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Stocks: Worst week since November

2011-02-25T16:15:00.001-08:00

U.S. stocks closed solidly higher on Friday, but fears about Libya and the oil markets translated into the worst week for stocks since November.

The Dow Jones industrial average (INDU) rose 62 points, or 0.5%, to 12,130; the S&P 500 (SPX) rose 13.8 points, or 1.1%, to 1,320; and Nasdaq Composite (COMP) gained 43 points, or 1.5%, to 2,781.05.

The Dow was led higher by shares of Boeing (BA, Fortune 500), which rose 2.2% after the aerospace giant won a $35 billion tanker contract from the Air Force. Shares of Intel (INTC, Fortune 500) also led the blue chips higher, closing up up 2.7%.

Today's gains come after the Dow posted losses for three consecutive sessions following the increased violence in Libya and rapidly rising oil prices. The S&P 500 is down 1.7% this week, the Dow Jones fell 2.1% and the Nasdaq lost 1.9%. It was the worst week for stocks since the week of Nov 12.

Part of today's market gain was related to the price of oil, investors said. Crude swung between modest gains and losses on Friday, trading at around $98 a barrel in late-morning trading. While still hovering near $100 a barrel, crude is now about $5 below the high it hit earlier this week.

Marc Pado, chief market strategist for Cantor Fitzgerald, said he believes the oil market has calmed from its "panic mode" earlier this week. Even if oil does continue to rise above $100, Mado said he isn't as worried as he was three years ago during the commodities bubble of 2008.

"I don't think $100-a-barrel oil prices are as a big of a concern for the market as they were [then] because we have the economic growth to absorb some of these higher prices," Pado said.

But Paul Zemsky, head of asset allocation with ING Investment Management, said he doesn't expect today's stock gains to hold going into next week if Libya remains in turmoil.

"I see this as a short-term bounce, if violence in oil producing countries continues, it's going to easily bring more fear into the stock and oil markets," Zemsky said.

On Thursday, stocks rebounded from afternoon lows to finish with small losses, as oil prices retreated from two-year highs above $100 a barrel.

Economy: The U.S. Bureau of Economic Analysis reported real gross domestic product increased at an annual rate of 2.8% in the fourth quarter. This is a revision from a preliminary report.

The GDP revision was much less than the 3.3% increase economists forecasted, according to a consensus survey by Briefing.com.

A final read on February's University of Michigan consumer sentiment survey also is on the docket. The index is expected to remain unchanged at 75.1.

Companies: Autodesk (ADSK) shares jumped 6% after the company reported a 23% rise in earnings after Thursday's closing bell.

Shares of Salesforce.com (CRM) rose 3.4% on Friday after the company reported a 29% jump in fourth-quarter sales.
0:00 /01:13Buying Boeing

World markets: European stocks closed broadly higher on Friday. Britain's FTSE 100 added 1.4%, the DAX in Germany ticked up 0.8% and France's CAC 40 gained 1.5%.

Asian markets ended the session mostly higher. The Shanghai Composite was flat, while the Hang Seng in Hong Kong rose 1.8% and Japan's Nikkei added 0.7%.

Currencies and commodities: The dollar gained strength against the euro and the British pound, but slipped against the Japanese yen.

Oil for April delivery closed up rose 91 cents, or 0.94%, to $98.19 a barrel.

Motorists are feeling the spike. The nationwide average price for gasoline rose nearly 6 cents overnight, according to AAA. This means that prices have jumped nearly 12 cents this week.

Gold futures for April delivery dipped $6.50, or about 0.5%, to $1,408.30 an ounce.

Bonds: The price on the benchmark 10-year U.S. Treasury edged higher, with the yield hitting 3.43%

Stocks open higher after jobless claims dip

2010-12-09T06:52:00.001-08:00

Stocks edged higher Thursday following slightly better-than-expected data on the the number of Americans filing for first-time unemployment benefits.

The Dow Jones industrial average (INDU) was up 14 points, or 0.1%, shortly after the opening bell. The S&P 500 (SPX) gained 4 points, or 0.3%. The tech-heavy Nasdaq (COMP) 10 points, or 0.4%.

Trading has quieted down as investors have started looking toward next year.

On Wednesday, stocks managed to eke out gains as a rebound in bank shares offset weakness in commodities, and concerns about rising interest rates in the Treasury market.

The recent sell-off in Treasuries abated Thursday, with the yield on the 10-year note easing off a 6-month high. Oil and gold prices rose, despite a stronger U.S. dollar.

With little compelling news on the docket, trading will likely remain lackluster. "The economic calendar has been really thin so the market has been looking ahead to 2011," said Scott Brown, chief economist at Raymond James. "I think the real debate is the strength of the economy in 2011."

Most economists agree the economy will continue to grow next year, but the pace won't necessarily be strong enough to push the unemployment rate lower, said Brown. Just last week, the government reported that the unemployment rate rose to 9.8% in November.
10 best stocks for 2011

Economy: The number of people filing for initial jobless claims fell 17,000 to 421,000 in the latest week from 436,000 the previous week, the Labor Department said in its most weekly jobless claims report. Economists had expected the number to decrease to 429,000.

Initial unemployment claims help give a read on the labor market. "But this time of year it tends to be pretty choppy, and that is due to difficulties in the seasonal adjustments," said Brown. "The numbers can really jump around week to week." He said the focus should remain on the four-week moving average, rather than the weekly gains or losses.

The four-week moving average, which is calculated to smooth out volatility in the data, fell by 4,000 to 427,500.

After the opening bell, the Commerce Department will release a report on wholesale inventories that is expected to show inventories fell to 0.7%, from 1.5% in October.
0:00 /BullHorn: Food, autos, DVDs, silver

Companies: Howard Stern announced that he has re-signed with SiriusXM (SIRI) Radio for five years, sending Sirius' stock rising 6% in early trade.

Tech giant Dell (DELL, Fortune 500) made a bid for Compellent Technologies Inc. (CML) for $27.50 a share -- well below the $33.65 per share the data storage company closed at on Wednesday.

Dell and rival HP (HP) were in an intense bidding war over another data storage company, 3PAR (PAR), recently. HP ended up acquiring 3PAR, so Dell's move to take over Compellent could be Dell's reaction to losing the bidding war. Shares of Compellent fell 12% in early trade, while shares of Dell were little changed.
Businesses racing against the tax clock

Freeport- McMoRan (FCX, Fortune 500) announced plans to pay a special dividend of $1 per share this year. The copper and gold producer also declared a two-for-one split of its common stock.

After the market close, Green Mountain Coffee (GMCR) is expected to report an earnings per share of 20 cents, down from the 34 cents per share it reported a year ago.

On Wednesday, the corporate websites of Visa and MasterCard appeared to be under cyberattack by purported Wikileaks backers. Shares of Visa and MasterCard were little changed.

World markets: European stocks were mixed in morning trading. Britain's FTSE 100 rose 0.3%, the DAX in Germany dipped 0.1% and France's CAC 40 rose 0.6%.

Asian markets also ended the session mixed. The Shanghai Composite shaved 1.3%, the Hang Seng in Hong Kong added 0.3% and Japan's Nikkei gained 0.5%.

Currencies and commodities: The dollar rallied against the euro and the British pound, but fell slightly against the Japanese yen.

Oil for January delivery gained 4 cents to $88.32 a barrel.

Gold futures for February delivery edged up $6.30 to $1,389.50 an ounce.

Bonds: The price on the benchmark 10-year U.S. Treasury note rose slightly, pushing the yield down to 3.22%. The yield rose to a high of 3.33% Wednesday, up 36 basis points from Monday, the biggest two-day gain since September 2008.

Essential Foods For Baby Growth

2010-07-07T17:44:00.000-07:00

Healthy and a nutritious diet are very important to ensure that your babies' growth is normal and that he grows up to be healthy and active. So you need to be very aware what is essential for that growth of your baby. So we are here going to list some elements that are really essential foods that contain it.

* Calcium: Calcium is one of the most important constituent in a kid's diet. It is essential for the normal growth of the bones and teeth and making them strong. These are the foods that contain calcium milk, green vegetables, baked beans, yoghurt, salmon and various others.

* Iron: Iron is essential for maintaining healthy red blood cell count and its deficiency can lead to anemia. Although it's stored in kids' body up till the age of six months, it starts getting depleted after that so it's essential a diet full of Iron. Foods that have Iron are cereals, pulses, red meat, and green vegetables.

* Protein: Protein is essential in baby's diet to maintain healthy growth of muscles carries nutrients and are also essential in fighting infections. Protein rich foods are fresh fruits, vegetables, Soy Sauce, Beans and Cheddar cheese.

Although this gives you some idea, you should always consult a pediatrician on what is good for your baby's health.

Repair your bad credit

2010-07-07T17:40:00.000-07:00

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'No smoking gun' in flash crash

2010-05-11T14:26:00.002-07:00

Last week's brief-but-historic stock market plunge was triggered by a combination of unusual factors, but its ultimate cause remains a mystery, executives from the nation's leading stock exchanges and market regulators told Congress on Tuesday.

A House Financial Services subcommittee is investigating the causes of the so-called flash crash and exploring ways to safeguard markets against technical glitches and erroneous trades.

Among those set to testify at a hearing Tuesday are regulators as well as representatives of NYSE Euronext and the Nasdaq Omx Group.

"Nasdaq continues to investigate Thursday's events, but has at present located no 'smoking gun' that single-handedly caused or explains Thursday's events," Eric Noll, executive vice president of Nasdaq, said in written testimony.

Mary Schapiro, chairwoman of the Securities and Exchange Commission, said that the SEC cannot point a single cause behind the events of May 6. The Dow Jones industrial average plummeted 1,000 points, representing about $1 trillion in market value, between 2:40 p.m. and 3:00 p.m. ET last Thursday.

The market recovered about 650 points of that loss nearly as quickly as it fell. But the free fall raised serious questions about the stability of electronic trading and has prompted talk of new regulations.
0:00 /5:11NYSE trader: Selloff more than a glitch

Schapiro said her agency's preliminary investigation has looked at a sharp drop in the value of a particular stock future called the E-mini S&P 500, which investors use to bet on the future performance of stocks in the broad stock index.

The E-mini S&P 500 futures price fell by more than 5% in a few minutes and then quickly recovered, according to Schapiro.

"It should be no surprise that the broader stock market indexes showed similarly fast and similarly large declines and recoveries," Schapiro said, since stock prices follow futures prices.

But the correlation doesn't fully explain what happed on Thursday, she added, saying "It could have as readily been events or anomalous activities in individual stocks that caused someone to trade first in the futures markets."

The SEC is also looking into "massive intraday price swings" in shares of many Exchange Traded Funds as a possible factor in the crash, Schapiro said. The shares of more than a quarter of all ETFs experienced brief declines of more than 50% in Thursday's tumult.

"Ultimately, we may learn that the extraordinary disruption in trading, however it may have been triggered, was the result of a confluence of events which, taken together, exacerbated what already had been a down day and led to an extraordinarily steep price drop and recovery," said Schapiro.
Circuit breaker champion has second thoughts

At the same time, the SEC has found no evidence of "fat finger" errors, which occur when a trader mistakenly orders billions of shares instead of millions, according to Schapiro. But such trades cannot be completely ruled out as a contributing factor.

Schapiro also said it's unlikely that exceptionally large orders in Proctor & Gamble (PG, Fortune 500) shares caused the meltdown. In addition, she said the SEC has found no information to suggest the collapse was caused by hackers or terrorists.

Separately, the Securities and Exchange Commission and Commodity Futures Trading Commission Chairman announced a new joint committee that will address emerging regulatory issues.

The committee will conduct a review of last Thursday's market events and the disparate trading conventions and rules across various markets.

