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Suggestion

2011-02-26T17:12:00.000-08:00

I will say that there are individuals who are fat sensitive and will develop a less favorable cholesterol level on a high fat diet than on a low fat diet.

Intensive study of medical reports strongly suggests that less than one person in three falls in to this category. If the results are not to your liking, you may be a person who is fat sensitive. So for the next interval, eat only the lean proteins.

But if you are happy with the new lower fat version of the diet, still losing at a comfortable rate, and feeling just as well, stay with it and have another lipid profile drawn. A cholesterol elevation runs counter to the anticipated trend and would be significant.

When will unemployment checks be mailed? Not soon

2010-07-24T09:22:00.000-07:00

evin Landry had to give up his San Diego apartment because he couldn't afford the rent after his federal unemployment benefits were cut off in early June.

Since then, Landry and his cocker spaniel, Curley, have been sleeping in his 1991 Dodge Dakota in a church parking lot. He sold his possessions and applied for food stamps in order to survive.

And even though President Obama signed a measure Thursday that extends benefits through November, Landry knows he won't get his $475 weekly check anytime soon.

The last time Congress allowed the benefits to lapse, it took a month for him to start getting payments again.

"I'll just have to scrape by," said Landry, who lost his job as a credit manager for K2 Skis in September 2008. "There's nothing I can do about it. I've learned to deal with it."

Though Congress has finally pushed the deadline to file for federal extended insurance through Nov. 30, it could take weeks before the jobless start getting their checks again.

Nearly 2.9 million people ran out of benefits in the nearly two months it took Congress to extend the filing deadline beyond June 2.

But just when the checks start hitting bank accounts and mailboxes again depends on the state.

The long delay wreaked havoc on the state unemployment insurance technology that process the payments. States often have to call in experts to reprogram the computer systems, which are an average of 22 years old.

And state officials have to make sure that the unemployed were eligible to receive benefits during the interim. If the jobless stopped looking for work or earned income during June or July, they may not qualify.

"States will move as quickly as possible to resume [federal unemployment] payments, but it will not happen overnight," said Rich Hobbie, executive director of the National Association of State Workforce Agencies. "Because the program has lapsed for over a month, state workforce agencies need to ensure that claimants qualify for all retroactive payments."

The unemployed should check their state agency's website for updates or wait for a letter with instructions on restarting their payments and claiming the retroactive sum, said Judy Conti, federal advocacy coordinator at the National Employment Law Project.

Some states asked the jobless to continue sending in the forms certifying they were eligible for payments. The unemployed in those places will likely see their checks sooner.

But it will still take time, said Steve Meissner, a spokesman for the Arizona Department of Economic Security, which told its 64,000 claimants who were affected by the lapse to keep filing.

"We will do it as quickly as we can," he said, adding the state is still waiting to receive official guidance from the federal Department of Labor. "There are always some ambiguities because unemployment law is pretty complicated."

The checks, however, can't come too quickly for the jobless. For many, it's the only way they can afford housing, utilities, food and car payments, Conti said.

Vicki Wolf of Lebanon, Pa., is anxiously awaiting her $393 weekly check so she can pay her rent and buy essentials, such as shampoo. The former call center supervisor, who continued sending in her forms to the state, is behind on all her bills because she hasn't had any income since June 5.

Pennsylvania officials said in a statement that those who kept filing their paperwork should receive payment within two weeks. The rest of the more than 200,000 state residents who lost their benefits should submit their claims online as soon as possible.

Wolf, at least, is one of the luckier ones. She starts a new job at a trucking company on Monday, though she won't see her first paycheck until mid-August. Until then, she'll have to walk 45 minutes to work from her home.

"I don't have money to buy gas to put in the car," she said.

Renting: The new American dream?

2010-04-17T09:26:00.001-07:00

The American dream of home ownership has turned out to be the American nightmare for those who could never really afford a home in the first place.

Many borrowers are now in deep trouble as home prices have plummeted and the payments on bubble-era adjustable rate mortgages have shot up. Foreclosures are still continuing at an alarming pace.

If the so-called Great Recession has taught us anything, it's that buying a house is not a divine right. It's a privilege to be earned only after you've saved up a nice chunk of cash for a down payment and are in a healthy enough financial position to keep making those monthly mortgage payments .

So for many consumers, renting is not necessarily the worst thing in the world. That's worth keeping in mind now that some experts think home prices are close to bottoming and fixed mortgage rates are still fairly low.

Sure, we've all been taught that buying real estate is the smartest thing you can do in order to build wealth. That's probably still true for the long haul.

But like with any investment, you should only make a purchase if you can afford the near-term hit that comes from doling out all that money now. Plus, you have to be able to stomach the possibility that the value of the house may actually fall over a short period.

And guess what? It seems many people are in fact coming to the realization that, for now at least, it makes more sense to rent instead of buy.

Jerry Davis, senior vice president of property operations for UDR (UDR), a Denver-based real estate investment trust (REIT) that owns and manages apartments, said that before the housing market collapsed, about 25% of the company's renters that moved out of apartments did so because they were buying a home.

Now, only about 12% are moving out to purchase a home, and in some of the harder hit real estate markets, such as California, Davis said that fewer than 10% of movers are buying a house of their own.

"Even though prices have come down, you're not seeing a big exodus of renters to buy homes," Davis said. "Buying a house used to be the way to get rich, but people are afraid to jump back in."
0:00 /2:39Whitney: Housing set to fall again

In addition, banks also appear to have learned lessons from the housing crash. Many remain reluctant to give mortgages to even the most credit-worthy consumers.

"It was Shakespeare who wrote that when home prices are declining, neither a borrower nor a lender be," joked Edward Leamer, chief economist for the Ceridian-UCLA Pulse of Commerce Index and professor at UCLA's Anderson School of Management.

Simply put, many consumers just aren't buying the notion that the economy is getting better. For many, the stock market rally does not make their daily lives any easier. Consumers are more interested in the job market improving than the Dow or S&P 500 hitting highs.

"This is a frugal recovery. People are more reluctant to buy homes as they would in a normal recovery," Leamer said. "If you don't have a job or are worrying about your job, you're not going to buy a home. That's the ultimate statement of optimism about the future."

Add that up and it's reasonable to expect a rental boom that could last for some time. That's not lost on Wall Street. Shares of UDR, for example, are up 20% this year.
Check out CNNMoney's new market pages

Other apartment REITs have also surged this year and an analyst at RBC Capital Markets upgraded UDR, BRE Properties (BRE), Camden Properties Trust (CPT) and Apartment Investment and Management (AIV) last week, citing their growth potential.

Thomas Toomey, CEO of UDR, said that favorable demographics will also probably drive more people to rent than buy. He pointed to the increasing number of retiring Baby Boomers who may look to downgrade from bigger houses to apartments.

He also said that record-high college enrollment levels are a boon for UDR and other apartment owners. Most recent college graduates, particularly those finding work in cities, are not in a position to buy a home.

Toomey added that cities are also interested in building more apartments closer to where people work for environmental reasons.

"So if you look toward the future, it's not just demographics and people making a conscious decision of whether they can afford a home that will lead to more renters. Cities want more apartments for younger and older generations," he said.

Of course, that's exactly what you'd expect the head of a company that owns apartments to say. But I also agree with him. And I'm curious to hear what you think.

Are any of you long-term renters finally looking to buy? Homeowners that want to sell and not deal with a mortgage anymore? E-mail me and if I get enough feedback, I may do a follow-up column about renting versus buying.

6 smart ways to spend your tax refund

2010-04-04T10:31:00.000-07:00

Expecting a large chunk of change back from the IRS? Think carefully about where you want to spend it.

Nearly 90% of Americans are set to receive refunds this year at an average of $3,036, up 10% from last year. That's a lot of extra cash in your pocket, especially if you're just barely scraping by, or don't have any income at all.

Instead of spending that check on a shopping spree or splurge, it's important to put that money -- or at least some of it -- into something that will benefit you in the long term.

But that doesn't mean you can't enjoy it too. Just make sure you come up with a plan before you hit the stores.

Writing it down is a good place to start, suggests Diahann Lassus, co-founder of wealth management firm Lassus Wherley.

"The most important thing is to really think about where you want to spend that money and put it all down on a piece of paper," said Lassus. "Because many times, the dollars are bigger in your head than they are in your bank account so you end up spending more than what you've got."

Here are a few suggestions to help you craft your strategy:

Pay down debt: The last thing most people get excited about when receiving a refund in the mail is paying down debt.

But unfortunately, this is where the majority of your refund should go if you have a lot of debt, said Lassus. Just how much depends on what you owe.

"If you have huge credit card debt, a much larger portion of the refund needs to go to paying off this debt," said Lassus.

With lenders hiking fees and raising rates, debt is becoming increasingly expensive. So while it might not seem that exciting, you'll be able to sleep a little easier when you start making a dent in your debt. And once you've paid it off, you'll have more money in your pocket for discretionary spending and enjoyment.

Lassus usually recommends paying off the cards with the highest interest first. But if you have a few credit cards with small amounts on them, it might make more sense to pay some of these off first, she said.

Save for a rainy day: Everyone should have at least 3 months' worth of expenses in a liquid savings account. But especially if you're unemployed or worried about keeping your job, this is a crucial way to allocate some of your refund, said Tom Orecchio of Modera Wealth Management.

Chances are that at some point throughout the year, you will need to replace an appliance, pay a medical bill or repair something that's broken. Planning for a large expense later in the year can take the stress off of your weekly paycheck and give you a little extra wiggle room.

"Making sure you have adequate short-term savings is the second most important thing you can do [behind paying off debt]," said Orecchio. "And those who are employed but don't feel like they are on solid footing really need to make sure they have an emergency fund to dip into."

Orecchio suggests keeping this money in a high-yield money market or savings account that comes with a debit card or an electronic link to checking or ATM access.

Save for retirement: If you've taken care of your outstanding debt and have a healthy emergency fund, the next step is to tuck away some money for retirement.

To plan ahead, Orecchio said he advises people to look into whether they are eligible for a Roth IRA, or a tax-deductible IRA in order to save money on a tax-deferred basis.

Contributing as much of your refund as possible to a fund like this will allow you to worry a little less about your golden years, he said. The government allows you to contribute up to $5,000 a year into an IRA, or $6,000 if you're age 50 or older.

Invest in yourself: If you're unemployed or may be in danger of losing your job, earmarking a chunk of your refund to help you learn a new skill isn't a bad idea either, Orecchio said.

"If you have enough money put aside and don't have major debt, you might want to use this money to invest in yourself," said Orecchio.

"Go back to school to train for a new field of work, buy nice clothes for interviews, take a course on improving your résumé and interviewing skills or anything else that will improve your chances of getting a job."

Buy something you need: Saving up for a new home? This year's refund could help you make that down payment.

If you don't have debt to worry about and have a good amount of emergency cash on hand, go ahead and use your refund to complete a big purchase, said Lassus. While it might be tempting to make impulse purchases with your refund, putting it toward a planned purchase is a smarter choice.

"If you need a new car because yours is dying or want a washing machine because your old one is broken, put a certain amount of the refund aside for things like that," she said. "Refund dollars are really good for certain purchases you know you'll have to make."

Have a little fun: Even if you do need to shore up savings or pay off debt, that doesn't mean you can't enjoy some of your money. Making sure to do something for yourself can make you feel a little better about writing a check to the credit card company, or tucking it away in a retirement account for the next 20 years.

"You should save some of [your refund] for fun," said Lassus. "Whether it's something as simple as getting ice cream or eating out once a week or putting some dollars aside for a family vacation, sometimes you want to take at least 5% and do something fun with it."

And after the filing deadline, retailers, restaurants, hotels, spas and auto centers are ready to lure you in with tax season specials.

From clever $10.40 and $9.90 discounts at hotels and restaurants to half-priced spa treatments, be on the look out for deals reserved especially for IRS checks.

Bernanke: Fed should oversee all banks

2010-03-20T07:54:00.000-07:00

As Congress considers limiting the Federal Reserve's regulatory authority to just the country's largest bank holding companies, Fed Chairman Ben Bernanke reiterated on Saturday that the central bank should retain power over banks of all sizes.

"Because of the remarkable diversity of the U.S. financial system, a supervisory agency that focused only on the largest banking institutions, without knowledge of community banks, would get a limited and potentially distorted picture of what was happening in our banking system as a whole," Bernanke said in a speech to the Independent Community Bankers of America.

The talk echoed points Bernanke has made in several previous speeches, when he has argued that the supervision of small banks helps the Federal Reserve monitor the pulse of the "continent-spanning, highly varied" economy.

That "breadth of vision" informs the Fed's decision-making process when setting monetary policy, Bernanke said Saturday. He added that the Fed is the only body with the expertise to keep close watch on big banks as well as regional and community banks.
0:00 /6:35Chris Dodd on financial reform

"Although it was not the case in the current crisis, instability can be generated by small institutions as well as by large ones--as occurred in the Great Depression or in the thrift crisis, to cite two particularly dramatic examples," he said.

Recent regulatory reform proposals aim to strip the Fed of policing these smaller community banks, arguing that its oversight should be focused on the 35 biggest bank holding companies.

A bill put forth by Senate Banking Committee Chairman Christopher Dodd, D-Conn., earlier this week would create a new consumer regulator housed inside the Fed to ensure fair dealings with mortgages and credit cards. It would also push banks to boost capital and create a new process for taking down giant failing companies without forcing Wall Street bailouts.

Bernanke addressed the bailout issue in his comments Saturday, saying "the pernicious problem of financial institutions that are deemed 'too big to fail'" is one of the biggest hindrances to recovery.

Buffett's $50 million credit card blunder

2010-02-28T15:40:00.000-08:00

Peddling credit cards isn't so easy that a caveman can do it.

That seems to be the conclusion Berkshire Hathaway (BRKA, Fortune 500) chief executive Warren Buffett reluctantly reached last year, when he shut down a money-losing credit card business he had dreamed up for Berkshire's Geico car-insurance unit.

The decision was disclosed in Buffett's annual letter to Berkshire shareholders, released Saturday. The letter called Geico's brief foray into credit cards "a very expensive business fiasco entirely of [Buffett's] own making."

Since Berkshire took over Geico in 1996, the company has grown rapidly, thanks to low prices and an advertising budget that has grown 25-fold to $800 million.

Geico is best known for a series of television commercials featuring a gecko that talks with a Cockney accent. Since 2004, the company also has run spots on TV showing preppy cavemen protesting the claim that buying insurance at geico.com is "so easy a caveman can do it."

Geico has been expanding fast -- it has added 4 million policyholders since 2002 and is now the top car insurer in New York, among other places -- and Buffett says he has long puzzled over which other products the company might dangle before loyal Geico customers.

Against the advice of Geico executives, Buffett said in the letter, he lit upon the idea of a Geico credit card. The Geico Platinum MasterCard was born.

"I reasoned that Geico policyholders were likely to be good credit risks and, assuming we offered an attractive card, would likely favor us with their business," Buffett wrote in this year's letter.

Buffett was so high on the idea a few years ago that he urged Berkshire shareholders to use the card.

"Sign up for the new Geico credit card," Buffett wrote in his 2005 investor letter. "It's the one I now use."

Stocks hit as confidence slips

2010-02-23T17:04:00.001-08:00

Stocks tumbled Tuesday after a key measure of consumer confidence plunged, reflecting investors' growing pessimism about the strength of the economic recovery.

The Dow Jones industrial average (INDU) lost 100 points, or 1%. The 30-share Dow had lost as much as 115 points earlier.

The S&P 500 index (SPX) lost 13 points, or 1.2%. The Nasdaq composite (COMP) fell 28 points, or 1.3%.

A mixed market turned negative after the late morning release of a weaker-than-expected reading on consumer confidence. The report reflected investor wariness this year amid some conflicting readings on the economy, debt issues at home and abroad, and lawmaker squabbling in Washington.

Stocks have been choppy lately, with the major indexes declining for four weeks, advancing for two weeks and then slipping again Monday -- despite some upbeat earnings and an $11 billion merger in the oil services sector.

The Volatility (VIX) index, Wall Street's so-called fear factor, rose 9% Tuesday as nervousness grew about the strength of the recovery.

"The bears and the bulls are in a tug of war, and today, the bears have the upper hand," said Bill Stone, chief investment strategist at PNC Financial Services Group.

He said that the consumer confidence number is one of the more forward-looking readings and is raising worries that the consumer -- already struggling in a battered labor market -- might pull back even more.

"Today it's a combo of a weak number and maybe needing to take a breather after the rally," Stone said.
Toyota problems could be electronic

Struggling after the rally: After a huge runup in 2009 based on expectations for a strong recovery in 2010, investors are now looking for proof that such a recovery will take hold.

A mixed batch of economic readings has put some doubt in the market this year, while better-than-expected fourth-quarter earnings and revenues have had little impact on investor sentiment.

China's decision to temper growth by limiting bank loans and fears of Greece's debt crisis spreading to other European nations have also played a role in the market's seesawing.

"In a broad sense, we're in the fourth quarter of a bull rally and a lot of the steam is out of it now," said Tom Hepner, financial adviser at Ruggie Wealth Management.

He said investors are looking past the fiscal and monetary stimulus that has propped up the economy over the last year and are looking at the earnings and economic reports. "We're looking at the so-called fundamentals of the market and we're not quite sure it's all there yet," he said.
Sick banks may mean feeble recovery

Federal Reserve: Last week, the Federal Reserve surprised investors by boosting the discount rate, the emergency bank lending rate, by a quarter-percentage point, to 0.75%.

It was the first change in interest rates in over a year and signaled the very early stages of the Fed returning to a more normal phase of monetary policy. However, the move was largely symbolic, as the discount rate is rarely used.

Fed Chairman Ben Bernanke testifies on Capitol Hill Wednesday and Thursday. He is expected to discuss the economy and monetary policy, but investors will be listening to see if he says anything more about the central bank's plans to close out some of the emergency programs put in place during the height of the financial crisis.

Housing: The S&P/Case-Shiller Home Price index of the 20 largest metropolitan areas fell 3.1% in December versus a year ago, in line with estimates and an improvement after a drop of 5.3% in the previous month. However, the index rose 0.3% from November's levels, suggesting the housing market is continuing to recover.

On a quarterly basis, the index fell 2.5% versus a year earlier, an improvement over the last three years.
0:00 /1:19Toyota brags about limited recall

Jobs: The Senate on Monday agreed to move forward on a $15 billion jobs creation bill that gives businesses a tax break for new hires. The bill would also extend an existing break for spending money on investments like equipment and funds highway and transit programs through the rest of the year.

Toyota: Executives from the troubled auto manufacturer are in Washington this week to discuss the company's massive recall and future plans.

At the first of three congressional hearings, witnesses argued that the problems with the brakes could be tied to the vehicles' electronic throttle system.

James Lentz, the company's U.S. sales chief was testifying Tuesday and Akio Toyoda, the company's president, was due to testify Wednesday. Toyoda is expected to tell U.S. lawmakers that the rush to expand Toyota Motor's business led to the safety issues that resulted in the recall.

Quarterly results: A number of retailers reported results Tuesday, including Dow component Home Depot (HD, Fortune 500).

Home Depot said it returned to a profit in its fiscal fourth quarter after posting a loss a year earlier, with earnings of 18 cents per share, two cents better than expected. Home Depot also boosted its dividend. But the company gave a cautious 2010 outlook amid the still-fragile economic recovery.

Target (TGT, Fortune 500) and Sears Holdings (SHLD, Fortune 500) also reported better-than-expected quarterly profit. Sears is the operator of Sears and Kmart.

Banks: Over 700 banks are at risk of failing, according to a report from the Federal Deposit Insurance Corp. published Tuesday. The FDIC said that the number of banks on its so-called problem list has climbed to 702, the highest number in 6-1/2 years.

The number has increased steadily since the start of the recession in December 2007. However, only a small percentage of banks identified as being in danger end up failing.

World Markets: In overseas trading, European markets fell and Asian markets ended mixed.

The dollar and commodities: The dollar gained versus the euro and fell against the yen.

U.S. light crude oil for April delivery fell $1.45 to settle at $78.85 a barrel on the New York Mercantile Exchange.

COMEX gold for April delivery fell $9.90 to settle at $1,103.20 per ounce.

Bonds: Treasury prices rose, lowering the yield on the 10-year note to 3.70% from 3.79% late Monday. Treasury prices and yields move in opposite directions.

Market breadth was negative. On the New York Stock Exchange, losers beat winners seven to three on volume of 1.08 billion shares. On the Nasdaq, decliners beat advancers by over two to one on volume of 2.29 billion shares.

Stocks extend gains

2010-02-17T16:27:00.000-08:00

Stocks gained Wednesday as investors considered a better-than-expected housing report, a mixed forecast from the Federal Reserve and some upbeat company news.

The dollar firmed up, hitting dollar-traded oil, gold prices and stocks. Treasury prices plunged.

The Dow Jones industrial average (INDU) rose 40 points, or 0.4%. The S&P 500 index (SPX) added 5 points, or 0.5%. The Nasdaq composite (COMP) edged up 12 points, or 0.6%.

Stocks clung to modest gains throughout the session Wednesday as investors weighed the day's news against the headwinds that have punished stocks year-to-date.

After the close, Hewlett-Packard (HPQ, Fortune 500) reported higher quarterly earnings and revenue that topped expectations. Shares gained 1% in extended-hours trading.

Stocks rallied Tuesday after Merck (MRK, Fortune 500) and Barclays (BCS) released better-than-expected results and commodity prices rose. The Dow gained 1.7%, or 170 points, for its biggest one-day point gain since Nov. 9.

But Tuesday's advance was an exception, and stocks have had a rough start to the year, with the Dow, Nasdaq and S&P 500 posting declines for four of the last five weeks.

Worries about China limiting bank lending and the threat of Greece's debt crisis expanding have dragged on stocks. European officials have sought to soothe worries about Greece and other euro zone countries lately, but broader concerns about the strength of any recovery have continued to worry investors.

"I think the market is struggling with higher expectations going into 2010," said Alan Lancz, president at Alan B. Lancz & Associates.

Lancz said that the China and euro debt issues took investors by surprise and that while quarterly profit reports have been good, the economic news has been mixed.

"All of this has brought to light that while the economic recovery is going to be good, its not going to be as strong as had been anticipated," Lancz said. "Stock valuations are going to need to catch up to the economy.

In 2009, the Dow gained 18.8%, the S&P 500 rose 23.4% and the Nasdaq gained 44%. But the gains were even bigger off the multi-year lows of last March, with the Dow rising 59%, the S&P 500 rising 65% and the Nasdaq rising 79%.

Thursday brings the weekly jobless claims report from the Labor Department, the index of leading economic indicators (LEI) from the Conference Board, the January Producer Price Index (PPI) and the Philadelphia Fed index.

In addition, Wal-Mart Stores (WMT, Fortune 500) reports results before the start of trading. The retailer is expected to have earned $1.12 per share versus $1.03 a year earlier.

Fed minutes: The central bank released the minutes from its last policy meeting in the afternoon, as well as its revised economic forecast. Chairman Ben Bernanke and the other officials said unemployment should decline only modestly over the next few years, keeping the unemployment rate above the level that is typical during a recovery.

The bankers also gave a slight boost to forecasts for economic growth this year, lifting the target to growth of between 2.8% and 3.5% in 2010 versus November forecasts for growth between 2.5% and 3.5%.
Stimulus: One year later

Economy: Housing starts rose 2.8% in January to a 591,000 annual unit rate, according to a National Association of Home Builders report released Wednesday morning. Economists surveyed by Briefing.com thought it would rise to a 580,000 unit annual rate from a 575,000 unit annual rate in the previous month.

Building permits, a measure of builder confidence, fell 4.9% to an annual unit rate of 621,000 in January, versus forecasts for a drop to a 620,000 unit annual rate. Permits stood at a 653,000 unit annual rate in the prior month.

Industrial production rose 0.9% in January after rising 0.7% in the previous month, the government reported Wednesday. Economists surveyed by Briefing.com thought it would rise 0.7%. Capacity utilization rose to 72.6%, as expected, from 71.9% in December.

Quarterly results: Deere & Co. (DE, Fortune 500) reported higher quarterly earnings that topped estimates on lower revenue that also topped estimates. The heavy equipment maker said that cost-cutting and the benefit of better currency rates helped offset the weak economic environment. Deere also boosted its 2010 sales forecast.

Around 393 companies, or 79% of the S&P 500, have reported results. Currently, results are on track to have risen 211% from a year earlier, according to Thomson Reuters. Revenues are set to rise 8%. Stripping out the recharged financial sector, earnings are set to rise 16% and revenues 3%.
0:00 /2:38Uncertainty rings on the floor

Company news: In deal news, Walgreen (WAG, Fortune 500) said it will buy rival drugstore Duane Reade in a deal valued at $1.08 billion including debt.

Toyota (TM) said it plans to install a new brake override system in its cars, and that it will tighten controls on safety, in the aftermath of its recall of millions of autos due to faulty brakes.

However, President Akio Toyoda said he won't testify before Congress at the hearing later this month. Shares of Toyota fell nearly 3%.
When will interest rates rise?

World markets: In overseas trading, both European and Asian markets rallied.

The dollar and commodities: The dollar gained versus the euro and the yen, pressuring dollar-traded commodity prices.

U.S. light crude oil for March delivery rose 32 cents to settle at $77.33 a barrel on the New York Mercantile Exchange.

COMEX gold for April delivery rose 30 cents per ounce to settle at $1,120.10.

Bonds: Treasury prices tumbled, raising the yield on the 10-year note to 3.74% from 3.66% late Tuesday. Treasury prices and yields move in opposite directions.

Market breadth was mixed. On the New York Stock Exchange, winners topped losers two to one on volume of 1.02 billion shares. On the Nasdaq, advancers beat decliners by three to two on volume of 2.06 billion shares.

Buffett's Berkshire Hathaway joins S&P 500 Index

2010-02-13T16:44:00.000-08:00

Warren Buffett's legendary Berkshire Hathaway joined the S&P 500 index after markets closed Friday.

Class B (BRKB) shares of Berkshire Hathaway fell during the first half of Friday's session, tracking the broader market, but began to climb in the afternoon and spiked during the last hour of trading. It ended 1.25% higher on the day, at $77.65 per share on volume of 66.4 million shares, 91% higher than the average 5.5 million.

Friday afternoon's surge in the stock's price and trading volume was a result of S&P 500 index fund managers buying the stock before close, said Fred Dickson, chief market strategist at D.A. Davidson & Co.

Companies added to the S&P 500 usually experience a boost in stock price because money managers that run index funds tied to the benchmark need to own it.

Shareholders of Berkshire Hathaway approved a 50-for-1 split of Class B common stock last month, so the company could offer shares to investors in Burlington Northern Santa Fe (BNI, Fortune 500), which it agreed to buy in November for $34 billion. Berkshire completed its purchase of the railroad company Friday.

The split cut the price of Class B shares from more than $3,300 a pop, to a more affordable $66, and paved the way for Berkshire to finally join a major stock index.

Berkshire will officially begin trading on the S&P 500 Tuesday, since the market is closed Monday in observance of President's Day.

One criteria for joining the S&P 500 Index is that the stock must be widely available. The index is a common proxy for the U.S. stock market, and major index funds that track the blue chip index hold shares of its companies.

Berkshire's Class A (BRKA, Fortune 500) stock is much pricier -- closing above $115,000 a share Friday.

Cell phone driving bans don't work

2010-01-29T07:44:00.000-08:00

State laws that ban drivers from talking on hand-held cell phones seem to have no effect on crash rates, according to a study released Friday.

The Highway Loss Data Institute compared collisions of 100 insured vehicles per year in four different jurisdictions before and after bans on handheld cell phone use took effect. The study was done in New York, Washington, D.C., Connecticut and California.

Data were also collected from nearby states for comparison.

Monthly fluctuations in crash rates didn't change after bans were enacted, the study found. Crash rates compared to nearby places without handheld phone bans also didn't change.

Earlier studies by the Institute, which is funded by insurance companies, found four-fold increases in injury-related crash risk associated with cell phone use, so this result was surprising. Surveys of driver behavior following bans raised more eyebrows. They showed actual reduction in cell phone use, the Institute said.

"We're currently gathering data to figure out this mismatch," said Institute President Adrian Lund.

One possible reason, Lund suggested, is that drivers are simply switching to hands-free phone use. Still, some studies suggest that the risk of hands-free phone use while driving is little different from handheld phone use.

Institute spokesman Russ Rader suggested that laws attacking particular types of distraction may be ineffective because there are simply too many distractions available to drivers for laws dealing with just one to have much impact.
0:00 /1:08Toyota puts a brake on production

"Whatever the reason, the key finding is that crashes aren't going down where hand-held phone use has been banned," Lund points out. "This finding doesn't augur well for any safety payoff from all the new laws that ban phone use and texting while driving."

Profits and losses and banks. Oh my!

2010-01-18T06:51:00.001-08:00

Better-than-expected results from big names JPMorgan Chase and Intel failed to inspire investors last week. Can this week's crop of marquee name companies recharge the rally's engine?

57 companies in the S&P 500 report quarterly results this week, highlighted by the financial sector. Bank of America (BAC, Fortune 500), American Express (AXP, Fortune 500), Goldman Sachs (GS, Fortune 500), Morgan Stanley (MS, Fortune 500), Wells Fargo (WFC, Fortune 500) and a bunch of regional banks are all up at bat this week.

Better-than-expected results from big names JPMorgan Chase and Intel failed to inspire investors last week. Can this week's crop of marquee name companies recharge the rally's engine?

57 companies in the S&P 500 report quarterly results this week, highlighted by the financial sector. Bank of America (BAC, Fortune 500), American Express (AXP, Fortune 500), Goldman Sachs (GS, Fortune 500), Morgan Stanley (MS, Fortune 500), Wells Fargo (WFC, Fortune 500) and a bunch of regional banks are all up at bat this week.

Flat start seen for stocks

2010-01-14T06:42:00.001-08:00

U.S. stocks were headed for a flat open Thursday, as investors expressed caution after pushing the Dow Jones industrial average to a 15-month high.

Dow, Nasdaq-100 and S&P-500 futures were little changed. Mild gains in futures were erased following disappointing results from economic reports.

Futures measure current index values against their perceived future performance and offer an indication of how markets may open when trading begins.

Peter Cardillo, chief market economist for Avalon Partners, said the December retail sales report would set the tone for the day's trading.

"I think the real focus will be on whatever the consumer is doing post-holiday season," he said, before the release of the report.

Investors will also focus on the weekly jobless claims report and corporate earnings, said Cardillo.

The blue-chip Dow closed at its highest point since Oct. 1, 2008 on Wednesday, as investors bounced back from a one-day selloff.

Economy: Retail sales dropped 0.3% in December, according to the Census Bureau, which was much worse than expected.

Sales were expected to have risen 0.5% in December, according to a consensus of economist expectations from Briefing.com. That would compare to the upwardly revised gain of 1.8% in the prior month.

The Labor Department reported that weekly jobless claims rose more than expected. Initial jobless claims jumped to 444,000 in the week ended Jan. 9. That's more than the expected increase to 436,000, according to Briefing.com consensus.
0:00 /3:25The fine art of racking up air miles

Banks: A panel investigating the financial crisis holds a second day of hearings in Washington. On Wednesday, four top bank chief executives told the Financial Crisis Inquiry Commission that they had made mistakes but that they didn't realize the error of their ways ahead of the financial crisis of 2008.

Earnings: Chipmaker Intel (INTC, Fortune 500) is slated to post its quarterly financial results after the closing bell.

The company is expected to report a surge in fourth-quarter earnings to 30 cents per share from year-earlier income of 4 cents, according to a consensus of analyst opinion from Thomson Reuters.

World markets: A rally in Asia lifted the Nikkei 1.6%. Major European indexes also rose slightly in midday trading.

Cash and bonds: The dollar rose was mixed against major international currencies, rising against the euro and the yen, but falling versus the pound. The price of the 10-year note rose, lowering the yield to 3.76%.

Oil and gold: The price of oil edged up 27 cents to $79.92 a barrel. The price of gold rose $2.10 cents an ounce to $1,138.90.

Gas prices near $3

2010-01-11T07:20:00.001-08:00

Gas prices continued to climb higher, rising for a fifth consecutive day and coming closer to $3 a gallon.

The average cost of a gallon of regular gasoline rose slightly on Sunday to $2.747, from $2.743 the day before, according to motorist group AAA. Nationwide, gas prices have increased eight cents over the last five days.

Prices were highest in the state of Alaska, at $3.373 a gallon, AAA reported. They were cheapest in Wyoming, at an average $2.494 a gallon.

The national average gas price is now higher than it was at any point in 2009. But prices are still down $1.45, or 35%, from the record high price of $4.114 that AAA reported on July 17, 2008.

Gas prices have been rising recently as the price of crude oil has pushed higher. Last week, oil averaged about $82.30 a barrel, barely below a 14-month high.

Oil prices have been supported by frigid temperatures across much of North America and Europe, which has increased demand for heating fuels. Some analysts say pump prices could top $3 a gallon in the weeks ahead if crude prices rise near $90 a barrel.

Tax showdown ahead on health reform

2010-01-03T14:54:00.001-08:00

Democrats in the House and Senate are on the same page when it comes to health reform. They want it.

They even agree on some of the biggest ticket items in bills that they will be combining when they return from their holiday in January.

But there are a couple of areas where the head-butting could be fierce. Key among them: Taxes.

Here are a few of the ways the two chambers differ in their thinking:
Tax the rich

The House and Senate both have provisions that would tax high-income households more to pay for reform. But they do so very differently.

The House leans on them heavily. It would impose a 5.4% surtax on a taxpayer's adjusted gross income over $500,000 ($1 million for couples filing jointly). The surtax would go into effect in 2011 and is estimated to raise $460 billion by 2019. The income thresholds would not adjust for inflation, so over time the tax would capture more and more taxpayers.

Critics of the surtax say it would not help reduce health care costs or spending, goals that have taken a backseat to insuring more Americans.

The surtax isn't likely to make it into a final piece of legislation because it doesn't have sufficient support in the Senate, where there are no votes to spare.

But in an apparent nod to the House's preference to tax the rich, the Senate bill would impose a higher Medicare tax on an individual's income over $200,000 ($250,000 for couples). The increase would start in 2013, and is estimated to raise $87 billion by 2019.

Currently, the Medicare payroll tax is 2.9% on all wages -- with the worker and his employer each paying 1.45%. Under the Senate bill, these high-income workers would pay 1.54%.

Supporters of the tax increase say it would help the long-term funding of Medicare. But the Congressional Budget Office put the kibosh on that argument. You can't use the tax to help pay for health-care reform and long-term Medicare needs -- that's double-counting, the CBO said.

Critics of the payroll tax hike say, that like the House surtax, it won't curb health costs or spending.
Tax pricey health plans

If your company picks up most of your health-insurance tab, many think that benefit should be taxed at least somewhat, especially for very generous plans. Critics worry about the consequences of hiking taxes on workers.

The Senate tries to sidestep the issue by focusing the tax on insurers. Its bill would impose a 40% tax on insurers for the portion of employer health plans that exceed $8,500 for individual coverage and $23,000 for family coverage.

Higher thresholds would apply to plans that provide coverage to high-risk professions and to workers over 55.

The measure would go into effect in 2013 and would raise an estimated $149 billion by 2019.

Opponents maintain the tax would still ultimately be borne by workers, as insurers pass along the higher costs.

Supporters say the tax holds the promise of reducing the growth in health spending over time. Their reasoning: As the cost of plans grow more expensive, employers will instead opt for lower-cost options to avoid the tax.

And, the economic theory goes, once employers start spending less money on healthcare they will use the money saved to pay workers higher wages. The workers will then owe income tax on those higher wages, providing revenue to help pay for health reform.
Tax those who fail to get coverage

Both the House and Senate bills have measures that would subsidize the cost of insurance for low- and middle-income families. But both also require that most Americans obtain coverage.

Those who fail to acquire adequate coverage under the House bill would be subject to a tax equal to the lesser of 2.5% of one's modified adjusted gross income, or the national average premium for single or family coverage, whichever is relevant.

