford is not begging for an immediate cash infusion to keep it afloat.

Long run, Ford has the ability to grow. For the past two months the Dearborn, Mich., manufacturer has held its own in share against the prior year, while the others slipped. The company even picked up share in November, to 16.4% of the industry sales versus 15.4% a year before. This is a good sign. If GM downsizes, Ford could end up bigger than GM in just a few years.

Many observers are pessimistic about the economy because they believe a vicious downward cycle has taken hold, where less spending leads to fewer jobs, which reduces purchasing power, leading to even more job losses. Many just can't see how this vicious cycle will stop.

We are frequently asked, what is the "catalyst" for a recovery? What force (external or internal) will break the downward cycle of job losses? How does it ever end?

Taking this thought process to its conclusion clearly shows that something is missing. If job losses beget less spending and more job losses, then recessions would never end. On the other hand, if job gains beget more spending and more job gains, then expansions would never end.

A cursory look at history shows that this can't be true. Since 1854, the U.S. economy has gone through 32 business cycles (recessions and recoveries). In other words, the direction of economic activity eventually changed. Many times in these past cycles, the economy started to recover well before employment turned up. Take the last time consumption fell during a recession, in the early 1990s. In the four quarters after the end of the official recession, "real" (inflation-adjusted) consumption increased 2.9% even as payrolls continued to decline.

There are a number of reasons why this is true. The first reason is that the combined decisions we make as independent members of a free society tend to generate economic growth. When people lose their jobs, it does not mean they lose their ability to be productive. It may take time for them to find a new position that matches their skill set, but as long as they have worthwhile abilities, they will eventually get another chance to produce.

In the meantime, companies can use layoffs to increase efficiency, laying the groundwork for future increases in profits and wages for their remaining workers. What that means is that a 1% loss in jobs results in a smaller than 1% loss of production. And using assets more productively frees up resources to do "new" things. We have lost millions of farming jobs over the decades and centuries, but the nation as a whole is more prosperous as a result, not less.

In addition, if a recession is partly caused by over-investment in a particular sector, two forces drive down jobs in that sector, but one is temporary. For example, home building exceeded demand, and those extra jobs were unnecessary. Reducing inventories of homes will cause employment to fall even further. But once excess inventories are worked off, the industry will add jobs, even if it does not ramp up to the previous peak in production.

Financial stocks helped New York's stock indexes edge higher at the open Tuesday, despite a multibillion-dollar loss from a Wall Street heavyweight. Meanwhile, consumer prices tumbled, according to government data, and new housing construction hit record lows.

All of the morning's news comes as the Federal Reserve wraps up its two-day monetary policy meeting, which is expected to conclude with another cut to benchmark interest rates. The fed funds rate currently stands at 1.0%, but the expected cut to 0.5% would be little more than a formality, since the effective fed funds rate has been trading below that level since mid-October. The central bank's statement will be closely watched for hints toward the Fed's next move, and perhaps a further expansion of its balance sheet through purchases of Treasury bonds or agency debt.

Before the Fed took center stage, Goldman Sachs (nyse: GS - news - people ) made the morning's biggest headlines, recording the first red ink in its 10-year history as a publicly traded company. The firm booked a loss of $4.97 a share, or $2.1 billion, as revenues tumbled across most of its businesses. The news did little to shake investors' faith though, as Goldman shares started the day up $3.00, or 4.5%, to $69.46. Rival Morgan Stanley (nyse: MS - news - people ), which reports fourth-quarter results Wednesday, tacked on 47 cents, or 3.5%, to $14.11.

Shortly after the open, the Dow Jones industrial average gained 55 points, or 0.6%, to 8,619. The Standard & Poor's 500 added 9 points, or 1.1%, to 878, and the Nasdaq was up 21 points, or 1.4%, to 1,529. Volumes were light as investors treaded water before the Fed's statement.

The Labor Department said its Consumer Price Index came in at -1.7% for November, thanks in large part to cheaper oil prices. Excluding fuel and energy costs, the index was unchanged from the month before. The inflation gauge has cooled considerably since the summer, when record fuel costs sent the reading on a dizzying rise. (See "Consumer Prices Take A Dive.")

Crude oil was up 33 cents Tuesday, but still trading at just $44.84 a barrel. United States Oil Fund (nyse: USO - news - people ), an exchange-traded vehicle that tracks crude and other products, gained 84 cents, or 2.3%, to $37.68 early in the session. (See "OPEC: All Eyes On Russia.")