Noll, the Nasdaq executive, and Larry Leibowitz, chief operating officer of NYSE Euronext, told lawmakers that markets were jittery going into Thursday's tailspin -- a factor that could have contributed to the abrupt and panicky selloff.

The two executives also indicated that a lack of coordination between exchanges, allowing electronic trading to continue after manual trading had been paused, was a factor.

"Although some of the underlying economic and global financial conditions that influenced this selling activity are known, the exact succession of events and what precipitated them remain unclear," Leibowitz said.

Noll testified that the crash was triggered by "a confluence of unusual events," adding that Nasdaq experienced "no system malfunctions or aberrations."

The SEC and representatives from the six main stock exchanges, along with the Financial Industry Regulatory Authority, agreed on Monday to a "structural framework" aimed at preventing a repeat of Thursday's crash.

The framework would strengthening circuit breakers, trigger points that stocks need to hit before trading can be halted, and steps for handling erroneous trades. It will be refined Tuesday, according to Schapiro.

In addition, she said commission staffers are now stationed at all major markets to monitor trading as of Monday.

Gold soars to record high

2010-05-11T14:26:00.001-07:00

Gold settled at a new all-time high Tuesday, after building upward momentum during a volatile day for the stock market.

What prices are doing: Gold for June delivery rose $19.50, or about 1.62%, to $1,220.30 an ounce, surpassing its all-time high.

Gold posted its last record high on another volatile trading day, Dec. 3, 2009, when it settled at $1,218.30 an ounce.

What's moving the market: Gold rallied 2% when the Dow plunged nearly 1,000 points on Thursday, with the precious metal closing that day at $1,197.30.

Uneasiness about a volatile stock market boosts the appeal of safer investments like gold. Although the stock market has since recouped much of Thursday's losses, many investors remain nervous about the European debt crisis, despite the nearly $1 trillion euro zone bailout that was unveiled this weekend.

What analysts are saying: "The finances of governments around the world are in such sad shape that investors are looking for a currency that is solid and they know will retain its value," said Joe Foster, a portfolio manager with Van Eck International Investors Gold Fund.

Some investors fear Europe's rescue package will speed up inflation in the region and weaken the euro as a reserve currency, said Jeffrey Nichols, managing director of American Precious Metals Advisors and a senior economic advisor to precious metals dealer Rosalind Capital. That will continue to drive investors toward safe-haven commodities like gold, he said.

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2010-05-11T14:25:00.001-07:00

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Just when you thought it was safe: Foreclosures spike

2010-04-17T09:25:00.001-07:00

The housing market has seen some positive signs recently, such as stabilizing home prices and increased sales, but foreclosures continue to haunt the market.

In the first three months of 2010 foreclosure filings rose 7%, to more than 930,000, compared with the previous quarter, according to the online foreclosure marketing firm RealtyTrac. That is a 16% jump over the first three months of 2009.

Foreclosures started off the first quarter with modest gains but spiked in March to a record 367,000 filings. Plus, nearly 258,000 of those filings were for bank repossessions, the highest quarterly total RealtyTrac has ever reported.

"It looks like the log jam is finally breaking up," said Rick Sharga, a RealtyTrac spokesman. "A lot of foreclosures had come into the process and then just stopped."
State by state

Nevada continued to dominate the foreclosure rankings, with one in ever 33 homes receding a filing during the quarter. This is the state's 13th consecutive quarters in the top spot.
0:00 /2:39Whitney: Housing set to fall again

Arizona had one for every 49 units, Florida one for every 57 and California one for every 62. The Golden State, by far the nation's most populace, had a total of more than 216,000 filings, more than any other state and 23% of the nation's total foreclosure activity.

Other poor performers included Utah, where the foreclosure rate jumped 75%, Michigan and Georgia.

The least affected states included Vermont (one in 8,932), West Virginia (one in 4,010) and North Dakota (one in 2,161).

March jobs report shows growth

2010-04-04T10:34:00.000-07:00

The U.S. economy gained more jobs in March than any other month in the last three years, according to a government report released Friday.

The Labor Department said the economy gained 162,000 jobs in the month, compared to a revised reading of a 14,000 job loss in February. That makes March only the third month of gains since the recession began

Economists surveyed by Briefing.com had forecast a gain of 184,000 jobs. But despite missing forecasts, the March number was generally not seen as a disappointment by economists, because revisions in January and February readings added a combined 62,000 additional jobs.

The unemployment rate remained stubbornly high, holding steady at 9.7%, matching economist expectations.

"The third increase in jobs in the past five months indicates that the labor market has begun to stabilize," said Sung Won Sohn, professor at California State University Channel Islands. "However, a sustained gain in employment is some time away."

While the news was positive, there were a number of short-term factors that inflated the reading, including an addition of 48,000 by the Census Bureau as it geared up for the once-in-a-decade headcount of the U.S. population. Some economists had feared that even more of March's gain would be due solely to Census hiring, so the modest gain was viewed favorably.

March's job gain was also bolstered by weather factors -- February's numbers had been depressed by temporary job losses related to severe winter storms last month.

Still, the report was good news overall for an economy that has suffered a net loss of 8.2 million jobs since the start of 2008, a month after the official start of the recession.

"Employers aren't looking at this and saying, great it's over, I can go hire," said Tig Gilliam, CEO of Adecco Group North America, a unit of the world's largest employment staffing firm. "But it's moving in the right direction."

President Obama trumpeted the report Friday, saying it is a sign that the stimulus package passed a year ago has reversed the loss of about 700,000 jobs a month that was taking place at that time.

He appeared Friday at a company in Charlotte, N.C., that makes membranes for lithium batteries. It received a $50 million matching grant from the $787 billion stimulus program last year, to expand one facility there and open another elsewhere in the state.

"Government can't reverse the toll of this recession overnight, and government on its own can't replace the 8 million jobs that have been lost," he said. "The true engine of job growth in this country has always been the private sector. What government can do is create the conditions...for companies to hire again."

He said many Americans are still suffering from the job losses of the last two years. But he said despite the damage done to the labor market during the recession, the economy is poised to start adding the jobs people need.

"What we can see here, at this plant, is that the worst of the storm is over; that brighter days are still ahead," he said.

Republican National Committee Chairman Michael Steele issued a statement saying the jobs gain in Friday's report is not a sign of economic health.

"No matter what spin the White House puts on these job numbers, it is unacceptable for President Obama to declare economic success when unemployment remains at 9.7% and a large portion of the job growth came from temporary boost in government employment," he said.
A rising tide

Perhaps the most encouraging sign in the report was that the gains were spread across various sectors of the economy -- 60% of industries added jobs -- the most widespread gains seen across the economy in four years.

That rising tide of hiring brought relief to some long-suffering sectors of the economy. Construction added 15,000 jobs, the first increase of any kind in the sector since June 2007. Manufacturing also added 17,000, with 2,500 of that gain coming at auto plants and their parts suppliers.

Retailers added nearly 15,000 jobs and leisure and hospitality accounted for 22,000 more jobs.

"In a word, it's a resilient recovery," said Lakshman Achuthan, managing director of Economic Cycle Research Institute. "All these areas are stabilizing and moving forward. That's the hallmark of a recovery."
A deep hole

While the report was good news for job seekers, it also contained sobering readings for the depth of labor market pain that has built up over the last two years.

There are 15 million people counted as unemployed, down 607,000 since the record high hit in October, but still the fifth highest total on record. The average time those unemployed have been out of a job now stands at just under eight months, a record-long duration.

"For those laid off, unemployment is stretching longer and longer and putting severe distress on families," said Christine Owens, executive director of the National Employment Law Project, a New York-based advocacy group for the unemployed. "The long slog of looking for work and surviving on jobless benefits is going to continue for millions of Americans."
0:00 /2:30Jobs return to Harrisburg, Pa.

Almost 1 million more have become so discouraged that they've stopped looking for work altogether and are no longer counted in the unemployment rate.

But the number of discouraged job seekers fell by just over 200,000 since February, an indication that job seekers are also sensing an improving market and are again looking for work.

"Right now is the time when you're not wasting effort to hit the pavement," said Achuthan. "Employers do want to hire."

The average hourly work week crept up 0.1 hours in March, an indication that employers are restoring the hours of employees who had their shifts and pay cut during the recession. But there are still 9.1 million people working part-time jobs who want to be working full-time, up more than 250,000 since February.

The average hourly wage slipped 2 cents to $22.47. But the longer average work week lifted the average weekly paycheck by $1.57 to $763.98.

Taken as a whole across the economy, that will put more money into consumers' pockets and help spur more spending, which in turn should produce more hiring into the future.

Can you still get a 5% mortgage?

2010-03-24T19:49:00.000-07:00

There's still time to get a 5% mortgage -- but the window is closing.

On April 1, the government will stop buying mortgage-related debt, which will send interest rates slowly higher

Since November 2008 the Federal Reserve has snapped up $1.25 trillion worth of mortgage-backed securities -- essentially, people's mortgages bundled together and sold to investors.

The program has kept interest rates artificially low over the past year, with the price of a 30-year fixed-rate loan ranging between 4.93% and 5.09%, according to mortgage giant Freddie Mac.

That's about 0.4 percentage points lower than these loans would have been without the government's intervention, according to Jay Brinkmann, chief economist for the Mortgage Bankers Association.

But when the Fed stops buying and cedes the playing field to private investors, they will almost surely demand better return for their risk.

"Rates are going to be higher than they are now," said Brinkmann.

How much higher is the question.

"It's really hard to tell right now," said Amy Crews Cutts, Freddie Mac's deputy chief economist. "The Fed said it will taper off [purchases] gradually. Each week they buy less than the week before."
Danger! Falling home prices

So far, though, the tapering has failed to spawn higher rates. Last week, the 30-year was just 4.96%.

Still, all of the experts agree that mortgage rates will climb. The good news is that none of them think the increase will be very large.

Their projections are for a gradual run up to between 5.5% and 6% by December. Brinkman's projection is a rise to 5.8%; Cutts is to 5.75%.

That will add only about $70 to the monthly payment on a $150,000 note. That's still very reasonable and should not discourage many consumers.

Homebuyers may even find themselves paying less every month as housing markets continue to experience price declines.

Industry experts are projecting further home price drops of 5% to 10%. That would wipe out every bit, and more, of the monthly payment increases higher mortgage rates would bring.

Geithner promises mortgage fix

2010-03-23T13:48:00.001-07:00

A long-awaited renovation of mortgage companies Fannie Mae and Freddie Mac could start to take shape this year, Treasury Secretary Tim Geithner told Congress Tuesday.

The Obama administration hopes to propose legislation to fix the nation's housing finance system within months, Geithner told the House Financial Services Committee. The government currently finances almost all home mortgages, thanks to its 2008 takeover of Fannie (FNM, Fortune 500) and Freddie (FRE, Fortune 500).

A long-awaited renovation of mortgage companies Fannie Mae and Freddie Mac could start to take shape this year, Treasury Secretary Tim Geithner told Congress Tuesday.

The Obama administration hopes to propose legislation to fix the nation's housing finance system within months, Geithner told the House Financial Services Committee. The government currently finances almost all home mortgages, thanks to its 2008 takeover of Fannie (FNM, Fortune 500) and Freddie (FRE, Fortune 500).

Will Greece turn from euros to gyros?

2010-03-23T13:47:00.001-07:00

Athens is abuzz with a rumor: Greece might leave the euro zone and adopt a new currency -- a Greek euro, so to speak, something of a cross between a drachma and a euro to be used only internally. Some hungry economists have jokingly given the new money a nickname: the "Gyro."