Those who are claimed as dependents on a taxpayer's return would not be subject to the penalty themselves. But their parent or guardian would be responsible for providing them coverage. Parents may include their children up to age 26 on their insurance policy under the House bill.

The measure would go into effect in 2014 and raise an estimated $33 billion by 2019.

Under the Senate bill, those who fail to have adequate coverage would have to pay a penalty that would increase over time. "Generally, the penalty would start at $95 in 2014, $495 for 2015 and $750 for 2016 with indexing for inflation [thereafter]," according to a CCH Tax Briefing paper.

The measure, in conjunction with a penalty on employers who fail to meet the requirements under the bill to help workers get coverage, is estimated to raise $36 billion by 2019.
Tax George Hamilton wannabes, others

For those who would rather look good than avoid skin cancer, they would face a 10% excise tax on indoor tanning services under the Senate bill. The provision would go into effect in 2011 and raise an estimated $2.7 billion by 2019.

The Senate bill includes another revenue raiser affecting individuals that is not included in the House bill. Currently, you can deduct medical expenses that exceed 7.5% of adjusted gross income. The Senate bill, would raise that threshold to 10% for anyone under 65 starting in 2013, and would apply to seniors 65 and older by 2017.

The measure would raise an estimated $15.2 billion by 2019.

Returning a gift gets costly

2009-12-27T04:45:00.001-08:00

Can't wait to tear into your presents this year? You may want to hold on. You could pay a price JUST for opening the box.

The Massachusetts Consumer Affairs office is out with a survey that shows more retailers are charging restocking fees -- fees for returned goods (typically electronics) if they're opened or not in a factory-sealed box.

So, if you bought a $300 product, but were charged a 15% restocking fee, your refund would only be $255. And restocking fees can be even higher; anywhere from 10 - 25%. Some retailers charge up to 60%. Overstock.com for example will keep 60% or more of the price of your jewelry or watch if you return it in a damaged box or if any of the manuals or tags are missing.

But it's not only electronics you have to worry about. According to Consumer Reports, you might be charged a 15% restocking fee for appliances, tools and lawn-and-garden products. To avoid this fee, don't open the package if you don't want what's inside. And if you're buying a gift, make sure you ask about restocking fees. Some retailers have a different policy online than they do in their stores.

Returns may be a bit easier this year-that's according to a just-released survey by Consumer World. This year, some stores have extended their return deadlines, and eased policies regarding the return of goods without receipts. Target (TGT, Fortune 500), for example, won't require a receipt for returns -- but that's only if the amount of receipt-less items you exchange is less than $70 a year. Best Buy (BBY, Fortune 500) has lengthened its holiday return period to January 31 -- except for computers. And Wal-Mart (WMT, Fortune 500) has extended the holiday return period on computers and cameras.

Policies vary widely among different stores. But according to Consumer Reports, you'll find the best return policies at Bed Bath & Beyond, (BBBY, Fortune 500) Bloomingdales, Costco, (COST, Fortune 500) Ikea and Kmart.
0:00 /1:25Managing money: When to get help

Return policies that could trip you up include Home Depot's (HD, Fortune 500). Here you can't return items you bought online at their stores. At Buy.com you have 30 days to return an item once it's shipped -- regardless of WHEN you received it. At Overstock.com you can't return TVs over a certain size.

As always, buyer beware. Make sure you keep your receipts. If you buy and return items online, be aware that many merchants do not refund the cost of shipping. Consumers who have a problem returning a gift, should first contact the store manager or customer service department of the retailer. If you're still having issues, you can file a complaint with the state Attorney General's office or a local consumer agency.

Stocks ready to rise at open

2009-12-22T05:09:00.001-08:00

Stocks were poised to open higher Tuesday as investors await reports on the overall economy and the housing sector.

Dow Jones industrial average, Nasdaq-100 and S&P-500 futures were all higher. Futures measure current index values against their perceived future performance and offer an indication of how markets may open when trading begins.

Stocks rallied Monday, pushing the Dow back into positive territory for the month, as investors cheered a combination of analyst upgrades and corporate deal-making.

David Jones, chief market strategist at IG Markets in London, said that today's revision of the third-quarter gross domestic product could be the primary driver of the markets, especially if it bucks expectations and "gets revised to a better number."

"Momentum over the last couple of days has been strong," said Jones. "There's still a chance we could see the Dow hit 10,500 by the end of the year."

However, trading volume has been light, and "low volumes, as ever, tend to exaggerage the moves," he warned.

The Dow closed at 10,385 on Monday.

Economy: Before the opening bell, the Commerce Department releases its final revision of third-quarter gross domestic product, the broadest measure of economic activity. Economists surveyed by Briefing.com expect GDP to have risen at an annual rate of 2.7% in the three months ended in September.

While that would be below the 3.5% growth rate the government first reported in October, it would still be a marked improvement over the previous four quarters in which economic activity shrank.

Shortly after the market opens, the National Association of Realtors will release a report on existing home sales for November. Economists surveyed by Briefing.com expect the annual sales rate to rise to 6.25 million from 6.1 million in October.

Company news: Ford Motor (F, Fortune 500) announced Monday that it offering buyouts and early retirement to its 41,000 U.S. factory workers. The carmaker is looking to cut payroll costs in its effort to return to profitability by 2011.

World markets: Stocks in Asia closed higher, with Tokyo's Nikkei index up 1.9. European markets gained in midday trading.

Money and oil: The dollar gained against the yen and pound, but was lower versus the euro.

Crude oil for February delivery dropped 35 cents to $73.37 a barrel.

Gold for February delivery gained $1.60 to $1,097 an ounce.

Stocks set for early slump

2009-12-17T05:57:00.000-08:00

Stocks were poised to fall at the opening bell, led by weakness in overseas markets and worries about the economy, with declines worsening after a worse-than-expected jobless claims report.

Dow Jones industrial average, S&P 500 and Nasdaq futures were all lower.

Despite posting gains early in the session, stocks ended mixed Wednesday after the Federal Reserve left interest rates unchanged near 0%, saying market conditions were helping the recovery but weakness will remain.

Marc Chandler, chief foreign exchange strategist for Brown Brothers Harriman, said that markets were "jittery" after the Fed statement.

However, he added that most of the early weakness on Wall Street was stemming from reports about Greece being downgraded by S&P. That follows a recent downgrade from Fitch, after healthcare companies complained that Greece was behind on payments related to its public health system.

Chandler said those downgrades and persistent economy worries are driving up the dollar to its highest point versus the euro since September, and its highest point against the pound since October.

"Santa Clause is giving a little present to people like me, who are dollar bulls," said Chandler.

Chandler said that concerns could carry extra weight amid "very thin" volume ahead of the holidays.

Economy: The Labor Department reported its weekly tally of jobless claims, which was higher than expected.

Jobless claims rose by 7,000 to 480,000 in the week ended Dec. 12. Analysts had estimated that the number of American filing first-time claims will fall to 465,000, according to Briefing.com consensus.

The November index of leading economic indicators, from the Conference Board, is due out shortly after the start of trading. LEI is expected to have risen 0.7% after rising 0.3% in October.

The Philadelphia Fed index, a regional read on manufacturing, is expected to have fallen to 16.0 in December from 16.7 in November.

The Senate Banking Committee will be voting on Federal Reserve Chairman Ben Bernanke's confirmation.

Companies: Citigroup (C, Fortune 500) said late Wednesday it intends to raise $20.5 billion in the stock market in a plan to payback its bailout funds. The New York-based lender said it will offer 5.4 billion shares of common stock priced at $3.15 per share to raise $17 billion. Citigroup will also offer 35 million "tangible equity units" for $100 each to raise the remaining $3.5 billion.

Bank of America (BAC, Fortune 500) appointed senior executive Brian Moynihan as its new chief executive officer. Moynihan, 50, is currently the president of consumer and small business banking at the nation's largest bank.

Exiting CEO Ken Lewis surprised Bank of America's board of directors when he announced his plans to retire in September.

Before the start of Thursday trading, package-delivery firm FedEx (FDX, Fortune 500) reported earnings of $1.10 per diluted share for the second quarter, ended Nov. 30, down from a year ago's $1.58.

FedEx issued cautious guidance on the third quarter of 50 to 70 cents per diluted share. This falls short of 84 cents EPS, which was the forecast from Thomson Reuters. The stock price slipped in pre-market trading.

After the close Thursday, Oracle (ORCL, Fortune 500) is expected to report a profit of 36 cents per share versus 34 cents a year ago.

World Markets: Stocks in Asia ended mixed, with Tokyo's Nikkei index falling 0.13% and Hong Kong's Hang Seng index off 1.22%. European indexes were also trading lower.

Currency and commodities: The dollar was higher against major international currencies, including the euro, the yen and the pound.

Crude oil for January delivery fell 66 cents to $72 a barrel.

Gold for February delivery plunged $21.80 to $1,113.70 an ounce.

Stocks climb on Citi, Dubai news

2009-12-14T07:12:00.001-08:00

Stocks gained Monday after Citigroup said it will repay its government bailout funds and Dubai received $10 billion to cover its debt, easing worries that the emirate might default on billions it owes.

The Dow Jones industrial average (INDU) rose 22 points, or 0.2%. The S&P 500 index (SPX) gained 5 points, or 0.5%. The Nasdaq composite (COMP) rose 10 points, or 0.5%.

The Dow closed at a 14-month high Friday after better-than-expected reports on retail sales and consumer sentiment, but broader gains were limited by tech weakness and a strong U.S. dollar.

Citigroup: Citigroup (C, Fortune 500) announced early Monday it has reached an agreement with the government to repay $20 billion it has received in TARP funds. The bulk of the bank's payment will be funded through a $17 billion common stock offering.

Citigroup also said the Treasury will sell up to $5 billion of the common stock it holds in a concurrent offering and the remainder over the next year.

Dubai: Fears that Dubai might default on billions of dollars in debt eased Monday when its fellow United Arab Emirate, Abu Dhabi, pledged $10 billion in financing. (Abu Dhabi gives Dubai $10 billion bailout)

The announcement allays concerns raised last month when Dubai sought a six-month delay in debt payments for Dubai World, the government's flagship holding company. Global markets, which fell sharply when the Dubai debt problems were first raised, were mostly higher in Monday trading.

Exxon-XTO deal: Dow component Exxon Mobil (XOM, Fortune 500) said it will buy XTO Energy (XTO, Fortune 500) in a $31 billion all-stock deal that values XTO shares at a 25% premium to its Friday closing price.

Exxon shares fell 2.5% and limited any gains on the Dow. XTO shares rallied 17%.

Banks: President Obama will meet Monday with top executives of some of the nation's biggest lenders, including Capital One (COF, Fortune 500), JPMorgan Chase (JPM, Fortune 500), Morgan Stanley (MS, Fortune 500), PNC (PNC, Fortune 500) and Wells Fargo (WFC, Fortune 500). The president is expected to say he wants to see more loans for the sake of economic recovery.

Obama is expected to urge bankers to enact a number of changes, including greater lending, curbing runaway compensation practices, as well as supporting financial reform efforts.
0:00 /4:25How the financial system fell apart

Week ahead: No major economic reports are due Monday. But reports on inflation, housing and industrial production are due out later this week.

The Federal Reserve will take center stage this week as the U.S. central bank opens its final monetary policy meeting of the year on Tuesday.

Investors will also focus on corporate results from a number of major companies. Consumer electronics giant Best Buy (BBY, Fortune 500) posts results Tuesday, and software maker Oracle (ORCL, Fortune 500) reports Thursday.

Meanwhile, trading could be choppy towards the end of the week due to the quadruple options expiration, a quarterly event when stock index futures and options and individual stock futures and options all expire at the same time.

World markets: European indexes were modestly higher in afternoon trading after the Abu Dhabi announcement on Dubai. Stocks in Asia ended mixed, with Tokyo's Nikkei index down slightly and Hong Kong's Hang Seng index up 0.8%.

Other markets: The dollar slipped against the yen and euro, but was slightly higher versus the U.K. pound.

Crude oil for January delivery fell 33 cents to $69.54 a barrel.

Gold futures for February delivery rose $2.20 to $1,122.10 an ounce.

Stocks set to climb

2009-12-11T04:33:00.000-08:00

Stocks were set to continue the previous session's rally on Friday, gaining momentum from world markets on the one-year anniversary of Bernard Madoff's arrest.

The Dow Jones industrial average, Nasdaq-100 and S&P-500 futures were higher.

Futures measure current index values against their perceived future performance and offer an indication of how markets may open when trading begins.

Stocks rallied across the board Thursday as investors sifted through a host of reports on jobs, housing, net worth and the budget deficit. A seesawing dollar was also in focus.

"Everybody is looking for what appears to be a relatively good retail sales report, suggesting that the consumer is not going to be as tight-fisted this holiday season, compared to last," said Ken Goldstein, economist at the Conference Board.

But Goldstein added that consumers are still skeptical about the strength of the job market, which weakens their desire and ability to spend, feeding his own skepticism about the retail report.

"The question is: what if those retail reports are just a little bit disappointing?" Goldstein said. "Why in the world would they be out and having a bang-up holiday season? We could see the market having more of a blah day than a ho-ho-ho day."

Economy: The November retail sales report from the Commerce Department is due at 8:30 a.m. ET. Sales are expected to have risen 0.5% after rising 1.4% in the previous month. Sales excluding autos are expected to have risen 0.5% in November after rising 0.2% in the previous month.

The University of Michigan's preliminary consumer sentiment index for December is due just after the start of trading. Sentiment is expected to have improved to 68.5 from 67.4 in late November.

Reports on October business inventories and November import and export prices are also due.

World Markets: Stocks in Asia re allied, with Tokyo's Nikkei index gaining nearly 2.5% and Hong Kong's Hang Seng index climbing nearly 1%. European indexes were also pushing higher.

Other markets: The dollar was lower against most of the major international currencies, including the euro and the pound, but rose versus the yen.

Crude oil for January delivery edged up 30 cents to $70.84 a barrel.

Gold futures for February delivery were up $14 to $1,142.20 an ounce. That's nearly 6% below last week's record settlement high of $1,218.30.

Stocks set for a weak open

2009-12-08T05:06:00.000-08:00

U.S. stocks headed for a lower start Tuesday as a stock market shake-up in Europe made its way across the Atlantic.

Dow Jones industrial average, Nasdaq-100 and S&P-500 futures were lower, with most of the downturn occurring after 6 a.m. ET.

Futures measure current index values against their perceived future performance and offer an indication of how markets may open when trading begins.

Stocks ended mixed after a choppy session on Monday as investors weighed a stronger dollar, falling oil and gold prices, and comments from Fed Chairman Ben Bernanke that cooled worries about higher interest rates.

David Jones, chief market strategist at IG Markets in London, said that Wall Street appears to be reacting to declining stock indexes in London, Paris and Frankfurt, which stem from a disappointing report on German industrial output.

"It's definitely driven by this German data," said Jones, noting that sluggishness in pre-Christmas trading has arrived early this year, which creating more volatility. "We're already seeing volume starting to drop off, so we're seeing more exaggerated moves."

Economy. President Obama is due to speak on the economy at the Brookings Institution in Washington at 11:25 a.m. ET. He is expected to propose re-allocating $200 billion from the Troubled Asset Relief Program to fund new job creation efforts.

His comments will come on the heels of some encouraging signs in the two-year-old employment decline. In a survey released early Tuesday, employment services company Manpower Inc. said fewer companies plan to cut jobs in the first quarter of 2010. Last Friday, the November jobs report showed the smallest monthly decline in payrolls since the recession started in late 2007.

At 10 a.m. ET, the House Financial Services Committee will hold a hearing on private sector and government response to the mortgage foreclosure crisis.
0:00 /3:25Target date funds 101

A Labor Department report on job openings and labor turnover in October is expected at 8:30 a.m. ET.

Company news. Kroger (KR, Fortune 500) will report third-quarter financial results before the opening bell. Analysts surveyed by Thomson Reuters expect the grocery store operator to post earnings of 37 cents per share, down 6% from a year ago.

General Motors is scheduled to issue an update on its turnaround efforts in a press conference at 8:30 a.m. ET. New chief executive Ed Whitacre was originally scheduled to speak, a week after he and the GM board sought and received the resignation of CEO Fritz Henderson. But Whitacre was dropped from the update and will be replaced by two lower-level executives.

World Markets. Stocks in Asia ended lower, with Tokyo's Nikkei index slipping 0.3% and Hong Kong's Hang Seng index dropping 1.2%. European indexes were down about 1%, losing their earlier gains.

Other markets. The dollar rose against most major international currencies, but slipped against the yen.

Crude oil for January delivery fell 50 cents to $73.43 a barrel.

Gold futures for February delivery slipped 84 cents to $1,163.40 an ounce after reaching a record settlement high of $1,218.30 last week.

GE, Vivendi near NBC Universal deal - reports

2009-12-01T05:42:00.000-08:00

General Electric is close to clearing a major hurdle in its path to sell control of entertainment giant NBC Universal to Comcast, according to published reports Monday.

GE has reached a tentative deal to buy Vivendi SA's 20% stake in NBC Universal for $5.8 billion, the reports say.

The current agreement is reportedly the result of face-to-face talks last week between GE chief executive Jeffrey Immelt and Vivendi's chief executive, Jean-Bernard Lévy.

The tentative plan values NBC Universal at around $30 billion, according to reports, setting the stage for a joint venture with GE, where Comcast would hold a reported 51% stake in what would be one of the world's biggest media companies.

A final deal could reportedly come this week, but many details still need to be hammered out.

A representative for GE would not comment on the reports, and representatives from Vivendi and Comcast could not immediately be reached for comment.

Rumors of a long-awaited GE/Comcast deal first surfaced in early October and have been said to depend on a sale of Vivendi's minority stake in NBC Universal.

The media group, which includes the NBC television network, Universal Pictures movie studio and the Universal theme parks, had been the target of spin-off speculation for many months. GE was never able to find synergies between NBC and its other, primarily industrial businesses, and many investors called on General Electric to shed the business.
0:00 /4:52NBC tries to move past ratings

GE (GE, Fortune 500) bought NBC in 1985 for $6.3 billion. In May 2004, NBC and French telecom giant Vivendi Universal merged to form NBC Universal. GE owned an 80% stake in the media company and Vivendi owned 20%.

Vivendi had also been mulling an exit for some time. Under the deal's original terms, Vivendi has the annual right to divest its stake during a three-week window starting Nov. 15 each year.

GE's media unit has been struggling. NBC Universal reported an 11% drop in revenue and a 27% profit decline the first nine months of the year. Universal Studios had just one summer box office hit: "Inglourious Basterds," and attendance at the company's theme parks has been slipping. NBC has also been in the ratings toilet for several years.

But things aren't all bad at NBC Universal. Its cable networks are exceedingly strong, with USA gaining the top ratings of any cable network in the past quarter.

The SyFy network, CNBC and Bravo have also gained viewers, and MSNBC took over second place in the prime time cable news battle. Also, NBC's investment in digital media site hulu.com seems to be playing off, with strong growth in viewership and advertising content.

Comcast (CMCSA, Fortune 500), the largest U.S. cable company with nearly 24 million subscribers, has been looking to expand its content services for many years. Comcast also owns several cable networks, including entertainment network E!, the Style Network, the Golf Channel, Versus, G4, PBS Kids Sprout, TV One and Comcast Sports Group.

The company failed in an unsolicited bid to buy Walt Disney Co. (DIS, Fortune 500) for $54 billion in 2004, a deal that would have created the world's biggest media company.

Fending off empty holiday shelves

2009-11-26T11:37:00.000-08:00

With sales slow and credit tight, small merchants are scrambling to stock their shelves for the year's biggest shopping season.

Retailers traditionally borrow money to buy holiday inventory. But credit for small businesses has dried up this year, and with the recession slowing sales, few merchants have cash on hand. The crunch is forcing business owners to find new ways to keep running.

For a handful of New York City retailers in one hard-hit stretch of Brooklyn, a small community lender is playing the role of Santa Claus. Lesia Bates Moss, president of Seedco Financial Services, noticed an ever-increasing number of vacant storefronts along Atlantic Avenue. In response, she hosted a meeting with a dozen area retailers to find out how her organization could help.

One common problem the merchants cited was getting enough credit to buy sufficient holiday inventory. So Seedco Financial, a nonprofit that specializes in financing for underserved communities, launched a streamlined holiday program: Retailers who could provide a marketing plan for spending the money and driving foot traffic would get fast loans.

On Monday, Seedco staffers started delivering checks. A typical loan request is for around $20,000, to be repaid over the next year at interest rates of 6% to 10%.

"It doesn't take a lot in the way of capital access to help these businesses," Moss said. "We really needed to get money into the hands of these merchants before Black Friday, so they could stock their stores."

Toys and beer glasses: Karen Zebulon, the owner of toy and clothing retailer Gumbo on Atlantic Ave., is one of Seedco Financial's borrowers.

"Especially this year, because we have had such hard times, we really need a boost," she said. "If I can really strategize and plan and buy the right merchandise, I think it can be a turning point for me."

Zebulon plans to ramp up her inventory of toys, because even in tight times, customers continue to spend on kids. She's impressed at how quickly Seedco Financial got cash into her hands.

"This was -- you could say -- a godsend," she said. "It is saving me and saving a lot of other merchants that are receiving the loans." Without the financing, she would have been pulling a string of all-nighters trying to handcraft toys to stock her shelves.

Artez'n Gift and Gallery, which sells products made by local Brooklyn artisans, also got a loan from Seedco. Owner Jessica Furst got her check on Monday and "ran to the bank." She plans to use the cash to stock up on one of her best-selling items: pint glasses with illustrations of Brooklyn landmarks on them. They're a proven customer lure, drawing in tourists and others who make a special trip to Artez'n for the glasses.

With sales slow this year, Furst wouldn't have been able to afford to produce the Brooklyn beer glasses without the last-minute loan. "I would have been without them again, which would have been a loss of income for me, and possibly a loss of customer base," she said.

She will also use some of the loan money to fix the high-end printer she uses for her graphic design business. The small loan will make a big difference for Furst: "It will enable me to get back on my feet."

The big challenge for merchants will come over the next month. The National Retail Federation forecasts that this year's holiday sales will decline 1%, to $437.6 billion.

"The real concern is, can you sell stuff?" said Bill Dunkelberg, chief economist of the National Federation of Independent Businesses. "I am sure inventory accumulation has been cautious. It doesn't look like it is going to be much better than last year, which was terrible."

Squeezing by: Not every retailer is lucky enough to have a community lending program to turn to.

Clark Kepler's dad opened Kepler's Books in 1955. Like so many other independent bookstores, Kepler's Books is fighting for sales in an industry now dominated by Big Box discount retailers and Internet book sellers. Four years ago, with the shop on the brink of closure, 25 members of the Silicon Valley community voluntarily donated $1 million to save the neighborhood bookstore.

The recession has further ravaged the business, which saw a double-digit sales decline. "We had the most difficult time this last several months with the cash-flow issues," Kepler said. "We managed to get through it, but we were robbing Peter to pay Paul every step of the way."

One way the shop is coping is by churning inventory faster than it typically would. Bookstores can return unsold goods to publishers, and Kepler is shuffling fast to fine-tune his holiday lineup.

"It is a mad scramble much of the time," he said. "We have needed to scrutinize our inventory more and more to be sure that we have books that are selling." A book that languishes is "like money sitting on the shelf that we are not utilizing."

Kepler could use additional financing to give his bookstore more breathing room, but he's had little luck with the banks. He talked with one lender about a Small Business Administration-backed loan, but pulled out after deciding that the loan available for his shop wouldn't be big enough to justify all the effort involved in the application process.

Kevin Stein, co-owner of the Montana Fish Company in Bozeman, Mont., is also frustrated with the banks. "We have been to every bank in town," he said. "If we could expand into a bigger facility, we could take on more business, we could hire more people -- it is a win-win."

But so far, with no expansion loan yet available, Stein's seafood and wine market isn't doing its usual seasonal hiring. "We didn't lay anyone off, but it was a combination of not rehiring and not hiring for the holiday season," Stein said. To make up for the staffing decrease, Stein and his co-owner have upped their own hours.

"As employees filtered out, we just simply didn't rehire, which means I spent a lot less time at home," he said.

Like the merchants that borrowed from Seedco Financial, Stein is now looking outside the banking industry for help. He's trying to get a loan directly from the Small Business Administration, through its disaster lending program. A natural glass explosion one block away from Montana Fish may make the company eligible.

Stein and his business partner, Travis Byerly, have been pulling together mountains of documentation.

"It is a little mind-boggling," Stein said of application process. "But it is a great loan if we can get it. It could be a game changer."

Wall Street buckles in for a bumpy ride

2009-11-22T09:50:00.001-08:00

Stocks hit a bit of a snag over the past few days, and the holiday-shortened week to come won't likely help them bounce back.

"We're going to see the market get pushed around on very little volume, like a tumbleweed on the prairie," said Jack Ablin, chief investment officer at Harris Private Bank.

With only three and a half trading days next week, and with many traders away on vacation, volumes are expected to be much lower. Low trading volumes often means stocks become more volatile.

That won't be a good thing if next week's economic data is as bad as economists think it will be. Though three housing reports are expected to show very moderate improvement in sales and prices, a revised reading on the nation's gross domestic product will likely show the economy didn't grow nearly as much as the initial estimate.

"That GDP number may catch people by surprise," said Art Hogan, chief market strategist at Jefferies & Co. "It's probably going to be revised lower, and it will be very interesting to see how the market reacts to that."

The market had been taking sour economic news in stride, even surging to 13-month highs earlier in the week. Investors continued to pour money into stocks as the dollar weakened.

Federal Reserve Chairman Ben Bernanke said on Monday that he was concerned about the dollar getting hammered, but he maintained that the Fed will continue to keep interest rates low in an effort to spur economic growth. A lower dollar pushed stocks higher Monday and Tuesday, as the S&P 500 soared above the 1,100 level and the Dow Jones industrial average neared 10,500 points.

But the trend reversed on Wednesday, Thursday and Friday, as economic woes sent investors moving back into the dollar and stocks headed lower. The S&P 500 sank below 1,100 and the Dow closed just above 10,300, eking out a meager 0.5% gain for the week.

Still, experts think this recent rough patch will be just a temporary glitch, and the steep climb that has continued almost unabated since March will likely continue for the rest of 2009.
0:00 /3:09Pawning your purse

"The correlation with the dollar has been very tight over the past week," said Hogan.

Hogan also said investors have been counting out consumers from the economic recovery, and any positive surprise in the holiday shopping season could be a huge boon for stocks.

"The consumer has gotten written off really quickly in this environment," he said. "There have been some very conservative expectations for Black Friday, and there's a real possibility for an upside surprise that will give markets a healthy boost."
The week ahead

Monday: The National Association of Realtors reports existing home sales for October at 10:00 a.m. ET. Sales of homes by homeowners are expected to have increased to 5.65 million last month from 5.57 million in September.

After the closing bell, Hewlett-Packard (HPQ, Fortune 500) will formally announce its quarterly financial results. Last week, the tech giant pre-announced those results, saying it earned $1.14 per share, excluding charges, on revenue of $30.8 billion.

Tuesday: The Commerce Department reports a revised reading of Gross Domestic Product, the broadest view of the nation's economy, at 8:30 a.m. ET. After last month's advanced GDP estimate showed the economy returned to growth at a 3.5% annual rate in the third quarter, economists believe the revised reading will show the economy grew at a rate of 3% last quarter.

Also on Tuesday, Case Schiller will report its home price index at 9 a.m ET. Economists expect the report to show prices in the 20-city index to have fallen 9.1% in September after tumbling 11.3% in August.

And a reading on the Conference Board's consumer confidence index at 10 a.m. ET is expected to show consumer sentiment slipped slightly this month to a reading of 47.5, down from 47.7 in October.

Finally, at 2 p.m. ET, the Federal Reserve will release the minutes from its Nov. 3-4 meeting, in which the central bank opted to keep interest rates steady. The minutes will also include the Fed's economic forecasts for the coming quarters and its long-term projections.

Wednesday: The day before Thanksgiving will be jam-packed with economic data reports, beginning with the Commerce Department's report on personal income and spending at 8:30 a.m. ET. Spending is expected to have risen 0.5% in October, compared to a 0.5% decrease in September. Economists predict income rose 0.2% last month after remaining flat in the previous month.

Usually announced on Thursday, the government's weekly unemployment insurance claims report will be released on Wednesday at 8:30 a.m. ET next week because of the Thanksgiving holiday.

The Census Bureau will release its monthly report on durable goods orders at 8:30 a.m. ET. Economists expect goods orders to tick up 0.5% after growing 1% in September.

A report on new home sales will also be released by the Census Bureau at 10 a.m. ET. Like existing home sales, sales of new homes are expected to have risen in October, with 414,000 sales. In September, 402,000 new homes were sold.

The government will report on crude oil inventories at 10:30 a.m. ET. Economists believe the nation's oil reserves fell by 887,000 barrels this week.

Thursday: The markets are closed on Thursday for Thanksgiving.

Friday: The stock market will close early at 1:00 p.m. ET.

Economists will be keeping a close eye on retail sales Friday. Known as "Black Friday" the day after Thanksgiving is traditionally the biggest shopping day of the year.

Stocks set for another slump

2009-11-20T05:16:00.000-08:00

U.S. stocks futures fell on Friday, as investors expressed wariness following Dell's disappointing earnings.

The Dow Jones industrial average, S&P 500 and Nasdaq futures were all lower about two hours before the open.

Futures measure current index values against the perceived future performance, offering guidance on stock performance, though they're not always an accurate barometer.

U.S. stocks have fallen for two consecutive sessions amid worries about the economic recovery, the strengthening dollar, and the technology sector.

Derek Hoffman, chief executive and co-founder of the financial media site Wall St. Cheat Sheet, said the dismal report from Dell, a bellwether electronics company, dragged down investor confidence ahead of Black Friday.

"Retail is looking generally weak - weaker than expected, given the high unemployment rate," he said. "It's showing that people are tightening their wallets. Retailers are going to be feeling it this year."

Companies: Dell (DELL, Fortune 500) reported late Thursday a sharp drop in quarterly profit that fell short of Wall Street's estimates.

But in other earnings news, retailer Gap (GPS, Fortune 500) said its quarterly profit surged 25%.

Economy: Investors will take in a report on state unemployment, which is due out at 10 a.m. ET.

World markets: Asian shares retreated. The Nikkei in Japan lost 0.5% while the Hang Seng fell 0.8%. Major European indexes declined in midday trading.

Money, gold and oil: The dollar rose versus major international currencies, including the euro, the yen and the pound.

Gold broke another record on Thursday, settling up 70 cents to $1141.90 an ounce. But gold fell $4.10 in electronic trading on Friday morning, to $1,137.80.

The price of oil fell 75 cents to $76.71 a barrel.

How Fed let AIG banks off easy

2009-11-16T16:28:00.000-08:00

Federal regulators, in rushing to rescue AIG last year, failed to use their clout to negotiate concessions from business partners of the troubled insurer, a bailout overseer said on Monday.

As a result, $62.1 billion of taxpayer and AIG funds were essentially funneled to 16 banks, which were counterparties to AIG insurance contracts, according to a report by Neil Barofsky, special inspector general for the $700 billion bailout.

The amount paid to the 16 banks represented the full-dollar amount of the underlying assets that the counterparties had insured through AIG. The news that the Fed paid 100 cents on the dollar for the assets caused a big stir among lawmakers and taxpayers.

In his report, Barofsky said the Fed had given up significant leverage to force AIG's counterparties to accept less than the full amount for the assets. Barofsky does not suggest that the Fed acted improperly, he argued that, as a regulator, the Fed still had power to get AIG's counterparties to fall in line.

"Once they bailed AIG out, the Fed said it lost a lot of leverage, because it couldn't threaten to put AIG into bankruptcy anymore," Barofsky told CNNMoney in an interview. "But with GM and Chrysler, the government still played hardball with their creditors."

Though the situation was slightly different, Barofsky noted that Treasury was able to negotiate substantial concessions from GM and Chrysler's creditors after the government bailed them out last year.
How the banks got full-dollar

After the housing bubble burst in summer 2007, the value of subprime home mortgages began to tumble. AIG insured against losses on assets backed by subprime mortgages with insurance contracts called credit-default swaps.

When the underlying home loans began to plummet in value, AIG's counterparties asked the insurer to post billions of dollars of collateral to make up for the tumbling value of the swaps.

AIG started hemorrhaging dollars by the tens of billions in 2008, leading up to a mid-September taxpayer-funded bailout of the insurer. But the collateral calls from AIG's counterparties kept coming, and AIG (AIG, Fortune 500) was quickly running out of bailout funds.

By November, it became clear that the government had to do something to stop the collateral calls.

In an attempt to save taxpayers from paying 100 cents on the dollar for the credit-default swaps, which had clearly lost their initial market value, the New York Federal Reserve asked 16 counterparties to take a voluntary "haircut" on the value of the insured assets. Only UBS volunteered, but the Swiss bank said it would take the haircut only if all of the other banks also agreed to take a cut.

The Fed, chaired at the time by current Treasury Secretary Tim Geithner, said in response to Barofsky's report that it has a policy to treat all counterparties equally. It also believed it had no leverage with the banks, because it had already bailed out AIG. In addition, the Fed believed it did not have the right to force banks to break their contracts.

Believing it had no other option, the Fed opted to send $27 billion of government funds and $35 billion of collateral already posted by AIG to 16 banks, including Goldman Sachs (GS, Fortune 500), Merrill Lynch, UBS (UBS), Bank of America (BAC, Fortune 500), Wachovia (WB) two French banks and several others.
Not the only solution

The news caused an uproar in Congress. Some called into question the Bush administration's ties with Goldman Sachs, since Goldman held $14 billion in mortgage assets insured by AIG's credit-default swaps.

In his report, Barofsky said that the Fed did not act purposefully to bail out Goldman or the other 15 banks, even though that was the result of their actions.

But the report said the Fed limited itself in its negotiations with AIG's counterparties. For instance, Barofsky said that the Fed failed to use as leverage the fact that its bailout of AIG helped to save the 16 banks from losing substantial capital, since an AIG bankruptcy could have led to a systemic failure of the financial industry.

The Fed also could have used its power as regulator to force the banks to take less than full-dollar on the underlying assets. He said that regulators used "overtly coercive" language to convince financial institutions to take TARP money and creditors take concessions on the amount owed to them by GM and Chrysler.

"In many ways, the New York Fed took all the limitations they had from being a regulator but none of the benefits," said Barofsky.

Next up: More stimulus?

2009-11-12T05:25:00.001-08:00

The U.S. economy seems to be on the mend, but some economists are arguing that another round of stimulus is needed to keep the recovery on track.

Congress passed the largest stimulus bill on record in February, a $787 billion package that included aid to states and local governments, money for public works projects, tax breaks and more assistance for the unemployed.

With the help of that package, most economists now believe the recession that started in December 2007 came to an end at some point this summer.

But unemployment has continued to climb, hitting a 26-year high of 10.2% in October. Now there are some worries that the economy could slip back into recession at some point next year. And that is prompting calls for another shot of federal help.
The case for more stimulus

Mark Zandi, chief economist for Moody's Economy.com, said that between $125 billion and $150 billion in new stimulus, with about $50 billion to $60 billion of that going to further extensions in unemployment benefits beyond what was passed by Congress last week, is needed.

A big portion of the remaining new stimulus funds could be used to give more help to state and local governments. Zandi said without another stimulus package, "the odds of sliding back into recession rises with the incredibly weak labor market."

Zandi is not alone in calling for more stimulus. On Wednesday, the Center on Budget and Policy Priorities, a think tank that concentrates on state and local government financial issues, called for additional help to states.

The center estimated that about $50 billion in additional state and local government aid is needed, and added that state budget cuts could lead to a loss of 900,000 jobs next year if there isn't additional federal help.

Robert Greenstein, executive director of the center, said calls for more stimulus are justified because the recession has dragged on longer and unemployment has risen higher than foreseen in February.

"The magnitude of the state budget deficits that lie ahead could be a significant drag on the economy just as it is beginning to recover," he said.
0:00 /5:50How Philly averted a shutdown

Other economists argue that the original stimulus package didn't go far enough to spur economic growth or job creation.

