Fending off empty holiday shelves

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

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

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

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?

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

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

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

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.