If only the solution to Greece's problems could be rolled up as neatly as a gyro sandwich. A bailout from the European Union or its partner countries is growing increasingly unlikely -- German Chancellor Angela Merkel just put a kibosh on discussing the topic at the upcoming EU Summit. While the International Monetary Fund sits in the wings ready to swoop in, it is unlikely the EU would allow its aid, and stigma, to affect the other Euro nations.

As a member of a currency union, Greece is "stuck in a Euro-zone straightjacket," writes economist Desmond Lachman of the American Enterprise Institute. Its options to dispose of its debt are limited: a default is not politically viable, a restructuring is unworkable, and currency devaluation to make the mess go away -- a tactic Argentina used in 2001 -- is impossible. To remain in the EU, Greece must accept its rules in good times, and in bad.

If Greece thinks it's trapped in a bad marriage, it could choose to leave the eurozone, but that would be a shocking development, one that prime minister George Papandreou insists is not on the table.
Fears of a Greek bank run

Yet the country may have no choice -- Greece might even be asked to go. As the crisis deepens, Greece's "leaving the Euro area, though still a low probability scenario, can no longer be ruled out," says Uri Dadush, the director of Carnegie International Economics Program. "It's a painful route, but a lot less painful than others."

Greeks are starting to wonder what a euro-less future might look like. One possible roadmap: copying California's 2009 debt solution of issuing warrants later redeemable for dollars.

The proposal by London School of Economics' Charles Goodhart and Oxford Said Business School's Dimitrios Tsomocos, would introduce a new way to pay debts inside Greece (or any of the other ailing "Club Med" countries -- Spain, Portugal, and possibly Italy), while leaving the euro in place for international transactions.
0:00 /:59EU to help debt-stricken Greece

Countries would print scrip that would act and look like a new currency domestically but not be legal tender overseas. There would be an exchange rate that would allow citizens to convert scrip to euros when necessary, but also allow the countries to devalue their economies while not affecting the euro's strength in other eurozone countries.
Or, perhaps, a two-euro European Union

Other economists like Michael Arghyrou of the Cardill Business School and John Tsoukalas, a lecturer at the Nottingham School of Economics, have proposed a grander version of this idea, where a two-euro European Union would be formed. One euro will serve the union's weaker economies like Greece and Portugal, and another would circulate in the rest. In their plan, both currencies would be overseen by the European Central Bank. "We can't deny that at the moment in Europe we have a two-speed European economy," explains Arghyrou. "This is not such a big mental leap."

Arghyrou believes the plan would calm international markets because it would provide a credible outcome to the guessing game that's happening now. But the political debate likely to follow such an arrangement will be anything but serene. Whatever countries get the cheaper Euro aren't much going to like the stigma of using the weaker currency, Club Med or not.

Countries assigned to a junior currency might protest, but can their sovereign pride get in the way of hard facts? "The euro as it is now is not sustainable," says Arghyrou. "We'll be talking about 27 currencies ten years from now, not two, if the present trend continues."

"The euro was set up with a handicap," says Italian economist Mario Nuti. "It's a currency without a federal state, without a fiscal authority and without a budget." In the end, the fact that the EU is a currency union without a political foundation may turn out to be its death knell.

How this plays out for the European Union rests in Greece's hands. The task ahead is Herculean: The government must cut budget expenses by about 25%. "That's a heavy lift. If they do, it would be a miracle," says Charles Calomiris of Columbia University's business school. "But then again they said the same thing about the 2004 Olympics. No one thought Greece would pull it off, but it did." One could say it takes a Greek to figure out how to make and eat a gyro, all without spilling a drop. To top of page

Credit Card reform Bill: What Its Effects Would Be

2010-03-23T13:46:00.000-07:00

The signing of the Credit Card Reform Bill by President Obama is hailed by many as a milestone in consumer protection from credit card companies. What this law basically does is it protects consumers from the predatory increase in interest rates, billing and other fee related concerns. This law came into effect since majority of credit card holders have a hard time in getting out of debt.

Because of this new law we will soon be seeing sweeping changes in the way credit card companies operate. The result of whether it would be beneficial to consumers only time will tell. The bottom line here is that credit card holders would be able to easily pay their debts.

Make a difference, credit repair

2010-03-23T13:39:00.000-07:00

Many people are struggling to get their loans approved. As the procedures are very hectic only few manage to get the loans approved. The reason for huge denials of loans is the bad credit. Many of us do not take care to maintain a good credit. And that is the only reason why our loan gets rejected. So, if we fix this issue getting loans would be never easy.

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Price tag of TARP bailout: $109 billion

2010-03-18T07:44:00.002-07:00

The government's unprecedented $700 billion economic bailout will actually cost taxpayers just 16% of that total, according to a Congressional Budget Office report released Wednesday.

The Treasury's losses on the Troubled Asset Relief Program (TARP) will total $109 billion over the program's lifetime, CBO latest estimates show. That's up $10 billion from the agency's last projection, released in January.

CBO, which is charged with reviewing congressional budgets, has released a series of TARP cost calculations in the 17 months since the bailout began, each time updating its numbers with the latest data. At one point CBO expected the cost to be as high as $356 billion, but faster-than-expected bank repayments and other cost adjustments have drastically reduced the expected price tag.

TARP's two big moneysuckers are AIG and the auto industry.

AIG got TARP money in two forms: the government bought $40 billion in preferred stock and created a $30 billion line of credit for the company. CBO previously estimated the AIG bailout would cost the government $9 billion, but AIG hasn't paid the Treasury the quarterly dividends it owes. AIG's weak financial position prompted CBO to increase its loss projection to $36 billion -- more than half of the AIG bailout cost.

Other major losses -- a total of $34 billion -- will come from TARP assistance to the automotive industry, CBO said. The government committed $85 billion to bailing out the automakers.
0:00 /6:10Warren: TARP puts us at greater risk

On the flip slide, the highly unpopular capital infusion for banks will actually net the government $7 billion, CBO expects -- even including a $2 billion loss from CIT Group (CIT, Fortune 500), which declared bankruptcy, and Pacific Coast National Bancorp, which was taken over by the Federal Deposit Insurance Corporation.

CBO isn't the only agency attempting to tally up TARP's cost. The latest estimates from the Office of Management and Budget, released in early February, predict TARP will cost $18 billion more than CBO's estimates. The numbers from the two agencies differ because of different assumptions about the cost of some items and a varied timeframe for some of the data they evaluated.
Foreclosure help forecast

As for President Obama's mortgage modification program, the CBO estimates that the Treasury Department will use no more than $20 billion of TARP funds, less than half of the $50 billion originally allocated. That's because the CBO expects many fewer people will participate in the program than the government originally expected, a view held by many housing industry observers.

When Obama announced the program in February 2009, he said up to 4 million people could save their homes through the loan modification program, which lowers eligible borrowers' monthly payments to no more than 31% of their pre-tax income. But more recently, officials have backtracked and said up to 4 million people could qualify for trial modifications, during which loan servicers assess their borrowers' eligibility and ability to pay.

Through February, around 170,000 distressed homeowners have received long-term modifications under the program.

Another $1.5 billion in TARP funds will be used to provide grants to state housing agencies in California, Arizona, Nevada, Florida and Michigan. These agencies are tasked with coming up with programs to assist the unemployed, the underwater who owe more than their homes are worth, and the second-lien holders.

Get your kids to fund their nest eggs

2010-03-18T07:44:00.001-07:00

Naturally, affording retirement isn't an issue that weighs heavily on the minds of young people just starting off in the workforce. So it's no surprise that only 28% of workers under age 25 contribute to employer-sponsored retirement plans, as reported by tax information service CCH.

But as a parent, you don't want your child to end up behind. And with fewer workers being offered corporate pension plans, individual savings are increasingly important in determining quality of life in retirement. As for convincing your kid of this ...

Naturally, affording retirement isn't an issue that weighs heavily on the minds of young people just starting off in the workforce. So it's no surprise that only 28% of workers under age 25 contribute to employer-sponsored retirement plans, as reported by tax information service CCH.

But as a parent, you don't want your child to end up behind. And with fewer workers being offered corporate pension plans, individual savings are increasingly important in determining quality of life in retirement. As for convincing your kid of this ...

Ovation Credit

2010-03-18T07:42:00.000-07:00

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Mortgage help: 170,000 get permanent aid

2010-03-12T18:25:00.002-08:00

More than 170,000 troubled homeowners are breathing a lasting sigh of relief now that they've received permanent modifications under the Obama administration's foreclosure prevention program.

Some 15.5% of those who entered the program have gotten long-term adjustments through February, up from 11.5% a month earlier, according to a report from Treasury officials issued Friday.

An additional 91,800 permanent modifications have been approved by servicers and are pending borrower acceptance. And more than 88,600 people have been denied lasting help because they did not meet the program's criteria, while another 1,499 homeowners have had their permanent modification terminated.

More than 835,000 people are currently in trial modifications, a review period during which banks check whether borrowers can make the reduced payments and gather the necessary paperwork to verify income and hardship. The administration's foreclosure prevention program reduces eligible borrowers' monthly payments to 31% of pre-tax income. Participants typically have their loans reduced by $519, or 36%.

The number of people receiving permanent help has been steadily rising as the administration increases the pressure on mortgage servicers to make decisions on those in the trial phase.
0:00 /3:10Homeowners walking away

However, some experts say that more needs to be done to help troubled borrowers, particularly those without jobs or who owe more than their homes are worth.

Even those who make it into a trial modification are not assured of getting permanent assistance. A growing number of people are getting rejection notices as they hit the end of their trial period.

"While the pace of conversion to a permanent modification has stepped up since the program started, it is slow compared to the large number of loans that are still in trial modification," according to Celia Chen, who studies the housing market. "A large number of these homes are expected eventually to be put up for sale, adding to the supply glut and causing prices to decline once again.

When the modification was first announced in February 2009, the administration said it would help up to 4 million people avoid foreclosure. More recently, however, it has changed that goal, now saying that up to 4 million people could qualify for trial modifications.

The shift doesn't sit well with some housing advocates.

"Our measurement of success cannot be based on how many people gain assistance for only a few months, but it must be based on how many people gain permanent and sustainable modifications," said New York State Banking Superintendent Richard Neiman, who serves on the State Foreclosure Prevention Working Group.
Additional efforts

The administration is rolling out new programs to try to keep the housing market on a fairly even keel. Last month, President Obama announced a $1.5 billion initiative to help the unemployed and underwater who owe more than their home's value in five hard-hit states.

And officials will soon implement a foreclosure alternative designed for people who don't qualify for modifications. The administration will pay borrowers, servicers and investors incentives to complete short-sales, in which the bank agrees to sell the home for less than the mortgage amount.

Friday's figures comes a day after an industry report showed the national foreclosure rate fell 2% in February from a month earlier. Yet, RealtyTrac warned that the true number of distressed borrowers may be hidden by the foreclosure prevention efforts.

Many experts are expecting a surge in foreclosures during 2010 as borrowers' attempts to modify their loans fail.

Yellen in line for Fed No. 2

2010-03-12T18:25:00.001-08:00

San Francisco Federal Reserve Bank President Janet Yellen is a leading contender to be the next vice chairman of the central bank, according to White House press secretary Robert Gibbs.

Gibbs, speaking to the press Friday, also said that Sarah Raskin, the Maryland Commissioner of Financial Regulation, and Peter Diamond, a professor at the Massachusetts Institute of Technology, are under "strong consideration" for two long-standing vacancies on the central bank's seven-member board of governors.

San Francisco Federal Reserve Bank President Janet Yellen is a leading contender to be the next vice chairman of the central bank, according to White House press secretary Robert Gibbs.

Gibbs, speaking to the press Friday, also said that Sarah Raskin, the Maryland Commissioner of Financial Regulation, and Peter Diamond, a professor at the Massachusetts Institute of Technology, are under "strong consideration" for two long-standing vacancies on the central bank's seven-member board of governors.