Gary Burtless, senior fellow at the Brookings Institute, a liberal think tank, said that it is not clear if the economy can continue to grow once the effect of February's stimulus plan fades.

He said that while concerns about the size of the federal deficit will limit what can be approved in any additional stimulus act, a bigger danger "is that we may have an extremely weak, slow recovery in which unemployment remains high for an unnecessarily long time."
Some think existing stimulus is already working

Still, there are plenty of economists who question the need for additional stimulus.

"Rather than force feed an economy, you have to show some patience that it will perform as it did in the past," said Joseph Carson, chief economist at AllianceBernstein. "Trying to push a button and get an immediate result -- economies don't work that way."

Lakshman Achuthan, managing director of the Economic Cycle Research Institute, added that offering additional unemployment benefits might be a good idea but agreed that Congress shouldn't hastily approve another stimulus package.

He said that by the time another round of stimulus has an actual impact, the economy would already have improved even more on its own.

"Throwing some money into [the economy] doesn't change the direction or the fact that the [recovery] process is happening," he said.

The administration has been noncommittal about whether it would call for additional stimulus as it concentrates on the health care reform battle.

When asked about more stimulus recently, White House Press Secretary Robert Gibbs said only that the administration would continue to look at "any idea that can help our economy become stronger."

Nadeam Elshami, a staffer for House Democratic leadership, said that another large stimulus package is not being discussed right now. But he said there have been discussions about what smaller steps can win support, such as additional help to state governments. But nothing is likely to start moving on these fronts until the debate over health care reform is complete.

Even advocates of additional stimulus acknowledge that increased government spending is a tougher sell now than at the start of the year. But Zandi said the near unanimous vote for a partial extension in unemployment benefits approved by Congress last week shows that there can be support for what he calls "smaller scale stimulus."

"Another extension in unemployment benefits to help those who are suffering the most: who is going to vote against that?" Zandi asked.

Go the distance - Dividends for the long run

2009-11-09T12:56:00.000-08:00

This is shaping up as the worst year for dividend cuts in three generations. Striving to conserve cash amid the most severe slump since the Depression, companies are reducing or eliminating their payouts to shareholders.

Banks, of course, have led the way, but also cutting payouts are such stalwarts as Dow Chemical (DOW, Fortune 500) (which hadn't cut its dividend since it began paying one in 1912!), General Electric (GE, Fortune 500), and Pfizer (PFE, Fortune 500).

In all, 74 companies in the S&P 500 index have cut $48 billion in dividends in 2009 -- the highest amount ever -- and Standard & Poor's senior index analyst Howard Silverblatt forecasts average payouts to fall by 36% from last year. That would be the worst annual percentage decline since 1938.
0:00 /03:17Monkey's barter economy

But dividends are not dead. Some companies maintained or raised them in the past year, indicating that their payouts can survive even the worst markets. And dividend investing remains a sound course amid market turmoil. Ned Davis Research shows that since 1972, companies that increase or begin paying dividends have returned 9.5% a year, soundly beating the 6.8% return of the S&P 500.

So how do you find income stocks you can count on? Ideally you want established companies that have a long history of dividend increases.

You also want to look at the coverage ratio -- earnings per share divided by the dividend per share. A figure of two or higher tells you the company has plenty of money to pay its dividend. (Companies with lower coverage ratios can also be steady payers if they have stable cash flows.)

To help you identify reliable choices, we asked three top-rated fund managers who specialize in dividend stocks for their best ideas -- and did a little screening of our own.

We started with Rick Helm, manager of Cohen & Steers' Dividend Value fund, which has outperformed its average competitor by 2.5 percentage points annually since its 2005 launch. Helm recommends Abbott Laboratories (ABT, Fortune 500), now yielding 3.1%. The $30 billion pharmaceutical giant, known for its rheumatoid arthritis drug Humira, has hiked its annual payouts for more than three decades.

Helm believes that no matter what happens with health-care reform, Abbott will thrive thanks to its diversified businesses in drugs, diagnostics, and nutritional drinks. He expects the stock, which trades at 14 times next year's estimated earnings, to appreciate smartly.

Roger Sit, chief investment officer of Sit Investment Associates, whose Dividend Growth fund has beaten the S&P by 4.9 percentage points a year since 2004, looks for companies with sustainable business models that dominate their industries.

For example, Verizon Communications (VZ, Fortune 500), yielding 6.3%, is his top telecom holding. Sit notes that Verizon boasts the widest margins in wireless of any carrier and has almost completed building its FiOS high-speed Internet network, a massive project that cost $15 billion over five years.

Verizon's dividend coverage ratio is below one right now, but Sit analyst Joseph Eshoo considers Verizon's dividend to be safe and expects the coverage ratio to improve as spending on the FiOS network winds down. Eshoo prefers Verizon to rival AT&T (T, Fortune 500), which offers a similar yield, because of Verizon's superior mobile network.

Thomas Cameron, chairman of money-management firm Dividend Growth Advisors, has been preaching the value of dividends for 40 years. His Rising Dividend fund's 3.7% annual return since 2004 has beaten the S&P 500 by nearly 3% a year.

Cameron likes Magellan Midstream Partners (MMP), a $1.2 billion master limited partnership, or MLP, that runs more than 9,400 miles of oil pipeline in the U.S.? He suggests buying MLPs such as Magellan, which offers a high yield and operates in the generally stable industry of energy infrastructure.

"They are never moving pipelines to China," he says. MLPs are set up to avoid corporate taxes. They must receive 90% of income from commodities, natural resources, interest, or dividends, and are required to pay out 100% of profits. Magellan pays $2.84 a share annually, for a 7.4% yield, which Cameron expects to grow in coming years as U.S. energy infrastructure is modernized.

Along with talking to fund managers, we examined S&P's list of stocks that have increased annual payouts for at least 10 years and have estimated coverage ratios of at least two for 2009 and 2010.

Of 69 companies making the cut, the top-yielder, at 4.3%, is Universal (UVV), a Richmond-based tobacco grower with customers like giants Phillip Morris International and Japan Tobacco. With its largest customers selling cigarettes overseas, Universal is sheltered from U.S. legislation and declining smoking rates.

Also making the list was Johnson & Johnson (JNJ, Fortune 500), which we recommended last year as one of the best stocks to own in 2009. The pharmaceutical giant JNJ's 3.3% yield and 47 consecutive years of increasing dividends make the diverse manufacturer of everything from Band-Aids to Tylenol a strong pick in any environment.

Congress approves more benefits for jobless

2009-11-05T12:42:00.001-08:00

Unemployed Americans are set to get up to 20 additional weeks of jobless benefits, while new homebuyers are poised to see the $8,000 tax credit extended into mid-next year.

The House approved the measures by a 403-12 vote Thursday afternoon, a day after the Senate passed the legislation.

The president is scheduled to sign the bill into law Friday morning, the same day the government releases the monthly unemployment rate, which is expected to rise.

The closely watched legislation would extend jobless benefits in all states by 14 weeks. Those that live in states with unemployment greater than 8.5% would receive an additional six weeks. The proposal would be funded by extending a longstanding federal unemployment tax on employers through June 30, 2011.

The measure would apply to those whose benefits run out by Dec. 31, which is nearly two million people, according to Senate estimates. Those whose checks have already stopped would be able to reapply for another round.

The House, which passed its own benefits extension in September, giving an additional 13 weeks in high-unemployment states, approved the Senate's version.

"The bill will mark another step toward a boost in our economic growth and it will make critical investments for our families and our workers," said Speaker Nancy Pelosi, D-Calif. "The legislation offers a lifeline to out-of-work Americans, to the men and women hardest hit by the recession."

"The bill also a places a down payment on the future of our middle-class because it extends, for the first-time homebuyer, a tax credit helping more Americans purchase homes and making it a little easier for families to move into a new house and keep a roof over their heads," she added.
7,000 a day losing benefits

The Senate had been bickering over the details since September, and that cost more than 200,000 people their benefits. Some 7,000 unemployed Americans run out of benefits each day, according to the National Employment Law Project.

Millions of Americans are now depending on unemployment benefits, as the unemployment rate continues to soar. The unemployment rate hit a 26-year high of 9.8% in September, and is expected to go even higher when the October numbers are released on Friday.

More than one in three people who are unemployed have been out of work for at least six months, according to the law project.

Lawmakers twice lengthened the time people can receive checks to as much as 79 weeks, depending on the state. But at least one Republican warned this would be the final extension.

"The public needs to ... know, this is the last extension," said Johnny Isakson, R-Ga.
Tax break for buying a home

The legislation also would extend the $8,000 homebuyer tax credit to contracts signed by April 30 and closed by June 30. The controversial credit, which many say has boosted home sales in recent months, was set to expire after Nov. 30.

The bill also creates a $6,500 credit for those who buy a home after living in their current house at least five years. That measure would apply to contracts signed by April 30 and closed by June 30. The current credit defines a first-time homebuyer as someone who has not owned a residence within the past three years.

The credit would be available only for the purchase of principal residences priced at $800,000 or less.

The bill would raise the adjusted gross income cap to $125,000 for single filers and $225,000 for joint filers. The amount of the credit currently begins to phase out for taxpayers whose adjusted gross income is more than $75,000, or $150,000 for joint filers.

"It's gonna put people back to work, the home builders, put people in the real estate business," said Sen. Chris Dodd, D-Conn. "The kind of jobs that can make a difference."

The extension will cost $10.8 billion over 10 years, according to the Joint Committee on Taxation.

Through mid-September, 1.4 million tax returns had qualified for the credit, according to the IRS. Some portion of those returns, which the IRS couldn't specify, represents buyers who took advantage of an earlier version of the tax credit, which was only worth $7,500 and has to be repaid over time.

By the end of November, the credit will have been used by 1.8 million homebuyers, at least 355,000 of whom would not have bought a house without the tax break, according to estimates by the National Association of Realtors.

"The data on the present home buyer tax credit show that the credit has had its intended impact -- sales have jumped in recent months to a projected 5.1 million for the year and housing inventory has been trimmed, thus stabilizing home prices noticeably," said Ron Phipps, the association's first vice president, in Senate testimony last month.

The credit, however, has also posed many problems. Critics say it's a waste of money because most of those claiming the credit would have bought homes anyway.

It's also been the target of fraud. Some 74,000 people claimed more than $500 million in credits even though they may not be first-time homeowners, according to Treasury officials. And more than 580 children, including some as young as 4-years-old, have claimed the credit.

"Some key controls were missing to prevent an individual from erroneously or fraudulently claiming the credit and receiving an erroneous refund of up to $8,000," said J. Russell George, Treasury inspector general for tax administration, before a House subcommittee last month.

Stocks rev up after Ford results

2009-11-02T07:24:00.001-08:00

U.S. stocks rebounded at Monday's open, following a big selloff that ended last week, and after Ford posted its first quarterly profit in more than a year.

The Dow Jones industrial average (INDU) rose 40 points, or 0.4%, in early trading. the S&P 500 (SPX) jumped 6 points, or 0.3%, and the Nasdaq composite (COMP) rose points, or 0.3%.

Stocks tumbled Friday on worries that the market was due for a correction, bringing Wall Street's seven-month winning streak to a halt in October. The Dow lost nearly 250 points, or 2.5%, the biggest one-day selloff on a point basis since April 20.

Dave Lutz, managing director equity trading for Stifel Nicolaus, suggested that many investors are looking for buying opportunities. Some encouraging foreign economic numbers, including a strong manufacturing reading out of China, were also providing a boost to investor confidence early Monday.

"I think that has led to some level of optimism," he said.

Earnings: Ford Motor (F, Fortune 500) delivered its first quarterly profit in more than a year Monday, helped by the government's Cash for Clunkers program.

The company said it earned nearly $1 billion, or 29 cents a share. The automaker was expected to post a loss of 12 cents a share, according to Thomson Reuters estimates.
0:00 /4:39Stimulus money behind GDP growth

Ford shares rose 11% in early trading Monday.

Economy: Investors will look to a reading on construction spending as well as a report on pending home sales at 10 a.m. ET. Economists surveyed by Briefing.com are anticipating a 0.5% decline in construction spending and 1.2% increase in home sales.

Also due out is a survey of nationwide manufacturing activity, which is expected to show modest growth, according to estimates.

Companies: Small business lender CIT (CIT, Fortune 500) filed the fifth-largest U.S. bankruptcy on Sunday as part of a reorganization plan that has the support of most of the company's debtholders.

CIT said it has already worked out a reorganization plan with bondholders that it expects to speed the Chapter 11 process and reduce CIT's debt by $10 billion.

World markets: Stocks in Asia tumbled, with Japan's Nikkei shedding more than 2%. Major European indexes were mixed in midday trading.

In currency trading, the dollar retreated against the euro and the yen, and was higher versus the pound.

Crude prices also bounced back from Friday's slide, jumping 18 cents to $77.18, after reaching a high of $78.25 earlier in the session.

CIT's fate still hangs in the balance

2009-10-30T08:18:00.001-07:00

Small business lender CIT Group said Friday it was awaiting the outcome of a key bondholder vote that could ultimately push the troubled firm to file for bankruptcy.

Creditors have been wrestling over whether to approve a restructuring plan proposed by the New York City-based firm earlier this month that is aimed at clearing out $5.7 billion in debt.

Bondholders had to submit their final say as of Thursday evening. By Friday morning however, the company had no details on whether bondholders had accepted the offer.

The company said it had received more than 150,000 ballots and that once the final tally had been reached the company's board of directors would make a decision about its fate.

The company also provided no details on when the vote count would be completed. If the plan is rejected however, it is expected CIT would have to seek bankruptcy protection.

Shares of CIT (CIT, Fortune 500), which have been flirting with a $1 share price since its troubles first came to light during the summer, slipped 13% in mid-morning trading to about 80 cents.

Separately, the company revealed in a filing with the Securities and Exchange Commission Friday that it had struck an agreement with Goldman Sachs (GS, Fortune 500) to reduce the size of a $3 billion loan it had originally sought from the Wall Street firm in June when its troubles first emerged.

In exchange for getting Goldman to reduce the size of the loan by $875 million to $2.125 billion, CIT Group will have to pay a fee of $285 million.

Goldman Sachs would be due a payment of approximately $1 billion if CIT were to file for bankruptcy, according to reports

Dow back above 10,000

2009-10-26T08:54:00.001-07:00

Stocks rallied early Monday, in a broad-based advance, as investors used last week's selloff as an opportunity to jump back into the market at a modestly lower level.

The Dow Jones industrial average (INDU) gained 92 points, or 0.9%, in the morning, after having gained as much as 100 points earlier. The S&P 500 (SPX) index rose 11 points, or 1%. The Nasdaq composite (COMP) rose 27 points, or 1.3%.

Investors appeared ready to get back in the market after a recent retreat. U.S. stocks ended last week lower, breaking a two-week run. Stocks ended lower Friday as the market couldn't sustain early gains driven by upbeat results from Microsoft (MSFT, Fortune 500) and Amazon.com (AMZN, Fortune 500), and a big rise in existing home sales.

"Maybe the feeling is that it was a bit overdone on Friday," said Philip Isherwood, equities strategist at Evolution Securities.

Given the lack of economic indicators on Monday, he said there was little reason to propel stocks upward, except as a reaction to the over-zealous sell-off at the end of last week.

Quarterly results: Dow component Verizon said profit tumbled 30% as higher costs countered an increase in revenue thanks to its strong wireless business. Nonetheless, earnings topped expectations. The company also reported higher quarterly revenue.

Just shy of 140 components of the S&P 500 are due to report quarterly results this week. With more than 40% of the S&P 500 having already reported, profits are currently on track to have fallen just over 18% from a year ago, according to Thomson Reuters.

So far, results have been soundly above forecasts, with 81% of companies topping expectations, 7% meeting and 12% missing.

Company news: Capmark Financial, one of the country's largest commercial real estate lenders, filed for bankruptcy protection Sunday, reflecting the major problems in the business property sector.

Dutch financial services firm ING (ING) said Monday it plans to spin off its insurance business and sell $11.3 billion of stock to pay back the government some of what it took in bailout money last year.

World markets: Global markets were mixed. In Europe, London's FTSE 100 gained 0.7%, France's CAC 40 lost 0.3% and Germany's DAX gave up 0.4%. Asian markets ended higher.

Bonds: Treasury prices tumbled, raising the yield on the 10-year note to 3.48% from 3.42% late Thursday. Treasury prices and yields move in opposite directions.

Currency and commodities: The dollar gained versus the euro, after falling to a 14-month low earlier in the week. The dollar gained versus the yen.

U.S. light crude oil for December delivery rose 50 cents to $81 a barrel on the New York Mercantile Exchange, near a one-year high.

COMEX gold for December delivery rose $1.50 to $1,057.90 an ounce. Gold has surpassed records repeatedly this month due to the weak dollar and longer-term worries about inflation.

Stocks set for modest gains

2009-10-20T07:02:00.000-07:00

U.S. stocks were set to open slightly higher Tuesday, supported by solid results from Apple and Texas Instruments and despite disappointing news about the housing market.

S&P 500, Nasdaq-100 and Dow Jones industrial average futures were higher.

Futures measure current index values against their perceived future performance and offer an indication of how markets may open when trading begins.

The Dow reclaimed 10,000 on Monday, hitting its highest point in more than a year, driven by a weak dollar, higher commodity prices and earnings optimism.

Going forward, this puts a certain amount of pressure on stocks, since they've already made recent gains and investors have high expectations for the current corporate reporting period, said Peter Cardillo, chief market economist for Avalon Partners.

"The market has already priced in the good news on earnings and increased guidance, however the market is subject to some kind of a pullback purely on an overbought condition," said Cardillo, though he added that such declines would be small.

Company results: DuPont (DD, Fortune 500) reported third-quarter earnings of 45 cents per share, beating the consensus estimate of analysts surveyed by Thomson Reuters. But the Wilmington, Del.- based chemical maker missed on revenue, which fell 18% year-over-year to $6 billion. The company narrowed its full-year earnings guidance to a range of $1.95 to $2.05 per share, toward the high end of its previous forecast.

Pfizer (PFE, Fortune 500) reported third-quarter sales of $11.6 billion, a 3% decline from a year ago, beating expectations. The New York City-based drugmaker reported a 26% surge in earnings, to net income of $2.9 billion, or diluted earnings per share of 43 cents. Pfizer, which completed its acquisition of drugmaker Wyeth on Oct. 15, increased full-year guidance to a revenue range of $49 billion to $50 billion, and diluted EPS of $1.45 to $1.50.

Atlanta-based Coca-Cola (KO, Fortune 500) reported third-quarter earnings of 81 cents per share, down 1% from the prior year and matching expectations. Net revenues decreased 5% year-to-date to $8 billion, slipping below the forecast. Consolidated net income of $1.9 billion was flat, compared to the year-ago quarter.

Heavy equipment company Caterpillar (CAT, Fortune 500), based in Nashville, Tenn., reported third-quarter revenue of $7.3 billion, down 44% from the year-ago quarter, which was lower than expectations. Profit was $64 cents per share, down 75 cents EPS from the year-ago quarter, which the company blamed on "significantly lower" sales volume.

Caterpillar expects 2009 revenues of $32 billion to $33 billion and increased the profit range to $1.10 to $1.30 per share. In 2010, the company expects to increase revenues by 10% to 25% as dealers reduce the inventory pile-up that has impacted sales this year.

UnitedHealth (UNH, Fortune 500) reported an 8% increase in year-over-year revenue to $21.7 billion in the third quarter, as well as earnings of 89 cents per share.

Apple (AAPL, Fortune 500) posted stellar earnings after the closing bell Monday, thanks to a record surge in iPhone and Mac sales. Apple grew its PC market share to a 15-year high in the third quarter, despite the recession and an average selling price of more than $1,200. The company's stock hit a record high in after-hours trading.
0:00 /2:31Apple's most profitable quarter

Texas Instruments (TXN, Fortune 500), which also reported late Monday, posted earnings and sales that topped Wall Street's estimates, and raised its outlook.

Stocks have surged recently, buoyed by better-than-expected earnings reports. But some worry that the Dow's move above 10,000 could be a hoax and that investors should be more skeptical of the rally.

Economy: The government reported that housing starts slipped to the annual rate of 590,000 in September, from 598,000 the prior month. This fell short of the 610,000 rate forecast by a consensus of economists surveyed by Briefing.com.

Building permits fell to the annual rate of 573,000 in September from 579,000 in August. This fell short of the 595,000 expected by Briefing.com consensus.

The government also released its report on inflation at the wholesale level for September. The Producer Price Index slipped 0.6% in September, seasonally adjusted, following a rise of 1.7% in August. Without including food and energy prices, the core PPI edged down 0.1% in September, compared to an August rise of 0.2%.

World markets: Stocks in Asia rallied, with the Nikkei in Japan gaining nearly 1%. The mood was more subdued in Europe, where the major indexes were modestly higher in midday trading.

Money and oil: The dollar was flat against the euro, but lower versus the yen and the British pound. The price of oil slipped 5 cents to $79.56 a barrel after touching $80 for the first time in a year.

Wall Street: Bye bye rally

2009-10-16T07:25:00.000-07:00

Stocks tumbled Friday morning as disappointment about General Electric and Bank of America's financial results gave investors a reason to retreat after pushing the Dow to a one-year high in the previous session.

The Dow Jones industrial average (INDU) fell 112 points, or 1.1%, around 40 minutes into the session. The S&P 500 (SPX) index shed 14 points, or 1.3%, and the Nasdaq composite (COMP) dropped 28 points, or 1.3%.

The Dow ended Thursday's session at the highest point since Oct. 3, 2008, as higher oil prices propelled energy shares.

The stock market has essentially been on a tear since bottoming in March, with repeated calls for a big 10% to 15% selloff going unmet. Since hitting a more than 12-year low on March 9, the S&P 500 has gained 62% as of Thursday's close.

Company results: Bank of America (BAC, Fortune 500) reported a third-quarter loss of 26 cents per share, which was worse than the loss of 21 cents per share projected by a Thomson Reuters consensus of analysts.

Bank of America also fell behind expectations on revenue, reporting $26 billion for the third quarter, compared to the Thomson Reuters forecast of $27.6 billion. BofA shares fell almost 5%.

General Electric (GE, Fortune 500) reported earnings of 28 cents per share, which was higher than expected, and revenue of $37.8 billion, which was lower than forecast.

Analysts had expected GE to report third-quarter EPS of 20 cents and revenue of $39.5 billion. Investors were disappointed as most of the profit gains came from cost-cutting efforts. GE's stock slipped 5% in morning trading.

Google (GOOG, Fortune 500) reported results late Thursday that surpassed Wall Street's estimates and said that the worst of the recession is over. Shares gained 3% Friday.

Tech bellwether IBM (IBM, Fortune 500) also posted better-than-expected earnings Thursday. But shares tumbled Friday as investors expressed disappointment with its lower revenue.

World markets: Global markets were mixed. In Europe, London's FTSE 100 fell 0.3%, France's CAC 40 fell 0.9% and Germany's DAX lost 0.8%. Asian markets ended mixed, with the Hong Kong Hang Seng lower and the Japanese Nikkei lower.

Bonds: Treasury prices rose, lowering the yield on the 10-year note to 3.46% from 3.42% late Wednesday. Treasury prices and yields move in opposite directions.

Currency and commodities: The dollar gained versus the euro and the yen, turning positive after its recent across-the-board weakness versus a basket of currencies.

U.S. light crude oil for November delivery fell 19 cents to $77.39 a barrel on the New York Mercantile Exchange, after ending the previous session at the highest level in a year.

COMEX gold for December delivery fell $2.80 to $1,047.80 an ounce. Gold hit record highs repeatedly over the last week in response to a weak U.S. dollar and ongoing concerns about inflationary pressures.

Stocks slip at start

2009-10-13T08:04:00.000-07:00

Stocks fell at the start of trading Tuesday, as nervous traders braced for a wave of corporate earnings.

The S&P 500, Nasdaq-100 and Dow Jones industrial average slipped after the opening .

Before the bell, Manus Cranny, market analyst for MF Global in London, said the "decided lack of confidence in the London market this morning" stemmed from banking analyst Meredith Whitney, who downgraded Goldman Sachs (GS, Fortune 500) to "neutral" ahead of its third quarter earnings report, scheduled for Thursday.

"It could be an emotional and rocky third quarter both sides of the pond," wrote Cranny in a note to investors, adding that "U.K. banks are decidedly queasy on the back of the Goldman's downgrade."

Investors pushed the Dow Jones industrial average to a fresh one-year peak on Monday. The Dow gained 20 points, or 0.2%, leaving it about 114 points short of 10,000.

Companies: Before the open, Johnson & Johnson (JNJ, Fortune 500) reported a 5% decrease in third-quarter sales, to $15.1 billion, but an increase of 2% in earnings, to $1.20 per share. The producer of pharmaceuticals and household goods also raised its earnings guidance for the year, to a range of $4.54 to $4.59 per share.

Chipmaker Intel (INTC, Fortune 500) is slated to release its results after the closing bell.

AIG (AIG, Fortune 500) has reached a deal to sell its Taiwan life insurance unit for $2.2 billion.

Bank of America (BAC, Fortune 500) will reveal the legal advice it received related to its merger with Merrill Lynch, according to reports in The New York Times and Wall Street Journal.

World markets: Asian shares finished higher. Japan's Nikkei rose 0.6% while the Hang Seng in Hong Kong rallied 1.2%. Investors in Europe were more downbeat, with major indexes edging lower in midday trading.

Money and oil: The dollar fell versus major international currencies, including the euro, the yen and the pound.

The price of oil rose 72 cents to $73.99 a barrel.

The 'sale-less' recovery

2009-10-05T14:12:00.000-07:00

More and more economists are talking about how they think the economy actually grew in the third quarter. Unfortunately, it might be hard to find evidence of that once companies start reporting their latest quarterly results.

There's only a trickle of significant third- quarter reports due out this week, but investors will be keeping a close eye on them to see how Corporate America is faring during what might really be the waning days of this brutal recession.

Wall Street is hopeful that blue-chip companies will generate better-than-expected profits. If so, that could help rekindle some confidence in the economy after the disappointing September jobs report and get the market rally, which has stalled for the past two weeks, back on track.

But it's going to take more than good earnings news to get people excited. A parade of positive earnings surprises should only be considered encouraging if the better earnings are a result of increased consumer demand as opposed to more cost cutting (i.e. layoffs and reduced spending on new production).

At first blush though, sales aren't looking promising.

"Everybody thinks that earnings are going to be better than expected, but people still don't expect revenue growth for another six months. So we've got that tug-of-war going on," said Phil Dow, director of equity strategy with RBC Wealth Management in Minneapolis. "You're going to have decent sales growth from the technology, materials and energy sectors but that's probably going to be about it."

None of the major companies that will be announcing results this week are expected to report substantial revenue growth from the same period last year.

Fast-food chain kingpin Yum! Brands (YUM, Fortune 500) will release its numbers after the closing bell Tuesday. Analysts are forecasting a sales drop of 1.5% from a year ago.

Agricultural giant Monsanto (MON, Fortune 500) and retailer Costco (COST, Fortune 500) will both report numbers for their most recent quarter, which ended in August, on Wednesday morning. Analysts are predicting a 2% decline for Monsanto and 3% decline for Costco. Dow component Alcoa (AA, Fortune 500) is set to announce its third-quarter results on Wednesday afternoon and the consensus estimate is for a 38% drop in sales.

PepsiCo (PEP, Fortune 500) and Marriott (MAR, Fortune 500) are the only other two companies of note to report this week, with each of their results due out Thursday morning. Pepsi's sales are expected to be as flat as an opened can of soda left in the fridge for too long, with forecasts of a meager 0.1% increase in revenue. And analysts are predicting a nearly 20% decline in Marriott's sales.
0:00 /3:32Market on fire but not volatile

To be fair, it's unreasonable to expect a major surge in sales for companies. It's no secret that while many Wall Street traders, market strategists and other financial experts are tripping over themselves to declare that the recession is over, it doesn't feel that way for most consumers.

And since consumer spending is still the main growth engine of the economy, it will be nearly impossible for companies to generate sizeable increases in their top lines until consumers are willing to spend more freely.

"The economy has probably just reached a trough and we're still at the low end of the valley. So we are in a gray area," said Mike O'Rourke, chief market strategist with BTIG, an institutional brokerage firm in New York. "There will people complaining about the lack of revenue growth, but it's asking too much for big sales growth at this time."

O'Rourke added that because many companies have slashed their expenses in recent quarters, it won't take a huge increase in sales to have a meaningful impact on profits.

"We had massive layoffs and companies stopped investing in their businesses. I expect some type of revenue bump, but not a big one. But since companies cut to the bone, a little bump should help earnings nicely," he said.

That's a good point. But there's a flip side to it. Once you've cut to the bone, there's little, if anything, left to slice off. That means that, sooner or later, companies will need bigger increases in sales to lift their profits.

And the more that people talk about an economic recovery, the more demanding investors are going to become as well.

"Investors are going to be looking for evidence of sales improvement. Most importantly, they'll be looking at the guidance going forward," said John Stoltzfus, director and senior market strategist with Ticonderoga Securities in New York. "As the market develops more of this show-me-the-money attitude, investors are going to be less forgiving."

So the fact that sales don't appear to be picking up yet is troubling for several reasons. You could argue that companies should be able to have an easier time reporting sales growth in the third quarter because they are facing comparisons to a dismal period this time a year ago.

It shouldn't be too challenging to have a better quarter this year considering that the third quarter of 2008 was when we had to live through the meltdowns of Fannie Mae, Freddie Mac, Lehman Brothers and AIG.

But if companies can't report growth compared to one of the tumultuous economic periods in the nation's history, is it really safe to claim that a recovery is in full swing?

And with unemployment steadily rising, that's another reason to think that sales growth may not be in the cards just yet. What's more, times are getting tougher for people with jobs as well. The size of the weekly paycheck shrunk in September because employers continued to cut back on hours.

If these disturbing trends in the labor market continue, it may be a blue Christmas for retailers and investors.

"You need to see hours go up and actual job improvement for consumers to spend. It's hard to envision sales growth without that," Dow said.

Hopefully, companies will back up all the talk of an economic rebound by being more bullish about their sales outlook for the fourth quarter. If they aren't, it's worth wondering just how strong the recovery really is -- or if there is one at all.

Durable goods orders drop 2.4%

2009-09-25T18:30:00.000-07:00

New orders for long-lasting U.S. manufactured goods fell unexpectedly in August, dropping by their biggest margin in seven months, following a plunge in commercial aircraft orders, the government reported Friday.

The Commerce Department said durable goods orders tumbled 2.4%, the largest decline since January, after rising by a revised 4.8% in July. New orders for July were previously reported to have increased 5.1%.

Analysts polled by Reuters forecast orders rising 0.5% in August. Compared with the same period last year, new orders were down 24.9%.

Durable goods orders are a leading indicator of manufacturing activity, which in turn provides a good measure for overall business health.

U.S. stock index futures fell on the report, while government bond prices rose.

"This is a bit of a reality check for people. It means there is more to be done and we are not out of the woods yet," said Doug Roberts, chief investment strategist at Channel Capital Research.com in Shrewsbury, N.J.

The data coming on the heels of areport on Thursday that showed a surprise drop in existing home sales in August was a reminder that recovery from the worst recession since the 1930s would be uneven. Doubts linger over its sustainability as consumer spending remains constrained by a weak labor market.
0:00 /0:56Chinese manufacturing on the rise

Non-defense aircraft and new parts orders plunged 42.2% in August, likely reflecting a drop in civilian aircraft orders received by Boeing (BA, Fortune 500). New orders for transportation equipment dropped 9.3%.

New durable goods orders excluding transportation were flat in August, after rising for three straight months, the department said. Analysts polled by Reuters had expected new orders, excluding transportation to rise 1%, after a 1.1% increase in July.

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending, unexpectedly fell 0.4% in August. Analysts polled by Reuters had expected core capital goods to increase 1.3%.

The prior month was revised to show a 1.3% drop, previously reported as a 0.3% fall.

Durable goods inventories fell 1.3% in August after dropping 1.1% the prior month and declining for eight consecutive months. Shipments fell 1.4% after two months of straight gains. Shipments rose 2.2% in July.

Fortune 500's top stock: Freddie Mac

2009-09-19T17:08:00.000-07:00

With apologies to the Beatles, the list of the best-performing Fortune 500 stocks in the year after the collapse of Lehman Brothers reads like a stroll down Penny Lane.

Penny stocks -- those that trade for less than $5 apiece -- are here, there and everywhere.

The top returning Fortune 500 stock over the past year is, ironically enough, Freddie Mac (FRE, Fortune 500). The irony lies in the fact that the government's seizure last September of the mortgage purchaser and its big sister Fannie Mae (FNM, Fortune 500) kicked off the most turbulent month in the financial markets since the Great Depression.

Taking over the companies didn't just tip Fannie and Freddie shares into free fall. It also sent shock waves through the financial system, as dozens of banks and insurance companies were left with big losses on preferred shares of Fannie and Freddie they had viewed as safe.

When Lehman failed a week later, Fannie and Freddie shares had a head start in the race to the bottom that many other giant financial firms, from AIG (AIG, Fortune 500) to Wachovia and Washington Mutual, would soon join.

Since then, shares of Freddie are up 367%. Fannie Mae was No. 3, returning 167% over the year ended Sept. 15, 2009.

Yet even after those gains -- much of the increase coming during the manic cheap-stock rallies this summer -- shares of Freddie were trading recently for only $1.87 each and those of Fannie were fetching just $1.60. Given the tens of billions of dollars of federal aid the companies have received, many analysts doubt the shares will hold even that value for long.

Though Fannie and Freddie are the most prominent penny stocks on the list, they aren't the only ones. Shares in the eighth-best performer, drug store chain Rite Aid (RAD, Fortune 500), surged 82% over the past year -- to $1.82 each. The debt-laden Camp Hill, Pa., company posted a $2.9 billion loss for the fiscal year ended in April and is struggling to reduce a massive debt load.

The top stocks on the Fortune 500 list aren't all lottery tickets, as some refer to the low-priced shares of companies with poor prospects. But, owing to the depth of the economic meltdown last fall, almost all the top performers have spent some time trading in the single digits.

Take Oshkosh (OSK, Fortune 500), the military truck maker that was the No. 2 Fortune 500 performer over the past year with a 171% gain. It traded recently at $31.47 and fetched as much as $60 a share in 2007, following a big Army order.

But shares dropped as low as $3.85 last fall, as the economy went into free fall.

The only stock among the top 10 performers in the Fortune 500 to have spent the entire year above $10 a share was World Fuel Services (INT, Fortune 500). The Doral, Fla.-based provider of nautical and aviation fuel was the No. 6 gainer last year, rising 101% to a recent $50.

Obviously, though, it wasn't all fun and games in low-price stock land last year. Three of the worst-performing Fortune 500 stocks -- not counting those that were delisted or filed for Chapter 11 bankruptcy protection, such as General Motors, cable company Charter Communications and numerous auto parts suppliers -- were AIG, Citigroup (C, Fortune 500) and CIT (CIT, Fortune 500).

AIG, the insurer that was taken over by the government as it teetered on the brink of insolvency the day after Lehman's failure, dropped 59% over the past year, adjusted for a 1-for-20 reverse stock split the company did in June to retain its New York Stock Exchange listing. It was the sixth-worst performer in the Fortune 500 among companies still listed on a major exchange.

Citi, the big bank that is the biggest recipient of federal aid via capital infusions and loan guarantees, was the fourth-worst performer with a 73% decline. This despite the fact that the stock has more than quadrupled since March, when it hit a multidecade low below a dollar amid fears a government takeover was on the way.

And CIT, the troubled small business lender that this summer pledged all its assets to get its hands on a $3 billion emergency loan, was down 81%. That made it the second-worst performer on the Fortune 500, after Crosstex Energy (XTXI, Fortune 500), the Dallas-based pipeline company that posted an 84% decline.

Stocks slip on global rout

2009-09-14T07:46:00.001-07:00

Stocks stumbled Monday, taking a cue from overseas markets, as a growing trade rift between the U.S. and China raised worries about the strength of the recovery.