On the housing front, the Commerce Department recorded 625,000 housing starts in November, down 18.9% from the October estimate, and off 47.0% from November 2007. New building permits were at 616,000, down 48.1% from the year before, while housing completions were just below 1.1 million, 22.8% below the year-prior figure. But the drop in starts can be taken as a blessing in disguise, since the glut of inventory that home builders face will be helped by fewer new homes on the market.

The Supreme Court ruled Monday that lawsuits may proceed against tobacco companies for allegedly deceptive marketing of "light" cigarettes.

In a 5-4 split won by the court's liberals, the court said that smokers may use state consumer protection laws to sue cigarette makers for the way they promote "light" and "low tar" brands.'

The decision was at odds with recent anti-consumer rulings that limited state regulation of business in favor of federal power.

The tobacco companies argued that the lawsuits are barred by the federal cigarette labeling law, which forbids states from regulating any aspect of cigarette advertising that involves smoking and health.

Justice John Paul Stevens, however, said in his majority opinion that the labeling law does not shield the companies from state laws against deceptive practices.

People suing the cigarette makers still must prove that the use of 'light' and 'lowered tar' actually violate the state anti-fraud laws, but those lawsuits may go forward, Stevens said.

He was joined by the other liberal justices, Stephen Breyer, Ruth Bader Ginsburg and David Souter, as well as Justice Anthony Kennedy, whose vote often decides cases where there is an ideological division.

US commission investigates possible violations

The U.S. International Trade Commission is investigating whether Samsung Electronics and LG Electronics are violating tariff rules by importing mobile phones and other handheld wireless devices containing digital cameras and related components that infringe on patents held by Eastman Kodak Co.

The investigation is based on a complaint filed by Eastman Kodak (nyse: EK - news - people ) in November and names six companies as respondents: Samsung Electronics Company Ltd. of South Korea; Samsung Electronics America Inc. of Ridgefield Park, N.J.; Samsung Telecommunications America LLC of Richardson, Texas; LG Electronics, Inc. of South Korea; LG Electronics USA Inc. of Englewood Cliffs, N.J.; and LG Electronics MobileComm USA Inc. of San Diego.

Separately, the U.S. International Trade Commission said it is investigating whether more than a dozen companies are violating tariff rules by importing flash memory chips and products containing flash memory chips that allegedly infringe on patents held by Spansion Inc. (nasdaq: SPSN - news - people ) of Sunnyvale, Calif.

The investigation is based on a complaint filed in November by Spansion about the importation of flash memory chips used in USB drives, digital cameras, phones, music players and computers. Among the respondents named in the investigation are Samsung, Apple Inc. (nasdaq: AAPL - news - people ), Research In Motion Ltd. (nasdaq: RIMM - news - people ) and Sony Corp. (nyse: SNE - news - people )

None of these companies immediately responded to requests for comment.

Copyright 2008 Associated Press. All rights reserved. This material may not be published broadcast, rewritten, or redistributed

The Nintendo Wii is good. Accessories make it great.

In Pictures: Why You Need Wii Accessories

Mom bought you an Atari when you were a kid. Now you've decided to return the favor and buy her a Wii.

Clever. Not only does this thing boast games your Mom will love--hey, you can't even get "Gears Of War" on this thing--it gives Mom the tools she needs to make Grandma time a hit, every time.

Plus stashing the family console at Mom's house means you can splurge on a few accessories for the gang, without turning the kids into spoiled videogame junkies. And the Wii's group-friendly games means Mom can always join in the fun.

In Pictures: What Your Wii Needs

Other consoles have long sported eccentric accessories, of course. Steel Battalion, for the Xbox included a yard-wide game controller complete with foot pedals, a gear-shift and an eject button. PC games sport options that are even more outlandish. Aviation enthusiasts, for example, can buy everything from a simple stick and rudder for their virtual planes to elaborate plastic cockpits. It doesn't get much geekier.

The Wii's best accessories, however, are different because they build on the original Wiimote controller's motion-sensitivity to make videogames about much more than mashing buttons and wiggling joysticks. In fact, combining family-friendly games with motion sensitive controls has turned a once geeky pastime inside out.

Take the Wii Fit. The kit includes a balance board that allows adults to master basic yoga, track their weight and improve their balance. And it makes other games, like the "Wii Ski" a blast not just to play, but at parties where you can watch your friends try to shimmy their way down virtual ski slows.

As much as antivirus companies trumpet their evolving abilities to root out viruses, worms and Trojans on your PC, the cybersecurity industry leaves out one important piece of information: all the malicious code they're not detecting.

Luckily, someone is scanning the scanners. On Thursday, the Austrian nonprofit firm AV-Comparatives released its annual report based on a year of testing the cybersecurity industry's antivirus offerings, systematically pitting each one against more than 3 million samples of malware pulled from computers around the world.