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2010-03-12T18:23:00.001-08:00

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Stocks post modest gains

2010-03-10T18:19:00.001-08:00

Stocks rose Wednesday, with the Nasdaq ending at its highest level in more than 18 months, on strength in the financial services sector and an upbeat report on wholesale inventories.

The Dow Jones industrial average (INDU) rose 3 points, or less than 0.1%, at 10,567, according to early tallies. The S&P 500 index (SPX) added 5 points, or 0.5%, to 1,145.

The Nasdaq composite (COMP) rose 18 points, or 0.8%, to 2,358. The tech-heavy index closed at its highest level since August 2008. Wednesday marked the 10th anniversary of the Nasdaq's all-time closing high of 5,048.62 at the peak of the dot-com bubble.

Bank stocks advanced on upbeat analyst comments and bullish statements from some executives. Citibank (C, Fortune 500) rose 3.6% after the company priced a $2 billion offering of trust-preferred securities. Bank of America (BAC, Fortune 500) gained nearly 2%.

American International Group (AIG, Fortune 500) soared over 10% as investors cheered the insurance giant's recent asset sales. Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) also gained significant ground.
Citi, AIG, Fannie and Freddie: The Not Fab 4

Technology stocks also posted strong gains. The Sox (SOX), an index of semiconductor shares, gained about 2%.

However, traders said volumes have been declining this week as many market participants move to the sidelines amid a lack of market-moving economic reports.

"There are no buyers to get us over the next hump," said Dave Rovelli, managing director of U.S. equity trading at Canaccord Adams. He said the market has stalled, with the S&P 500 struggling to push past its Jan. 19 high of 1,150. "Until that happens, the market is just going to drift."
0:00 /2:35Many missed the markets big bounce

Shares of energy producers weakened as oil prices pared earlier gains. Oil briefly traded above $83 a barrel after the government reported a smaller-than-expected increase in oil supplies and a dip in gasoline inventory but ended 60 cents higher to settle at $82.09 a barrel. Gold prices fell.

Stocks managed slight gains Tuesday, which was the one-year anniversary of what many consider to be the bottom of the bear market.

Looking ahead, investors will turn Thursday to the government's weekly report on initial claims for unemployment benefits. Economists surveyed by Briefing.com expect claims to have risen last week by 9,000 to 460,000.

The Census Bureau's report on the January trade gap is also due out Thursday.

Economy: The U.S. Commerce Department said wholesale inventories fell 0.2% in January, after a 1% drop the month before, raising expectations that consumer demand is strengthening.

"It's not that inventories are rebuilding, but the declines are waning," said Bruce McCain, chief investment strategist at Key Private Bank. "Sooner or later, businesses will have to begin producing more."

Separately, the Labor Department said fewer states reported increases in unemployment in January.

The Treasury Department said the government suffered a record $220.9 billion budget deficit in February, after a shortfall of $42.6 billion in January. It was the 17th consecutive monthly deficit and was slightly smaller than the $221 billion shortfall economists had forecast.

Company news: Shares of Facet Biotech (FACT) surged 66% after Abbott Labs (ABT, Fortune 500) announced plans to acquire the company for $27 a share. Abbott gained about 0.7%.

Airline stocks rallied on growing expectations that 2010 is shaping into a profitable year for the industry. Shares of UAL (UAUA, Fortune 500), holding company for United Airlines, and Continental Airlines (CAL, Fortune 500) surged about 5%.

World markets: European markets posted solid gains, while Asian shares ended the session flat.

China reported a 46% increase in exports during February. The rise was due in part to stronger demand from consumers in the United States and Europe, analysts said.

The dollar and commodities: The dollar slipped versus the euro but rose against the yen and the pound.

The price of oil rose 60 cents to settle at $82.09 after hitting a high of $83.03 earlier in the session.

Meanwhile, the price of gold fell $14.20 to close at $1,108.10 an ounce.

Bonds: The price of the 10-year note fell, pushing up the yield to 3.71%. The government sold $21 billion worth of reopened 10-year notes Wednesday as part of a $74 billion offering of U.S. debt this week.

Market breadth was positive. On the New York Stock Exchange, winners beat losers by two to one on volume of 961 million shares. On the Nasdaq, advancers topped decliners by just under two to one on volume of 2.2 billion shares.

Stocks surge on renewed optimism

2010-02-24T13:54:00.001-08:00

Stocks rallied Wednesday after Federal Reserve Chairman Ben Bernanke again pledged to keep interest rates low for the foreseeable future, reassuring investors worried about the outlook for the economy.

The Dow Jones industrial average (INDU) gained 91 points, or 0.9%, according to early tallies, while the S&P 500 index (SPX) rose 11 points, or 1%. The Nasdaq composite (COMP) added 22 points, or 1%.

Stocks posted slim gains in the early going, lost some steam after a worse-than-expected new home sales report and then turned higher again after the Fed chief began speaking. The gains continued throughout the session.

"Bernanke said they are going to keep the fed funds rate low, the dollar got hit and people started buying stocks," said Dave Rovelli, managing director of U.S. equity trading at Canaccord Adams.

The weaker dollar lifted dollar-traded commodities and big corporations that do a lot of business overseas and therefore benefit from a weaker greenback. Financial and technology shares were also on the rise.

Investors were digging back in after a two-session decline. That retreat occurred as a lackluster forecast on consumer spending and a plunge in a key measure of consumer confidence amplified concerns about the strength of the recovery.

Stocks managed to advance in the previous two weeks as investors focused on the positives in the company and economic news, after a four-week rout.

Bernanke: In his first day on Capitol Hill, Bernanke told the House Financial Services Committee that while the economic recovery is moving along, the jobs market remains weak. Against this backdrop, the Fed is unlikely to lift the fed funds rate, the key overnight bank lending rate, anytime soon.

Bernanke was testifying before the House Wednesday and was scheduled to appear before the Senate Thursday.

"I don't think Bernanke is breaking a lot of new ground here," said Scott Anderson, senior economist at Wells Fargo. "A lot of his testimony is defending the Fed's actions during the crisis, while the economic outlook is similar to the minutes from the last Fed meeting."

Investors are looking for more on how and when the central bank plans to unwind emergency programs that were put in place at the height of the financial crisis, particularly after the Fed boosted the discount rate last week.

The Fed boosted the discount rate -- the emergency bank lending rate -- by a quarter-percentage point to 0.75%. It was a largely symbolic move in a rate that is rarely used by banks, but it was also the first rise in rates in over a year and the first move in any direction for rates in over two years.

The move was another step toward returning monetary policy to a so-called normalized state after the extraordinary measures of the last two years.

In his early statements, Bernanke implied that the Fed will at some point need to raise the fed funds rate, the key bank lending rate, but that such a move is not likely to happen soon, considering the still moderate pace of recovery.
0:00 /1:47Who is Toyoda?

On the move: Big financial firms JPMorgan Chase (JPM, Fortune 500), Morgan Stanley (MS, Fortune 500) and Bank of America (BAC, Fortune 500) all rallied, along with regional banks such as Keycorp (KEY, Fortune 500), Fifth Third Bancorp (FITB, Fortune 500) and Regions Financial (RF, Fortune 500).

In deal news, printing services firm R.R. Donnelley (RRD, Fortune 500) said it is buying Bowne & Co. (BNE), a printer of corporate regulatory filings, in a deal worth $481 million. The $11.50 per share all-cash deal values the stock at more than 60% over Friday's closing prices.

Shares of Bowne & Co. rallied 60% in unusually active New York Stock Exchange trading, while RR Donnelley shares gained 3%.

Shares of STEC (STEC) plunged 24% in unusually active Nasdaq trading after the company issued a 2010 profit forecast late Tuesday that disappointed investors. The computer data storage firm forecast revenue in a range that is more than 50% below analysts' forecasts and said it would report a quarterly loss, versus current forecasts for a profit.

JPMorgan Chase led the list of analysts downgrading or cutting forecasts on the company on Wednesday.

Market breadth was positive. On the New York Stock Exchange, winners beat losers by more than five to two on volume of 1 billion shares. On the Nasdaq, advancers beat decliners eight to five on volume of 1.3 million shares.

Toyota: The carmaker faced Congressional scrutiny for the second straight day, with company president Akio Toyoda speaking before the House Oversight Committee regarding the recall of millions of vehicles over safety issues.

Toyoda, speaking through a translator, apologized for the safety problems that led to deaths, injuries and the eventual recall of more than 8 million vehicles with brake problems.

The company said it is creating a system that will make it easier for customer complaints to be addressed and that it is forming a "quality advisory group" to seek input on safety and quality measures.

On Tuesday, witnesses argued that the problems with the brakes could be tied to the vehicles' electronic throttle system, but Toyoda disputed that.

New home sales: Sales of new homes tumbled to the lowest level on record in January, the government reported Wednesday, surprising economists who expected a rise in sales.

Sales fell 11% to a 309,000 annual unit rate from 348,000 in the previous month. Economists expected sales to rise to a 354,000 annual unit rate.

"It's a quite disappointing number," said Anderson. "We saw incredible weakness in new home sales following the improvements we saw in the fall."

He said the improvements in the fall were largely as a result of the tax rebates for buyers and that, with the impact of those rebates fading, the sales have dropped off. But the existing home sales market is improving, he said, and the overall outlook for housing is getting better.

Jobs: The Senate approved a $15 billion jobs creation bill that gives businesses tax breaks for hiring the unemployed and extends tax breaks that encourage companies to buy equipment.

World Markets: In overseas trading, major European markets ended with moderate gains. Asian markets ended lower.

The dollar and commodities: The dollar tumbled versus the euro and the yen.

The dollar's weakness gave a boost to dollar-traded commodities.

U.S. light crude oil for April delivery rose 92 cents to $79.78 a barrel on the New York Mercantile Exchange.

COMEX gold for April delivery fell $6 to $1,097.20 per ounce.

Bonds: Treasury prices rose, lowering the yield on the 10-year note to 3.67% from 3.68% late Tuesday. Treasury prices and yields move in opposite directions.

Colleges cut back on generous financial aid

2010-02-13T16:43:00.001-08:00

The college admissions process is already a crapshoot without throwing in the financial aid game. Subsidized Stafford loans, unsubsidized Stafford loans, Pell Grants, DirectPLUS loans — it all adds up to a bewildering tangle for which families of prospective students are turning to financial aid consultants to sort out.

And now, making the task of financing a recession-era college education even more difficult, colleges are withdrawing generous no-loan policies they implemented as the stock market hit its giddy heights.

Williams College is the most recent casualty. In the wake of a $500 million decline in its endowment, the college announced last week that it would repeal its 2008 pledge to drop loans from the financial aid packages of students. Williams was among nearly 30 top institutions to make the move for loan-free aid within the past couple of years, following harsh criticism – especially from politicians – that students were buried in debt post-graduation.

Senator Chuck Grassley (R-Iowa) helped catalyze the no-loan movement in 2007 when he addressed the crisis of conscience posed by sky-high tuition at a time when colleges were enjoying healthy growth in their endowments.

But the timing could not have been worse for pumping money into financial aid. 2009 turned out to be the worst year for university and college endowments since the Great Depression, with an average decrease of 18.7%.

Still, not all colleges and universities are rolling back their no-loan policies, even in hard times. Top-tier institutions like Harvard University, despite an $11 billion drop in its endowment, have continued their commitment to no-loan education. To do that, the university had to cut costs elsewhere, such as by halting construction on a $1 billion science complex this fall, leaving only its foundation in place.

In President Obama’s 2011 budget request he apportioned an additional $3.5 billion in educational spending, including an expansion of the Pell Grants, the lifeblood of college financial assistance for lower-income families. If approved, the expanded grants would provide aid to one million more students.