Investors were also looking to President Obama, who was due to speak a day ahead of the one-year anniversary of the collapse of Lehman Bros.

The Dow Jones industrial average (INDU) lost 44 points, or 0.5%. The S&P 500 (SPX) index lost 4 points, or 0.4%. The Nasdaq composite (COMP) fell 9 points, or 0.4%.

President Obama comes to Wall Street to talk about financial services reform as the first anniversary of the collapse of Lehman Brothers approaches. In his address, Obama will urge the financial services industry to support his reform efforts and call for quick action, an administration official told CNN.

The anniversary of the Lehman Brothers collapse and other "horror stories of the past" are likely to weigh on Wall Street Monday, said Peter Cardillo, chief market strategist for Avalon Partners.

"All of these things are giving investors an excuse to take some money off the table," he said.

The president's decision last week to impose a tariff on Chinese-made tires may also resonate with investors. China's commerce industry responded Sunday by saying it will investigate the dumping of U.S. chicken and autos into its markets.

Stocks snapped a 5-day advance Friday as falling oil prices gave investors reason to pull back after pushing the major indexes to 11-month highs in the previous session. Despite Friday's retreat, all three indexes posted gains for the week.

The market has been supported recently by a weak dollar, higher commodity prices and investor fears of missing out on a rally that has been going strong since March. But trading volume thinned out near the end of last week, suggesting investors were becoming reluctant to commit.

Readings on retail sales, consumer prices and new home construction are on tap for later in the week.

Major corporations reporting quarterly financial results this week include BestBuy (BBY, Fortune 500), Oracle (ORCL, Fortune 500), FedEx (FDX, Fortune 500) and Palm (PALM).

Trading is expected to be volatile this week as investors adjust portfolios ahead of a slew of options expirations on Friday. The quarterly event, known as "quadruple witching," is when stock index futures and options and individual stock futures and options all expire at the same time.

In corporate news, Eli Lilly (LLY, Fortune 500) announced a number of job cuts and also said that over the next few years it would not be replacing certain employees who leave, resulting in a smaller workforce.

World markets: Asian markets closed lower, with Tokyo's Nikkei index down 2.3%. Major indexes in Europe retreated in midday trading.

Currency: The dollar gained against the euro, the yen and the pound. The dollar index (DXY), which measures the greenback against a basket of currencies, fell to a one-year low last week.

Oil and gold: The price of oil rose 13 cents to $69.42 a barrel after falling nearly 4% on Friday and slipping in the morning Monday.

Gold prices eased, but remained above $1,000 an ounce.

U.S. calls for global bank capital requirements

2009-09-04T06:50:00.001-07:00

The U.S. Treasury Department Thursday proposed tough international standards on capital and liquidity at banks, saying new rules are needed to reduce the risk of another global financial crisis.

The standards call for higher capital levels at all banks and even more stringent requirements for banks that could pose a threat to overall financial stability. They also call for a simple constraint on leverage for all banks, as well as strict but flexible liquidity regulations.

The proposal will be a key topic of discussion at the meeting of the Group of 20 rich and developing economies in London, which begins on Friday, starting a process eventually to supplant the Basel II standards with a broader-based effort.

The U.S. Treasury said a comprehensive new international agreement should be reached by the end of 2010 and that countries should implement the standards by the end of 2012.

"Capital requirements have long been and will remain a principal regulatory tool used by supervisors to promote the safety and stability of the banking system," the proposal says.

U.S. Treasury Secretary Timothy Geithner said Wednesday that a stronger capital accord was a critical part of making the world financial system more stable by limiting the risk of large institutions failing.

"We're going to be outlining a framework of principles to begin a discussion -- not to reach agreement on -- but to discuss a framework of principles on a new international capital accord that will put in place, once the crisis is behind us, a more conservative framework of constraints on leverage in the financial sector across the major globally active financial institutions," he told a news conference.
0:00 /1:40Bank CEOs still rake it in

Geithner said the accord would be developed under the auspices of the Financial Stability Board, an international body that was recently expanded to include major emerging economies such as China, India and Brazil.

The Treasury said in its 14-page proposal that capital and liquidity rules need to be as uniform as possible across countries, and that they should be structured so as not to allow the re-emergence of an under-regulated financial sector outside of the banking system.

But it did not prescribe specific capital or leverage ratios.

The proposal highlighted the gaps in existing regulations that let major financial firms around the world do business with low capital buffers, excessive amounts of leverage and unstable, short-term funding sources.

The framework comes almost a year after U.S. investment bank Lehman Brothers filed for bankruptcy, sending shockwaves through the global financial system and freezing credit markets.

Many of the institutions that have failed or have been subjected to government bailouts over the past year have met regulatory standards for being well-capitalized, but have suffered severe liquidity problems.

The Treasury's framework said new global rules should put greater emphasis on higher quality forms of capital, not just on levels of capital.

It also said the rules used to measure risks embedded in banks' books must be improved so that risk-based capital requirements are more accurate.

In the United States, officials are already working to rejig capital requirements. The Treasury has set a deadline of Dec. 31, 2009 for a working group to produce a report that reassesses existing regulatory capital rules for banks.

The Treasury said it was aware of the balance global regulators need to strike with the new rules.

"Stricter capital requirements generally will reduce the amount of financial intermediation and may limit credit availability," the proposal said.

What's next? Ask the bond market

2009-08-31T07:16:00.000-07:00

When it comes time to plot out your investment strategy, you probably focus most of your attention on how equities are doing and pay scant attention to the inner workings of bonds. But ignore the fixed-income market at your peril.

Trends in bond yields will often give you a better sense of the risks in the economy -- and by extension, your portfolio -- than stock prices can. Why? Equity investors are owners who care mostly about the upside potential of their holdings. Bond investors, by contrast, are creditors. They're worried about anything that could prevent them from getting paid back their money. So fixed-income investors are far more attuned to the current and near-term risks in the economy.

You don't need to be a credit expert to read the bond market's tea leaves. But it is helpful to brush up on basic concepts. The most important thing to remember is that bond prices and yields move in opposite directions. So when the demand for bonds grows and prices rise, yields will fall. That happened in last year's panic, when investors raced into safe 10-year Treasuries, driving down yields from nearly 4% to 2%.

With that in mind, here are two key trends to pay attention to.
The yield curve

Will the economy ever rebound? According to bond traders, it has already begun to do so. You can tell by looking at the yield curve, the spectrum of rates paid by short- and long-term bonds.

Since longer-dated bonds typically pay more than short-term debt, the yield curve usually slopes upward. But in August 2007, it was flat, with yields on 10-year Treasuries just two-tenths of a point higher than two-year notes. That's a sign of economic uncertainty, since it means scared investors are buying up bonds and weighing down long-term yields, just like last year.

What it's saying now. Today 10-year Treasuries are paying 2.6 points more than two-year notes, creating a steeper curve, a harbinger of growth. Still, don't assume the recovery will unfold quickly. The yield curve is sloping today not because 10-year yields have risen in a rapidly expanding economy, but because the Federal Reserve has been keeping short-term rates artificially low. "The Fed is sitting like a 10-ton elephant on the short end of the curve," says Carl Kaufman, manager of the Osterweis Strategic Income Fund.

What it means for you. In a slow recovery you want to invest in financially strong firms that offer the potential for stable, dependable growth and solid dividends. Vanguard Dividend Growth (VDIGX) offers a low-cost way to do just that.
The high-yield spread

Is the credit crisis over? Check the high-yield or junk bond spread - the gap between rates that corporations with shaky finances must pay their bondholders and yields on 10-year Treasuries. Last fall, junk bonds were paying out a record 22 points more than Treasuries, a sign that fixed-income traders were bracing for the Great Depression II.

What it's saying now. That spread has shrunk to less than 10 points, so fear has clearly subsided. But that's wider than the historic median of five points, so bond traders still think credit concerns exist.

What it means for you. With doomsday scenarios behind us, high-yield bonds have soared 30% this year. But it will take a big improvement in credit to justify further gains. So stick with funds that invest in safer, high-quality bonds. A good example: FPA New Income (FPNIX), which is in the Money 70, our list of recommended mutual funds.

Stocks set to stretch rally

2009-08-24T06:46:00.000-07:00

U.S. stocks were poised to start the week on solid footing Monday, as hopes for a global economic recovery boosted the confidence of investors worldwide.

At 7 a.m. ET, Dow Jones industrial average, Nasdaq 100 and Standard & Poor's 500 futures were higher.

Futures measure current index values against their perceived future performance and offer an indication of how markets may open when trading begins.

Wall Street soared Friday after Federal Reserve chief Ben Bernanke said the economy is near a recovery and existing home sales posted their biggest jump in two years.

"At the moment, it looks like we're headed for a higher opening," said Peter Cardillo, chief market economist for Avalon Partners. "Certainly you can make a case for an overbought market. But the bulls have the momentum."
0:00 /3:09Flirting with a double dip

World markets: The upbeat mood spread overseas, with global markets rallying on Monday. In Asia, Japan's Nikkei surged 3.4% and Hong Kong shares jumped nearly 2%. European markets were in positive territory in morning trading.

Economy: No major economic reports are on tap, giving investors an opportunity to mull the latest spate of readings. Last week, reports on housing and manufacturing showed surprising gains.

Oil and money: Stronger crude prices have helped support recovery hopes. On Monday, oil futures slipped 8 cents to $73.81 a barrel in electronic trading. The dollar rose against the yen, the euro and the British pound.

Bernanke: Economy could grow soon

2009-08-21T08:41:00.000-07:00

Federal Reserve Chairman Ben Bernanke said that the U.S. economy is about to start growing again, although he cautioned it will be a slow recovery with continued high unemployment in the near term.

Speaking at an annual symposium in Jackson Hole, Wy., Bernanke echoed a statement made by the Fed earlier this month, saying that "economic activity appears to be leveling out, both in the United States and abroad."

Bernanke went a step further though, indicating that "prospects for a return to growth in the near term appear good."

But the central bank chief warned that problems remain in financial markets around the globe, and that with banks facing "substantial" additional losses ahead, businesses and consumers will continue to have trouble accessing credit.

"Because of these and other factors, the economic recovery is likely to be relatively slow at first, with unemployment declining only gradually from high levels," he cautioned.

Bernanke spent much of the speech reviewing the economic crisis that unfolded last September in the wake of the bankruptcy of Lehman Brothers and near collapse of insurer AIG (AIG, Fortune 500).

He defended the actions of the Fed, Treasury Department and Congress, as well as major governments around the world, in their response to the crisis. He said those actions likely prevented the financial panic from plunging the world into a far more serious economic downturn, possibly even a depression.
0:00 /2:44Mixed signals on the recovery

"Without these speedy and forceful actions, last October's panic would likely have continued to intensify, more major financial firms would have failed, and the entire global financial system would have been at serious risk," he said.

He said the meltdown proved that there was the need for a new financial regulatory framework. But he cautioned that no matter what rules are put in place, the kind of intervention practiced by the Fed and other central banks may be necessary again at some point in the future.

"In a sufficiently severe panic, funding problems will almost certainly arise and are likely to spread in unexpected ways," he said. "Only central banks are well positioned to offset the ensuing sharp decline in liquidity and credit provision by the private sector. They must be prepared to do so."

Oil dips to its August low

2009-08-17T07:51:00.000-07:00

Oil slipped to its lowest this month at below $66 a barrel on Monday as investors became more cautious about the pace of global economic recovery and any revival in energy demand.

The decline added to the market's $3.01, or 4.3% slide on Friday -- the biggest loss since July 29 -- after the Reuters/University of Michigan Survey of Consumers showed confidence in early August dropped.

"It's a very weak market, continuing the weak tone on Friday, linked to falling stock markets and more bearish sentiment about demand," said Christopher Bellew, a broker at Bache Commodities.

U.S. crude oil futures for September fell $1.31 to $66.20 a barrel. Prices earlier hit an intra-day low of $65.65, the lowest since July 31.

European shares fell, following losses in Asia. The dollar rose against a basket of currencies.

U.S. stocks were opened lower, even after a gauge of manufacturing in New York state moved into positive territory in August, suggesting growth in the sector for the first time since April 2008.

Oil's decline on Friday brought it to a weekly loss of 4.8%, snapping a four-week streak of gains that were largely fueled by optimism the global economy had turned a corner and recovery would boost energy demand.

Economy and weather: Japan's economy emerged from its longest recession in at least 60 years in the second quarter, but analysts said it would be a long road to a sustained recovery in the world's third-largest oil consumer.

Although the Atlantic hurricane season, which can disrupt Gulf of Mexico oil and gas production, has arrived, analysts said brimming crude stockpiles in the United States would limit the impact of a storm on oil prices.

With Claudette downgraded to a tropical depression over southern Alabama, the energy market on Monday started to focus on Tropical Depression Ana as it moved towards Hispaniola, Cuba and Florida.

The U.S. National Hurricane Center did not expect much from Ana. The system will likely be a mere remnant of the depression when it reaches the Florida Panhandle later this week near where Claudette struck the coast.

Hurricane Bill was expected to spare the Caribbean Islands and the Gulf of Mexico as it targets Bermuda and the U.S. East Coast, the NHC and other weather models forecast.

Cracks in the SEC's crackdown

2009-08-12T08:55:00.000-07:00

s the new cop on the U.S. securities beat armed with a pea shooter? The size of the penalties meted out by boss Mary Schapiro's team at the Securities and Exchange Commission makes it appear so.

Schapiro should be applauded for cranking up the agency's notoriously lax enforcement efforts. But letting companies off the hook so easily could undermine her new get-tough policy.

At first glance the penalties appear impressive. General Electric agreed to a $50 million settlement. Former American International Group (AIG, Fortune 500) head Hank Greenberg has to pay $15 million. And Bank of America has to pony up $33 million.

But these amounts are trivial when compared with the resources of those charged. BofA (BAC, Fortune 500) is the country's largest bank by assets. Greenberg is a billionaire. And GE, even today, remains a $150 billion company. The SEC didn't even get the defendants to admit guilt.

Perversely, the puny size of the penalties could provide an incentive for managers to stretch the rules. Take GE (GE, Fortune 500). The SEC alleged that it massaged its 2002 results so that it could continue its eight-year stretch of meeting consensus earnings estimates. The regulator says, absent GE's accounting fiddles, it would have missed by about 1.5 cents a share.

When GE missed estimates in the first quarter of 2008, its stock slid some 13%, wiping over $40 billion off its market cap. Using that percentage decline as a rough guide, GE's moves back in 2002 saved shareholders -- and managers with chunks of stock -- nearly $33 billion.

The comparison isn't entirely fair. GE missed by a greater margin in 2008, during a worsening financial crisis and a month after boss Jeff Immelt had promised to meet expectations.

But applying even a third of the 2008 percentage drop to GE's early 2003 market value -- more in line with the average decline by S&P 500 companies that miss estimates -- would mean the conglomerate still saved investors some 220 times the cost of the SEC's fine. That's easily enough to turn the temptation to tweak the rules into a no-brainer.

Of course, such calculations are not clear cut. There's the "name and shame" aspect, the legal costs and the loss of investor confidence to consider. Nonetheless, for the watchdog's crackdown to have a real deterrent effect, its bite needs to better match its bark.

Dow and S&P at new '09 highs

2009-08-08T17:39:00.000-07:00

Stocks rallied Friday, with the Dow and S&P 500 closing at the highest point in nine months, after the July jobs report showed the smallest number of job cuts in nearly a year, adding to recovery hopes.

The Dow Jones industrial average (INDU) gained 114 points, or 1.2%, according to early tallies. The S&P 500 (SPX) index rose 13 points, or 1.3%. The Nasdaq composite (COMP) added 27 points, or 1.4%.

All three indexes finished higher for the week.

Employers cut 247,000 jobs from their payrolls in July after slashing a revised 443,000 jobs in June. Economists surveyed by Briefing.com thought they would cut 325,000 jobs. It was the lowest level of losses since last August.

"It was the best reading on non-farm payrolls since before Lehman's collapse last September, which was the pivotal event that precipitated the crisis," said Jeff Kleintop, chief market strategist at LPL Financial.

The report seemed to confirm other recent indications that the economy is stabilizing.

"Leading indicators have priced in a recovery for a while, now lagging indicators like unemployment are too," he said.

Although employment is seen as a lagging indicator in any recovery, the steady march higher of the unemployment rate over recent months has added to investor anxiety about the health of the economy.

The unemployment rate, generated by a separate survey, fell to 9.4% in July from 9.5% in June, versus forecasts for a rise to 9.6%.

The stock advance was broad based, with 24 of 30 Dow components rising, led by IBM (IBM, Fortune 500), Boeing (BA, Fortune 500), United Technologies (UTX, Fortune 500), JPMorgan Chase (JPM, Fortune 500) and Chevron (CVX, Fortune 500).

Stocks slipped Thursday, the second straight decline, as investors took a step back after the recent big rally and ahead of the jobs report.

The Dow, Nasdaq and S&P 500 all hit fresh 2009 highs earlier in the week, following three weeks of gains. Since bottoming March 9 at a 12-year low, the S&P 500 has risen 49.4% as of Friday's close.

Quarterly results: AIG (AIG, Fortune 500) reported its first quarterly profit in nearly two years Friday, but the troubled insurer continues to struggle in the aftermath of its near-collapse last fall. AIG still owes taxpayers $87.6 billion.

The stock nearly doubled in the run-up to the profit report. AIG gained another 20.5% Friday.

Cash for Clunkers: President Obama on Friday signed into law an extension of the auto sales stimulus program that will keep it running through Labor Day. On Thursday night, the Senate approved $2 billion in extra funding for the popular program, which gives consumers up to $4,500 if they turn in gas guzzlers and buy more fuel-efficient models.

Oil and gold: U.S. light crude oil for September delivery fell $1.01 to settle at $70.93 a barrel on the New York Mercantile Exchange. Oil prices have been gaining in recent weeks on bets the global economy is close to turning around.

COMEX gold for December delivery fell $3.40 to settle at $959.50 an ounce.

Bonds: Treasury prices tumbled, raising the yield on the benchmark 10-year note to 3.85% from 3.74% late Thursday. Treasury prices and yields move in opposite directions.

Other markets: In global trading, European markets rallied after the release of the U.S. jobs report. Asian markets ended lower -- with the exception of the Nikkei -- losing steam ahead of the jobs report.

In currency trading, the dollar gained versus the euro and the Japanese yen.

Market breadth was positive. On the New York Stock Exchange, winners topped losers three to one on volume of 1.47 billion shares. On the Nasdaq, advancers topped decliners by over two to one on volume of 2.51 billion shares.

Stocks fall on job jitters

2009-08-05T09:09:00.000-07:00

Wall Street retreated Wednesday as investors fretted that the still struggling labor market would weigh on recovery efforts.

More than an hour into the session, the Dow Jones industrial average (INDU) lost 92 points, or 1%; the Standard & Poor's 500 (SPX) shaved 9 points or, 0.9%; and the tech-heavy Nasdaq composite (COMP) gave up 21 points, or 1.1%.

The retreat reverses Wall Street's recent run, which has been spurred by a better-than-expected second-quarter earnings period and signs of stabilization. July was the strongest July for the Dow and S&P 500 in two decades.

On Tuesday, stocks ended higher, with the Dow and S&P hitting new nine-month highs. This was supported by a stronger-than-anticipated read on the housing market: The National Association of Realtors said the pending home sales index rose 3.6% in June.

Job market: Two reports on Wednesday, however, showed that the labor market continues to face challenges and that recovery in the sector will be slow.

Paycheck processor Automatic Data Processing (ADP) said private-sector employers cut 371,000 jobs in July, the smallest monthly total since October. Although the pace of job cuts is slowing, the number was higher than expected.

Earlier this morning, outplacement firm Challenger said companies' planned job cuts rose 31% in July, indicating problems in the employment sector are far from over.

The reports come ahead of the U.S. Labor Department's closely watched monthly jobs report, which will be released on Friday.

The Labor Department is expected to show that the economy shed 328,000 jobs in July, less than the 467,000 reported for June, according to a consensus estimate of economists compiled by Briefing.com. The unemployment rate is predicted to rise to 9.6% from 9.5%.

Economy: The morning's economic data was mixed.

One report showed that the U.S. services sector contracted more than expected in July. The Institute for Supply Management's services index fell to 46.4, -- down from 47 in June -- and shy of economists' forecast of 48. Any reading under 50 indicates the sector is contracting.

Meanwhile, a report from the Commerce Department showed a surprise uptick in demand for U.S.-made manufactured goods. Factory orders increased 0.4% in June, while economists were bracing for a decline of 0.8% according to analysts' consensus on Briefing.com.

Earnings: Consumer goods firm Procter & Gamble (PG, Fortune 500) reported profits slightly higher than expected, although revenue declined as consumers moved away from its high-end product lines.

Other companies to watch include Kraft Foods (KFT, Fortune 500), which reported an 11% jump in profits after U.S. markets closed Tuesday.

Oil and gold: U.S. light crude oil for September delivery fell 98 cents to at $70.44 a barrel.

COMEX gold for December delivery fell $2.70 to $967 an ounce.
0:00 /2:41The impact of govt. assistance

Bonds: Treasury prices were nearly unchanged, with the yield on the benchmark 10-year note down slightly to 3.67%. Treasury prices and yields move in opposite directions.

Other markets: In global trading, Asian stocks fell as investors paused for breath. Major European markets were mixed as investors digested another round of bank earnings.

In currency trading, the dollar gained versus the euro and the Japanese yen.

Market breadth was negative. On the New York Stock Exchange, decliners beat out more than two to one on a volume of 324 million shares. On the Nasdaq, decliners beat out advancers almost three to one on a volume of 705 million.

Health reform follies: How to keep up

2009-08-02T15:54:00.001-07:00

A lot was supposed to happen on health reform before Congress went on summer vacation. Turns out, a lot didn't. End result: The heavy lifting on health reform legislation has been pushed to the fall.

A bipartisan group of six senators from the Senate Finance Committee was supposed to unveil its health reform bill -- or at least an outline. But the group couldn't resolve some outstanding issues such as how to make sure the health insurance structures they're proposing end up being affordable.

It's also unclear whether the group will release a draft before the start of the Senate summer recess next Friday. That means the full committee, to say nothing of the full Senate, won't begin to debate the proposal until the leaves start turning a lovely autumn orange.

Meanwhile, House leaders had been promising a full floor vote on health reform before the congressional recess, which begins on Saturday. But that idea was tabled once it became clear that the last of the three committees -- the Energy and Commerce Committee -- wouldn't report the bill out of committee until the 11th hour.

That means the full House won't take up a health reform bill before fall.

So, with the finish line still far away, it's too soon to tell the final shape that health reform would take. CNN's Ed Henry put it best during his radio show: "It's like covering Jello."

Until then, here's an update on where things stand on some important questions: Will there be a public option? Who will pay for reform? When would it take effect?
What's the chance for a public option?

Those who want a public insurance plan want it fiercely, saying it's the only thing that can force private insurers to reduce costs and be more competitive. Those who oppose it are equally fierce, saying it would result in a government takeover of the heath care system.

Truth is, there's still not enough information in any of the proposals for either side to say definitively what the realities of a public option would be.

Two major bills that lawmakers will consider -- the tricommittee bill from the House and the bill put out by the Senate Health committee -- propose a public health insurance option. That public plan would compete with private insurers on a health insurance exchange -- or insurance supermarket -- that the bills also propose.

Among Democrats in the House, there is support for a public plan in theory. But progressive Democrats and fiscally conservative Democrats have different ideas as to what such a plan should look like. Republicans in the House, meanwhile, are almost universally opposed.

In the Senate, meanwhile, a public option doesn't appear to have sufficient support. So the bipartisan group on Senate Finance is expected to propose state and regional nonprofit health cooperatives to serve as a competitor to private insurers.

The cooperatives would be owned and governed by the consumers who join them. But they would receive seed money from the federal government. It's not clear whether the co-ops would hire doctors full-time to serve members or whether they would establish a network of doctors from which members could choose.

Nonprofit co-ops aren't a new idea, and some already exist today. But in order to be truly competitive in a market dominated by United Healthcare and the group of Blue Cross/BlueShield insurers, they need to attract a substantial number of people.

Sen. Kent Conrad, D-S.D., who proposed the co-op idea, has said actuaries estimate that co-ops could attract 12 million members -- potentially enough to make them competitive. But without any details on the proposal, it's impossible to independently verify that kind of estimate.
Who's going to pay for this?

That's the $1 trillion question tripping up everyone. Much of the cost would stem from subsidies to help make health coverage more affordable for low- and middle-income families, including the uninsured.

The House bill proposes to pay for reform in part by implementing various cost-saving measures in Medicare and Medicaid. It would also impose a surtax on the highest income Americans, affecting up to 1.2% of households. A surtax is a tax on top of a person's ordinary income tax.
0:00 /3:00Health care's infectious loss

The surtax has support among many although not all House Democrats. House Republicans oppose it.

The surtax is not expected to get much love in the Senate, where the Senate Finance bipartisan group is seen as the arbiter of what will fly as a pay-for and what won't.

The Senate group is expected to propose a slew of savings in Medicare and Medicaid. On the revenue side, it has been considering a tax on insurers for very expensive health plans -- those whose cost well exceeds the average cost of a policy for individuals and for families.

Opponents of the insurer tax -- including unions -- say the tax is likely to be passed on to consumers in the way of higher costs.

Another way lawmakers want to alleviate the cost of reform is through "pay or play" mandates on employers to provide coverage or pay a penalty that would help subsidize those who buy insurance. The Senate Finance Committee is not expected to propose an employer mandate but is expected to provide what have been referred to as employer incentives to provide coverage.
When would health reform take effect?

Not right away. In fact, health reform is going to be a long-term process no matter whose ideas end up dominating the day. Why? Because in essence it's a restructuring of one of the biggest and most complex parts of the economy.

The proposed health insurance exchange in the House bill, for instance, wouldn't be up and running before 2013, and many of the insurance reform measures wouldn't be fully in effect until 2018.

Plus a number of measures in all the reform proposals will take time - in some cases 5 to 10 years, in some cases longer - to achieve the promises of greater efficiencies, better care and cost savings.

White House pushes investor protection

2009-07-12T10:14:00.000-07:00

The Obama administration on Friday proposed legislation to strengthen the Securities and Exchange Commission's investor protection authority, including the power to ban certain forms of compensation for brokers and investment advisers.

The SEC would get authority under the bill to establish consistent fiduciary standards for broker dealers and investment advisers and could ban bonuses or other forms of compensation for financial intermediaries that encourage them to steer investors into products that are not in the investors' best interests.

The bill, one of several financial regulatory reform bills sent by the U.S. Treasury to Congress this summer, also aims to improve disclosures to investors, close gaps in standards and pay whistleblowers for information that can be used in enforcement actions.

The bill comes just days after the administration proposed a new agency that would get sweeping powers to protect consumers on many financial products that fall outside of the SEC's jurisdiction.

The bill would give the SEC authority to require delivery of disclosures and prospectuses before investors buy into mutual funds, not after as is typically the case currently. The SEC could require a concise summary prospectuses and a simple disclosure form showing fund costs.

The SEC also would gain authority to establish a fund to pay whistleblowers for information leading to enforcement actions that result in significant financial awards. The money would come from penalties paid that are not distributed to investors.

"This authority will encourage insiders and others with strong evidence of securities law violations to bring that evidence to the SEC and improve its ability to enforce the securities laws," The Treasury said in a summary sheet on the legislation.

A new SEC investor advisory committee, which examines new products, trading strategies, fee structures and disclosures, would be made permanent under the legislation.White House pushes investor protection

New Ericsson CEO will face fierce competition

2009-06-26T09:11:00.000-07:00

It is no surprise that Hans Vestberg, who will become Telefon AB L.M. Ericsson's CEO next year, started off an interview about his new post by talking about the global financial crisis. Vestberg, after all, is the Swedish telecommunications gear maker's chief financial officer, and he's had a front-row seat for the worldwide economic malaise.

But Vestberg, who will replace Carl-Henric Svanberg (he's becoming BP's chairman), will face more challenges than the global economy, which may start to rebound as he takes office. A more persistent challenge for Ericsson (ERIC) may well be competition from rivals old and new.

Earlier this month Nokia Siemens, a joint venture of the two telecom giants, agreed to acquire key wireless assets from Canada's Nortel. The purchase will give Nokia Siemens a stronger foothold in the North American market, where Ericsson, the world's largest supplier of wireless telecom equipment, has been a major player.

The Nortel deal "gives Nokia Siemens something else in their arsenal," says Jane Zweig, CEO of the Shosteck Group, a telecommunications consulting group. "And I don't think Ericsson really factored Nokia Siemens in."

Ericsson also faces stiff competition from a pair of Chinese equipment makers, Huawei and ZTE.

Huawei and ZTE have been taking share from established equipment makers such as Ericsson, Alcatel-Lucent (ALU) and others for years. Initially customers had concerns about the quality of the Chinese companies' products. But today, phone operators say, the products from Huawei and ZTE are comparable to those made by longtime gear providers.
0:00 /3:19What's in your iPhone?

Vestberg, 44, says he believes Ericsson has its own set of tools in its arsenal. "Of course, we will always face competition whether they are French American or Chinese," he says. "I think our competitive advantage is our technology leadership. We will compete by having the best technology and the most robust technology."

He also points to Ericsson's strong presence in the services business. As telecom networks have become more complex, a growing number of operators are turning to Ericsson (and others) to basically run their systems and help them migrate from one generation of technology to the next.

Vestberg appears to have the energy for the job. Since joining the company in 1991 he has worked for Ericsson around the world in markets such as China, Chile and Brazil. He was president of Ericsson in Mexico and served as CFO for Ericsson in North America.

Executives and analysts who've met Vestberg describe him as personable and relationship oriented. And because he worked so closely with Svanberg, they say, investors are not likely to see many radical changes in Ericsson's strategy.

Obama's banking end around

2009-06-22T15:38:00.001-07:00

One road to regulatory reform runs through Detroit and Utah -- and there are signs the ride could get bumpy.

The Obama administration's financial oversight reform program would force industrial loan companies, or ILCs -- banks owned by the likes of retailer Target (TGT, Fortune 500) and carmaker Toyota (TM) -- to submit to Federal Reserve rules and regulations.

Because Fed rules limit bank ownership, the plan could force big commercial firms to sell their banking arms. Doing so would close a regulatory loophole that has long chafed the Fed, which has no authority over nonbanks.

But the fight over the ILCs is just beginning. Any changes in the law must be enacted by Congress, and Sen. Bob Bennett, R-Utah -- where many of the biggest ILCs are based -- has fought previous efforts to close the loophole. Bennett claims ILCs haven't been a problem during the recent crisis and says eliminating them will make credit less available to consumers.

Meanwhile, Ford Motor (F, Fortune 500) has sought federal permission to turn its Ford Motor Credit unit into an ILC in a bid to cut its borrowing costs as it competes with its government-backed Detroit rivals GM (GMGMQ) and Chrysler. Neither Ford nor the Federal Deposit Insurance Corp., which supervises ILCs, returned calls seeking comment.

Critics of industrial loan companies argue that strengthening the separation of banking and commerce would be a good thing at a time when the federal deposit insurance fund is under pressure.

"The taxpayer subsidies the ILCs have received are just enormous," said Art Wilmarth Jr., a law professor at George Washington University. "The government has to stop the proliferation of these entities."

The case against ILCs, Wilmarth said, can be summed up in four letters: GMAC, a troubled finance company once owned by General Motors that now lists the government as its biggest shareholder.

GMAC "is the poster child for why we shouldn't have commercial ownership of banks," said Wilmarth.

Policymakers frown on commercial ownership of banks because it can lead to poor credit decisions and create more risks to the taxpayer-funded federal safety net.

Even so, ILCs started cropping up as niche lenders in a few states more than 20 years ago. Regulatory changes a decade ago led to the formation of some giant ILCs, including ones run by Merrill Lynch (now part of Bank of America (BAC, Fortune 500)) and General Electric (GE, Fortune 500).

But among the larger ILCs was a Midvale, Utah-based company called GMAC Automotive Bank, part of GMAC.
Trying not to repeat the mistakes of GMAC

For years, GMAC was a profitable part of General Motors. In 2006, though, GM sold a 51% stake to private equity firm Cerberus as it raised cash to restructure.

Since then, the picture has darkened at both GM and GMAC. GM filed for Chapter 11 protection June 1, after receiving billions of dollars in bailout funds and spending months on the brink of bankruptcy.

Meanwhile, GMAC -- the biggest provider of financing to the carmaker's dealers and customers -- was struggling to raise capital to qualify for its own federal aid.

At the end of December, the Fed cleared GMAC to become a bank holding company, while exempting it from Federal Reserve Board rules that govern a bank's dealings with its affiliates. Since then, GMAC has received some $21 billion in taxpayer support, including Treasury funds and FDIC loan guarantees.

The government justified the move by citing "emergency conditions." It forced GM and Cerberus to sharply reduce their stakes in the company and said the conversion would allow GMAC, the main lender to customers of the troubled domestic automakers GM and Chrysler, to continue to extend credit to consumers.

But not everyone was persuaded by that logic. Taxpayers, Wilmarth said, are now bearing the costs of what is essentially a commercial failure -- the collapse of GM after years of poor strategy and product decisions.

He said the poor results in recent years at GM and GMAC show the two were "propping each other up." GMAC then compounded its auto-lending errors by making a big bet on residential housing via the purchase of lender ResCap, he said. GMAC didn't comment.

"Everything they said wouldn't happen with the ILCs has happened at this one institution," said Wilmarth. "Massive conflicts of interest, spreading subsidies from banks to commercial firms -- all of it has come to pass."

While its Detroit rivals GM and Chrysler have taken tens of billions of dollars in federal funding, Ford has declined to take bailout money.

But if Ford wants no part of the unpopular Troubled Asset Relief Program, the company has signaled it would like to join GMAC in raising low-cost funds by taking bank deposits. GMAC's Ally Bank unit has raised more than $20 billion in deposits, in part by offering above-market certificate of deposit rates.

That's why Ford's credit arm has been seeking industrial loan company status. Getting it would allow the company to borrow more cheaply -- though an approval could complicate the lives of policymakers set on closing the ILC loophole.

"I think they may have a battle on their hands here," said Raymond Gustini, a partner at law firm Nixon Peabody in Washington. "But for now, those who want to eliminate the loophole have the moral high ground."

Investors bet on Detroit housing market

2009-06-20T07:52:00.000-07:00

As Detroit home prices crash, sales are heating up. But with all of the plant closings and layoffs, who's buying? Investors -- some of whom are snapping up five and 10 houses at a time.

"I have investors from all over the country and the world," said Jeremy Burgess, co-founder of Urban Detroit Wholesalers, which buys undervalued homes to rehab and rent or to sell to other investors. "One Lithuanian woman just bought a second house."

"Most of the local investors are out of money," added Mike Shannon, who specializes in Detroit foreclosures and has clients from New Zealand, Australia, England and other places.

Recently a Californian purchased 178 properties, mostly one at a time, and most for under $10,000. Another has purchased six Detroit properties since September and hopes to begin buying five a month.

"The capital needed to get in the Detroit market is so low," said Jason Imbruglio, a 29-year-old from Tacoma, Wash., who has bought three homes so far.

Two years ago, he paid $12,000 for a two-family house with two bedrooms and a bath in each unit. He spent $18,000 repairing it for a total cost of about $30,000. Imbruglio has kept tenants in both apartments most of the time and charges $1,100 a month. After taking into account the 10% he pays a management company, plus utilities, property taxes and maintenance costs, he says he is making double-digit profits.
Plentiful opportunities

The city's average home price has sunk by a third to less than $80,000. But these cheap houses have got sales jumping, with volume up 23% in April compared with April 2008.

And there is no secret to finding cheap properties. Burgess said he buys through regular sellers and other investors and off the local multiple listing service.

Many are buying in buying in bulk, snapping up properties bundled together and sold by lenders. However, that is becoming less lucrative, according to Burgess. "The quality of the bulk stuff is significantly lower than it was a year ago," he said. "Back them 70% of the houses bought in bulk were nice. Now, 80% or 90% are not."