The best performers in the firm's tests? Two names most Americans have never heard of: the German company Avira and the Slovakian firm ESET. And those rankings, cybersecurity analysts say, may reflect just as much on the industry's growing pains as they do on the two firms' ability to clean up your hard drive.

Avira, based in Tettnang, Germany, won AV-Comparatives' label as the overall best antivirus product of 2008, based on its ability to pull more malicious files off hard drives than big name competitors like Symantec (nasdaq: SYMC - news - people ), McAfee (nyse: MFE - news - people ) and Microsoft (nasdaq: MSFT - news - people ) in less time and with less impact on a PC's performance.

In the latest AV-Comparatives tests performed last month, for instance, Avira found about two-thirds of the previously undetected malware--collected over a four-week period--installed on the machines it scanned. ESET's NOD32 program found 51%. Symantec and Microsoft, by comparison, found only 44% of those samples, while McAfee's detection rate was below 30%.

Nintendo of America President Reggie Fils-Aime may have acknowledged that "Wii Fit" supplies will "fall short" this "holiday season," but that does not mean the 3.5 million balance boards lurking in living rooms are still seeing daily use.

Like any fitness program, it is suspected that most quit "Wii Fit" within two months. According to the Nintendo Channel--an online portal accessed through the Wii that is currently tracking some 1.3 million consumers--the average amount of time spent with the game is 15 hours and 41 minutes over 12 sessions. (See "How To Have Wii Fun.")

That is only a sample of "Wii Fit" owners, but one can guess that most of them are currently looking for some long-term storage for their oversized scale--at least until the Balance Board compatible "EA Sports Active" launches next March.

But don't be so hasty to find cupboard space. A wave of Balance Board compatible titles has hit stores this holiday season. Transform your Wii Balance Board into a skateboard, snowboard or toboggan with these Balance Board compatible games:

In Pictures: 10 Top Games For The Wii

Sorry to spoil Santa's secret, but at least 2 million of you will wake up during the holidays to discover you're the proud owner of a shiny new Wii. During November, Nintendo sold an unprecedented number of consoles, reports the NPD Group, driving the total population of Wiis in the U.S. to 15.4 million. Nintendo's waggle-controlled consoles are now owned by some 20% of the U.S. population.

And of course you want a Wii; it is only the hottest holiday wish-list item since Hypercolor tees. And with the Wii's widespread appeal--bringing family members of all ages together for bouts of virtual tennis or bowling--its an easy gift everyone will enjoy. Kids want to be blasting away at on-screen targets with the Wii Zapper. Friends want to share their "Animal Crossing" experiences, live, over the Internet with the chat-capable Wii Speak. We all want to design our own Mii so we can watch its body inflate and deflate as we progress through "Wii Fit's" workout regimen.

It is not just the console, though, whose sales are soaring. The past two years have been a Battle Royale of sorts as consumers have stalked UPS delivery trucks and harassed GameStop (nyse: GME - news - people ) employees in the hopes of snagging an all-too-scarce Wii. With the steady influx of new owners, every old Wii game is new again. Unlike most videogames that, at best, have a three-month retail shelf life, six-month old Wii games still top the monthly best-sellers lists.

Personal trainer "Wii Fit," which was released last May, sold 697,000 copies this November. "Wii Play" is over a year old, but sold almost 800,000 units last month--rivaling sales of Microsoft's (nasdaq: MSFT - news - people ) Xbox 360. The six-month old "Mario Kart" sold over 600,000 copies. Conversely, the new "Guitar Hero: World Tour" sold less than half a million copies on the Wii.

"We are seeing a new paradigm where titles such as 'Wii Play' continue to perform in the top 10 month after month," says Cammie Dunaway, Nintendo of America's executive vice president of sales and marketing. "With so many new consumers discovering videogames, these titles are something they haven't experienced." Even "Wii Music," which had disappointing sales at launch, is "picking up steam," Dunaway says. That means Nintendo (other-otc: NTDOY.PK - news - people ) games are no longer constrained to the narrow "launch window" demand curve that the industry thought governed most videogame sales. And it puts Nintendo in the position of trying to craft new retail strategies to ensure its games remain visible amidst all the new titles popping out for the Wii.

That explosion of games creates something of a dilemma for new Wii owners. Some 306 games were released for the Wii console in 2008 compared to 264 for the Xbox 360 and 201 for the PlayStation 3, according to EEDAR's GamePulse database. This glut of content--much of which isn't very good--makes buying a Wii game a leap of faith. Publishers want to capitalize on the growing audience of Wii gamers, but few outside of Nintendo have learned how to make a good Wii game. The average review score for games on the console is 62 out of 100.