The debate continues among college cost experts about whether federal aid like Pell Grants, which will undoubtedly become more necessary as schools roll back no-loan programs, are actually counterproductive. There's a chicken/egg dilemma here: Does more federal aid mean higher college costs, or do higher college costs necessitate more aid? With its generosity to students, is the federal government effectively padding the coffers of educational institutions?

As it stands, the math is this: Two-fifths of schools with billion-dollar endowments have some sort of no-loan policy in place. (The top 16 universities in U.S. News & World Report’s 2010 ranking, with the exception of Johns Hopkins, fall into this category.) If the endowment amount per equivalent full-time enrolled student exceeds $500,000, a school should be able to afford eliminating loans from financial aid packages for low-income students.

For many schools no-loan policies began as a way to increase enrollment for low-income students — that is, those coming from households with less than around $50,000 in income. But in the case of a number of schools (large universities and smaller liberal arts colleges alike), the programs cover all undergraduates.

Until, that is, it turns out they don't.

Hired! Paying it forward scores Steve Kaye a job

2010-01-29T07:49:00.001-08:00

Job fairs are notorious for long lines and lackluster results, but that doesn't mean they can't lead you to a job.

Just ask Steve Kaye.

When the 48-year-old found himself without a job 18 months ago, he tried all the usual job search tactics, including networking and looking online. But when he looked around for a job fair near his home in Boca Raton, Fla., he saw nothing that fit his needs.

That gave Kaye an idea: Start his own fair.

The trained sales manager invited in 18 different companies -- all hiring -- along with 400 attendees. "The whole point was to get people to start talking to people," he said.

And they did: Thirty people were hired.

Kaye wasn't one of them, but he did receive accolades from the mayor and his community. And he's since gone on to coordinate more job fairs and career information sessions in his area.

Meanwhile, Kaye has worked at a law firm inputting data, which has helped him support his wife, Linda, and two children, Alex, 9, and Andrew, 7, while continuing his job search.

"I haven't made any money, just lots of good friends," he said.

One of those new friends recommended Kaye for a sales position at Successories, a company that sells motivational products. It seemed like a perfect fit for Kaye, who had learned a thing or two about staying motivated over the past year and a half.

Within a week he got a call from the head of the company and was invited in for an interview the next day.

After a short trial period, Kaye was offered a position as a full-time senior consultant. Within days, his titled was changed to vice president of sales and customer care.

Now Kaye works 15 hours a day and says "there's not a moment that I don't love coming here."

"When one is out of a job for as long as I was and being turned down as much as I was, you tend to lose hope," he added. "Life has a funny way of working itself out."
Outside the box

Our career experts agree that in these challenging times creativity is a must.

With the Florida unemployment rate at 11.8%, finding a full-time job may take more than applying online, attending job fairs and networking through the traditional means.

Barbara Safani, president of Career Solvers in New York, says Kaye's best tactic was his proactive approach. "He realized that his existing network was limited," she said, "so he took a proactive approach to expand his network."

Instead of attending a job fair with the expectation of finding a job, "leverage the experience of the job fair to build a relationship that leads to something else," Safani suggested. "Then it can be a good experience."

In addition, Safani advises others to think of helping others and networking with reciprocity in mind.

Helping others can also take the pressure off yourself, added Cathy Fahrman, vice president of Résumés by Professionals in Tampa, Fla. "Sometimes when you are out there and feel desperate you may come across as too pushy, if you are doing it from a more altruistic angle, that may come off better," she said.

Rebuilding from real estate rubble

2009-11-22T09:50:00.000-08:00

Semper fidelis, the U.S. Marine Corps motto, means "always faithful" in Latin. As a young grunt serving at Camp Lejeune, N.C., Duane Draughon learned to remain loyal to the mission -- "whatever the cost," he says.

That mind-set has guided him since he left the Corps in 1997. "It's probably the only reason I've survived in business," says Draughon, who served as a police sergeant in the Marines and now owns a patio-paving company outside Columbus, Ohio. "I will never, ever give up."

He's been tested -- almost to the breaking point.

In 2005, after a stint selling cars, he started PaverStone Design Group. Launched during a national home-improvement boom, PaverStone was an instant success, designing and building lavish patios for affluent suburban homeowners in Columbus. To keep costs low, Draughon initially used prison inmates in a work-release program as laborers; later he hired and trained his own crews, mostly made up of immigrants from Mexico (all of them documented, he says).

Revenues topped $500,000 in 2006. Draughon had a new business, a new house and a new car, plus a new baby -- his third with his wife, Isabel.

Then came disaster.

Draughon's partner abruptly left the company in 2006, depriving PaverStone of a talented salesperson and a capable crew chief. Draughon admits that in trying to juggle a busy operation and manage the finances of his fast-growing business, he let costs spiral out of control. Soon he was broke -- and desperate. So the entrepreneur doubled down, betting everything he had on PaverStone.

Draughon began rebuilding the business one brick at a time. He worked out payment plans with creditors. In addition, he persuaded his wife to quit her $45,000-a-year job as a mortgage broker to take over PaverStone's marketing and bookkeeping so that he could spend more time closing deals and supervising his crews.

But in the summer of 2008, the Great Recession hit Columbus. To keep the business afloat, the Draughons pared expenses and laid off all five of their employees (the couple now hire subcontractors as needed). Orders trickled in during the summer and fall of 2009 -- enough to cover the utility bills and some other expenses -- but most projects have been much smaller than those the company handled before the economic downturn.

"Customers used to dip into home equity to build huge patios with fireplaces, kitchens and special lighting for $30,000 or $40,000," Draughon recalls, shaking his head in frustration. "Now all they want is a rectangle for $5,000."
Adapting to the downturn

Despite a rocky five years in business, the Draughons, both 33, are determined to make PaverStone work. Duane says the business taps all of his talents, which include selling, designing and supervising complex construction projects. Isabel takes great pride in the company's reputation as one of the top patio design firms in suburban Columbus. (PaverStone won a 2007 Consumers' Choice Award in a citywide contest.)

The Draughons foresee a rebound in the local home-improvement market -- perhaps in the spring of 2010 -- and they want to be prepared to grow the business rapidly when it comes.

But the Draughons know their company needs a stronger foundation. The couple seek a marketing strategy that maximizes their network of loyal customers and a more conservative financial plan to help them weather the vagaries of the real estate market. They also have questions about basic business practices. How can they find trustworthy lawyers and accountants? How should they negotiate better terms with suppliers?

To assist them in mapping out a plan, Fortune Small Business brought three Makeover experts to the company's spartan offices in an industrial park in Powell.

First up is Maureen Metcalf, 45, founder of management consultancy Metcalf & Associates in Columbus. Metcalf has found that thanks to aggressive search-engine optimization, PaverStone's slick Web site is usually one of the first to pop up in a Google search for "patio design in Columbus."

But it's almost too slick, Metcalf says. The site is loaded with stock photos, including an image found on countless Web sites of a young woman wearing a telephone headset who appears to be a national call-center representative.

The Draughons explain that they wanted to appear well established and businesslike. But they agree that they may have gone overboard with the corporate look.

"Many customers think we're part of a national franchise," says Isabel. "They don't understand that we're a family business. That really hurts. We've put our heart and soul into this company."

Metcalf's prescription: Use the site to share PaverStone's story. Tell potential customers about Duane's childhood just a few blocks away from the city's meanest streets, and how Duane's father put him and his two brothers to work mowing lawns to keep them out of trouble. Add that Duane turned an after-school job into a $120,000-a-year landscaping business before joining the Marines. Later he returned home, married and established a patio-building business.

"Finding reliable contractors is a nightmare for homeowners," Metcalf says. "You're a Marine veteran, a family man. You're trustworthy. You get the job done, on time. It's a compelling story."

Metcalf also advises the couple to update the Web site with photos of themselves. Get rid of the stock images. Add testimonials from satisfied customers who have been photographed lounging or dining on their patios. Create a section that offers before-and-after shots of backyards transformed by PaverStone.

"You're not just selling a paved patio," Metcalf says. "You're selling the idea of a beautiful place to relax with family and friends."
Untangling the books

FSB's next expert tackles the thorny topic of corporate finance. Michael Jokerst, 52, is a financial expert from CFO Leadership, a consultancy in Columbus.

The Draughons tell him they were unprepared to manage the finances of their fast-growing company. Marketing and labor costs soared. Duane suspects that he underestimated his costs as he raced from one job to another to oversee construction, damaging the company's bottom line. By the end of 2007, its busiest year to date, PaverStone owed $170,000 to suppliers. Bankruptcy loomed.

Although the Draughons have since worked out a repayment plan with the suppliers, they worry about their ability to withstand the boom-and-bust cycles of the real estate business.

"You've been using the 'big bucket' method of accounting," Jokerst says bluntly. "That's no way to run a business. You're pouring the money into a big bucket, taking out enough to cover your costs and hoping there's something left for you at the bottom of the bucket. That's dangerous."

Instead, the Draughons should determine their true cost of doing business, considering everything the company needs, from paper clips to paving stones. In the past, Duane calculated fixed costs of supplies for each job, then added a general fee for overhead -- 42% in boom times, but currently as little as 10% -- based on a formula that a consultant suggested last year.

"I suspect you aren't calculating the cost of your time," Jokerst says.

Duane nods in agreement. "Sometimes I'm up all night creating a design proposal for a homeowner -- because I want that job," Duane says. Jokerst explains that not all projects will be profitable, especially now, as competitors trim their margins.

"Calculate your costs to the penny," he tells the couple. "Or you could be working for nothing."

Jokerst offers more tips to boost the company's bottom line. Negotiate better terms with suppliers, he urges. PaverStone has been paying cash for construction materials since its financial troubles in 2007. "After two years, you've proved your creditworthiness to suppliers," Jokerst tells Duane. "You've earned the right to request better terms -- 30 days, at least."

Jokerst also recommends building a cash reserve during the busy spring and summer seasons to fund expenses during the slower winter months. Try to find a complementary business that would pull in needed revenue during the winter, he advises -- interior tiling, perhaps -- but be sure it's one that allows enough time to gear up for bidding on new projects in the spring.
Management trials

FSB's third expert, Nick Williams, 30, is a project manager with Definity Partners, a business consultancy in Columbus. Williams praises the Draughons' ability to survive a trial by fire during the past five years.

"One of the hardest things is having no guidance," Duane confesses. "Lots of times I don't know where to turn with business questions. Isabel and I have each other, but it gets lonely. We really need to find some mentors."

Duane says he's the one fielding calls from fledgling entrepreneurs within the African-American community in Columbus. Early on he sought help from a state-sponsored program for minority business owners, but "they treated me like a child," he recalls. "It was insulting."

Like most cities, Columbus offers dozens of networking groups for small business owners. "You've just got to make the rounds to find the right fit," Williams says. Local chambers of commerce provide opportunities to meet other business folk, though the quality of the programs varies widely from town to town. And Isabel should join groups that cater to women's business development and leadership. Don't judge an organization after just one event; try to attend several, and then meet with the group's leaders to discuss their mission and your goals.

Finding a mentor is a lot like dating, Williams says. "It could take a while to find that spark." But building a network of experienced advisers is essential. For example, mentors can provide valuable recommendations when you need a professional such as a lawyer or an accountant.

Immediately after the Makeover, the Draughons began to implement some of our experts' advice.

"The Makeover was a life-changing experience," Duane says. "We intend to come out of this downturn stronger than ever."