What he focuses on when selecting properties is the neighborhood. He looks to own in some of the city's stable, blue-collar communities with high homeownership rates, such as Warrendale, University District and Grandmont.

"In the good areas, rents are actually going up," said Burgess. "I just had a house rent for $950 that I was thinking I would get $850 for."

The bad areas, ones with vacant homes and foreclosed properties, such as the Brightmoor district, are no-go zones for Burgess. Rents and values are low in those communities -- and falling.

"I wouldn't touch anything, not even for a dollar, in those areas," he said.
Making it work

In general, Shannon said investors are "looking for long-term investment of five to 10 years. They sock away some profits [on rentals] and wait for prices to appreciate."

To make sure they have a steady rent roll, some investors are getting their properties qualified to be Section 8 housing, which is the housing voucher program run by the federal government to help low-income families. Under this program, some tenants can rent units in private housing with the government picking up part or all of the cost, which must be "fair-market rent."

"You put in a Section 8 tenant and collect $850 to $1,200 a month on a three-bedroom home," said Shannon, who specializes in foreclosure properties.

Another option is to work with local nonprofits to sell rehabbed units to credit-damaged - but worthy - buyers. These organizations identify families and offer them credit-repair counseling and assistance finding an affordable financing so that they can buy the investors' rehabbed properties.

"We shifted away from speculative investing into restoring affordable housing," said investor David Butler, who buys through Burgess.

The deals are often structured like a lease-option contract, with the tenant/buyers paying rent on the property plus a premium charge that is applied to the future sale price. They buyers complete the purchases when they get affordable mortgage loans.

To keep costs down, Butler looks to pay no more than $45,000 for a property, including repairs and any back taxes. When finished these homes typically appraise for about $80,000. Because his company partners with a nonprofit, it accepts narrower margins, about 12%. Normally, buy-rehab-flip investors prefer margins of 35% or more.

Improving access to health insurance: $1 trillion

2009-06-15T18:22:00.000-07:00

Two key proposals to improve access to health insurance could reduce the ranks of the uninsured but cost $1 trillion over 10 years, according to preliminary estimates released Monday by the Congressional Budget Office.

The estimates are the first in a series over the next few months that will attempt to quantify the costs and benefits of various health reform options. President Obama, citing the huge part health care spending plays in the economy, has made passing reform this year a top priority.

The report by CBO, an independent agency that scores legislative proposals for lawmakers, focuses on proposals to create health insurance exchanges and subsidize the cost of insurance for some households.

The agency estimated that the exchange and subsidies could reduce the number of uninsured people by roughly 16 million by 2015. It is estimated there would otherwise be 51 million uninsured that year.

The CBO estimates are based on parts of a health reform bill from Democrats on the Senate's Health, Education, Labor and Pension Committee, chaired by Sen. Ted Kennedy, D-Mass.

The committee will start debating and amending that bill on Wednesday.

Under the bill, the federal government would give grants to states to set up insurance exchanges that consumers could use to comparison shop for health insurance. And it would offer subsidies of varying levels to help families with incomes up to 500% of poverty level (roughly $110,000) to pay for coverage.

The federal government would also subsidize small businesses that offer health benefits but have workers with low wages.

The CBO stressed that its estimates are preliminary for several reasons:

* They only reflect analysis of one part of the health committee bill. So they aren't a comprehensive look at the potential costs and savings of all measures in that bill.
* They do not reflect the likely interactions that will occur with other elements of comprehensive health reform that may be included -- such as an expansion of Medicaid or the creation of a public insurance plan, which is the most controversial issue in the health reform debate.
* In addition, the CBO has not yet finished its analysis of all the bill's elements, such as a proposal to let parents cover their children as dependents until they're 27.

The health committee bill is hardly the last word on health reform. Other congressional committees have jurisdiction over other parts of health care reform.

One is the Senate Finance Committee, which will oversee the tax proposals intended to help pay for the overhaul of the health care system.
0:00 /2:18Boosting health reform

The finance panel's chairman, Sen. Max Baucus, D-Mont., is expected to release a draft of his health reform bill this week.

Lenders hesitant on small biz stimulus loans

2009-06-10T15:45:00.000-07:00

Struggling small business owners can begin applying next week for an interest-free debt-relief loan through a new Small Business Administration program -- if, that is, they can find a bank to process their application.

The new "America's Recovery Capital" (ARC) loan program, authorized by February's stimulus bill and slated to launch on June 15 after four months of planning, aims to make small, government-backed loans available to viable companies laid low by the recession. (For full details on ARC eligibility and loan terms, click here.) But the loans will be made and managed by SBA lenders, and so far, few have jumped on board.

Before the details of the program were released on Monday, lenders were hesitant to commit, concerned that there wasn't enough economic incentive for them. Now, with key details about how the program will work finally available from the SBA, many haven't retreated from their initial wariness.

"While we have received a few requests from our customers, we are still leaning against it," says John Handmaker, president of Quadrant Financial, a small business lender based in Louisville. "The guidance from the SBA indicated rates and terms, which have provided some clarity, but we're not 100% certain about what we need to be careful of. We don't feel we have a solid grasp of the standard operating procedures and rules, and we're not going to jump in until we really understand it."

One deterrent for the banking community is the interest rate for the loans. While the loans are interest-free for borrowers, the SBA will pay lenders an interest rate of prime plus 2%. For the month of June, that's 5.25% -- a lower interest rate than the SBA sets for its other loan programs.

"The SBA provided for a variable but fair rate," says SBA spokeswoman Hayley Matz. "It's important to remember that these loans carry virtually no risk to the lender -- they are 100% guaranteed by SBA in terms of principal, and the SBA is paying the interest."
Talk back: What do you think of ARC loans?

As the lenders debate the merits and potential pitfalls of making ARC loans, small business owners that need the money are wondering where to turn. Mack Sullivan, for example, is poised on a starting block, ready to run through lenders' doors with his application on June 15.

Sullivan's tourism literature company, Due South Publishing, based in St. Simons Island, Ga., was profitable for the five years leading up to 2008. Then, the companies that advertised in Due South's publications began cutting back dramatically.

"The credit-card debt we have has accumulated primarily for just cash-flow management. As revenues have come down, we used it as a cash advance credit line, to pay for a publication we just printed, or expenses and payroll," Sullivan's says. At the same time, the interest rates on his four cards have doubled in recent months. The highest is now at 25.9%.

With an ARC loan, Sullivan hopes to pay off the debt on those cards, which costs him about $2,000 a month. That move, he says, will put the company on more stable footing and position it to launch new products when the economy rebounds.

When Sullivan contacted Bank of America (BAC, Fortune 500), his past lender, a representative told him the bank hasn't yet decided if it will participate.

"If they do it, I want to be first in line," Sullivan says. "But I started contacting other SBA lenders in the meantime, and I talked to the senior vice president of another bank who said she doesn't think her bank will do it."

Sullivan's says his next step will be to start calling every lender on the SBA's preferred lender list until he gets a hit.

If he gets as far as CountryBank USA in Cando, N.D., he may be in luck. While CountryBank hasn't yet made a final decision, CEO Terry Jorde says her bank will probably participate in issuing ARC loans.

Jorde believes the weak financial incentives and uncertainty surrounding the program are outweighed by the needs of the community. "The interest rate is irrelevant. We're only dealing with $35,000," she says, referring to the maximum allowable ARC loan size. "The more important point is helping businesses survive. Those businesses may have $150,000 loans from us in the future. It's that long-term goal that's making us want to help them survive in the short run."

Quadrant Financial's Handmaker disagrees, saying that while his bank sees value in the program, closing a $35,000 SBA loan can be just as hard and administratively burdensome as closing a much larger loan. He plans to use other tactics, such as loan-payment deferrals and moratoriums, to help customers while also making money for the bank.

"Many of the clients we've talked to don't want to incur additional debt," he says. "If we can achieve same ultimate result, to help with cash flow at end of the day, then we can protect loans we've got without stepping into a program we don't fully understand."

Xerox CEO Mulcahy steps down

2009-05-21T09:47:00.000-07:00

Xerox Corp. (XRX) Chairman and Chief Executive Anne M. Mulcahy will give up day-to-day oversight of the company she helped turn around, retiring July 1 and being succeeded as CEO by President Ursula M. Burns.

Mulcahy, 56 years old, will continue to serve as chairman of the board. She became CEO eight years ago when the company was struggling after a string of quarterly losses amid falling market share and a probe regarding Xerox's accounting practices.
0:00 /3:55Xerox sees spending

Burns was seen by many as Mulcahy's heir-apparent since her election as President of Xerox (XRX, Fortune 500) in 2007.

"This has been long expected, long telegraphed," said Shannon Cross, of Cross Research. "I think it's a pretty seamless transition, I don't expect many changes."

Xerox spokesman Carl Langsenkamp said Mulcahy places tremendous value on succession planning, and has "prepared Xerox for the time when she chose to retire."

The company is being pinched by the global spread of economic weakness as well as by the stronger dollar, because it gets most of its revenue from overseas. Xerox makes printers both for offices and large-scale production, but garners most of its sales from its services businesses, which include maintenance contracts, printing supplies and lease revenues.

"It has been a privilege leading Xerox," Mulcahy said in a statement. "The decision to move on is made easy only in the fact that Ursula Burns is so well positioned to take Xerox to the next level. Our strategy is sound and well defined. And, despite a tough economy, we are generating cash, building our technology and services pipeline and poised for a period of steady profitable growth in the future."

Mulcahy joined Xerox in 1976 as a sales representative, four years before the 50-year-old Burns came on board as a mechanical engineering summer intern. Burns became president in April 2007, a post she will not keep. Xerox's Langsenkamp said the company doesn't intend to name a president.

Shares were recently down 6 cents, or 0.7%, to $6.85. Despite a rebound in the past two months, the stock is still off by 50% in the last year.

American Express to cut 4,000 jobs

2009-05-18T20:22:00.000-07:00

American Express said Monday it will cut 4,000 jobs, or 6% of its global workforce, as part of an $800 million restructuring plan.

Under the plan, the financial services company will also cut investment spending and operating costs.

The 4,000 cuts are on top of the 7,000 positions the company said in October it would eliminate, according to American Express spokeswoman Joanna Lambert.

American Express' (AXP, Fortune 500) first-quarter earnings call in April had indicated further job cuts were imminent, Lambert said. The reductions will occur across business units, markets and staff groups.

"Cuts were largely expected, but it's a sizable amount," said Jason Arnold, analyst at RBC Capital Markets.
0:00 /1:01Ending credit card debt

While the company "has remained solidly profitable," it continues "to be very cautious about the economic outlook and are therefore moving forward with additional reengineering efforts to help further reduce our operating costs," chief executive Kenneth Chenault said in a prepared statement.

Severance and other costs related to the job cuts will result in a $180 million to $250 million pre-tax restructuring charge.

Cuts in marketing and business development are expected to save $500 million, while operating cost reductions should save $125 million, the company said.

The cuts are in addition to the $1.8 billion cost benefit announced in October, and the tone of Monday's release was "a little more guarded" than that of previous announcements, Arnold noted.
Credit crunch

"Our concern is that the credit issues in this country are substantial," Arnold said. "AmEx especially gets a lot of its revenue from spending, which is obviously under severe pressure."

Especially troubling, Arnold said, is the company's percentage of charge-offs - when a creditor writes off an account balance as a "bad debt" instead of an asset, usually after six months of non-payment.

AmEx's charge-offs are in the upper range compared with its competitor group, at 9.9% Arnold said.

JPMorgan Chase (JPM, Fortune 500) and Discover (DFM) have charge-offs of around 8%. Still, Bank of America (BAC, Fortune 500) and Citigroup (C, Fortune 500)'s rates exceed 10%, Arnold said.

"None of these charge-off rates are good numbers," Arnold said. "Unfortunately, with unemployment and the economic climate being what they are, it's a tough time for spending."

Stocks rally on recovery hopes

2009-05-04T07:46:00.001-07:00

Stocks rallied Monday morning as investors welcomed stronger-than-expected reports on housing and construction spending, adding to bets that the economy is closer to stabilizing.

The Dow Jones industrial average (INDU) gained 148 points, or 1.8%, around 45 minutes into the session. The S&P 500 (SPX) index added 16 points, or 1.9%. The Nasdaq composite (COMP) rose 25 points, or 1.5%.

The March pending home sales index from the National Association of Realtors jumped 3.2% from the prior month versus forecasts for a flat reading.

Construction spending, a government report, rose 0.3% in March versus forecasts for a decline.

Banks: Financial shares are likely to be choppy ahead of the release of the government's "stress tests" on Thursday. The government will release details on the 19 individual companies tested as well as the broad group of corporations.

The results are expected to include estimated loan losses in the event that the economy deteriorates further, along with an estimate of how much more capital banks would need to raise in such an environment.

Citigroup (C, Fortune 500) is reportedly among the banks that will need to generate more money to stay afloat. The bank may have to raise another $10 billion, according to the Wall Street Journal.

Autos: Italian carmaker Fiat, which recently completed an alliance with Chrysler, is eyeing a deal with the European unit of General Motors (GM, Fortune 500).

Companies: Shareholders descended upon Berkshire Hathaway's (BRK.A) annual meeting over the weekend. At the meeting, chief executive Warren Buffett said the firm expects to report a first-quarter operating profit.

Sprint Nextel (S, Fortune 500) reported surprise income excluding unusual items. Shares rose 14% in early trading.

Bonds: Treasury prices slipped, raising the yield on the benchmark 10-year note to 3.16% from 3.15% Friday. Treasury prices and yields move in opposite directions.

Other markets: In global trading, Asian markets ended higher and European markets rallied in afternoon trading.

In currency trading, the dollar fell versus the euro and gained against the yen.

U.S. light crude oil for June delivery rose 61 cents to $53.01 a barrel on the New York Mercantile Exchange.

COMEX gold for June delivery rose $16.80 to $905 an ounce.

Jobless claims fall unexpectedly

2009-04-30T17:15:00.000-07:00

The number of initial claims for unemployment insurance fell last week, with the number of people collecting benefits overall hitting a fresh record high of 6.27 million, according to a government report released Thursday.

In the week ended April 25, there were 631,000 initial jobless claims filed, down 14,000 from a revised-up 645,000 the previous week, the Labor Department said.

Economists expected 640,000 new claims, according to a consensus survey by Briefing.com.

The 4-week moving average of initial claims was 637,250, down 10,750 from the previous week.

"The past few weeks' claims data are beginning to look increasingly like a peak," wrote Ian Shepherdson, economist at High Frequency Economics, in a research note.

But it remains unclear whether that peak was a correction from the quick rise in claims after Lehman Brothers failed in September, or if it marks "a real cyclical turning point," Shepherdson wrote.

"We are inclined to think the former is more likely ... Still, flat or falling claims have to be better than rising claims," he wrote.

Continuing claims record: In a sign that more people are having trouble finding work, 6,271,000 people continued filing for unemployment insurance in the week ended April 18, the most recent data available. That's a record high, and an increase of 133,000 from the previous week.

The 4-week moving average for continuing claims was was 6,076,000, an increase of 131,500 from the week prior.

A separate report released Wednesday showed the economy shrank at an annual pace of 6.1% in the first quarter, almost as much as it did in the fourth quarter of 2008.

Earlier this month, the government reported two million jobs were lost through March 2009, bringing the nation's unemployment rate to the 25-year high of 8.5%. The nation has lost 5.1 million jobs since the beginning of 2008.

State highs and lows: The largest increases for the week ended April 18, the most recent data available, were in California, with 8,535; New York, at 6,959; Connecticut, with 3,086; Georgia, at 3,056; and North Carolina, 2,983. Those spikes were likely due to layoffs in the service and manufacturing industries, among others, the report said.
0:00 /2:52Auto town risks extinction

By contrast, 14 states reported claims decreased by more than 1,000. Pennsylvania reported 7,799 fewer claims, which a state-supplied comment attributed to fewer layoffs in the construction, service and transportation industries.

Stock rally: Meet more roadblocks

2009-04-26T09:07:00.001-07:00

A stock rally that hit some potholes last week is likely to face more substantial roadblocks in the week ahead.

Roughly one-third of the S&P 500 reports results next week. Major economic reports are due on gross domestic product growth and consumer spending. The Federal Reserve holds its next policy-setting meeting. Chrysler's fate hangs in the balance. And investors gear up for the release of the "stress tests" of the major U.S. banks, due out in the following week.

Last week, regulators released a few details on how the government is running its tests, but results won't be announced until May 4. Some early results could start to trickle in later in the week.

"I think there's going to be some hesitation ahead of May 4th, particularly after the move we've seen over the last few weeks," said Christopher Colarik, portfolio manager at Glendmede

The major stock gauges rose for six straight weeks, with the Nasdaq composite making it to seven, on bets that the economy is closer to stabilizing and corporate profits are near to bottoming. The S&P 500 index gained almost 29% during that time. But last week's trading was more choppy amid worries of too much, too fast.

"I think investors are breathing a sigh of relief that analysts' estimates may have been too low," said Fred Dickson, chief market strategist at D.A. Davidson & co. "But I think stocks will face a real test this quarter, because I don't think the economic data will show as much improvement as investors might like."

Results: More than one-third of the S&P 500 companies have reported results and profits are currently expected to have declined 35% versus a year ago, according to the latest from Thomson Reuters.

Standouts this week include Dow components Exxon Mobil (XOM, Fortune 500), Chevron (CVX, Fortune 500), Pfizer (PFE, Fortune 500), Verizon Communications (VZ, Fortune 500) and Procter & Gamble (PG, Fortune 500). (See below for details.)
0:00 /02:59How to spot a recovery

Chrysler: The hard-hit company is facing a Thursday deadline to close deals with creditors, its labor union and Italian automaker Fiat, or face bankruptcy protection and possible liquidation. Chrysler has been operating on $4 billion in federal aid and needs more to stay afloat. The company is privately owned.

Last week, rival General Motors (GM, Fortune 500) said it is temporarily shutting down down 13 of 20 North American plants this summer to reduce inventory. The company is also planning to shutter its Pontiac brand, with an announcement expected Monday.

Healthier rival Ford Motor (F, Fortune 500) reported a steep quarterly loss Friday that was nonetheless not as steep as analysts had thought. The company said it won't need a federal loan like its rivals unless the slowdown gets significantly worse.

Over the last week, the woes of the industry have had a limited impact on Wall Street, but a Chrysler bankruptcy could be a very big deal.
Results

Nearly 30% of the S&P 500 reports results this week. Here are some of the highlights.

Monday: Telecom Verizon is expected to have earned 59 cents per share versus 61 cents a year ago, according to a consensus of analysts surveyed by Thomson Reuters.

Tuesday: Drugmaker Pfizer is expected to have earned 49 cents per share versus 61 cents a year earlier.

Thursday: Exxon Mobil is expected to have earned 94 cents per share, down from $2.03 per share a year ago.

Friday: Fellow oil behemoth Chevron is expected to have earned 81 cents per share versus $2.48 a year ago.
Economy

Tuesday: The April consumer confidence index from the Conference Board is expected to have rise to 28.8 from 26 in March. The S&P/CaseShiller Home Price index is expected to have fallen 18.8% from 18.97%.

The Federal Reserve Board holds its two-day policy setting meeting, with a decision on interest rates expected at the conclusion of the meeting Wednesday afternoon. The Fed is widely expected to hold a key bank lending rate steady near 0%.

Wednesday: First-quarter gross domestic product growth (GDP) is expected to have contracted at a 4.9% annualized rate, not as sharply as the 6.3% in the fourth quarter.

Thursday: A heavy day for economic news includes reports on weekly jobless claims, the first-quarter employment cost index and manufacturing in the Midwest.

The standout is the government's personal income and spending report for March. Income is expected to have fallen 0.2% in the month, as it did in February. Spending is expected to have fallen 0.1% after it rose 0.2% in March.

Friday: Reports are due on consumer sentiment, factory orders, and auto and truck sales. The biggest potential market mover will be the Institute for Supply Management's manufacturing index. The index is expected to have inched up to 38 from 36.3 -- still territory considered recessionary.

Where the jobs are: location, location, location

2009-04-07T08:04:00.001-07:00

The latest news on unemployment was as grim as expected: More than 5 million people have lost their jobs since the beginning of 2008 and the unemployment rate surged to 8.5% in March, the highest in 25 years, the Bureau of Labor Statistics reported Friday.

It may seem as if no place in the U.S. is untouched by job losses. But another report the BLS released last week reveals that the jobs market, like housing, is local. Every month, the BLS examines unemployment trends in 372 metropolitan regions (known as Metropolitan Statistical Areas or MSAs). The report lags the more well-known Employment Situation report by one month, so the data is from February. But it clearly shows that some places are weathering this recession better than others when it comes to jobs. According to the report, 14 areas posted jobless rates of at least 13%, including Detroit, Michigan and Fresno, California while 20 areas registered rates below 5% in February, including Ames, Iowa, Manhattan, Kansas, Lincoln, Nebraska , Lubbock, Texas and Lafayette, Louisiana.

Harvard economics professor Edward Glaeser says the disparity in unemployment in regions around the U.S. may seem random but it isn’t. According to Glaeser, some places are able to weather an economic downturn better because of specific characteristics of their local area. Not surprisingly, Glaeser’s research finds a strong correlation between a skilled workforce and lower unemployment. Currently, 15.1% of high school dropouts are unemployed while just 4.2% of college graduates are out of work. For people with a high school diploma, unemployment is around 9%. The higher the educational level of a metropolitan area, the lower the unemployment rate.

As in past recessions, there’s also a clear link between unemployment and manufacturing. Industries that have been declining for decades like textile, paper and car manufacturing are more likely to layoff masses of workers during a downturn. You can see that relationship at work in the MSA unemployment report, where old industrial cities like Detroit, Waterbury, Ct. and Youngstown, Ohio have double digit jobless rates.

Most interestingly, Glaeser finds that unemployment also is closely correlated with “job sprawl”. In MSAs where jobs are spread out and people have long commutes to work outside a city core, like Los Angeles and Detroit, unemployment is higher. Meanwhile, unemployment is lowest in areas where jobs are centralized. According to a Brookings Institute report released today more than 30% of jobs in utilities, finance, insurance and education are located within three miles of downtowns, while at least half of the jobs in manufacturing, construction, and retail are more than 10 miles away from central business districts.

Of course, you can’t always pick where you work. Family ties or a home purchase often keeps you in a particular geographic area. But if you are looking for work and have any flexibility to move, keep a close eye on the monthly MSA report if you want to know where the jobs are.

2 million jobs lost so far in '09

2009-04-03T09:35:00.000-07:00

Job losses continued to mount in March and unemployment hit a 25-year high, according to the government's latest reading on the battered labor market Friday.

Employers trimmed 663,000 jobs from their payrolls last month, roughly in line with forecasts of a loss of 658,000 jobs, according to economists surveyed by Briefing.com.

For the first three months of the year, 2 million jobs have been lost, and 5.1 million jobs have been lost since the start of 2008.

To put the three-month loss in context, if no more jobs are lost over the next nine months, 2009 would still be the fourth worst year for job losses since the government started tracking the number of workers in 1939.

March's monthly loss is up slightly from the loss of 651,000 jobs in February, although it's less than the number of jobs lost in January. That figure was revised up to a loss of 741,000 jobs -- which now stands as the biggest monthly drop in 59 years.
0:00 /1:07Fewer jobs for college grads

More big job losses likely lie ahead, said Tig Gilliam, chief executive of Adecco Group North America, a unit of the world's largest employment staffing firm. He said many of the layoffs announced in recent months have yet to be implemented.

He predicted that between 600,000 and 700,000 more jobs will be lost in April, and that the best people can hope for is that the pace of job losses starts to slow down heading into summer.

"What we have to hope is as we get to May and June, the losses can be limited to only 300,000 or 400,000 range," Gilliam said.

The unemployment rate climbed to 8.5% from 8.1% in February, in line with economists' forecasts. It was the highest since November, 1983.

Labor Secretary Hilda Solis issued a statement citing steps that the Obama administration has taken to address the problems in job market, including the economic stimulus bill passed earlier this year, as well as steps taken to get credit flowing to small businesses.

"Today's numbers show that we have more work to do," she said.

The job losses were felt throughout all areas of the economy, with the manufacturing and construction sectors as well as business and professional services industries all cutting more than 100,000 jobs each in March.

Retailers and leisure and hospitality companies also trimmed jobs, as did the government. The only industry to post a gain in jobs during the month was the education and health care services group -- and that sector only added a modest 8,000 jobs in the month.

John Silvia, chief economist with Wachovia, said that the widespread nature of the job losses may only make the recession worse. Rising unemployment could batter consumer confidence and spending, which could lead to businesses cutting more down the road.

Silvia also expressed concern that the typical length of time people are out of work continued to climb and now stands at an average of 20.1 weeks.

"Such increases suggest that the impact on those losing jobs will be longer and more severe. Therefore we expect greater financial stress, credit delinquencies and foreclosures," he said.

Employers cut back the number of hours for their workers as well. The average hourly work week fell to 33.2 hours, the lowest level on record going back to 1964.

There also was an increase in the number of people working part-time jobs who want to get a full-time job. A record 9 million Americans were "underemployed" in March.

Including those people along with discouraged job seekers no longer counted in the main unemployment rate, the government's so-called underemployment rate stood at 15.6% in March.

Employers also cut the number of temporary workers by 72,000 in the month, taking the percentage of temporary workers in the overall work force down to the lowest level since 1994. Employers have cut 20% of temporary workers in the last six months.

Gilliam said the fact that employers are cutting temporary workers and hours are signs that some are trying to find creative ways to cut labor costs without laying people off.

He added that when the length of the average work week and the number of temporary workers start to rise once again, it will be an indication that the labor market is getting ready to turn around.

Counting to $700 billion

2009-04-01T17:27:00.000-07:00

The mystery is solved: The Treasury Department has clarified its accounting of the $700 billion allocated for the financial-sector bailout, known as the Troubled Asset Relief Program, or TARP.

Assessing how much has been spent -- and how much is left for emergencies -- hasn't been easy. Some of the numbers are straightforward; some are based on estimates of how certain bailout programs will play out.

Last Wednesday, Treasury Secretary Tim Geithner would speak only in general terms: "Very, very reasonable amounts of money -- significant enough money," Geithner said in a public appearance in New York.

Then on Sunday, Geithner got more specific, saying on ABC's "This Week" that there was "roughly $135 billion left of uncommitted resources."

Turns out it's $134.5 billion, and $565.5 billion is spoken for.

In response to questions from CNNMoney.com, a Treasury spokesman has offered more specifics on how Treasury arrived at that number.

For instance, Treasury originally said it would spend $250 billion on investments in banks. But with heightened scrutiny over bailed-out companies, fewer banks have been applying for TARP funds lately. Some banks have even expressed interest in returning those funds back to the government. As a result, Treasury has lowered to $218 billion its estimate for funding the bank investment program.

Similarly, Treasury had initially estimated that it could lose $100 billion on its TALF program, an initiative to boost consumer loans. It has reduced that estimate to $35 billion, citing investor "demand for assets."

Finally, Geithner on Sunday for the first time gave an estimate of how much the Treasury expects to get back from banks, saying that $25 billion represented "a very conservative judgment about how much money is likely to come back from banks that are strong enough not to need this capital now to get through a recession."

Why does it even matter how much is left?

The government's rescue programs are still incomplete, and the amount of money that Treasury has to work with is crucial. For instance, Treasury on Monday, as part of its automaker bailout, said it would allocate an unspecified amount from TARP to a vehicle warrantee guarantee program.
0:00 /1:58Geithner: Doing all we can

If Treasury needs more money for TARP, Geithner would have to ask Congress for additional funding. He told the Senate Budget Committee on Feb. 11 that a request for more money -- if needed -- will be done "with as much care and consultation and design as possible."

President Obama, in his budget proposal in February, put $250 billion as a "placeholder" for net costs of additional funds needed to stabilize the financial system.

"The reality is that Treasury doesn't have enough money left to give to banks if they need it," said Dan Clifton, head of policy research at Strategas Research Partners. "They're going to have to go to Congress for more money."

Despite some sentiment that the Treasury's coordinated rescue effort will help the economy and financial markets rebound, policy experts believe that Geithner would face a difficult challenge if he asks for more money. Last month, he was blamed by some lawmakers for failing to react swiftly enough to bonuses paid out by bailed out insurer AIG.

"If they had a real substantive emergency that was evident, Treasury could get an emergency appropriation form Congress," Clifton said. "But [otherwise], they're not going to get the votes."

Americans spending more

2009-03-27T08:41:00.001-07:00

Consumer spending rose in February, rebounding for the second month in row after falling for six straight months, according to government figures released Friday.

The Commerce Department said spending by individuals rose 0.2%, after increasing a revised 1.0% in January. February's results were in line with a forecast from Economists surveyed by Briefing.com.

After adjusting for inflation, however, real personal spending declined 0.2%. In January, it rose 0.7%.

"It appears the majority of the declines in consumption for this cycle are behind us," Adam York, an economist at Wachovia Economics Group, wrote in a client note.

February's spending uptick came as the Commerce Department reported personal income fell 0.2%. Income rose 0.4% in January, but last month's decline marks a return to the recent downward trend as unemployment has risen.

The report also showed that personal savings declined $27.4 billion in February to $450.7 billion. The personal savings rate, expressed as a percentage of disposable personal income, fell to 4.2% from 4.4% in January.

"The personal saving rate remains near recent highs, as consumers attempt to rebuild their damaged balance sheets," said York. "However, weaker income growth is offsetting slower spending."

Consumer spending makes up nearly two thirds of the nation's gross domestic product, which is the broadest measure of economic activity.

The government said Thursday that GDP fell at an annual rate of 6.3% during the final three months of 2008, with spending by consumers falling at an annual rate of 4.3%.

If the consumer spending figures reported Friday carry over into March's report, GDP could see a 1.2% annualized gain during the first three months of 2009, according to Ian Shepherdson, chief U.S. economist at High Frequency Economics.

However, the outlook for consumer spending and second quarter GDP is less optimistic.

"We look for a renewed decline in the second quarter on the back of falling incomes and the lagged effect of the massive destruction of housing and other wealth," Shepherdson wrote in a research note. "The first quarter is a correction, not a recovery."

GM: 7,500 workers to take buyouts

2009-03-26T09:17:00.000-07:00

General Motors announced that 7,500 factory workers had taken its latest buyout offer as the embattled automaker continues its efforts to cut costs as part of its request for additional federal help.

The workers leaving the company represent about 12% of the GM's remaining U.S. hourly work force, leaving it with just under 55,000 factory workers in the United States.

With this latest program, GM (GM, Fortune 500) has shed about 60,000 hourly U.S. jobs since 2006.

Most of the workers who took the buyouts will leave the company no later than Wednesday, the start of the second quarter.

The company did not give any update about its plans to cut 10,000 salaried workers worldwide, or 14% of that staff. Those cuts, which include just over 3,000 U.S. salaried jobs, are to be completed by May 1.

GM has offered buyout packages to all of its remaining hourly workers. It said to the extent that the hourly workers need to be replaced, the company will try to use laid-off GM staff, who are generally still receiving money from GM to supplement their unemployment compensation.

Even if the company needs to hire someone new to replace a departed worker, the company will save money under terms of the 2007 labor contract that pays new hires at a lower wage scale and with a far less lucrative benefit package.

But GM spokesman Tony Sapienza said given the current weak market for auto sales, the company does not expect to have to hire any workers in the near term.

GM did not set any target for the size of the staff reduction it was seeking with this buyout offer.
0:00 /1:14Will automakers deliver?

"We're pleased," said Sapienza when asked if this met the company's cost-cutting goal. "We feel this is a significant milestone of progress towards our restructuring plan and ultimately it will lead to a leaner and stronger company."

More than 90% of those taking the package are eligible for retirement and will receive full pension and health care coverage, in addition to the buyout package, which includes $20,000 in cash and a $25,000 voucher towards the purchase of a GM car in most cases.

The company did not say how much it expected to save as a result of these buyouts. But investors seemed to like the news. Shares of GM rose more than 13% in midday trading.

GM received $13.4 billion in federal funds to stave off filing for bankruptcy at the end of last year. It has asked for up to $16.6 billion in additional government loans. The Treasury Department has until Tuesday to consider the request, although GM announced earlier this month that it would not need that money this month due to the success of other cost-cutting efforts.

Rival Chrysler LLC, which received $4 billion in federal loans and is seeking an additional $5 billion in help, has also offered buyouts to its hourly workers. The company said its buyout offer is still ongoing.

Washington's reluctant auto bailout

2009-03-24T07:26:00.001-07:00

General Motors and Chrysler LLC have about a week or less before they find out if they'll get the additional help they need from taxpayers, creditors and unions to avoid bankruptcy.

What they already know is that any assistance they receive won't be given happily.

The two companies face a March 31 deadline to win concessions from bondholders and unions in order to prove to the Treasury Department that they can be viable in the long term. Without such a finding, the government can recall the $13.4 billion it has already lent to GM (GM, Fortune 500) and the $4 billion it loaned to Chrysler.

Few expect Treasury to take such a drastic step. Still, it's clear that the automakers need more than the loans they already have received. Chrysler is on record as saying it needs as much as $5 billion in additional funds by March 31 to avoid being forced into bankruptcy.
0:00 /1:14Will automakers deliver?

And while GM now says it doesn't face an immediate cash crunch, it has asked for up to $16.6 billion more in federal assistance, with most of that needed later this year. Its auditors have even said there is significant doubt about GM's ability to stay in business without more loans.

But it's growing less certain that GM will be able to get enough concessions from its creditors to satisfy the government. On Sunday, an ad hoc committee of leading GM bondholders issued a statement saying they were not ready to agree to swap their current notes for a combination of new debt and stock.

According to the letter released by the bondholders' financial advisors, the creditors are concerned GM may be headed for bankruptcy since the rebound in auto sales that the company is calling for in the turnaround plan it submitted to the government last month may not occur.

Without the government agreeing to give the bondholders some protections or more cash upfront, GM and Chrysler might not be able to restructure their debt in the manner called for in their turnaround plans. And without shedding debt, it will be difficult to win the necessary additional cost savings from the United Auto Workers that the union has already granted Ford Motor (F, Fortune 500).

Shelly Lombard, lead auto analyst for debt research firm Gimme Credit, said it will be tough for GM and Chrysler to get approved for additional loans if they are unable to get more concessions from the creditors and the union. And she said a deal with creditors is looking more and more unlikely.
Obama's tough talk

Perhaps most troubling for GM and Chrysler though is the fact that President Obama said in an interview on "60 Minutes" Sunday that while he wants to help the companies stay out of bankruptcy, they have yet to prove that they can remain viable.

He acknowledged that, given the political uproar over bailouts in general, it may be difficult for his administration to agree to further help for the automakers while it is also fighting for a controversial bank rescue package that Obama said is his top economic priority.

"I just want to say the only thing less popular than putting money into banks is putting money into the auto industry," Obama said during the interview.

Still, the automakers remain hopeful, at least on the record, that the federal help they are seeking will be approved in time to avoid bankruptcy.

They point to the $5 billion bailout of the auto parts sector announced by the Treasury Department last week as a sign that the Obama administration is committed to saving the automakers -- even though a member of the government's auto industry task force cautioned reporters that help for GM and Chrysler was a separate issue from loans for the parts makers.

"I think you have to take it as a positive sign, as a commitment to help the industry like other countries are doing, and certainly a recognition of what the industry means for the country's economy and manufacturing sector," said GM spokesman Greg Martin.

GM and bondholders both said in their statements Sunday that they were open to additional talks. Other industry experts say the reluctance of bondholders to accept the demand to swap debt for stock is likely more of a negotiating stance than a final position.

"If it's something or nothing, they're going to take something," said Bob Schnorbus, chief economist for J.D. Power & Associates.

The member of Obama's auto industry task force, who spoke to reporters last week on the ground that his name not be used, said to expect some kind of announcement from Treasury about what's next for GM and Chrysler ahead of the March 31 deadline. But he cautioned that won't settle the issue.

"I don't expect what we say before March 31 will be the final word on this situation," he said. "It's very big, very complicated."

And that's why Schnorbus and others say they expect negotiations between the automakers, government, creditors and the UAW will well go beyond next Tuesday's deadline.