The Draughons are updating their Web site with bios and photos, including one of Duane as a Marine. Duane is assessing bids more carefully, trying to factor in the time he'll spend designing and overseeing each project. Every Friday, the couple review a financial report to monitor cash flow. This fall, they plan to attend several events sponsored by local business groups in the hope of building relationships with other entrepreneurs. To top of page
Could your business use a makeover? In general, successful Makeover candidates are profitable small companies with at least $1 million in annual gross revenues. To submit your firm for consideration, e-mail the FSB makeover editor here. Please describe your business briefly, provide your most recent and projected revenues, and explain why you think your company would benefit from a Makeover.

Stocks off to a sluggish start

2009-11-18T07:21:00.000-08:00

Stocks opened lower Wednesday after a disappointing report on the housing market overshadowed higher oil and gold prices.

The Dow Jones industrial average (INDU) was down 26 points, or 0.2%, shortly after the opening bell. The S&P 500 (SPX) lost 0.2% and the Nasdaq composite (COMP) declined 0.4%.

Oil prices rose near $80 a barrel, while gold hit another all-time high. The dollar weakened against rival currencies.

Stocks closed at 13-month highs for the second day in a row Tuesday, as strength in commodity-linked shares offset weakness in the retail sector.
0:00 /2:21How to save small biz lending

Philip Isherwood, equities strategist at Evolution Securities in London, said the pre-market report on the housing market will be the prime influence on stock activity at the opening bell.

"Housing starts are obviously going to be important," he said prior to the report's release, when forecasts from Briefing.com consensus pointed to housing growth.

Economy: The U.S. Census Bureau and the Department of Housing and Urban Development reported that housing starts fell more than 10% to an annual rate of 529,000 in October, the lowest level in six months. An annual rate of 600,000 housing starts was expected, according to a forecast from Briefing.com consensus. The revised rate for September was 592,000.

The government reported that the annual rate of housing permits fell 4% to 552,000 in October, from the revised September rate of 575,000. This was lower than the 580,000 permits expected for October, according to Briefing.com consensus. .

The government also reported its Consumer Price Index, a key measure of inflation, rose 0.3%.

The CPI was expected to rise 0.2% in October, according to a consensus of economists surveyed by Briefing.com.

The core CPI, which excludes volatile food and energy prices, rose 0.2% in October. That was slightly more than the 0.1% increase expected for October, according to Briefing.com consensus.

Companies: Goldman Sachs (GS, Fortune 500) said Tuesday that it is launching a $500 million initiative aimed at propping up small businesses.

Obama administration officials, including Treasury Secretary Tim Geithner, are due to meet Wednesday to address the small business lending drought.

World markets: Japan's Nikkei index finished the session 0.6% lower. Major indexes in Europe were higher in midday trading.

Money, oil and gold: The dollar, which has suffered from recent weakness, was down versus all major currencies except the British pound.

The price of oil rose 76 cents to $79.91 per barrel.

For gold, it's been another day, another record. In electronic trading, the price of gold rose $8.40 to $1,147.20 per ounce.

Obama to hold jobs forum in December

2009-11-12T12:17:00.001-08:00

President Obama, facing a 10.2% unemployment rate, said Thursday he would hold a jobs forum at the White House in December.

He noted the encouraging signs of economic growth and a slowing of the loss of jobs in recent months, but said employers are still reluctant to hire and millions are desperate to find work.

"Even though we've slowed the loss of jobs -- and today's report on the continued decline in unemployment claims is a hopeful sign -- the economic growth that we've seen has not yet led to the job growth that we desperately need," the President said in a statement delivered at the White House.

"We all know that there are limits to what government can and should do, even during such difficult times. But we have an obligation to consider every additional responsible step that we can to encourage and accelerate job creation in this country," he added.

Those invited to the forum will include CEOs, small business owners, economists, financial experts, and representatives from labor and non-profits.

The forum will be held against a background of highly mixed economic news.

On the bright side: the GDP grew 3.5% in the third quarter. But there are concerns that growth may not be sustainable, given that housing and jobs haven't showed signs of recovery.

Some economists have been arguing for another round of stimulus to ward off sliding into another recession.
0:00 /1:51Stimulus jobs cost taxpayers

Not everyone is convinced. And politically, the prospects for passing a single stimulus package with a big price tag are not high. Instead the administration and Congress are looking for smaller initiatives that can be taken both by the government and the private sector.

One idea that has been floated to spur job creation is a hiring credit, whereby employers would get a tax break for every new worker hired. But many economists and tax experts say it's a flawed concept since it would end up disproportionately rewarding employers that were planning to hire anyway.

So far lawmakers have extended and expanded some measures from the original $787 billion stimulus package passed in February -- specifically, federal unemployment benefits, the homebuyer credit, and big tax break for businesses looking to write off more of their losses.

Good news: Fewer underwater mortgages

2009-11-09T12:59:00.001-08:00

Fewer people are underwater on their mortgages -- further evidence that the real estate free-fall may be slowing.

Just 21% of all single-family homeowners owe more on their mortgage balances than their homes are worth, according to a third quarter residential real estate report from Zillow.com. That is down from 23% at the end of the second quarter.

That is good news because it should help reduce the number of homeowners losing their homes to foreclosure. Being underwater is one of the two factors that lead to foreclosure, the other being, of course, not having enough income to make the monthly payments.

"The decline in the percentage of homeowners with negative equity is a positive sign and is directly attributable to the stabilization of home values from the second quarter to the third," said Zillow chief economist Stan Humphries.

But there's a second, less-positive factor that contributed to the reduction in underwater borrowers: foreclosures. So many people have already lost their homes that the ranks of those underwater is slowly dwindling.

And that highlights one of the most serious concerns that housing markets currently face. "Foreclosure rates," said Humphries, "are ramping up again."
Upswing

There are 1.2 million to 1.5 million seriously delinquent mortgages sitting out there like ticking time-bombs. These loans are at least 90 days late, and, historically, few borrowers who fall that far behind manage to start repaying.

Aggravating the foreclosure problem is the substantial numbers of option ARM loans that will reset over the next few months. These are loans with balances that have steadily increased because borrowers were permitted to make minimum monthly payments that did not even cover interest.

The resets will require borrowers to start paying down principal, and many will simply not be able to afford to do that.

Also resetting over the next several months will be many interest-only loans, which will also require borrowers to make much larger payments.

Another fear-factor for Humphries is that continued economic malaise will slow the housing market recovery. Recent macro-economic reports have been inconsistent. Good news came early in November, with the gross domestic product, growing at annualized rate of 3.5% during the third quarter.

A couple days later, however, the Labor Department reported the unemployment rate jumped to 10.2% in October. It's an understatement to say that losing a job can make it very difficult to pay off a mortgage.
Ghost hunting

Increased foreclosures also add to already long inventories. The National Association of Realtors reported there are 3.63 million homes on the market, a nearly eight-month supply at the current rates of sales. That's a two or three month oversupply, compared with a normal market.

But official inventory statistics may be undercounting; there is also the so-called "shadow inventory." For one, there are bank repossessions that have not been put back on the market. The banks have either fallen behind on processing these properties or they are reluctant to put REOs up for sale because the market is already overloaded.

The second element of the shadow inventory is that some individual owners would like to sell their homes but do not want to compete with foreclosures, which usually sell at a discount to market values. In many cities, foreclosures and short sales constitute the bulk of the market.

The housing market recovery will be affected by "how quickly these foreclosures transition back onto the marketplace," said Humphries.

Nationally, 21.4% of all sales were REOs, the industry term for bank-owned properties.

High as that rate is, that pales in comparison with some of the worst-hit metro areas. In Merced Calif., for example, 74.2% of all single-family home sales were of foreclosed properties; in nearby Stockton, the rate was 68.7%; and El Centro, down near the Mexican border, the rate was 68.1%.

The good news is that, in many areas at least, foreclosures are selling off quite quickly. The trouble is that, like Alice, who had to run to stay in place in "Through the Looking Glass," REO sales will have to increase at a blistering pace just to keep up with the new inventory coming onto the market.

That could put a damper on home prices for many months to come.

Dow tops 10,000

2009-11-05T12:41:00.001-08:00

Stocks rallied Thursday, with the Dow industrials topping 10,000, after the government reported a bigger-than-expected drop in jobless claims, and a number of retailers reported improved October sales.

The Dow Jones industrial average (INDU) gained 200 points, or 2%, with 40 minutes left in the session. The S&P 500 (SPX) gained 19 points, or 1.8%, and the Nasdaq composite (COMP) climbed 47 points, or 2%.

"Today's big news was that we saw fewer claims for unemployment benefits," said Mike Stanfield, chief investment officer at VSR Financial Services. "That suggests that the underlying economics are continuing to improve."

He said that this was reassuring to investors following several weeks of concerns about the pace of the recovery. It was also encouraging for investors ahead of Friday's monthly employment report.

Stocks have been volatile over the past three weeks, with the S&P 500 losing 5% through Wednesday's close on worries that the rally has gotten ahead of the recovery. Between March 9 and the peak on Oct. 19, the S&P 500 gained 63%.

Stocks ended mixed on Wednesday after the Federal Reserve held interest rates steady at historic lows near zero -- and said it will keep them low for an extended period.

The issue for markets is whether there have been enough positive developments of late to give stocks another leg up, Stanfield said. He said he thinks that the next leg up could be delayed, and that stocks are likely to churn in a range for the next six months or so. After that point, investors will have a better sense of how the economy is doing without the benefit of trillions of dollars in government stimulus, which many credit for the 3.5% rise in GDP in the third quarter.

Gains were broad based, with all 30 Dow issues rising, led by Boeing (BA, Fortune 500), Caterpillar (CAT, Fortune 500), Chevron (CVX, Fortune 500), Exxon Mobil (XOM, Fortune 500), IBM (IBM, Fortune 500), JPMorgan Chase (JPM, Fortune 500), Procter & Gamble (PG, Fortune 500), 3M (MMM, Fortune 500), United Technologies (UTX, Fortune 500) and Wal-Mart Stores (WMT, Fortune 500).

Market breadth was positive. On the New York Stock Exchange, winners beat losers four to one on volume of 890 million shares. On the Nasdaq, advancers topped decliners by almost three to one on volume of 1.75 billion shares.

Jobs: The government's weekly jobless claims report and third-quarter productivity report showed that the pace of layoffs is slowing, but also that employers are still not creating jobs.

The number of Americans filing new claims for unemployment fell to 512,000 last week from 532,000 the previous week, the lowest level since January. Economists surveyed by Briefing.com expected 522,000 claims, on average.

Continuing claims, a measure of Americans who have been receiving benefits for a week or more, fell to 5.749 million from 5.817 million the week before. Economists thought it would fall to 5.750 million. It was the eighth decline in nine weeks. Although the decline could mean people are running out of benefits -- not that they are finding jobs.

Separately, the Senate and House both voted Wednesday to extend unemployment benefits by up to 20 weeks -- and extend the homebuyer tax credit. President Obama is expected to sign the bill into law Friday.
Unemployed ... without a lifeline

Another economic report showed that worker productivity is up, a good sign for corporate profits, but also further evidence that companies aren't hiring. Third-quarter productivity rose by 9.5% after rising 6.6% in the previous quarter. Economists thought it would fall to 6.5%.

"The productivity and jobless claims show a rapidly improving economy," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research.

But the key report this week is the October unemployment report from the Labor Department, due Friday, Detrick said.

Due before the start of trading, employers are expected to have cut 175,000 jobs from their payrolls after eliminating 263,000 in the prior month. The unemployment rate, generated by a separate survey, is expected to rise to 9.9% from 9.8% in September.

Retail: Shoppers remained cautious with their spending last month, with discounters and warehouse clubs seeing the best October retail sales.

On the upside, Costco (COST, Fortune 500) said sales at stores open a year or more rose 5% during the month, topping forecasts for a rise of 4.7%.

Gap (GPS, Fortune 500) reported sales rose a better-than-expected 4%, sending shares higher in morning trading.

On the downside, American Eagle Outfitters (AEO) said sales fell 5% versus forecasts for a rise of 1.7%. Shares fell over 11% in active New York Stock Exchange trading.

Company news: After the close Wednesday, Cisco Systems (CSCO, Fortune 500) reported weaker quarterly earnings and revenue that beat estimates.

The company's CEO, John Chambers, said current-quarter revenue would top estimates and that business conditions had bottomed at least six months ago. Cisco shares gained 2% Thursday.

Automaker Toyota (TM) reported a surprise quarterly profit Thursday and cut its annual loss forecast by over 50%

Shares of CVS Caremark (CVS, Fortune 500) slumped 21% in active trading after the company warned that 2010 profits at Caremark, its pharmacy benefits management division, are likely to slump by 10% to 12%. The company also said Caremark's CEO is stepping down. Drugstore CVS bought Caremark in March 2007

The news overshadowed the company's bigger-than-expected jump in quarterly profit.
0:00 /2:55Steve Jobs - CEO of the Decade

World markets: European markets rallied in late-afternoon trading. Asian markets tumbled.

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

U.S. light crude oil for December delivery fell 62 cents to settle at $79.78 a barrel on the New York Mercantile Exchange.

COMEX gold for December delivery climbed $2 to settle at $1,089.30 an ounce.

Bonds: Treasury prices fell, raising the yield on the 10-year note to 3.53% from 3.52% Wednesday. Treasury prices and yields move in opposite directions.

Manufacturing in 'recovery mode'

2009-11-02T07:27:00.001-08:00

A key index of U.S. manufacturing activity jumped in October, reaching its highest level in three and a-half years, a purchasing managers' group said Monday.

The Tempe, Ariz.-based Institute for Supply Management's (ISM) manufacturing index rose to a reading of 55.7 in October from 52.6 the month before. It was the highest reading since April 2006 when the index registered 56.

Economists were expecting a reading of 53, according to consensus estimates gathered by Briefing.com.

"The jump in the index was driven by production and employment," said Norbert Ore, chair of the ISM's manufacturing business survey committee. "Overall, it appears that inventories are balanced and that manufacturing is in a sustainable recovery mode."

The monthly report is a national survey of ISM members, who are purchasing managers in the manufacturing field. Index readings above 50 indicate growth, while levels below 50 signal contraction. Readings below 41.2 are associated with a recession in the broader economy.

The index dipped slightly in September from the previous month. It first showed growth in August, after 18 months of contraction.

The ISM tracks new orders, production, employment, supplier deliveries, inventories, customers' inventories, the backlog of orders, prices, new export orders, imports and buying policies.

Of the 18 manufacturing sectors reporting, 13 posted growth -- including categories such as petroleum and coal products, apparel and transportation equipment. Sectors reporting contractions included metals, mineral products and wood products.

Personal income flat in September

2009-10-30T08:20:00.001-07:00

Personal income was essentially unchanged in September, while spending by individuals fell, government figures showed Friday.

The Commerce Department said personal income fell by less than 0.1% in September, after a downwardly revised 0.1% increase in August. The slight decline was in line with economists' forecasts, according to a consensus estimate gathered by Briefing.com.

Spending by individuals was down 0.5% last month, which was also expected. August was revised to show that personal spending was up 1.4%.

Personal saving totaled $355 billion in September, or 3.3% of disposable personal income. That was up from $307 billion, or 2.8% of disposable personal income, in August.

The report came one day after the government said U.S. gross domestic product, the broadest measure of economic activity, grew in the third quarter following a prolonged contraction.

Thursday's GDP data showed consumer spending rose at a 3.4% rate in the quarter, the biggest increase in nearly three years. Spending by consumers accounts for more than two-thirds of the nation's economic activity.

On stimulus jobs reporting, a big 'Oops'

2009-10-17T09:08:00.001-07:00

Gaffes in federal reports this week about stimulus have called into question the government's ability to accurately track how many jobs are being created by the massive $787 billion Recovery Act.

The data in Thursday's reports were filled with mistakes, including an error that made it look like a French vaccine maker received the largest stimulus contract, $1.4 billion, when in fact it has gotten an award one-100th the size.

Government research organization OMB Watch said its assessment of the reports revealed many inconsistencies in the job data.

"The data is rife with mistakes," said Craig Jennings, senior federal fiscal policy analyst at OMB Watch. "When you put out data that hasn't yet been checked, it undermines transparency, because you are putting out wrong information."

According to the Recovery Board, a non-profit, government-funded organization that operates stimulus data tracker recovery.gov, the government expected mistakes and is reviewing reports of them.

Uncovering how many jobs stimulus created is critical to the debate about the Recovery Act's value. Critics argue that the mammoth funding simply represents more government spending and is not effectively being used to create jobs. But proponents say stimulus is a crucial shot in the arm for the economy, and that the labor market would have fallen further without it.

"Understanding how many jobs are created will answer the very fair and important question, 'What return on our investment are we getting?' " said Christopher Mihm, the Government Accountability Office's managing director of strategic issues.

But the enormity of the stimulus bill leaves some experts saying it will be impossible to accurately portray the data. The sheer size of the reporting is dumbfounding: Tens of thousands of recipients will file reports after receiving stimulus funds from one of 28 government umbrella agencies, or from one of countless agencies from the 50 states.

Making it even more difficult to discover the true jobs number is a decision to put the responsibility of correcting mistakes on the stimulus recipients' shoulders. For transparency's sake, government agencies can point out errors but are powerless to change them. All of the data are under government review, and a report on the errors the agencies find will be available at the end of the month.

"It's important that those errors get caught before they get published, and right now they're still under review," said Jennings. "It's possible that some will be caught by the review, but it will take an incredible amount of man power just to sift through the data."

Recipients of stimulus funds were required to report how many jobs they saved or created and how much money they have received from government agencies by Oct. 10. The first sliver of that information was posted on recovery.gov on Thursday, with much more data to come on Oct. 30.

The contract awards posted Thursday represented less than 7% of the total stimulus funds doled out so far. By far the largest part of stimulus is in grants to states, which account for 83% of stimulus funding. Federal agencies and recipients are spending nearly three weeks reviewing these state reports to improve their accuracy before publishing them.

Loans to recipients make up the other 10%. Both grants and loans will be posted on recovery.gov at the end of the month.

There were 5,232 federal contracts reported Thursday, but 41,944 grants and loans will be reported on Oct. 30. Gov. Arnold Schwarzenegger of California recently said that his state alone submitted 5,747 reports from agencies and others who received funds from the state.
Mistake-prone reporting

A mistake in the very first contract listed on the site prompted doubts about the reliability of the reports.

Recovery.gov erroneously reported Thursday that French vaccine maker Sanofi Pasteur had received $1.4 billion in stimulus funds from the Department of Health and Human Services. The company topped the site's list titled "Largest federal contracts in U.S."

When CNNMoney.com first asked about the contract on Thursday, a spokeswoman from Sanofi Pasteur suspected the $1.4 billion figure was a mistake. HHS spokeswoman Vicki Rivas-Vazquez said the number on recovery.gov was erroneous and the actual amount was $10.4 million.

Sanofi Pasteur said Friday that $10.4 million is the correct figure.

"We anticipated errors in the reporting and so informed many reporters beforehand," said Edward Pound, spokesman for the Recovery Board. "This is the first time this kind of reporting is being done. These reports are being reviewed by federal agencies and recipients to catch any errors or problems."

The Recovery Board has the tall task of compiling all of the data, and is spending $18 million revamping its Web site to manage all of the information.

OMB Watch said its review yielded "really weird job numbers," including many discrepancies within the reports themselves. For instance, Jennings said OMB Watch found that many companies said in a narrative portion of their reports that it was able to retain several employees because of stimulus funds, but the "jobs created" column read "zero."

The Recovery Board aggregates its jobs data from the "jobs created" column to display the total number of jobs saved or created. Jennings speculated that recipients might have been confused about the scope of the term "created."

"I would not stake any sort of claims on those job numbers," said Jennings. "We don't know what's going on there."

Even the job figures that are input correctly do not always reflect the true number of positions created by stimulus funds.

For instance, UT-Battelle received a $338.7 million contract, listed as the fourth largest on the recovery.gov site. So far, the company, which manages Oak Ridge National Laboratory in Tennessee for the Department of Energy, has spent $13 million and created 41 jobs, mostly related to the oversight of subcontractors.

But the funding is actually creating many more jobs, said Thom Mason, UT-Battelle's CEO. Among the firm's first stimulus projects is the building of a chemistry and new materials research lab, which will employ 150 construction workers. None of these positions will appear on UT-Battelle's reports to the federal government.

"It's important that everyone reports on a consistent basis," said Mason, who expects to hire up to 4,000 subcontractors with stimulus funds. "The difficulty is that it gives you a number that's not really a realistic reflection of how many jobs are created."

Three-peat: Stocks fall again

2009-09-25T18:29:00.000-07:00

Stocks fell for the third straight session on Friday, ending lower for the week, after weaker-than-expected reports on durable goods orders and new home sales sparked concerns about the strength of any recovery.

The Dow Jones industrial average (INDU) lost 42 points, or 0.4%. The S&P 500 (SPX) index lost 6 points, or 0.6%. The Nasdaq composite (COMP) fell 17 points, or 0.8%.

Stocks slid in the previous two sessions after having ended Tuesday at one-year highs. Investors reacted negatively to Wednesday's Federal Reserve meeting and Thursday's weaker existing home sales report and oil slump.

The mix of economic news Friday gave investors another reason to retreat after the recent advance. An attempt at stabilizing in the last hour of trading gave out near the close.

"Today is the third day that we are seeing selling on higher volume," said Curtis Lyman, managing director at HighTower Advisors. "It's indicative that the market is consolidating after the very nice recovery we've seen."

Stocks have seen a huge spike over the last 6-1/2 months. Since bottoming at a 12-year low March 9, the S&P 500 has gained 54.4% and the Dow has gained 47.6%, as of Friday's close. After hitting a six-year low, the Nasdaq has gained 64.8%.

This week's retreat has left Wall Street at what could be a key inflection point, said Brian Peardon, wealth advisor at Harrison Financial Group

"We could see a new push higher or a much more substantial selloff," Peardon said. "It's just a matter of all the cash on the sidelines and whether the (buy on the) dip buyers decide to come in."

He said that a continued move higher is more likely than a big selloff at this point, but that the upcoming quarterly earnings reporting period will be critical in terms of whether the rally gets another leg up.

Economy: New home sales rose 0.7% in August to a 429,000 unit annual rate from a 426,000 unit rate in July, according to a government report released Friday morning. It was the fifth consecutive month of rising sales.

The results were shy of the 440,000 unit annualized rate economists were expecting, according to a survey by Briefing.com.

In general, the report added to other recent indications that the housing market has likely hit bottom. The housing market collapse and subsequent subprime mortgage meltdown were seen as sending the economy into recession in the first place, so a recovery in this area is critical for broader growth.

But not all signs point to improvement. A different report Thursday from the National Association of Realtors showed August sales of previously-owned homes fell 2.7% in August from July, after jumping in the previous month.

Another report released Friday showed that consumer sentiment rose more than expected in September. The University of Michigan's index rose to 73.5 from an initial reading of 70.2. Economists thought it would rise to 70.5.

An earlier report showed a surprise drop in durable goods orders last month. Orders for big-ticket items meant to last three years or more fell 2.4% in August versus forecasts for a rise of 0.4%, the Commerce Department reported. The surprise dip was largely due to a drop in commercial aircraft orders. Orders rose a better-than-expected 4.8% in July, including the impact of the Cash for Clunkers auto stimulus program.