"I'm inclined to think they'll get just enough federal help to keep the lights on," Schnorbus said. "Treasury will give them a lifeline. But even with that, they'll still be a long way from safely being out of harm's way."

Stocks: Second straight week of gains

2009-03-20T18:32:00.000-07:00

Stocks managed gains for the second week in a row despite tumbling Friday, as investors pulled back after the recent run.

The Dow Jones industrial average (INDU) lost 122 points or 1.7%. However, it also managed slim gains for the week, rising for the second week in a row for the first time since last May.

The S&P 500 (SPX) index fell 15 points, or 2%. The Nasdaq composite (COMP) fell 26 points or 1.8%.

Stocks fell Friday in a quiet session, with banks and tech leading the retreat.

"We were up sharply in just over a week, so giving something back is to be expected," said Richard Campagna, chief investment officer at brokerage 300 North Capital.

Stocks fell Thursday too after gaining for six of the prior seven sessions. During that run, the S&P 500 rose 17%, as investors keyed off better-than-expected reports on housing and retail sales and some signs of stabilization in the bank sector. Investors also welcomed news Wednesday that the Federal Reserve is pumping another trillion into the economy to try to get credit flowing.

Campagna said that although some of the recent news has been "less bad," it still hasn't been good. "It's not like the world has suddenly changed."

He said that the rally was as much a function of an oversold market as anything else. The gains followed a 28% decline for the S&P 500 that left the benchmark index at a 12-1/2 year low.

The S&P 500 topped 800 both Wednesday and Thursday and that will likely prove to be a key technical level to watch in the weeks ahead, said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research.

"The Fed did what the market wanted on Wednesday, but now we need more leadership coming from Washington," Detrick said. "We need to know more about Geithner's plan for stabilizing the bank sector."

Friday was also the quarterly options exchange, when stock index futures and options and individual stock futures and options all expire at the same time. The process can lead to gyrations in the prices of the underlying stocks.

Detrick said that stocks might see a retreat next week in that the week after a quadruple options exchange has proven to be bearish for the market in recent years.

Economy: Federal Reserve Chairman Ben Bernanke, speaking before a group of community bankers in Phoenix, defended the need to bail out banks seen as "too big to fail," such as AIG. However, he noted that it is an enormous problem that must be addressed.

Sheila Bair, chairman of the Federal Deposit Insurance Corp, also spoke before the same industry group. She said that more regulation is needed to solve the banking crisis. (Full story)

Separately, the government reported that there were 2,769 mass layoffs in February, resulting in 295,477 job cuts. A mass layoff involve 50 or more job cuts at the same time. In January, there were 2,227 mass layoffs.

AIG: The troubled insurer remained in focus after the House of Representatives on Thursday voted to impose a steep tax on large employee bonuses at firms that accepted government bailout money.

The legislation was created in response to the public outcry after AIG (AIG, Fortune 500) handed out over $165 million in bonuses to executives after it accepted more than $170 billion in federal bailout money.

In an interview with CNN Thursday, Treasury Secretary Timothy Geithner said his department was responsible for a provision in the $787 billion stimulus package that allowed AIG and other companies to award bonuses.

AIG shares fell 22% Friday. Other financial stocks falling included Bank of America (BAC, Fortune 500), Citigroup (C, Fortune 500), Wells Fargo (WFC, Fortune 500), Morgan Stanley (MS, Fortune 500) and JPMorgan Chase (JPM, Fortune 500). The KBW Bank (BKX) index fell 5%.

Company news: LM Ericsson (ERIC) warned that it will post a loss in the first quarter due to weaker consumer demand for its phones amid the global financial crisis. Shares fell 10.6%.

Also in the telecom space, Palm (PALM) reported a wider quarterly loss and weaker sales late Thursday that missed analysts' estimates.Despite the loss, shares gained 2%.

Market breadth was negative. On the New York Stock Exchange, losers beat winners by nearly three to one on volume of 2.47 billion shares. On the Nasdaq, decliners beat advancers two to one on volume of 2.52 billion shares.

Bonds: Treasury prices slipped, raising the yield on the benchmark 10-year note to 2.63% from 2.60% Thursday. Treasury prices and yields move in opposite directions.

Lending rates improved. The 3-month Libor rate fell to 1.22% from 1.23% Thursday, while the overnight Libor rate dipped to 0.28% from 0.3% Thursday, according to Bloomberg.com. Libor is a bank-to-bank lending rate.
0:00 /02:39Life in the pits

Other markets: In global trading, Asian markets tumbled and European markets ended higher.

In currency trading, the dollar gained versus the euro and the yen.

U.S. light crude oil for April delivery, which expires on Friday, settled down 55 cents to $51.06 a barrel on the New York Mercantile.

COMEX gold for April delivery fell $2.60 to settle at $956.20 an ounce.

Stocks struggle after advance

2009-03-19T07:54:00.001-07:00

Stocks turned mixed Thursday morning, giving up early gains, as investors showed some caution after pushing markets higher for six of the last seven sessions.

The Dow Jones industrial average (INDU) lost 27 points, or 0.4% in the early going. The S&P 500 (SPX) index fell 3 points, or 0.4%. The Nasdaq composite (COMP) was barely lower.

On Wednesday, stocks rallied after the Federal Reserve said it was pumping more than $1 trillion into the economy.

But after an early move upward Thursday, stocks turned lower, as investors sorted through the morning economic news.

The Philadelphia Fed index, a regional reading on manufacturing, fell to negative 35.0 in March from negative 41.3 in February, indicating the economy remains deep in recession. Economists surveyed by Briefing.com though it would fall to negative 39.0.

The index of leading economic indicators fell 0.4% in February, short of expectations for a drop of 0.6%. LEI rose a revised 0.1% in the previous month.

Stocks have gained in 6 of the last 7 sessions, but market pros caution that it's a bear-market rally and not something more substantial.

"I think it's a short-term bump," said David Jones, chief market strategist at IG Markets in London.
0:00 /2:27Hoping jobless claims level off

Economy: The government released its weekly report on initial jobless claims for the week ended March 14, showing a decline in claims to 646,000.

That was better than the forecast for 655,000 claims from a consensus of economists surveyed by Briefing.com. Jobless claims totaled 658,000 the prior week, according to the government's revised figure. However, continuing claims hit another record high above 5 million.

Companies: Oracle (ORCL, Fortune 500) managed to beat estimates for quarterly sales and profit, and declared its first dividend since going public in 1986, despite overall weakness in the software sector.

The maker of business software announced a 2% increase in total revenue to $5.4 billion in the third quarter, compared to the year-earlier quarter, and a 25% gain in net profit to $1.3 billion, or 26 cents per share, excluding certain items. The company's stock jumped 11% in morning trading.

Citigroup (C, Fortune 500) announced plans to do a reverse stock split. The value of the company's stock has plunged more than 80% over the past year, despite a rally over the past few days. The split has to be approved by shareholders. Shares gained 23% in the morning.

Global markets: Asian stocks ended lower, with Tokyo's Nikkei index down 0.3%. European stocks were higher in midday trading.

Oil: Prices surged $2.83 to $50.97 a barrel, recapturing its higher price from earlier in the week. A day after its biggest one-day drop in more than two decades, the dollar fell further against the euro, the yen and the British pound.

Stocks tumble ahead of Fed announcement

2009-03-18T08:58:00.001-07:00

Stocks fell Wednesday morning as the Federal Reserve resumed its policy meeting and investors responded to outrage on Capitol Hill regarding bonus payments at bailed out insurer AIG.

The Dow Jones industrial average (INDU) was down about 100 points, or 1.3%, after 1-1/2 hours of trading. The S&P 500 (SPX) index was off 0.9% while the Nasdaq composite (COMP) retreated 0.3%.

"I think the biggest catalyst is the fact that we've been uni-directly up over the last few trading days, and now we're taking a bit of a pause," said Art Hogan, chief market analyst at Jefferies & Co. "It's natural to have a bit of a give back at some point."

Stocks rallied Tuesday after the government issued a much stronger-than-expected report on housing starts and building permits in February. It was the fifth gain in six sessions for the major indexes.

Fed: The Federal Reserve wraps up a two-day meeting Wednesday and will release a policy statement around 2:15 p.m. ET.

"We are waiting to see what the Fed's going to say," Hogan said. "We hope to get some sort of reading about how they think the economy is doing."

The central bank is expected to hold the fed funds rate, its key short-term interest rate, at zero percent. Analysts say the Fed may turn to more unconventional methods to jolt the economy since cutting interest rates is no longer an option.

Some investors think the Fed will start buying long-term U.S. Treasurys, having said at its last few meetings that it was prepared to do so. The aim is to drive down rates on other types of debt, such as some corporate debt an mortgages, that are tied to the bond market.

AIG: A House Financial Services subcommittee was meeting Wednesday to discuss the $170 billion government bailout of insurance giant American International Group (AIG, Fortune 500).

Among the witnesses slated to testify will be CEO Edward Liddy, who will face scrutiny on the controversial $165 million paid in bonuses to some of the employees whose actions led to the bailout. (full story)

In written testimony, Liddy said he found the company's controversial bonuses "distasteful," but necessary because of legal obligations and competition.

"We are meeting today at a high point of public anger," Liddy is prepared to say. "I share that anger."

IBM: Dow component International Business Machines (IBM, Fortune 500) is in talks to buy Sun Microsystems Inc. (JAVA, Fortune 500) for at least $6.5 billion, according to The Wall Street Journal. The deal could create a new powerhouse in the computer server business to challenge the dominant player Hewlett-Packard.

Sun, which makes the technology platform Java, surged 65% to $8.26 a share. Shares of IBM where down 2.5%.

Economy: Before the market opened, the government announced an increase in consumer prices for February that was slightly higher than expected.

The Bureau of Labor Statistics said the Consumer Price Index rose a seasonally adjusted 0.4% in February. The core CPI, excluding volatile food and energy prices, rose 0.2%.

A consensus of economists surveyed by Briefing.com had forecast an overall increase of 0.3%, with core CPI up 0.1%. In January, CPI was up 0.3% and the core prices were 0.1% higher.

Separately, the Mortgage Bankers Association said mortgage applications surged last week, led by a 30% increase in refinancing activity. The spike comes as rates on home loans fall near historic lows, the MBA said.

Bonds: Treasurys rose, lowering the yield on the benchmark 10-year note to 2.95% from 3.01% Monday. Treasury prices and yields move in opposite directions.

Lending rates were improved. The 3-month Libor rate fell to 1.29% from 1.3% Monday, while the overnight Libor rate was unchanged at 0.31%, according to Bloomberg.com. Libor is a bank-to-bank lending rate.

Other markets: In global trading, Asian markets advanced and European markets fell in afternoon trade.

In currency trading, the dollar fell versus the euro and the yen, but gained against the pound.

U.S. light crude oil for April delivery was down $1.36 to $47.79 a barrel after the government reported that the nation's supplies of gasoline soared last week.

COMEX gold for April delivery fell $12.20 to $904.60 an ounce.

Wall Street: The rally test

2009-03-15T09:40:00.000-07:00

Investors return to work on the back of Wall Street's best week in months - and that's both a good and bad thing.

"I think it's going to take a lot more time for the economy to work through all the issues, but the valuations on certain companies are appealing," said Gary Flam, portfolio manager at Bel Air Investment Advisors.

He said that the current cycle could follow the path of the economic era it is most often compared to: the 1930s. He said that during that period, the stock market bottomed in 1932, but the Great Depression stretched on for several more years.

The week ahead brings reports on manufacturing, housing, consumer and wholesale prices and the next Federal Reserve policy meeting. The economic news is set to show what investors already know - that the economy remains in recession. But what's more important is how investors react to the news.

The Dow and S&P 500 ricocheted off 12-year lows to spike more than 10% in just four sessions, while the Nasdaq bounced off six-year lows to jump almost 13%. That short sharp advance has left investors both hopeful that the market could be closer to stabilizing - and wary that the gains were just an illusion.
0:00 /02:39Life in the pits

Eye on banks: In the short run, the financial sector and the U.S. government remain the drivers of the market.

Last week, Citigroup (C, Fortune 500), JPMorgan Chase (JPM, Fortune 500) and Bank of America (BAC, Fortune 500) all said that they were profitable in the first two months of the year. But the quarter isn't over and investors will be looking to see that the earnings actually reported next month back up those claims.

Ahead of that, investors will continue to look to the government for guidance. Talk about reinstating the "uptick rule" that limits short selling and changing mark-to-market accounting fed the advance last week and anything related could help stocks sustain the advance this week.

"The investor class is looking at the Congress, the president and the regulatory system to show them they can have confidence," said Mike Stanfield, CEO of VSR Financial Services.

"People understand that being in the market means taking a risk, but they don't want to be part of a system that they think is rigged," he said. "They want to know that someone is looking out for them."
On the docket

Monday: February industrial production and factory output are on track to continue to decline as the recession wears on.

Production is expected to have fallen by a seasonally adjusted 1.2% in February after falling by 1.8% in January, according to a consensus of economists surveyed by Briefing.com. Capacity utilization, a measure of factory output, is expected to drop to a seasonally adjusted 71.1% from 72% in January.

The NY Empire State index, a key regional manufacturing report, is expected to have improved marginally after hitting a record low last month. The index is expected to have improved to a reading of negative 32 in March from negative 34.7 in February.

Also due: The National Association of Home Builders report on homebuilders' confidence in the current market and the outlook six months from now.

Tuesday: Reports on housing and wholesale inflation are due in the morning.

Housing starts are expected to have fallen to a 453,000 annual unit rate in February from a 466,000 unit annual rate in January. Building permits are expected to have fallen to a 510,000 annual rate from a 531,000 annual unit rate in January.

The Producer Price Index (PPI), a measure of wholesale inflation, likely rose 0.4% in February after rising 0.8% in the previous month. The so-called Core PPI, which strips out volatile food and energy prices, rose 0.1% after rising 0.4% in the previous month.

Wednesday: The Consumer Price index (CPI), a read on consumer inflation, is due in the morning. CPI is expected to have risen 0.3% in February after rising 0.3% in January. The Core CPI is expected to have risen 0.1% after rising 0.2% in January.

The latest interest-rate decision from the Federal Reserve is due Wednesday afternoon at the conclusion of the two-day policy meeting. The Fed is expected to hold rates steady near zero and to say that it is ready to take additional steps to help mend the U.S. economy and credit markets.

Thursday: The Philadelphia Fed index, another regional reading on manufacturing, is expected to have improved modestly to 40.0 in March from 41.3 in February.

The index of leading economic indicators is expected to have fallen 0.6% in February after falling 0.4% in January.

The weekly jobless claims report is also on tap.

Friday: Fed Chairman Ben Bernanke speaks in Phoenix on the financial crisis and community banking.

Bonds fret over stock market, China

2009-03-13T19:22:00.000-07:00

Treasurys ended a volatile trading day mixed Friday as stocks managed to pull out gains for a fourth day in a row.

But bond investors also reacted to a speech by Chinese Premier Wen Jiabao in which he expressed concern that the mammoth amounts of Treasury debt his country holds will deteriorate in value.

"We have lent a massive amount of capital to the United States, and of course we are concerned about the security of our assets," said Wen at his annual news conference on Friday. "To speak truthfully, I do indeed have some worries."

China owns more than $727 billion of U.S. debt, more than 6% of the $10.9 trillion of U.S. debt outstanding, according to the Treasury Department.

Wen said he was concerned that America's record deficit spending would cause an inflationary spike that would diminish the value of China's assets. The premier called on the U.S. government to help guarantee the safety of China's assets by "maintaining creditworthiness" and engaging in responsible economic policies.

Yet, while bonds were down, they were relatively calm compared to some of the much larger drops the market has seen in the past weeks - and there was at least some discounting of the China issue.

"China, as well as everybody else, is worried about the impact of the massive amounts of stimulus and the subsequent runup in the deficit," said Kim Rupert, fixed income analyst at Action Economics.

With $787 billion it will owe for stimulus, $700 billion for the bank bailout and trillions more in liquidity programs, the Treasury expects to issue between $2.7 trillion - $4.2 trillion of debt over the next two years.

Treasurys fell sharply earlier in the week when investors had expressed concern that this week's auctions would not be met with adequate demand.

But Treasury successfully completed a $63 billion sale this week, attracting more than enough investors to fund the debt offerings. Bonds rose in the past two days on the renewed confidence.

Some analysts said they believe that the United States will continue to attract foreign investors, especially from Asia, as droves of weak economic data from around the globe continue to suggest a drawn-out recovery. With stocks still unable to prove they can maintain a long rally and commodity prices in flux, U.S. government debt has remained relatively attractive.

"Eventually, we know the dollar is going to get trashed, but for now, we're in the middle of a crisis," said Peter Cardillo, chief market economist at Avalon Partners. "I think this is all just rhetoric."

Still, not all are convinced that investors will continue to demand Treasurys when interest rates are again falling close to uncharted territory.

"The U.S. is faced with massive borrowing requirements that necessitate demand from everyone we can find," said Rupert. "I think that everyone is pretty worried about the future of U.S. debt."

Bond prices: Bond prices were lower in morning trade when stocks were higher, rallied as Wall Street lost its traction in midday trade, but then fell again as Wall Street ended the day higher.

The benchmark 10-year note edged down 9/32 to 98 25/32 and its yield rose to 2.90% from 2.86% Thursday. Bond prices and yields move in opposite directions.

The 30-year bond fell 1 3/32 to 96 27/32 with a yield of 3.68%, up from 3.62%.

The 2-year note edged up 3/32 to 99 27/32 and yielded 0.97%, down from 1.02%.

The 3 month bill yielded 0.21%, up from 0.20%.

Lending rates: The 3-month Libor rate held at 1.32%, according to data on Bloomberg.com. The overnight Libor rate held steady at 0.33%.

Libor, the London Interbank Offered Rate, is a daily average of rates that 16 different banks charge each other to lend money in London.

Two credit market gauges were mixed. The "TED" spread narrowed to 1.11 percentage point from 1.12 percentage points. The less wide the TED spread, the more willing investors are to take risks.

The Libor-OIS spread widened to 1.08 percentage point from 1.07 percentage points the prior day. A wider spread indicates that less cash is available for lending.

Record number of Americans on unemployment

2009-03-12T08:32:00.000-07:00

The number of Americans filing initial claims for unemployment insurance rose last week, with the number of people collecting benefits overall rising to a record 5.3 million, according to a government report released Thursday.

In the week ended March 7, 654,000 Americans filed initial jobless claims, up from a revised 645,000 the previous week.

Economists expected 644,000 new claims, according to a consensus survey by Briefing.com. The 4-week moving average for weekly filings was 650,000, up 6,750 from the previous week's revised average.

"We think claims are still nowhere near their peak, which could well be close to a million," said Ian Shepherdson, chief U.S. economist with High Frequency Economics, in a research note.

The steady increase suggests that the rate of decline is likely to accelerate, Shepherdson said.

Continuing claims: In a sign that more jobless Americans are having trouble finding work, 5,317,000 continued filing for unemployment insurance in the week ended Feb. 28. That's an increase of 193,000 from the revised number from the previous week.

It was the highest level since record-keeping began in 1967. Continuing claims have set a new record for six out of the last seven weeks. The 4-week moving average was 5,139,750, an increase of 124,250.

Initial claims spiked to a 26-year high two weeks ago, reaching 670,000 for the week ended Feb. 21.

The insured unemployment rate is 4%, up 0.2 percentage point from the previous week's unrevised rate.

Highs and lows: Initial claims rose by more than 1,000 in 12 states in the week ended Feb. 28, the most recent state-by-state data available.

The largest increases were in New York, with 16,481; California, at 7,765; Oregon, at 4,001; Georgia, with 3,313; and Wisconsin, 3,006. Those spikes were likely due to layoffs in the construction, trade and manufacturing industries, among others, the report said.

By contrast, five states - Missouri, Massachusetts, New Jersey, Florida, and New Mexico - saw claims decrease by more than 1,000.

Stimulus: The stimulus bill that President Obama signed into law has several provisions that help those living on unemployment benefits.

The weekly unemployment benefit has temporarily increased by $25 on top in addition to the about $300 jobless workers currently receive now. Also, the first $2,400 of benefits in 2009 will be exempt from federal income taxes.

Cutting your own salary before cutting staff

2009-03-08T07:51:00.000-07:00

Think being your own CEO means you can't be laid off or have your paycheck pared back? Not quite. Half of the small business owners polled in a recent survey said they've cut their own compensation in response to the economic downturn.

The survey, conducted in December by office supplies retailer Staples (SPLS, Fortune 500), surveyed owners and senior executives at companies with 20 or fewer employees. Half said their clients are taking longer to pay bills than they did in the past, and 44% of the respondents said they're "seeking distractions from business issues that are upsetting."

Paul Gemellaro, CEO of Accutech Photo Machining (APM) in San Fernando, Calif., says that cutting his own salary is the best way to keep his company healthy. APM, founded in 1989, manufactures metal parts and prototypes. Three years ago, after rising inspection fees eroded the company's margins, Gemellaro decided to trim expenses by reducing his paycheck.

The latest recession has been taking its toll. "Our roughest time was last summer. May through June was terrible for APM," Gemellaro says. "It was almost like the phone was shut off."

Things haven't improved: January was APM's worst month in 10 years. Gemellaro, who once had a staff of 20, starting laying off employees - but he also knew he would need to deepen his own pay cut to stay afloat. Today, he's left with 7 employees and a salary that has dropped from $75,000 to less than $40,000.
Talk back: How is your biz handling pay raises and cuts?

Companies of all sizes are ruthlessly cutting costs, but small business owners are particularly prone to taking the hit themselves when times are tough. It's an instinctive move, says John Challenger, CEO of outplacement firm Challenger, Gray and Christmas.

"Owners take care of employees - their biggest asset," says John Challenger, CEO of outplacement firm Challenger, Gray and Christmas. "They just know they've got to make the business survive, which may mean making personal sacrifices. It's their creation and they are responsible for it, so to keep it going and growing and healthy is paramount."

Business owners new to entrepreneurship can still feel that sense of deep obligation to their company. Richard Ray and his wife, Laura Lee Ray, opened their mobile pet spa business, Zoom Groom, last May in Crestview, Fla. They have yet to cut themselves a check.

Richard, an Air Force vet, committed to helping his wife pursue her dream of owning a mobile dog grooming business. Banks wouldn't loan them any startup capital, so the pair collected all the extra cash they could find, including tax refunds and last year's stimulus checks, to buy a secondhand van with 100,000 miles on it and used engine parts to keep it running.

Then Richard, 51, had a heart attack. With medical bills piling up, he defaulted on his mortgage. The Rays had to make the decision between keeping the business or the house Richard's family had lived in for 15 years.

"We saw that the house was depreciating and that the business had potential, so we took a gamble," he says.

The house went into foreclosure. The Rays moved in to a rented house, and the couple put all their money and energy into the business. Richard took on the accounting and marketing responsibilities while Laura Lee honed her grooming skills.

The couple's persistence is just beginning to pay off. After months of slow sales, business started picking up in the past few weeks. Last month's bills, for the first time in a year, were paid entirely with business profits.

"Since I didn't have to raid personal funds to keep things moving, I admit I've slept better," Richard says with a laugh.
Bartering and scrimping

Still, it will still be a while before the couple is able to take a salary from the business. Richard's Air Force retirement pay is covering the rent, but without a business income, the Rays are strapped when it comes to paying for necessities. They've omitted all luxuries like movies and restaurants from their lives, and they barter with other area business owners for services. The Rays' youngest daughter, a high school senior and part-time worker at Taco Bell, takes care of buying groceries.

"That's a lot to ask of a 17-year-old, but she's good about chipping in for the survival of the business," says Richard, who intends these measures to be temporary. "This area is recession resistant, because we have so many military people and defense contractors. And a slew of military programs are scheduled to move here, with thousands of military personnel. We're waiting for the cavalry to arrive."

In the meantime, the Rays are keeping their fingers crossed that the van, cobbled together from spare parts, doesn't give out.

APM's Gemellaro is also doing whatever he can to keep his business running until conditions improve. He's frozen all capital purchases until the economy stabilizes.

"My employees are now on a four-day work week," he says. "Of course, I'm still on a six-day work week."

If Gemellaro has to reach deeper into his own pockets to keep his employees, he says he will. Part of that decision is pragmatic: When APM lands a prototype project, it has to turn around results in as little as 60 days. That can't happen without trained employees ready to dive right in.

But emotions also play a part in Gemellaro's choice to cut his own pay before cutting staff.

"Most of my people have worked here a long time. They're my friends - my best friend Mike is the president of the company," he says. "Maybe I'm just old fashioned, but they've always been there for me, so I'm going to be there for them."

Oil remains higher on China and supply

2009-03-04T09:08:00.000-08:00

Oil prices remained higher Wednesday as a government report that supplies of crude oil fell unexpectedly last week added to indications of improvement in China's economy.

Light sweet crude prices for April delivery rose $3.18 to $44.83 a barrel. Oil had traded up $3 just prior to the report's release, supported by better economic news from China.

The main indicator of China's manufacturing sector, its purchasing managers' index, rose in February for the third month in a row.

The gauge climbed as factories restocked, suggesting China could see an earlier economic recovery despite the bleak global environment.

China's announcement "was the shot in the arm that the global economy needed," said James Cordier, president of Liberty Trading Group. "We haven't seen any bullish news in a while, so people put their arms around it."

Crude supply: In its weekly inventory report, the Energy Information Administration said crude stocks decreased by 700,000 barrels in the week ended Feb. 27. Despite the decrease, oil supply is still above the upper limit of the average range for this time of year.

Analysts expected an increase of 2.2 million barrels of crude oil, according to a consensus estimate of industry analysts surveyed by Platts, a global energy information provider.

The troubled global economy has crippled consumer demand for oil, which in turn has caused a glut of crude. Oil prices have plummeted from a record high of $147.27 a barrel last summer.

OPEC: In response to the growing crude stockpiles, the Organization of Petroleum Exporting Countries - whose members produce about 40% of the world's crude - has been pressured to put a floor under prices.

OPEC has already promised to reduce oil output by 4.2 million barrels per day from September production levels. The group will meet March 15 to decide if it will further cut production or wait to see the outcome of the already existing cuts.

Crude prices have held gains and even rallied recently, so further cuts may not be a good course of action in this fragile economy, Cordier said.

"Everyone is trying to turn the global economy around," he said. "Cutting supplies so prices shoot up $10 could be an anchor on that optimism."

Gasoline: Stockpiles of gasoline rose by 200,000 barrels, while analysts predicted a decrease of 600,000 barrels. Gas supply is in the lower half of the average range.

The national average price for a gallon of regular unleaded gasoline was $1.933, unchanged from the previous day, according to motorist group AAA. That ended five consecutive days of increases.

The EIA report also said distillates, used to make heating oil and diesel fuel, were up by 1.7 million barrels. Analysts were looking for a decrease of 1.5 million barrels.

Outlook: Energy prices have hit their lows and are pushing through a resistance level at $45, Cordier said. He expected crude prices "could be pushing $50 a barrel before too long."

Gasoline sees a seasonal increase in March and April, and prices at the pump could jump 20 to 30 cents in just a few weeks, Cordier said.

"The springtime rally will take place over the next eight weeks no matter what," he said. "After that, any possible further gains are based purely on the stock market and overall economy."

Stimulus money hits the street

2009-03-03T09:09:00.000-08:00

The White House released its promised cash infusion on Tuesday to strengthen the transportation infrastructure across America, and began to announce the first recipients of the funds.

The U.S. government released $26.6 billion from the American Recovery and Reinvestment Act to state and local transportation authorities, for the building and rebuilding of roads, highways and bridges.

"President Obama is keeping his promise to the American people and he is doing it ahead of schedule," said Department of Transportation Secretary Ray LaHood in a statement, noting that the funds were released eight days sooner than required.

The money was already being put to work on Tuesday. American Infrastructure, a Worcester, Penn.-based recipient of ARRA funds, began a repaving project on Rt. 650 in Maryland, according to the company and the government. The project is in Montgomery County, near Baltimore and Washington, D.C.

Mark Compton, director of government affairs for American Infrastructure, said his company received $2.1 million in federal funds, by way of the Maryland State Highway Administration. The money will be used to repave and add safety features to a stretch of the highway.

Compton said the cash infusion is the "catalyst" to create 60 jobs, including bringing back some employees who had been laid off. He hopes that the workers can be retained beyond this six-month project.

"We'll continue to bid, so the goal is to get more projects to keep those guys working, so they can roll off that project onto another," said Compton.

The DOT said more than 100 transportation projects, receiving some $750 million in ARRA funds, have been identified and can begin work within one month.

The $26.6 billion in highway funds is aimed to generate 150,000 jobs through the end of 2010. The median pay for these jobs is $18.31 an hour, according to the White House.

This is part of President Obama's $787 billion economic stimulus plan, intended to "save or create" at least 3.5 million jobs through 2010.

Dow falls below 7,000

2009-03-02T07:38:00.001-08:00

Stocks opened lower Monday morning, with the Dow falling below 7,000 for the first time since October 1997, after American International Group reported a massive quarterly loss and a restructuring of its bailout by the government.

The Dow Jones industrial average (INDU) was down 96 points, or 1.4%, to 6,966 points, 20 minutes after the opening bell. The S&P 500 (SPX) index slid 11 points, or 1.5% to 724 points. The Nasdaq composite (COMP) was down 0.7%.

Both the Dow and S&P are hovering at their lowest levels in about 12 years, as the market remains anxious about the state of the global economy and the world financial system.

"There's a buyer's strike right now in the stock market," said Art Hogan, chief market strategist at Jefferies & Co.

He blamed the decline in futures on "ongoing concerns about the global recession," noting that the European indexes were down 3% to 4%.

Asian markets closed lower, with Tokyo's Nikkei down 3.8%.

AIG: AIG (AIG, Fortune 500), whose status as a Dow component may be in jeopardy, reported a worse-than-expected $61.7 billion loss for the fourth quarter of 2008.

The company blamed "severe credit market deterioration," particularly in mortgaged-back securities, as well as charges from ongoing restructuring activities.

In addition, the insurer and the government announced a restructuring of the $150 billion bailout agreement. Key components included the government's decision to commit another $30 billion to the firm in exchange for cumulative preferred stock, and an exchange of an existing $40 billion preferred shares stake for shares that more closely resembles common stock.

Shares of AIG were indicated to open up 10 cents at 52 cents, bucking the market-wide plunge.

Dave Rovelli, managing director for Canaccord Adams, said investors were unhappy with the government's $30 billion "donation" to AIG, because there are no expectations that the government will ever get its money back.

"How is [AIG] going to pay it back?" said Rovelli. "With what? There's no way in God's name that [the government] is going to recoup the money they've lent them."

Economy: Before the opening bell, the government released the personal income and spending data for January. Personal income rose 0.4%, beating expectations of a 0.2% decline, according to a consensus of economic opinion from Briefing.com.

Personal spending rose for the first time in seven months, up 0.6%, which was higher than the 0.4% increase expected by Briefing.com consensus.

After the open, the Institute for Supply Management issues in February report on manufacturing. The purchasing managers' index is expected to have declined to 34 from 35.6 in January, remaining deep in recessionary territory.

Also after the open, a government report on construction spending is expected to show a 1.5% drop in January after a 1.4% swoon in the previous month.

Job cuts: Europe's leading bank, HSBC (HBC), said Monday that it would cut 6,100 jobs, all of them in the United States. The bank also said it would close most of the branches of its U.S.-based consumer lending businesses, HFC and Beneficial.

In addition, the bank announced a full-year profit of $5.7 billion, down 70% from $19.1 billion in 2007. HSBC stock fell more than 20% in pre-market trading.

Buffett: Investor Warren Buffett's Berkshire Hathaway (BRK.A) reported the worst results in the 44 years he has run the company, and only the second decline in net worth in that time. In his report to shareholders Saturday, Buffett said Berkshire's net worth fell in 2008 by $11.5 billion.

Oil and money: Oil fell $2.15 to $42.61 in electronic trading. The dollar was lower against the euro and pound, but higher versus the yen.

Stocks cling to gains

2009-02-26T10:36:00.000-08:00

Financial shares rallied Thursday on the back of global efforts to stabilize the banking industry, but the broader market struggled after the latest grim readings on the economy.

New home sales plunged to an all-time low in January and the number of Americans filing new claims for unemployment hit a 26-year high last week. GM's huge quarterly loss added to the auto sector's woes.

The Dow Jones industrial average (INDU) gained 45 points, or 0.6%, more than two hours into the session. The S&P 500 (SPX) index rose 5 points, or 0.6%. The Nasdaq composite (COMP) advanced 1 point, or 0.1%.

Stocks had posted gains through the morning, but by midday, only the blue chips remained in positive territory.

"We had a good start today, but it's already giving a lot of it back," said Greg Church, president of Church Capital.

He said that the banks and the broader market were advancing on hopes that the various plans to help the financial sector will work. But those hopes could be dashed if more details don't emerge soon.

"I think we still don't know enough about how these various plans are going to work and when they will start to work," he said. "Until we do, it's going to be hard for the market to really get going."

In Washington, President Obama presented a budget summary for fiscal 2010 to Congress on Thursday, with a detailed account due in April. The roughly $3.55 trillion spending plan is for the fiscal year beginning in October.

The government is forecasting a $1.75 trillion deficit for the 2009 fiscal year and a $1.17 trillion deficit for the 2010 fiscal year. Obama has said he plans to cut the deficit inherited from former President George W. Bush in half by 2013.

Economy: New home sales plunged to an annual unit rate of 309,000 in January, the worst level since the government began keeping records in 1963. Economists thought sales would fall to 324,000 in the month, according to a Briefing.com survey. Sales stood at a 344,000 annual unit rate in December.

An earlier report showed that weekly jobless claims rose to a fresh 26-year high last week of 667,000 versus forecasts for a drop to 625,000. Claims stood at a revised 631,000 in the prior week.

Durable goods orders fell to a 6-year low in January, declining for the sixth straight month, the government reported. Orders fell 5.2% in January versus forecasts for a drop of 2.5%. Orders dropped a revised 4.6% in December.

Financials: JPMorgan Chase (JPM, Fortune 500) said that its expects steeper home-equity loan losses this year and that it will cut more jobs related to its purchase of Washington Mutual. Shares jumped 11%.

Citigroup (C, Fortune 500) is close to finalizing a deal for the government to increase its stake in the troubled bank to as much as 40%, according to reports. A deal could be announced as soon as Thursday. Citi shares gained 3%.

Worries that the U.S. government will have to fully take over hard-hit banks like Citigroup have dragged on stocks for weeks, although Fed Chairman Ben Bernanke sought to temper such fears in his address to Congress Tuesday.

On Wednesday, Treasury offered more details on its plan to "stress test" banks for potential losses should the economy worsen. Tests of the 19 largest banks will be used to determine what future bailouts may be necessary.

On Thursday, Obama's budget outline included $250 billion to be added to the already in existence $700 billion bank bailout plan.

Britain announced a plan Thursday to insure at least £600 billion ($854.2 billion) of banks' toxic assets, the Wall Street Journal reported, as it looks to restart lending and avoid fully nationalizing banks.

Royal Bank of Scotland (RBS) will dump £325 billion ($462.7 billion) in bad debt into the government program. RBS posted an annual loss of £24.14 billion ($34.4 billion), the biggest loss in British corporate history. In addition to participating in the government program, RBS announced a huge restructuring plan and said it will sell off certain assets. Shares gained 22% in U.S. trading.

GM: The beleaguered automaker reported a massive $9.6 billion quarterly loss in the fourth quarter, in a period in which its sales plunged and it needed a federal bailout to stay afloat. GM (GM, Fortune 500) shares were little changed. (Full story)

Market breadth was positive. On the New York Stock Exchange, winners beat losers by almost three to one on 475 million shares. On the Nasdaq, advancers topped decliners two to one on volume of 800 million shares.

Bonds: Treasury prices tumbled, raising the yield on the benchmark 10-year note to 3.0% from 2.92% Wednesday. Treasury prices and yields move in opposite directions.

Lending rates were little changed. The 3-month Libor rate was 1.26%, unchanged from Wednesday and the overnight Libor rate rose to 0.28% from 0.27%, according to Bloomberg.com. Libor is a bank lending rate.

Other markets: In global trading, Asian markets slumped and European markets rallied in afternoon trading.

In currency trading, the dollar fell versus the euro and gained against the yen.

U.S. light crude oil for April delivery rose $2.20 to $42.70 a barrel on the New York Mercantile Exchange.

COMEX gold for April delivery fell $32.60 to $933.60 an ounce.

Stocks end volatile session lower

2009-02-25T16:16:00.001-08:00

Wall Street abandoned a late-session rally attempt Wednesday, ending lower, as investors took a mixed response to new details on Treasury's plan to help stabilize the banking system.

On Thursday, investors will focus on Obama's fiscal 2010 budget plan, the weekly jobless claims and reports on new home sales and durable goods orders.

The Dow Jones industrial average (INDU) lost 80 points, or 1.1%. The S&P 500 (SPX) index fell 8 points, or 1.1%. The Nasdaq composite (COMP) lost 16 points, or 1.1%.

Stocks tumbled in the morning after a report showed existing home sales plunged to an 11-year low in January. But equities managed to cut losses and even turn higher in the afternoon after the bank plan announcement, with a number of financial stocks rallying.

"I think people are just glad to know what they are planning," said Dave Rovelli, managing director of U.S. equity trading at Canaccord Adams.

Yet after a brief rally, stocks erased the gains and turned lower again, as investors continued to worry about the depth and duration of the recession.

"There's a lot of nervousness," said Terry L. Morris, senior equity manager at National Penn Investors Trust. "It's a tug-of-war between the news that's out there and the fact that the market has already gotten pounded."

Confusion about the bank bailout plan has dragged on stocks lately. And recent worries have surrounded the threat of nationalization, which would wipe out shareholder value.

On Tuesday, Federal Reserve Chairman Ben Bernanke downplayed bank takeover talk, helping the stock market bounce off 12-year lows. The Treasury announcement Wednesday added to bets that the government doesn't plan to nationalize, Rovelli said.

"They're probably going to handle things like they are with Citigroup, where they take a stake in the bank, but don't take it over," he said.

Banks to face tests: Treasury plans to test the 19 banks with more than $100 billion in assets to see if they have enough capital to hold up if unemployment rises to 10% and the housing market contracts another 20%. The testing will be over by the end of April. (Full story)

The collapse of the housing market has left banks riddled with bad debt that they can't unload, and that makes them wary of lending to businesses and individuals. Although the credit markets have shown a slight improvement lately, the lending market is still sluggish at best, exacerbating the impact of the recession.

Treasury's bailout plan is ideally meant to keep banks afloat, but also get them to lend again.

The plan may achieve that, but it doesn't resolve the problem of how to value the bad assets at a price that is both good for the holders and good for the buyers, said Gregory Miller, chief economist at SunTrust Banks.

"They're trying to repair bank balance sheets when the assets that define the balance sheets keep declining," he said. "This plan may come a step closer to doing that, but it's taking an indirect route, instead of attacking more directly."

Shares of bank stocks were volatile after the Treasury news. Citigroup (C, Fortune 500) and Goldman Sachs (GS, Fortune 500) ended lower. Wells Fargo (WFC, Fortune 500), JPMorgan Chase (JPM, Fortune 500) and Bank of America (BAC, Fortune 500) ended higher.

Washington: Speaking Tuesday night before both chambers of Congress, President Obama told the nation: "We will rebuild, we will recover and the United States of America will emerge stronger than before."

The president outlined plans for creating jobs, stabilizing the credit markets, reforming health care and improving schools, among other issues. He presents his fiscal 2010 budget plan to Congress Thursday.

Separately, President Obama told Congress Wednesday that stronger financial sector regulation is needed.

Ben Bernanke told the House Financial Services Committee Wednesday that fixing the mortgage market is necessary for fixing the financial market, even if it means bailout out irresponsible buyers.

Company news: Ford Motor (F, Fortune 500)'s CEO and chairman agreed to cut their pay by 30% for the next two years and to suspend bonuses for salaried workers. Ford will also offer another round of buyouts and early retirement packages to all of its hourly workers. The changes were announced as union members are nearing a vote on contract concessions.

General Motors (GM, Fortune 500) rallied nearly 15%. Currently, an Obama administration task force is reviewing turnaround plans from GM and Chrysler, which have asked for a combined $22 billion more in bailout money on top of the $17.4 billion they have already received. GM issues fourth-quarter results before the start of trading Thursday.

In deal news, Canadian fertilizer Agrium made a hostile bid for U.S. rival CF Industries (CF) worth $3.6 billion in cash and stock - a 30% premium over CF's closing price Tuesday. Any deal is conditional on CF giving up its hostile offer for Terra Industries (TRA), which the company has already rejected.

First Solar (FSLR) plunged 22% in unusually active Nasdaq trade after the solar panel maker warned late Tuesday that first quarter and full-year 2009 revenue will fall from a year ago amid a bleak outlook for the industry and economy.

Market breadth was negative. On the New York Stock Exchange, decliners beat advancers three to two on volume of 1.82 billion shares. On the Nasdaq, losers beat winners by more than two to one on volume of 2.45 billion shares.

Bonds: Treasury prices tumbled, raising the yield on the benchmark 10-year note to 2.92% from 2.79% Tuesday. Treasury prices and yields move in opposite directions.

Other markets: In global trading, Asian markets rose and European markets were mixed.

In currency trading, the dollar gained versus the euro and the yen.

U.S. light crude oil for April delivery rose $2.54 to settle at $42.50 a barrel on the New York Mercantile Exchange. The price of oil was volatile after the government said the supply of crude increased less than expected last week.

COMEX gold for April delivery fell $3.30 to settle at $966.20 an ounce.

Compound your gains, not losses

2009-02-23T08:22:00.001-08:00

Hoyt Cory doesn't know quite what hit him. The 61-year-old holistic wellness practitioner in Sonora, Calif. expected steep losses in his $890,000 retirement funds, given the market crash. But when he added up the damage at the end of last year and saw that he had only $542,000 left in his stock and bond portfolio - nearly a 40% decline - the former corporate training and development consultant couldn't believe it.

"I thought I did everything right," says Cory, who is about to get married. "I read up on this stuff, I diversified, I even got help from a financial adviser. I just didn't see the writing on the wall."

There are plenty of people who share Cory's disbelief - and pain. The typical long-term 401(k) investor ages 45 to 64 lost about 20% in 2008, according to the Employee Benefit Research Institute. If, like Cory, you suffered steeper losses than that, it's probably a sign that you had problems in your portfolio. That means you got pounded twice - first by the crash and then by your missteps.

While you can't do much about the market, you can correct your errors.

Mistake no. 1: You invested too aggressively for your age

The very young can invest almost all of their money in equities, since they have time to make up for losses. But the same isn't true for boomers. Yet an alarming number of workers nearing retirement are too heavily weighted in stocks.

Among 401(k) savers 56 to 65, nearly two in five recently had 80% or more of their retirement assets in equities, according to EBRI research director Jack VanDerhei. Cory was one of them, though he didn't realize it at the time.

While virtually all assets (stocks, corporate bonds, real estate and so forth) were hit hard by this downturn, a higher fixed-income allocation would still have prevented Cory from losing so much, notes Plymouth, Mass. financial planner William Driscoll.

For instance, had Cory invested 65% of his money in an S&P 500 stock index fund and 35% in a diversified bond index fund, he would have lost 22% last year. That still would have hurt, but it'd be better than his actual 39% decline.

Solution: Sit down and figure out your proper allocation. Take into account your financial standing, expected retirement date and tolerance for risk. Based on these factors, Colorado Springs financial planner Allan Roth recommends that Cory put 65% of his portfolio in equities - not the nearly 85% he currently has - with the rest in bonds and cash.

To figure out the best strategy for you, check out the asset-allocation tool. Even if you work with a financial planner, run the calculation. If your adviser recommends a different strategy, ask why.

Mistake no. 2: You forgot to keep your plan in check

It's tempting to let your portfolio run unfettered when stocks are rollicking. But failing to routinely monitor your investments will make you more vulnerable to market crashes.

Take Cory. It was never his intent to have nearly 85% of his retirement funds in stocks. When he was in his mid-fifties, an adviser recommended that he be 75% in equities. Cory took the advice. But he never reset his portfolio to that initial mix of stocks and bonds. Since his equities grew faster than his bonds between 2003 and 2007, his 75%-stock strategy morphed into a more aggressive plan on its own.

Solution: Reset your mix to your desired allocation at least once a year. In a rising stock market, rebalancing forces you to take some profits. It also ensures that your portfolio won't be too aggressive when the next bear strikes. Conversely, when equities are falling, rebalancing forces you to buy shares when prices are low. And it ensures that your portfolio won't be too conservative when the next bull rolls around.

What's the best way to rebalance? Driscoll suggests that Cory set triggers. If his stock weighting changes by more than five percentage points in either direction - in other words, if his 65%-stock allocation shrinks to less than 60% or grows to more than 70% - rebalance then and there. An easier solution: Pick a date on the calendar and just rebalance annually.

Mistake no. 3: You picked some real dogs

Sometimes it's not your overall strategy that's flawed. It's the individual funds you picked to implement your plan.

Yet investors often struggle psychologically with the idea of selling their underperformers. Part of the problem is that many investors "feel the pain of taking a loss twice as much as the pleasure of realizing gains," says Michael Pompian, author of "Behavioral Finance and Wealth Management."

It could also be the fear of triggering long-term capital-gains taxes. That's not as big a concern now, with 52% of U.S. stock funds down over the past 10 years and 91% underwater for the past five. Yet with so many funds down, it's also hard to figure out which funds are the true losers.

Solution: Separate your real laggards from funds that are simply down - and take this opportunity to sell. Start by comparing apples with apples. "If the stock portion of your portfolio did worse than the S&P 500's 37% plunge, that's telling you something," says Daniel Moisand, an adviser in Melbourne, Fla.

Then dig deeper. Check how each of your funds has done over the past year and the past five years compared with peers that invest in a similar style. So if you own a large-cap growth fund, see how it ranks against other large-growth portfolios. It doesn't have to be the absolute best, but make sure it's at least close to average. To look up average performance figures for all fund categories, visit Morningstar.com, click on the Markets tab and then scroll down to Fund Categories.

After looking over his portfolio, Cory found that many of his funds were under-performing - and that he was losing too much to fees and commissions. So he is simplifying his strategy by replacing his dogs with low-cost index funds.

That may not be the approach you ultimately select. But whatever you do, don't wait too long to fix your portfolio. Who knows if the next rebound - or sell-off - is just around the corner?

Dow closes at 6-year low

2009-02-20T14:30:00.001-08:00

The Dow industrials ended at a fresh six-year low Friday, as worries about the outlook for the banking sector exacerbated fears of a prolonged recession.

Treasury bond prices rallied, lowering the corresponding yields, and gold prices flirted with record highs as investors sought safety in hard assets.

The Dow Jones industrial average (INDU) lost 100 points, or 1.3%, closing at the lowest point since Oct. 9, 2002, at the bottom of the last bear market.

Since peaking at 14,164.53 in November of 2007, the Dow has lost 48%, as the recession, housing market collapse and banking crisis have all pummeled investor confidence.

The S&P 500 (SPX) index lost 9 points, or 1.1%, ending at the lowest point since Nov. 20, 2008, seen by some as the low of the current bear market.

The Nasdaq composite (COMP) lost 1 point or 0.1%, erasing bigger losses. The session low was 1416.96, which is still above the Nasdaq's low from January of this year. The tech sector has performed better in 2009 than the rest of the market.

Stocks had tumbled through the early afternoon on worries about the economy and the future of the biggest banks, amid talk that the government might have to nationalize the hardest-hit companies.

But stocks managed to cut losses and the Nasdaq turned higher for a while after White House spokesman Robert Gibbs reiterated that the administration believes in a privately held banking system.

The comments from Gibbs seemed to give investors a reason to stop selling off the banks so much and to get back into the market, said Joseph Saluzzi, co-head of equity trading at Themis Trading.

"The Gibbs' conference gave them an inkling of hope that the government won't nationalize the banks and that brought people back in," Saluzzi said.

However, the confidence problem that has been plaguing the markets remains in place for the time being, Saluzzi said.

"Without confidence, no one wants to step up and buy," he said.

Stocks have been sliding over the last few weeks as investors have shown skepticism about the government's ability to slow the recession, despite the announcement of a series of programs, including a massive economic stimulus package. Skepticism about CEOs is also a factor. And worries remain that another Ponzi scheme could be brewing, along the lines of Bernie Madoff or Robert Allen Stanford.

"The stimulus plan got more attention, but fixing the banking system in a way that's durable is the primary overhang in the markets right now," said Lee Schultheis, chief investment strategist at AIP Mutual Funds.

Financials: Bank, housing, insurance and other financial stocks have led the retreat this year and continued to do so Friday.

Bank stocks were hit especially hard Friday on worries that the government may have to nationalize certain flailing banks, a move that would wipe out shareholder value. Senate Banking Committee Chairman Chris Dodd, D-Conn., said that such short-term takeovers may be necessary. However, the White House is not in favor of such a move.

Dow components Bank of America (BAC, Fortune 500) Citigroup (C, Fortune 500), American Express (AXP, Fortune 500) and JPMorgan Chase (JPM, Fortune 500) all tumbled through the afternoon. But all except Citigroup managed to cut losses by the close.

The selling in the bank sector has picked up in the last 10 days since Treasury announced a revamped bank bailout plan that critics say provides few essential details. In particular, the plan did not establish how to value the bad assets that are cluttering up bank balance sheets.

"Not only is a good solution required, but it has to happen quickly," Schultheis said. "Every day that goes by without action is adding to the deteriorating environment for corporate earnings, which is hurting stocks."

On Thursday, the Dow ended at the lowest point since Oct. 9, 2002, the low of the last bear market. The S&P ended the session at its lowest point since Nov. 20 of last year, when the panic around the financial crisis peaked.

Tech has performed better than the rest of the market and the Nasdaq stands almost 10% above its Nov. 20 close.

Over the last two weeks, the government has announced a number of programs meant to take the edge off the recession.

President Obama's $75 billion housing plan, announced Wednesday, is intended to help up to 9 million struggling borrowers. On Tuesday, Chrysler and GM asked for another $21.6 billion to stay afloat on top of the $17.4 billion in government assistance they have already received.

Investors are still sorting through the details of the $787 billion economic stimulus plan, signed into law Tuesday.

Company news: Lowe's (LOW, Fortune 500) reported weaker quarterly sales and earnings and issued a fiscal 2009 forecast that is short of analysts' expectations.

J.C. Penney (JCP, Fortune 500) reported higher-than-expected earnings but forecast a current-quarter loss that is bigger than what analysts are expecting.

General Motors (GM, Fortune 500) tumbled 11% on ongoing worries about its solvency, closing at a more than 70-year low, according to Dow Jones.

Market breadth was negative. On the New York Stock Exchange, losers beat winners by almost three to one on volume of 2.12 billion shares. On the Nasdaq, decliners topped advancers by over 2 to 1 on volume of 2.57 billion shares.

Economy: The Consumer Price Index rose 0.3% in January, as expected, after falling 0.8% in December. The so-called Core CPI, which strips out volatile food and energy costs, rose 0.2% versus forecasts for a rise of 0.1%. Core CPI was flat in December.

Other markets: Treasury prices rallied, lowering the yield on the benchmark 10-year note to 2.79% from 2.81% Thursday. Treasury prices and yields move in opposite directions.

In currency trading, the dollar gained versus the euro and the yen.

U.S. light crude oil for March delivery fell 54 cents to settle at $38.94 a barrel on the New York Mercantile Exchange after spiking 14% Thursday.

COMEX gold for April delivery rose $25.70 to settle at $1,002.20 an ounce, near an all-time high.

Senate passes $787 billion stimulus bill

2009-02-14T15:17:00.000-08:00

It's a done deal. Still controversial, but a done deal.

The Senate on Friday evening passed the $787 billion American Recovery and Reinvestment Act of 2009, which was drawn up, amended and negotiated in record time.

The bill got 60 votes -- the minimum it needed to pass. Three Republicans -- Sens. Susan Collins, R-Me., Arlen Specter, R-Pa., and Olympia Snowe, R-Me. -- voted for it. Earlier in the day, no Republicans in the House voted for the legislation, which nevertheless passed 246 to 183, with just 7 Democrats voting against it.

President Obama is expected to sign the bill into law soon.

"The goal at the heart of this plan is to create jobs. Not just any jobs, but jobs doing the work America needs done: repairing our infrastructure, modernizing our schools and hospitals, and promoting the clean, alternative energy sources that will help us finally declare independence from foreign oil," President Obama said Friday morning.

The Obama economic team estimates the stimulus plan will create or save between 3 million and 4 million jobs.

"We've done something today that's transformational for the nation," said House Speaker Nancy Pelosi, D-Calif., in a press conference after the House vote.

During the House floor debate earlier on Friday, House Appropriations Committee Chairman David Obey, D-Wisc., characterized the bill as "the largest change in domestic policy since the 1930s."
Republican discontent

The bill's final passage would represent far less than the bipartisan victory Obama had hoped for weeks ago, a hope he tabled as it became clear that Republicans and some fiscally conservative Democrats were adamantly opposed to the size and contents of the bill.

Republican critics believe there are more targeted and effective ways to create jobs than the measures in the bill, including more spending on infrastructure and more tax relief.

They frequently cite the tag line to describe what Democrats have often said makes stimulus measures effective -- that they be timely, targeted and temporary. "This bill fails on all three points," Senate Minority Leader Mitch McConnell, R-Ky., said Friday.

In the House, Rep. Mike Pence, R-Ind., blasted the bill as misguided.

"Republicans are not about saying 'No' but about saying 'Yes' to solutions that put Americans back to work," Pence said. "[This legislation] will not grow our economy. It will grow our government."

And they frequently cite the burden of such an expensive package on the country's record high deficit and the burden that will place on the next generation.

In response to Republican critics, Sen. Dick Durbin, D-Ill., cited provisions in it that will help families facing job loss, education expenses and mortgage troubles.

"Consider the impact on the next generation if their parents lose a job ... if their home is foreclosed upon ... if they're forced out of college because their parents can't pay the bills," Durbin said.

Democrats have also countered the Republicans' debt argument by noting that record deficit levels were achieved as a result of borrowing to pay for the cost of the Iraq war and to finance a series of tax cuts -- both decisions made during a Republican administration.

The compromise bill was crafted after intensive negotiations in recent days between the House, Senate and White House, although Republicans said repeatedly they felt excluded from the process. And on Friday, several said they did not think it was fair that they were being asked to vote on a 1,000-page-plus bill that was posted online only late Thursday night.
How the bill breaks down

The package devotes $308.3 billion -- or 39% -- to appropriations spending, according to the Congressional Budget Office. That includes $120 billion on infrastructure and science and more than $30 billion on energy-related infrastructure projects, according to key congressional committees.

It devotes another $267 billion -- or 34% -- on direct spending, including increased unemployment benefits and food stamps, CBO said.

And it provides $212 billion -- or 27% -- for tax breaks for individuals and businesses, although the biggest piece of that is for individuals. (Here's a quick breakdown of those breaks.)

Depending on how tax measures are categorized, the percentage of the bill devoted to tax relief is 35%, according to the Joint Committee on Taxation.

Unlike the CBO, the committee counts all portions of tax credits that are refundable. A refundable credit is one that may be paid to tax filers even if the credit exceeds a tax filer's liability. In other words, it is money the government needs to spend. The CBO, by contrast, treats that money as an outlay.

Republicans have advocated for more tax relief in the bill -- they wanted at least 40% -- and they often oppose tax credits going to those who pay less in income tax than they receive in refunds.

Democrats counter that the lowest-income families do pay money into the system by way of payroll tax for Social Security and through sales taxes. And they note that it is those low-income families most likely to quickly spend any tax relief they get, thereby making it more stimulative for the economy.
What it can - and can't do

For months, economists -- both liberal and conservative -- have urged lawmakers to act quickly to help stem the economic downturn. They argue that while tax cuts can be put out more quickly than infrastructure spending, they may not be as stimulative as spending because tax filers are likely to save at least a portion of what they receive.

There also has been debate over how large the total package should be. Many economists think it should be larger -- to help combat what is expected to be a $2 trillion shortfall in the country's output this year and next. But at this point, though they're not enamored with every provision in the bill -- they say it's necessary to do something.

Proponents of the bill aren't promising the economic recovery package will be a panacea for the economy. "No one thinks this is the answer," said House Majority Whip Steny Hoyer, D-Md.

But, they say, it's needed to stem the downturn and ease the financial strains hurting Americans. Indeed, Obama's economic team last month said they expect that the unemployment rate likely will go up in the near term but having a stimulus package could bring it down to around 7% by the end of 2010. That's slightly below the rate of 7.6% today.

Oil dips to $40 a barrel

2009-02-06T05:10:00.000-08:00

Oil slipped towards $40 a barrel Friday as the weakening economic outlook overshadowed OPEC's attempts to curb crude supplies and boost prices.

U.S. light crude for March delivery fell $1.01 to $40.16 a barrel by 5:52 a.m. ET.

Inventories in Cushing, Okla.-- the delivery point for the U.S. light crude contract -- are at record levels. U.S. light crude for delivery in two months time is trading above $45 a barrel.

The global economic slowdown has curbed demand for fuel around the world, knocking oil prices sharply lower since they peaked at almost $150 in July.

U.S. non-farm payroll numbers due later Friday are expected to add to the gloom, after data released the previous day showed applications for U.S. jobless benefits hit a 26-year high while German manufacturing suffered its largest fall since 1990.

Oil prices could stay as low as $40 a barrel for the rest of 2009, the head of Italy's largest oil company said Friday.

"A price of $40 a barrel, it's roughly my forecast for this year," Eni SpA Chief Executive Paolo Scaroni said during an address at a Confindustria conference.

The Organization of the Petroleum Exporting Countries has been cutting oil output in a bid to boost prices. OPEC sources have indicated the group could cut a further 1 million barrels per day (bpd) from output quotas when it next meets in March.

OPEC has already cut member production quotas by 4.2 million bpd since September, but oil tanker tracking firms have said the group has yet to successfully implement all of its cuts.

"OPEC's compliance has been impressive even if they've still got some way to go," Julian Keites at Newedge in London said.

"These are significant output cuts and if they can implement more then we should see global stock cover start to come down. Until then prices seem well supported above $40 a barrel by the cuts so far."

Democrats in the Senate on Thursday pushed towards passage of a huge economic stimulus package despite scant Republican support, hoping to boost the U.S. economy, which could help stem a decline in fuel demand.

Stocks stage rally

2009-01-28T13:40:00.001-08:00

Stocks surged Wednesday as investors took comfort in reports that the Obama administration and the Federal Reserve are taking steps to get credit flowing again and help staunch the economic slowdown.

The Dow Jones industrial average (INDU) gained 200 points, or 2.5%, according to early tallies. The Standard & Poor's 500 (SPX) index added 28 points, or 3.4% and the Nasdaq composite (COMP) added 53 points or 3.6%.

Stocks rallied through the early afternoon as more talk of the government taking toxic assets off bank balance sheets boosted the financial sector and the broader market.

Those gains were sustained through the close after the Federal Reserve kept a key short-term interest rate at all-time lows and pledged it was willing to do whatever it can to help get credit flowing again.

Treasury bond prices tumbled, boosting the corresponding yields, after the Fed statement implied that the bank was willing to buy long-term Treasury bonds, but did not indicate that it was planning to do so in the near term.

Oil prices gained and gold prices declined. The dollar strengthened versus other major currencies.

After the close, Starbucks (SBUX, Fortune 500) reported quarterly sales and earnings that were short of forecasts and said it was cutting 6,000 jobs in 2009.

Fed: The central bank kept the fed funds rate unchanged near 0%, as expected. The Fed funds rate is a key short-term bank lending rate that impacts consumer and business loans. (Full story)

In its statement, the Fed painted a more dire picture of the economy than it has in recent months. The statement noted that industrial production, housing starts and employment have continued to decline steeply as spending has been cut back. Global demand has slowed. And falling oil and gas prices have added to the growing risk of so-called deflation. (Read the statement)

The Fed also said it was willing to take more steps to get credit flowing again, including buying long-term Treasurys, if it decides such a move would help improve conditions.

"I think the fact that they went into such detail about the tools they are considering may have confused people, but to me it says that they are trying to restore confidence," said Phil Dow, director of equity research at RBC Wealth Management.

"Bad bank" boost: Stocks had already rallied Wednesday ahead of the announcement, extending the market's recent advance. All three major gauges posted modest gains on Monday and Tuesday despite weak economic reports, quarterly results and thousands of job cuts.

Wednesday's advance was led by news from the banking industry. Reports continued to surface that the Treasury Department was moving forward on setting up a "bad bank" to buy up the industry's toxic assets. A published report Wednesday suggested that the Federal Deposit Insurance Corp. (FDIC) would take control of any such bank. The FDIC told Reuters it wouldn't comment.

"Wall Street likes the 'bad bank' stuff," said Joseph Saluzzi, co-head of equity trading at Themis Trading. "It's still just a rumor, but a lot of people are betting on it being true, and they like the idea of it."

He said that longer term, it isn't clear whether the "bad bank" idea will really work, and that stocks will remain under pressure until the housing market bottoms and unemployment stops spiking.

For now, however, the talk was fueling a short-covering rally. Short-covering refers to a process by which investors who have sold shares short to take advantage of a falling market need to buy the shares back as the market reverses course.

Optimism about the Obama administration's stimulus plan and Wells Fargo's better-than-expected quarterly results also added to the advance.

Economic stimulus plan: The House of Representatives is expected to vote Wednesday evening on the $825 billion stimulus package developed by President Obama and House Democrats. The plan, which calls for roughly $550 billion in spending and $275 billion in tax cuts, is expected to pass easily, thanks to the Democratic majority in the House.

However, the House vote is just the first step in a process that will take several weeks. The Senate is debating a separate-but-similar version of the bill, to be voted on next week. If both versions pass, differences would have to be resolved in conference committee. Both chambers would then have to vote on the new version. The goal is to get a bill to Obama to sign by mid-February. (Full story)

Wells Fargo: The bank posted a steep $2.6 billion quarterly loss Wednesday, hurt partly by its purchase of Wachovia. But excluding charges, Wells Fargo earned 41 cents per share, in line with a year earlier, and better than the 33 cents analysts surveyed by Thomson Reuters expected.

The bank also maintained its dividend and said it has no plans to ask for more Treasury bailout money beyond the $25 billion it accepted last year. Wells (WFC, Fortune 500) shares rallied 25%.

Among other bank movers, Bank of America (BAC, Fortune 500) added 13% and Citigroup (C, Fortune 500) added 15%. Both stocks have been among the hardest-hit financial stocks this year.

American Express (AXP, Fortune 500) jumped 5%, one day after it reported quarterly results that weren't as terrible as some had expected.

The KBW Bank (BKX) sector index jumped 12%.

In other banking news, the Treasury Department said it has made $386 million available to healthy local banks as a means of stimulating lending.

Earnings: Dow component AT&T (T, Fortune 500) reported lower quarterly earnings and higher revenue, both of which missed expectations. The telecom leader saw strong growth in its wireless subscribers, but its profit fell due to subsidies it had to pay to support Apple's iPhone. Shares fell 1.5%.

Boeing (BA, Fortune 500) reported a fourth-quarter loss Wednesday as a two-month strike by its assembly workers and delivery delays hurt its results. The aerospace firm forecast 2009 earnings that are short of expectations. Boeing also said it would cut 10,000 jobs this year, mostly in the first half. The number includes 4,500 job cuts already announced in early January. Boeing shares were little changed.

Yahoo (YHOO, Fortune 500) reported quarterly sales and earnings that topped estimates after the close Tuesday. Including charges, the company reported a loss. Shares gained 8% Wednesday.

Bonds: Treasury prices slumped, raising the yield on the benchmark 10-year note to 2.62% from 2.52% Tuesday. Treasury prices and yields move in opposite directions. Yields on the 2-year, 10-year and 30-year Treasurys all hit record lows last month.

Lending rates were mixed. The 3-month Libor rate dipped to 1.17% from 1.18% Tuesday, according to Bloomberg.com. Overnight Libor held steady at 0.22%. Libor is a bank-to-bank lending rate.

Other markets: In global trading, Asian markets were mixed and most European markets rallied.

The dollar gained versus the euro and the yen.

U.S. light crude oil for March delivery rose 58 cents to $42.16 a barrel on the New York Mercantile Exchange.

COMEX gold for April delivery fell $11.40 to $890 an ounce.

Gasoline prices rose two-tenths of a cent to a national average of $1.842 a gallon, according to a survey of credit-card swipes released Wednesday by motorist group AAA.

Economists: Recession getting worse

2009-01-26T07:21:00.000-08:00

Economists expect an already deep recession to get even worse in 2009, according to a survey released Monday.

Companies will lay off more workers and hoard more cash during the next 12 months, according to the National Association for Business Economics survey, a quarterly take from a panel of economists at private-sector companies in various industries. A vast majority of the 105 economists polled believe the country's gross domestic product will continue to sink in 2009.

If business conditions indeed worsen during the year, they will be sinking from already historic lows. The survey's measures of consumer demand, profit margins and capital expenditures all hit their lowest-ever levels in January's edition of the 27-year old survey.

"NABE's January 2009 Industry Survey depicts the worst business conditions since the survey began in 1982, confirming that the U.S. recession deepened in the fourth quarter of 2008," said Sara Johnson, a NABE economist.

Nearly half - 47% - of surveyed economists said overall industry demand was falling, compared with 35% who said so in the October survey. Just 10% of respondents said profit margins were rising, compared with 52% who believe they are falling. And 38% of economists said capital expenses are falling, up from just 15% in October.

Credit conditions hurt businesses, according to the economists, as customers had less leverage to buy discretionary products. 78% of respondents said tightening credit conditions affected customers, and 52% said the credit crunch directly hurt businesses in their industries.
Pessimistic outlook on weak environment

With business conditions souring, the outlook for jobs has grown increasingly negative. 39% of economists believe their industries will lay off employees in the next six months, compared with 32% in October.

The forecast was particularly poor for the goods-producing sector, in which 69% of economists saw layoffs in the future, and no one believed the industry would be adding jobs. Service-sector economists were the most optimistic, with only 9% seeing layoffs and 29% saying their industry would be hiring in the next six months.

Companies will likely curtail spending in the coming months as well, according to the survey. 44% of the economists believed capital spending in their industries would fall off in the coming year, compared with just 16% who believed their businesses would increase spending.

Rising unemployment, tightening credit conditions and a difficult lending environment led economists to give a more pessimistic outlook on growth for 2009.

Just 22% believed the U.S. economy would expand this year, down from 62% who thought so in October. Although 26% now believe the economy will shrink less than 1% this year, 52% now think the economy will shrink by more than 1%, which no one predicted in October.

Housing stocks: No bottom yet

2009-01-22T10:40:00.000-08:00

With another dismal read Thursday on new home construction, it looks like 2009 will be a rough year for homebuilders. But recent rallies in housing stocks suggest that investors think otherwise.

Don't bet on it, says housing analyst Ivy Zelman.

Housing permits and starts both tumbled to record lows in December, according to a Commerce Department report on Thursday. With foreclosures surging and a glut of homes on the market, Zelman believes the overall pain will continue well into 2010 - and that the market won't bounce back until 2012.

Zelman, who decried speculation earlier than most other analysts, is known for her candor. Before starting her own research company, Zelman & Associates, in 2007, she spent ten years at Credit Suisse, where she began warning about speculation in 2004. Zelman called for a sell off of all builders in 2006 - well before many other analysts urged their clients to dump homebuilder stocks.

Two years ago, when Toll Brothers' CEO Robert Toll said in an earnings call that there was pent-up demand for housing, Zelman famously told him, "I'm wondering which Kool-Aid you're drinking - because I want some." The next year, Toll Brothers posted a 95% drop in profits.
Signs of a recovery?

Few in the housing industry are still drunk with optimism, but recent upswings suggest that investors are dipping their toes back in market. The S&P Homebuilders' Index rose 15% in December (it fell 36% in 2008). Toll Brothers and Pulte Homes, two major building companies, were, respectively, the 12th and 14th best stock performers in the Fortune 500 last year.

But according to Zelman, it's way too soon for a rebound. "The economics don't make sense," she says. "There's still a tsunami of expected foreclosures, and that has to abate before there's a recovery." Credit Suisse forecasted in December that, over the next four years, 8.1 million mortgages would go into foreclosure.

When foreclosures hit, cheap houses that banks are eager to unload flood the market. The oversupply and the lack of demand pushes prices down; the S&P Case Schiller Home Price Index showed an 18% year-over-year drop in October, (the most recent data available). As home values fall, homeowners owe more in mortgages than their properties are worth and are more likely to default - and then the cycle begins all over again.

While declining home prices hurt homeowners, they can boost sales - as evidenced in Southern California, where new home sales were up 50% in December compared with last year, according to MDA DataQuick, a real estate research firm.

But Zelman casts a critical eye on those who think cheap houses signal a revival. "Affordability is being paraded as the best thing," she says. "That may be so nationally, but it's skewed to areas where prices overshot."

She points to Fort Myers, Fl., where she says 80% of sellers are listing their homes at prices that are still 20% higher than they should be. Zelman believes that prices must overshoot on the way down, just as they did on the way up - and price deflation, she says, has a long way to go.
What to look for

Instead of affordability, Zelman sees new home sales per neighborhood as a leading indicator for the housing market. Of the 19,926 homes sold in Southern California last month, for example, just 1,813 were newly-built, compared with a December average of 4,926.

Most of the houses being scooped up are foreclosed houses, which Zelman believes are being bought by investors. When new home sales go up, she says, it will be a sign that homeowners are selling their existing homes.

The other indicator that Zelman is watching is the consumer balance sheet, or the average home buyer's debt level. "The consumer has terrible, crazy credit right now," she says. "And there's a negative psyche towards their deflating asset - that keeps homeowners on the sidelines, because foreclosures are driving prices lower, jobs are being lost, and 401(ks) are being eroded."

Signs of a consumer recovery, says Zelman, include an increase in personal savings rate and higher lending levels.

Zelman doesn't believe that any of the proposed stimulus measures on the federal or state level, aside from "the government bulldozing foreclosed houses or buying them up," are substantial enough to stop the downward spiral. She projects that just under half of all private homebuilders - which compose 75% of the industry - will go out of business by the time the market bottoms. That creates market opportunity for the surviving builders, but not for several more years.

"Right now, I don't like the builders as investments," says Zelman. The only "investable company" right now, she says, is Virginia based NVR, which she believes is better suited to weather the storm because it's positioned in healthier markets such as Washington D.C. Other relatively healthy markets, she says, include Texas and Salt Lake City.

For now, Zelman remains bearish towards the rest of the sector - just as she has been for four years. "There's still a lot of false optimism," she says. "Some economists believe that we're close to a bottom, but we're just more than halfway there."

Treasury: $10B more to B of A

2009-01-13T18:26:00.001-08:00

The Treasury Department said Tuesday it recently invested $14.8 billion in another 43 banks, $10 billion of which went to Bank of America, the nation's largest bank.

Under the $700 billion Troubled Asset Relief Program, Treasury has allocated $250 billion for capital investments in banks.

Treasury lends funds to banks in exchange for preferred shares, warrants, and high-paying dividends. The aim: to encourage strapped-for-cash financial institutions to lend more money and provide much-needed liquidity in the financial markets.

As of Tuesday, the government has injected $192.3 billion into 257 banks.

The $10 billion that went to Bank of America in the latest round of capital injections was previously allotted to investment bank Merrill Lynch, which Bank of America purchased on Jan. 1. Treasury said it delayed delivering the funds to BofA until the merger with Merrill was completed. Tuesday's was the first round of capital injections since the merger.

Bank of America (BAC, Fortune 500) previously received a $15 billion investment from Treasury on Oct. 28, as part of the first round of capital injections that went to eight of the largest U.S. banks. With the $10 billion it received Tuesday, Bank of America matches the $25 billion also received by Wells Fargo (WFC, Fortune 500) and JPMorgan Chase (JPM, Fortune 500). Citigroup (C, Fortune 500) received $45 billion after an initial $25 billion investment and a $20 billion emergency loan under a different division of TARP.

Some critics object to the biggest banks receiving the largest sums of money. CEOs from smaller banks and organizations representing small bank managers testified before the House Financial Services Committee Tuesday, arguing that smaller banks are in greater need of investment from the Treasury than larger banks, and have largely been shut out of the TARP allocation process.

Furthermore, some members of Congress and oversight officials have said the plan lacks the ability to determine whether the money lent to banks is being used for its intended purpose.

The capital investment plan has received the largest portion of the $700 billion bailout money so far. But it was not part of Treasury's initial strategy, which included buying up droves of toxic mortgage-backed securities. The Treasury soon abandoned its initial bid, saying capital injections served as the best method of restoring the financial markets to normalcy.

Also in the latest round, American Express Corp. (AXP, Fortune 500) received $3.4 billion, which the company announced in December it would eventually get. The credit card company became eligible for TARP funds after it received Federal Reserve approval to become a bank holding company on Nov. 10.

Other banks receiving more than $100 million in TARP investments were Hermitage, Penn.-based F.N.B. Corporation (FNB), Honolulu-based Central Pacific Financial Corp. (CPF), Akron, Ohio-based FirstMerit Corporation (FMER), and privately held New York Private Bank & Trust Corporation

Bank of America may shed 35,000 jobs

2008-12-12T06:56:00.000-08:00

Bank of America said Thursday it plans to slash up to 35,000 jobs over the next three years as it absorbs Merrill Lynch and contends with the deepening recession.

The Charlotte, N.C.-based bank, which will be the nation's largest financial services firm when the Merrill Lynch (MER, Fortune 500) deal closes in coming weeks, said it will announce a final job reduction plan in early 2009.

The cuts will come from both companies and will affect all lines of business. Bank of America had 247,000 employees, as of Sept. 30, while Merrill Lynch had 60,900 at the end of the third quarter.

While Bank of America had not announced any large-scale job cuts so far this year, Merrill Lynch eliminated about 3,300 employees since the fall of 2007, mainly in its global markets and investment banking division and in support areas.

"The reductions are designed to eliminate redundancies created as a result of the merger with Merrill Lynch and to reflect the current recessionary environment," Bank of America (BAC, Fortune 500) said in a statement.

Bank of America is likely to keep many of Merrill Lynch's financial advisers, who numbered 16,850 at the end of September, said Scott Rothbort, president of Lakeview Asset Management, which owns Merrill Lynch and plans to hold onto its Bank of America shares after the merger. It's one of the main reasons why the bank bought the nation's largest brokerage firm.

"Most of the brokers are going to stay," Rothbort said.

Those in the companies' capital markets divisions - the traders, analysts and sales representatives - won't be as lucky, he predicted.

The announcement comes just a week after shareholders at both companies approved the deal. The merger ends the independence of Merrill, the storied Wall Street investment bank founded in 1914.

The deal valued Merrill at $50 billion when it was announced on Sept. 14, the day before Lehman Brothers declared bankruptcy. Bank of America shares have fallen 46% since then, putting the value on the merger at just under $20 billion.

Since the merger was announced, both Bank of America and Merrill Lynch have received funds under the Treasury's Troubled Asset Relief Program (TARP) established as part of the $700 billion bailout of the financial services industry. Bank of America received $15 billion, while Merrill Lynch got $10 billion.

Responding to criticism that banks haven't used the bailout money to lend, Bank of America is running advertisements detailing their commitment. The bank says in the past three months it has funded more than $50 billion in home loans, financing more than 250,000 homes.

"The tightening mortgage market should not squeeze out qualified homebuyers," the ad reads. "That's why we're putting our capital where our mouth is."

Bank of America joins a growing list of financial services companies slashing staff amid the continuing credit crunch and downturn in consumer spending. Citigroup (C, Fortune 500) said last month it would cut more than 50,000 jobs, while Morgan Stanley (MS, Fortune 500) said it would slash 10% of its institutional securities division and 9% of its money management business. In October, American Express (AXP, Fortune 500) announced it would shed 7,000 jobs and Goldman Sachs (GS, Fortune 500) said it would cut 3,260 positions.

The financial sector overall has lost 142,000 jobs over the past year, according to the Bureau of Labor Statistics.

Congress demands answers on bailout

2008-12-10T08:14:00.000-08:00

Key lawmakers blasted Treasury Wednesday for its handling of the $700 billion financial rescue plan, saying it lacks appropriate measures to ensure the bailout is working.

At a hearing held by the House Financial Services Committee, committee chairman Barney Frank, D-Mass., accused Treasury of failing to address its obligation to address foreclosures and enforce lending obligations on banks.

"Refusal so far to use money for that purpose [of foreclosures] undermines the intent of the bill," said Frank. "What troubled me was when Treasury was asked by the Government Accountability Office, 'What are you doing to ensure banks are lending,' they appeared to be saying, 'We're not going to try to find that out.' "

The hearing serves as a follow-up to two reports on how Treasury has conducted its bailout program, including the Congressional Oversight Panel's report on the Troubled Asset Relief Program submitted to Congress Wednesday, as well as a Government Accountability Office report delivered to lawmakers last week.

Congressmen on both sides of the aisle used the scathing reports as a launching pad, lambasting Treasury for a general lack of clarity about its strategy as well as a dearth of measures that ensure banks are using the bailout funds for their intended purposes.

Addressing Treasury's bailout point man Neel Kashkari, the committee's ranking member Spencer Bachus, R-Ala., said taxpayers have a right to know how their tax dollars are being used.

"The taxpayer has the right to expect that you use the same standard of care as when you were working for Goldman Sachs and answering to your shareholders and investors," Bachus said. "The detailed explanations we've received from the GAO stand in stark contrast to the lack of information we've received from Treasury or financial institutions that received funds from TARP."

Rep. Maxine Waters, D-Calif., said she has "seen nothing" from Treasury that that gives her confidence in their ability to manage the bailout. Rep. Carolyn Maloney, D-N.Y., called the program "a dismal failure."

In testimony, Rep. Bill Pascrell Jr., D-N.J, said, "TARP funds have been greatly mismanaged to date and they have not been made to help consumers purchase the goods that they need."

The committee is also hearing testimony from Kashkari, Acting Comptroller General Gene Dodaro and two members of a congressional oversight panel: Harvard law professor Elizabeth Warren and Rep. Jeb Hensarling, R-Texas.

The oversight panel report said that the Treasury Department must do more to rescue struggling homeowners and ensure that the money it's using to bail out banks is working, according to a draft report by a congressional oversight panel released Wednesday.

The GAO report said Treasury has yet to address "critical" oversight issues to ensure the plan is working, including the need for more staff, better management, an improved transition effort and facilities to ensure banks are using bailout funds effectively.

On Monday, the Senate confirmed a former federal prosecutor, Neil Barofsky, whose job it will be to ensure that the program is not tainted by corruption.
First batch of funds running dry

With just $15 billion of the first $350 billion of TARP funds left unallocated, some political analysts expect Paulson to ask for the second half of the $700 billion bailout.

But to get the remaining balance, Paulson will have to convince Congress the financial sector needs it -- and that the Treasury will use the funds appropriately. That may be difficult with the increasing criticism the Treasury has faced from lawmakers.

After the Emergency Economic Stabilization Act was signed into law Oct. 3, Paulson immediately received $250 billion with which to work. The next $100 billion came on Oct. 14, when President Bush asked Congress for the next batch of funding.

Thus far, the bulk of the first $350 billion has been allocated for capital investments in banks. Of the $250 billion allocated, the Treasury has sent out more than $161 billion in checks to 52 banks in exchange for preferred shares and a high dividend.

Treasury has also sent $40 billion to American International Group (AIG, Fortune 500) as part of the insurer's $152 billion bailout, allocated $20 billion for an additional capital investment in Citigroup (C, Fortune 500) and set aside $20 billion to backstop losses from a separate Federal Reserve plan to buy up debt backed by consumer loans.

Stocks slammed on jobs report

2008-12-05T08:18:00.000-08:00

Stocks tumbled Friday morning after the government reported the economy lost 533,000 jobs in November - the biggest monthly decline in 34 years.

The Dow Jones industrial average (INDU) lost 200 points or 2.3% over an hour into the session. The Standard & Poor's 500 (SPX) index lost 2.5% and the Nasdaq composite (COMP) lost 2.6%.

Stocks tumbled Thursday after AT&T (T, Fortune 500) and other corporations announced over 20,000 job cuts, adding to worries ahead of the jobs report.

Jobs: Employers cut 533,000 jobs from their payrolls in November, the biggest monthly decline since 1974, and far above the 325,000 cuts that Wall Street economists were expecting.

September and October's job losses were revised up, bringing the 3-month decline to 1.3 million, the largest 3-month job loss total since World War II. So far this year, 1.9 million jobs have been lost, topping the 1.6 million lost in the 2001 recession.

Although the United States has been in a recession since December 2007, the credit crisis has intensified this fall, causing a series of bank failures and government bailouts as the financial markets were thrown into turmoil.

The unemployment rate, generated by a separate survey, rose to 6.7% in November from 6.5% in the previous month. It was short of the 6.8% economists were expecting, but still brought the unemployment rate up to the highest level in 15 years. (Full story)

The report is maybe one of the worst the Bureau of Labor Statistics has ever produced in its 124-year history, BLS Commissioner Keith Hall told lawmakers Friday at a Joint Economic Committee.

Company news: Executives from Detroit's Big Three automakers are back on Capitol Hill Friday, asking a House panel for a massive loan package to rescue their struggling businesses.

Executives from GM (GM, Fortune 500), Ford Motor (F, Fortune 500) and Chrysler testified before the Senate Thursday. The Big Three are seeking $34 billion in aid to rescue their struggling industry, up from an initial request of $25 billion last month.

Separately, GM on Friday said it will lay off about 2,000 workers in the first quarter of next year.

Bonds: Treasury prices fell, raising the yield on the benchmark 10-year note to 2.61% from 2.56% late Thursday. The 10-year yield dipped below 3% last week for the first time since the note was first issued in 1962. Treasury prices and yields move in opposite directions.

The yield on the 3-month Treasury bill slipped to 0.01% from 0.015% Thursday, near the 68-year low of zero hit last month. The short-term bill is seen as the safest place to put cash in the short term. The low yield means investors would rather preserve cash despite little or no interest than risk the stock market.

Lending rates showed little improvement. The 3-month Libor rate held steady at 2.19% unchanged from Thursday, according to Bloomberg. Overnight Libor fell to 0.28% from 0.52% Thursday. Libor is a key bank lending rate.

Other markets: In global trading, European markets tumbled, one day after the European Central Bank, the Bank of England and Sweden's Riksbank all lowered interest rates. Asian markets mostly ended lower although Hong Kong's Hang Seng managed to rise, gaining 2.5%.

The dollar gained versus the euro and fell against the yen.

U.S. light crude oil for January delivery fell 89 cents to $42.78 a barrel on the New York Mercantile Exchange, after ending the previous session at a nearly 4-year low.

COMEX gold for February delivery lost $14.50 to $751 an ounce.

Gasoline continued its fall to nearly four-year lows, with prices down 1.6 cents to a national average of $1.773 a gallon, according to a survey of credit-card swipes released Friday by motorist group AAA. Prices have been sliding for 2-1/2 months and have dropped more than $2 a gallon, or 54%.

Taxing our gas guzzling relapse

2008-11-11T12:12:00.001-08:00

Gas prices have plummeted 44% since peaking at over $4 a gallon this summer, and are now averaging around $2.30.

There's some evidence suggesting Americans are using the savings not to buy groceries or make home payments, but instead to drive more. That may, in turn, drive up demand and push prices right back up.

So while gas prices are still well below $3 a gallon, is now the time to pass a gas tax in an effort to keep demand down?

And will a President Obama, who wants to cut greenhouse gas emissions, have the political firepower to call for a tax that most politicians are unwilling to discuss - even though many economists say it would be the most efficient way to reduce global warming?

"There's no question, it will be successful as a way to cut consumption," said Gary Becker, a Nobel Laureate economist at the University of Chicago. "It's certainly a better time to enact it, than when gas was at $4 a gallon."

To those who support a gas tax, cutting consumption has many benefits.

First, it reduces greenhouse gas emissions. It also helps alleviate congestion and eases the burden on the country's aging roads and bridges.

While it is likely to raise prices immediately, the tax would also simultaneously act to reduce consumption, so the market price for gas would likely fall. That would mean less money for OPEC or Exxon Mobil.

If the government raised the gas tax by $1, that's about $140 billion dollars a year that could be used for schools, roads, or whatever the feds wanted to spend the money on.

"If we can cut gas consumption, we can cut oil imports and we cut how much (money) we send to overseas nations," said Becker.

As gas prices passed $4 a gallon this summer, there was ample evidence that Americans were driving less.

Sales of big cars and trucks plummeted. As fall approached, it was clear Americans were changing their driving habits.

Numbers complied by MasterCard's SpendingPulse market report showed gas consumption falling by as much as 9% in early October, a deeper decline than the 4% or 5% seen throughout the summer. Government figures for October showed a drop of over 4%, also outpacing earlier government estimates.
Americans love to drive

Gas prices have fallen sharply since the summer and Americans once again are getting behind the wheel.

The latest MasterCard report shows a drop of only 4%, while government figures show a decline of 2.5%, despite an economy that only appears to be getting worse.

Sales of trucks are improving. J.D. Power and Associates say that the most recent figures show that of people buying new vehicles, a greater number are buying trucks compared to previous months.

While the renewed interest in truck sales is partly due to bigger incentives and pent-up demand, falling gas prices most certainly played a part.
There's got to be another way

A gas tax is of course just one way of cutting consumption, and some feel it's too crude a tool.

"It wouldn't be the most efficient way to decrease energy demand," said Chris Lafakis, an economist at Moody's Economy.com, an economic consultancy.

Lafakis feels gas demand is too inelastic to be reduced with a tax - that is, people live too far from work and have to drive no matter how high the price.

A better way to reduce oil consumption, he says, would be for the government to promote different fuels - like natural gas, biofuels, or electricity.

With at least $25 billion promised to U.S. automakers, he feels that the feds have ample leverage to get them to build cars that use less gas.

There are also those that downplay the dangers of global warming and say what the country needs is more energy at a cheaper price.

"You do not get more energy by taxing energy," said David Kreutzer, an energy economist at the Heritage Foundation, a conservative think tank. "The damage to the economy is fairly significant, while the case for catastrophic global warming just doesn't hold water."

There's also the criticism that a gas tax is regressive - it hits poor people more than rich ones. Now would be a terrible time for a new tax, with people losing jobs and the economy on the skids.

But proponents say a gas tax need not be a new tax, just a shift in taxes.

Andrew Samwick, an economic professor at Dartmouth, suggested lowering the payroll tax - which evaluated from an economists' standpoint discourages people from working, and replacing it with a gas tax, which would discourage people from driving.

"Is there anybody who would actively promote the reverse," asked Samwick.
Gas tax? Don't bet the farm

As to whether Obama or the new Congress would attempt such a thing, no one spoken to, for this story, thought it was likely in the short term.

A spokesman for Obama said they were too busy dealing with the transition right now to comment on policy matters.

Politicians have long resisted a gas tax, simply because they fear voters will kick them out of office for passing such a blatant tax.

Obama would be better off dealing with a more politically popular problem, like health care, said Samwick, in order to get some momentum rolling in his administration.

As for Congress putting their neck on the line and picking up with a gas tax, "you would have to invent a negative number for probability," he said.

Key consumer measure at all-time low

2008-10-28T07:31:00.000-07:00

A key measure of consumer confidence fell to an all-time low in October as the financial crisis weighed on American household budgets.

The Conference Board, a New York-based business research group, said Tuesday that its Consumer Confidence Index plummeted to 38 in October from an upwardly revised reading of 61.4 in September.

Last month's decline brings the index to its lowest level since its inception in 1967.

Economists were expecting the index to have declined to 52, according to a survey by Briefing.com.

"The impact of the financial crisis over the last several weeks has clearly taken a toll on consumers' confidence," said Lynn Franco, director of the Conference Board Consumer Research Center, in a statement.

The nation's financial system has been under considerable strain in October as the credit crunch has hampered businesses ability to fund essential activities.

Stock prices have plunged as investors fear the global economy is on the verge of recession. The Dow Jones industrial average has fallen more than 27% in October.

While gas prices have come down significantly, which puts more cash in consumers' pockets, Americans appear more focused on the deteriorating job market.

So far this year, the economy has lost 760,000 jobs, according to the Labor Department's September payrolls report.

A case in point: Whirlpool Corp., the nation's largest home appliance maker, said Tuesday it will cut about 5,000 jobs by the end of 2009 to cope with the credit crisis and weak demand.

"In assessing current conditions, consumers rated the labor market and business conditions much less favorably, suggesting that the fourth quarter is off to a weaker start than the third quarter," Franco said.

Fed begins business lending program

2008-10-27T11:17:00.001-07:00

The Federal Reserve started buying so-called commercial paper on Monday to jumpstart a critical but faltering lending market used by banks and big businesses.

To boost the $1.45 trillion pool of money - which was about $2 trillion a year ago - the Fed has begun buying high-quality commercial paper with a maturation period of three months. The program, known as the Commercial Paper Funding Facility (CPFF), will continue through the end of April 2009.

"This will be a vital facility until corporations can find an alternative," said Bill Larkin, portfolio manager at Cabot Money Management. "Companies can't operate without access to the commercial paper markets."

Several dozen companies registered for the Fed's program, including General Electric Co. (GE, Fortune 500), which is reportedly the largest issuer of commercial paper. Morgan Stanley (MS, Fortune 500) topped the name of Wall Street firms that registered. Car and home financer GMAC (GMA) said it was approved to make use of the facility, and American Express (AXP, Fortune 500) said it intends to use the facility as early as this week, but it did not yet sell paper to the Fed.

"American Express is always interested in broadening its sources of funding, and the CPFF provides us with access to a reliable source of short-term funding beyond 30 days," said company spokeswoman Jo Lambert.

The Fed could buy about $250 billion of paper to restore the market to its pre-credit-crisis levels, according to Lyle Gramley, a former Fed governor and current Stanford Group economist. And the number of participating companies - and the amount of paper that the Fed will buy up - could grow in coming weeks and months.

The Fed said it will not cap the total amount it lends out, but the central bank will limit purchases of companies' debt to the greatest amount of paper the company had outstanding this year. The amount of paper that the Fed bought will not be known until Thursday, when the central bank will make a weekly announcement about the facility's cost.
Crumbling market

Commercial paper is short-term debt that big businesses and financial institutions sell primarily to money-market fund managers and other institutional investors. The companies use the loans to fund day-to-day business operations, but the market has dried up as confidence on Wall Street has waned.

Since Lehman Brothers filed for bankruptcy on Sept. 15, total commercial paper has plunged by 20% - the greatest drop on record. Commercial paper outstanding is now at its lowest point since April 2005.

"The problem has grown in scope and magnitude over the past month more than anyone could have imagined," said Scott Anderson, senior economist with Wells Fargo. "Liquidity is freezing up in the short-term lending market, which can snowball very quickly into payroll cuts and other nasty developments."

Three-month paper has found the fewest buyers. Investors are worried that they'll end up holding debt for a company that won't be able to pay them back - or won't be there at all at the end of the maturation period. The vast majority of outstanding paper matures in a week or less, so companies have been forced to refinance their debt weekly - or even daily - and many have not been able to meet their credit needs. The lack of longer-term lending is worrisome for companies looking for financing for the last few months of the year.

The fourth quarter is the most critical period for lending, as financial institutions are hesitant to lend with the risk of taking a hit to their balance sheets at the end of the fiscal year. Uncertainty over the looming election has also made investors weary of doling out their funds.
Lower rates may be contagious

The central bank will charge a floating interest rate that will begin at 1.88% for unsecured debt and 3.88% for asset-backed commercial paper. Paper of lower credit quality is often backed with assets to entice borrowing, but rates are higher. The Fed's rates are competitive with current market rates and are lower than the 2.5% to 5% that borrowers were charged when the credit crisis first took hold in mid-September.

Some economists believe that the Fed's commercial paper rates will nudge other rates lower, like the 3-month Libor interbank lending rate, which currently sits at a high 3.51% level. That would be a major boost for the strangled credit market, as more than $350 trillion is assets are tied to Libor.

"The goal of the central banks is to lower Libor rates, because borrowing is so expensive for companies now," Anderson said. "There is no one magic solution, but this program will help lead to lower rates."

The Fed's actions have been criticized by some analysts who believe the facility doesn't address the sellers of lower quality paper, who have suffered the most since the credit crisis put a stranglehold on lending. Still, other economists say the Fed's efforts to buy up large amounts of commercial paper will restore confidence to the market.

GM signals more cuts

2008-10-23T06:53:00.001-07:00

General Motors expects to meet or exceed its target for a 20% reduction in the cost of its salaried workforce, but a worsening sales outlook is likely to force additional cost and staffing reductions, a company spokesman said Thursday.

Final numbers on an early retirement program announced this summer are not yet available, said GM spokesman Tom Wilkinson, as many who signed up are still within a window during which they can change their mind. The final figure is due on Nov. 1.

GM has 32,000 U.S. salaried employees, and since it has set a 20% cost target rather than a headcount reduction goal, it has yet to say how many employees it expects will be leaving the company under the program. The company has previously announced some changes in health insurance for salaried staff that will meet some of the cost cut target.

Given the continued contraction in both North America and European sales, further moves to cut costs are likely, Wilkinson confirmed, including possible additional job reductions.

"We'll continue to assess our overall staffing needs," Wilkinson said. "Everybody in the business is looking at ways to tighten their belt."

The plans are detailed in a letter from Bill Tate, the head of human resources for GM North America, informing executives that GM (GM, Fortune 500) is taking immediate steps to reduce costs. They include suspending its matching contributions to 401(k) as of Nov. 1, and also suspending tuition reimbursement and adoption assistance as of the end of the year.

GM's U.S. sales have plunged 18% so far this year, while European sales have also fallen.

No additional cost or headcount reduction target is spelled out in the letter. There was also discussion of a potential merger between GM and Chrysler LLC. Talks of a possible combination have been widely reported, but it is not clear such a deal will be able to be completed. To top of page

Oil falls to $71, Opec-style gas cartel possible

2008-10-21T08:17:00.000-07:00

Oil prices fell to $71 a barrel Tuesday as investors expected OPEC to try to halt a three-month slide in prices by cutting production quotas by at least 1 million barrels a day.

At the same time, gains by the U.S. dollar against the euro were putting the brakes on any gains in oil prices.

"The general trend is still of uncertainty," said analyst Olivier Jakob of Petromatrix in Switzerland.

By midday in Europe, light, sweet crude for November delivery was down $2.76 to $71.49 a barrel in electronic trading on the New York Mercantile Exchange. Earlier in the session, it rose as high as $75.69. The contract gained overnight $2.40 to settle at $74.25.

Prices closed as low as $69.85 a barrel last week, down 53 % from a record $147.27 on July 11.

In London, November Brent crude was down 62 cents to $71.41 a barrel on the ICE Futures exchange.

"It definitely looks like a cut is in the cards," said Victor Shum, an energy analyst at consultancy Purvin & Gertz in Singapore. "A cut of at least 1 million has been priced in. A cut much larger than 1 million could move prices higher."
OPEC meeting

The Organization of Petroleum Exporting Countries, which accounts for about 40% of global oil supply, plans to announce an output reduction at a meeting on Friday at its headquarters in Vienna, said the group's president, Chakib Khelil.

Khelil has said OPEC may cut output again at a meeting in December, and that the group considers the oil market oversupplied by about 2 million barrels a day.

Investors are also keeping a close eye on whether non-OPEC producers, such as Russia, will reduce supply as analysts lower price expectations for next year. Deutsche Bank on Monday cut its 2009 oil price forecast to $60 a barrel from $92 and predicted $57.50 for 2010.

"Producers are getting concerned about this downward spiral in pricing since the summer," Shum said. "Some governments have based their budgets higher than current prices."

Rising global stock markets have also supported prices this week.

Federal Reserve Chairman Ben Bernanke told the House Budget Committee on Monday that a fresh round of government measures might help ease the country's economic weakness. There were also signs of a reviving credit market as bank-to-bank lending rates eased further.

Stock indexes across Asia rose Tuesday, with Japan's benchmark Nikkei 225 stock average up 3.3 %. The Dow Jones industrials average rose 4.7 `% Monday.

"Lately oil has traded in sync with equities as traders look to equity markets for indications of the macro-economic outlook," Shum said.
Dollar gains

On the negative side for oil, the dollar continued to rise against the euro and the British pound, a trend which can draw investors out of commodities.

By midday in Europe, the euro was down to $1.3240 from $1.3323 in the previous session, while the British pound bought $1.7069 compared with $1.7121 late Monday in New York.

In other Nymex trading, heating oil futures rose 1.01 cents to $2.22 a gallon, while gasoline prices lost 46 cents to $1.7155 a gallon. Natural gas for November delivery gained 2.4 cents to $6.765 per 1,000 cubic feet.

Iran's oil minister says the Islamic republic, Russia and Qatar discussed the formation of an OPEC-style cartel of gas exporting countries.
Gas exporters

Iranian Oil Minister Gholam Hossein Nozari says that the top three countries with natural gas reserves will "seriously pursue the formation of an organization of gas exporting countries."

Nozari spoke on state TV Tuesday after a joint meeting with his Qatari counterpart Abdulla Bin Hamad al-Attiya and the head of Russia's Gazprom Alexei Miller.

He said the three parties decided to further discuss the cartel at the next meeting of their foreign ministers.

The idea of formation of the gas cartel was first raised by Iran when then-president of Russia Vladimir Putin visited Tehran in 2007.

Global effort thaws credit freeze

2008-10-20T07:38:00.001-07:00

With two more countries entering the global fight to stem the world's financial crisis, lending rates continued to fall Monday, signaling the worldwide effort was working to ease the stranglehold on lending.

Three major gauges of the credit market showed a moderate increase in interbank and corporate lending. Banks are charging each other less for loans, and though still at elevated levels, businesses' fears about issuing loans have begun to subside.

The overnight Libor rate fell to 1.51% from 1.67% Friday, according to Bloomberg.com. Libor is a daily average of what 16 different banks charge other banks to lend money in London and is used to calculate adjustable rate mortgages. The higher the rate, the tougher it could be for homeowners to pay those mortgages.

Two weeks ago, overnight Libor spiked as high as 6.88% after the Treasury's $700 billion bailout bill was signed into law on Oct. 3.

For the first time in more than a month, the overnight bank lending rate is at about the rate that the federal banks charge banks - a sign that credit markets are returning to normalcy. The federal funds rate is at 1.5%.

Longer-term lending, though loosening, is still tight: The 3-month Libor marched lower for the sixth day in a row, falling to 4.06% from 4.42% Friday, according to Dow Jones. Last week, the 3-month Libor surged to 4.82% - the highest since mid-December 2007. By comparison, it was under 3% about a month ago.

Overseas help: The South Korean government said it would guarantee up to $100 billion in foreign-currency loans and pump $30 billion into the banking sector. On Sunday, the Dutch government it would inject $13.4 billion into ING Groep NV to shore up the bank and insurance company.

The moves are similar to actions taken by the U.S. government and European banks in recent weeks to encourage lending between financial institutions.

"The actions seem to be restoring a little confidence," said Kim Rupert, fixed income analyst with Action Economics. "There are signs that there are enough backstops in the market to free up lending a bit."

While banks had already tightened their lending last summer amid the housing implosion, the markets got really squeezed after Lehman Brothers collapsed last month. The fear was that if one major investment bank could go under in a matter of days, then other seemingly secure firms might not be able to repay their loans.

Federal Reserve chairman Ben Bernanke said in testimony before the House Budget Committee Monday that the fear factor made credit become rare and expensive.

"Withdrawals from prime money market mutual funds, which are important suppliers of credit to the commercial paper market, severely disrupted that market; and short-term credit, when available, has become much more costly for virtually all firms," Bernanke said. "Households and state and local governments have also experienced a notable reduction in credit availability."

As a result, governments around the globe have worked with their central banks to cut interest rates, increase currency exchange programs and pour capital into banks to boost liquidity. The Federal Reserve also will begin to backstop short-term corporate lending next Monday in an effort to unclog the credit pipelines.

"I am confident that these initiatives ... will help restore trust in our financial system and allow the resumption of more normal flows of credit to households and firms," Bernanke added.

If banks don't issue loans, and if companies don't lend to one another, it becomes more difficult for Americans to finance a car, a home or college. Businesses have difficulty securing short-term money to pay the bills, and payrolls can get trimmed.

"The government poured a massive amount of liquidity in the system and also guarantees," Rupert said. "The big question is whether or not the intervention is enough to continue to restore confidence in the markets."

Market gauges: But confidence that the global effort to fight the financial crisis was working eased fears in the credit market Monday. That was evident in some market indicators.

The "TED spread" declined to 3.17 percentage points from 3.63 points Friday, signaling some restoration of confidence in banks. The TED spread measures the difference between the 3-month Libor and the 3-month Treasury bill, and is a key indicator of risk. The higher the spread, the more unwilling investors are to take risks. The spread was 1.04 percentage points just a little over a month ago and reached a record high of 4.65 points just over a week ago.

Another indicator, the Libor-OIS spread, also edged slightly lower to 2.93 percentage points from 3.28 points Friday. The Libor-OIS spread measures how much cash is available for lending between banks, and is used for determining lending rates. The bigger the spread, the less cash is available for lending.

Still, the gauges remain high and still have room to fall.

"It's still dicey out there," Rupert said. "We'll probably need to get through the year end without any bumps before we can return to normalcy."

Treasurys: Government debt prices were lower Monday, as the stock market rose on the global coordinated effort to fix the financial crisis. Investors also cheered Bernanke's suggestion that Congress offer another economic stimulus package.

With investors showing more appetite for risk, the benchmark 10-year note was down 1/32 to 100-16/32 and its yield rose to 3.94% from 3.93% late Friday. Bond prices and yields move in opposite directions.

The 2-year note fell 2/32 to 100-21/32 and its yield rose to 1.66% from 1.62% late Friday.

The 30-year bond was unchanged at 102-31/32, and the yield held at 4.34%.

The yield on the 3-month bill rose to 0.90%, up from 0.79% on Friday. The yield on the 3-month Treasury bill is closely watched as an immediate reading on investor confidence. Investors and money-market funds shuffle funds into and out of the 3-month bill frequently, as they assess risk in the rest of the marketplace. A higher yield indicates that investors are slightly more optimistic.

Stocks cut losses

2008-10-17T09:23:00.000-07:00

Stocks retreated near midsession Friday, although not by as much as earlier in the day, as renewed recession fears were tempered by Google's earnings and bullish comments from influential investor Warren Buffett.

Treasury prices rallied, lowering the corresponding yields, and the dollar weakened against other major currencies. The credit market showed some signs of loosening, as several key lending rates declined.

The Dow Jones industrial average (INDU) lost 1% over two hours into the session after having fallen as much as 261 points in the early going. The Standard & Poor's 500 (SPX) index lost 0.7%, erasing bigger losses. The Nasdaq composite (COMP) was little changed.

The Dow rose 401 points Thursday at the end of a seesaw session that saw the blue-chip indicator fall as much as 380 points in the morning.

Early Friday, the tone was decidedly negative as investors focused on poor readings on housing and consumer sentiment. But the volatile market rebounded a little shortly after.

Home construction tumbles: Housing starts fell to a 17-year low in September, according to a government report released Friday before the market opened. Starts fell to a seasonally adjusted 817,000 in the month from 872,000 the previous month. Economists were expecting a smaller decline.

Applications for building permits, considered a good indicator of future activity, fell to a seasonally adjusted rate of 786,000 in September, down from a revised 857,000 in August. Economists were expecting a smaller decline. (Full story)

Another economic report, the University of Michigan's consumer sentiment index, fell to 57.5 in October from 70.3 at the end of October, the biggest month-over-month slide in the history of the report. Economists surveyed by Briefing.com thought it would slide to 65.

Company news: Google (GOOG, Fortune 500) reported higher-than-expected third-quarter earnings Thursday night, on revenue that was in line with forecasts. The search engine's shares rose 7% Friday morning. (Full story)

Also late Thursday, Advanced Micro Devices (AMD, Fortune 500) reported a narrower quarterly loss, while IBM (IBM, Fortune 500) reported higher profit that beat estimates, after pre-announcing the results last week. AMD shares jumped 7% while IBM shares were little changed.

In financial services news, AIG (AIG, Fortune 500) said late Thursday that it has tapped another $12 billion in emergency government funding, bringing its total to $82.9 billion as it struggles to stay afloat. AIG fell 6%. (Full story)

Among other movers, Merck (MRK, Fortune 500) gained 4% after UBS upgraded it to "neutral" from "buy," Briefing.com reported.

Bush and Buffett: President Bush, speaking early Friday, reiterated the steps that the government has taken to try to stabilize roiling financial markets. (Full story)

While investors have welcomed many of the steps the government and world banks have taken to get money flowing again, stocks have remained volatile and mostly negative. Year-to-date, the Dow, S&P and Nasdaq are all down at least 30%.

On Friday, Berkshire Hathaway (BRK.A) head honcho Warren Buffett said in a New York Times commentary that he is moving to stocks from Treasurys in his personal portfolio.

The influential investor said business activity will continue to dwindle and the economy to struggle. But the fear surrounding the economic slowdown and the credit crisis has left stocks with attractive valuations. (Full story)

Credit market: Lending rates have improved this week, as the government initiatives have started to have an impact. (Full story)

Libor, the overnight bank-to-bank lending rate, fell to 1.67% from 1.94% late Thursday, according to Bloomberg.com, a more than 4-year low. But longer-term rates have fallen more slowly. The three-month Libor, what banks charge each other to borrow for three months, fell to 4.42% from 4.50% Thursday.

Another indicator, the Libor-OIS spread, a measure of cash scarcity, fell to 3.31% from 3.39% Thursday.

The TED spread, which is the difference between what banks pay to borrow from each other for three months and what the Treasury pays, narrowed to 3.83% from 4.11% late Thursday. The spread hit a record 4.65% last week. The wider the spread, the more reluctant banks are to lend to each other.

Credit froze up in the wake of the housing market collapse, the subsequent subprime lending fallout and contraction in the bank sector. The lack of available credit has punished the already weak economy, making it difficult for businesses to function on a daily basis and for consumers to get loans.

The Federal Reserve has made potentially trillions of dollars available to banks. Earlier this week, the U.S. government said it would invest at least $250 billion in the nation's banks as part of the $750 billion bank bailout plan.

Treasury prices were little changed, with the yield on the 10-year note at 3.97%. Treasury prices and yields move in opposite directions.

The yield on the 3-month Treasury bill, seen as the safest place to put money in the short term, rose modestly to 0.61% from 0.48% late Tuesday. The low yield shows investors are still willing to take a meager return on their money rather than risk the stock market.

Last month, the yield on the 3-month bill skidded to a 68-year low around 0%.

Other markets: Global markets were mixed. In Asia, Hong Kong's Hang Seng index fell 4.4%, while Japan's Nikkei gained 2.8%. European markets were mostly higher in afternoon trading there, with the London FTSE up 4.5%.

U.S. light crude oil for November delivery rose $1.19 to $71.04 a barrel on the New York Mercantile Exchange after ending the previous session at a 13-month low.

Bets that demand is slowing have sent oil prices lower since crude hit an all-time high of $147.27 a barrel on July 11. So far, instead of providing relief to investors, the decline has been seen as another indication of the global economic slowdown.

Gasoline prices fell another 4.4 cents overnight, to a national average of $3.04 a gallon, according to a survey of credit card activity by motorist group AAA. It was the 30th consecutive day that prices have decreased - in the past month alone, they're down more than 81 cents a gallon.

COMEX gold for December delivery slumped $21.50 to $783 an ounce. A variety of other commodities declined as well.

In currency trading, the dollar fell against the euro and the yen.