Stripping out autos, August orders were flat versus forecasts for a rise of 1%. Orders excluding autos had risen 0.9% in July.

"We're seeing continued choppiness in the economic numbers, which points to the fact that the recovery is still in the early stages," Lyman said.

G-20 summit: The Group of 20 leading developed and emerging countries met for a second day in Pittsburgh. The Group has been meeting to discuss the financial crisis and how to prevent something like it from happening again.

On Thursday, the leaders agreed to make the group the new permanent council for international economic cooperation, essentially eclipsing the G-8, which doesn't include developing nations such as China, India or Brazil.

The G-8 will still meet on major security issues, but will be less influential.

Company news: Research in Motion (RIMM) reported a better-than-expected profit late Thursday, and also forecast third-quarter earnings in a range that includes analysts' estimates. But the BlackBerry maker also predicted third-quarter revenue would fall in a range that is short of analysts' current estimates. Shares slumped 17%.

After the close Thursday, Hewlett-Packard (HPQ, Fortune 500) issued a fiscal 2010 revenue forecast that is short of analysts' predictions and an earnings outlook in a range that could top analysts' expectations. On a broader level, the computer and printer maker said that the IT industry will return to growth next year and that the company will outpace the rest of the market. Shares were little changed.

In deal news, Unilever (UN) is buying Sara Lee (SLE, Fortune 500)'s personal care unit for $1.88 billion, the companies said Friday.

A number of retailers declined on concerns about the economy, including Wal-Mart Stores (WMT, Fortune 500).
0:00 /1:25The recovery checklist

World markets: Global markets were mostly lower. In Europe, London's FTSE 100 ended little changed, while France's CAC 40 and Germany's DAX both declined. Asian markets ended lower, with the exception of the Japanese Nikkei.

Currency and commodities: The dollar fell versus the euro and the yen. The greenback has repeatedly hit one-year lows against a basket of currencies over the last few weeks.

The weaker dollar had little impact on dollar-traded commodities, although it often moves in the opposite direction of oil and gold prices.

U.S. light crude oil for October delivery rose 13 cents to settle at $66.02 a barrel on the New York Mercantile Exchange.

COMEX gold for December delivery fell $7.30 to settle at $998.90 an ounce. Gold closed at a record high of $1,020.20 last week.

Bonds: Treasury prices rose, lowering the yield on the benchmark 10-year note to 3.32% from 3.36% late Tuesday. Treasury prices and yields move in opposite directions.

Market breadth was negative. On the New York Stock Exchange, losers topped winners eight to seven on volume of 1.20 billion shares. On the Nasdaq, decliners beat advancers five to four on volume of 2.39 billion shares.

Credit card satisfaction hits new low

2009-09-09T09:46:00.001-07:00

Okay, so that headline packs all the shock value of “Sun Rises in the East.” But given the widespread annoyance so many readers have with their credit card issuers (check out comments to blog posts here and here) I thought it might be, well, satisfying to know card wrath is a bit of a national epidemic.

J.D. Power reports that overall customer satisfaction with credit card issuers hit a three-year low, clocking in at 703 (on a scale of 1000) in 2009. That was slightly lower than the already anemic 710 score from 2008, and is the lowest showing since the firm started looking at credit cards in 2007.

On the sub-topic of fees and rates, the 2009 satisfaction score slumped from a solid D (640 in 2008) to a D-minus (603 in 2009) as the percentage of respondents who were hit with an interest rate increase nearly doubled over the past year, to close to 20%. Customers reporting complaints/problems also shot up; from 10% in 2008 to 18% this year.

No surprise then, that J.D. Power says credit card issuers own the dubious distinction of having the lowest satisfaction score across the financial services industry, trailing investment services, insurance and banking.

cut_credit_card.ju.03Those of you who’ve reached your annoyance limit with a current card issuer might want to check out the two most satisfying card firms in this year’s survey: American Express (762) and and Discover (751).

Or you can hold on in the hope that the impending new consumer-friendly regs scheduled to go into effect in February 2010 will help matters. I’m not holding my breath. Industry analyst firm R.K. Hammer estimates that credit card issuers will pocket about $20 billion in credit card fees this year. Something tells me they will come up with new and unsatisfying ways to keep that gravy train running in 2010 and beyond.

Gold's near $1,000

2009-09-04T06:48:00.000-07:00

Are gold investors starting to sense something wrong that others are missing?

The price of gold is nearing $1,000 an ounce. It closed at $997.70 Thursday, up $19.20 from Wednesday. This rise might be a cause for concern.

In the past two years, gold has flirted with the "box of ziti" level -- a bit of slang for $1,000 from a memorable "Sopranos" episode -- a couple of times. And that usually has coincided with a time of immense strain in the markets

Gold hit a record high of about $1,014 in March 2008, just when Bear Stearns was on the verge of collapse before being "rescued" by the Federal Reserve and JPMorgan Chase (JPM, Fortune 500).

A couple of months later, gold got close to $1000 again due to worries about inflation and a weak dollar. Gold's rise matched oil's march to a record high.

Finally, gold got close to $1000 again in late February of this year, a time when investors were fretting that big banks such as Citigroup (C, Fortune 500) and Bank of America (BAC, Fortune 500) might need to be nationalized.

So what's driving the gold rush this time around? It is hopefully something less sinister than fear of imminent financial doom.

It simply may just be traders looking to hedge their bets a bit as investors begin to worry if the stock market rally that began in March has come too far too fast.

"There hasn't been too much big news driving up gold prices. There is no major catalyst," said Kathy Lien, director of currency research at GFT, a foreign exchange and futures brokerage firm in New York. "I don't think it's a fear of instability in the financial sector. It does reflect skepticism about the strength of the global recovery."

Lien added that in light of how much money has been pumped into the financial system by the Federal Reserve in the past year, some investors may also be worrying about the dollar weakening again. That could drive up prices and cause investors to rush for tangible assets, such as gold, as a safe haven.

"It's prudent for investors in general to increase their exposure to gold given the risks of inflation in the future," Lien said.
0:00 /03:11Post Labor Day selloff looms

Still, inflation may not be that big of a worry right now. While the dollar has weakened against the euro and yen lately, investors in other assets don't appear to be fretting about pricing pressures.

Oil prices have retreated in recent days for many of the same reasons that stocks have pulled back. With investors pondering just how strong a global economic recovery will be, that leads to the inevitable question of whether oil prices really reflect true demand.

In addition, U.S. Treasury bond prices have slipped in the past few weeks, pushing their yields higher. (Bond prices and rates move in opposite directions.) The yield on the U.S. 10-year note is currently about 3.3%, down from around 3.8% just a month ago. Higher bond rates are typically a sign of more inflation concerns.

With that in mind, Stefane Marion, Chief economist and strategist National Bank Financial Group in Montreal, wrote in a report Wednesday that the spike in gold may soon fizzle.

More evidence that the economy is in fact recovering could deflate double-dip recession fears. And if the Fed drops more hints that it is getting closer to employing a so-called exit strategy for its various lending programs, investors will have less reason to worry about run-away inflation.

"The price of gold has had two major drivers lately -- the need for a haven in turbulent times and fear of a return of inflation," Marion wrote. "Fewer investors will need gold as a haven as the economy begins growing again. As for the need to hedge inflation, we do not expect the world's central bankers to lose control of inflation."

But another strategist worries that it may not be that easy for central banks to rein in inflation. Subodh Kumar, an independent market strategist with Subodh Kumar & Associates in Toronto, said that since the U.S., some European nations and Japan face such big budget deficits, they may look to buy gold as a reserve.

This means that there could be more demand for gold -- even if demand for oil and other commodities doesn't pick up. So the pattern of gold and oil rising in tandem as they did for a big stretch last year and earlier this year may be over.

"With high budget deficits and uncertainty about how to get out of them, gold is a good diversification for large central banks and sovereign wealth funds," Kumar said. "That would lead gold to move in a separate fashion than other industrial commodities."

Stocks struggle to rise

2009-09-02T09:58:00.000-07:00

Stocks seesawed early Wednesday afternoon as investors weighed the morning's mixed economic news with worries that the market rally has outpaced any recovery.

In a choppy session, the Dow Jones industrial average (INDU) and the S&P 500 (SPX) index were both little changed nearly 3 hours into the session. The Nasdaq composite (COMP) inched higher.

Stocks slumped on Tuesday, with the three major gauges all losing around 2% as investors bet the six-month run has gotten ahead of the economic rebound.

Since bottoming March 9 at a 12-year low, the S&P 500 has basically been on the rise, adding 52% through Monday. Stocks saw a minor retreat in late June and early July, with the S&P 500 losing about 7% heading into the start of the second-quarter financial reporting period. But other than that small sell off, the direction has mostly been up.

Reports on Tuesday showed housing and manufacturing are recovering, but investors remain worried about the labor market and how rising joblessness will impact consumer spending. Consumer spending fuels two-thirds of economic growth, and economists say any recovery will be mild without the consumer's participation.

Jobs: Two reports on the labor market were released Wednesday morning, leading up to Friday's bigger non-farm payrolls report.

Payroll services firm ADP said employers in the private sector cut 298,000 jobs from their payrolls last month after cutting a revised 360,000 in July. Economists were expecting 250,000 job cuts according to a Briefing.com survey.

Separately, outplacement firm Challenger, Gray & Christmas reported 76,456 job cut announcements in August, 21% fewer than in July.

Although both reports indicate the pace of job cuts has slowed, the economy is still far from creating jobs.

"The reports show that the labor market is progressing toward the recovery phase ahead of schedule," said Gregory Miller, chief economists at SunTrust Banks.

He said that most economists were forecasting no improvement until the end of this year or early next year.

He said that if the pace of the recovery in the jobs market continues - and business spending picks up - the recovery could be be stronger than current forecasts. But without those two factors, growth will remain sluggish.

Other economic news: A Labor Department report showed that non-farm productivity rose at a 6.6% annual rate during the second quarter versus the initially reported 6.4% pace. That was in line with forecasts.

Factory orders rose 1.3% in July, the Commerce Department reported. Orders rose a revised 0.9% in June. Economists thought orders would rise 2.2% in July.

The minutes from the last Federal Reserve policy meeting are due at around 2 p.m. ET.

Company news: Wells Fargo (WFC, Fortune 500) is set to repay the $25 billion in bailout funds it took from the U.S. government. The bank expects to pay it back from internal funds, rather than through issuing new shares.

Financial stocks as a sector retreated for the second session in a row, although the declines were fairly modest. The KBW Bank index lost 1.7%.

Pfizer (PFE, Fortune 500) will plead guilty to a criminal charge related to how it promoted now-defunct pain killer Bextra. The Dow component will pay $2.3 billion to settle charges it wrongly marketed 13 medicines. In January, Pfizer said it took the charge but didn't specify why.

Fellow Dow component Coca-Cola (KO, Fortune 500) inched higher, while Merck (MRK, Fortune 500), Walt Disney (DIS, Fortune 500) and Home Depot (HD, Fortune 500) declined.

Diversified manufacturer Danaher (DHR, Fortune 500) said it is cutting more jobs as part of its restructuring plan -- and is buying two businesses that make scientific instruments for about $1.1 billion.

The company is buying the life sciences instrument business of Canadian MDS for $650 million in cash. That purchase includes a 50% stake in AB SCIEX, which makes instruments used by researchers. Danaher will also buy the rest of AB SCIEX for $450 million. Danaher shares gained 2%, while MCS (MDZ) shares gained 22%.

Oil: U.S. light crude oil for October delivery fell 33 cents to $67.72 a barrel on the New York Mercantile Exchange after a mixed weekly inventory report from the Energy Information Administration. Oil prices have been slipping since hitting a ten-month high just below $75 a barrel late last month.

In other energy sector news, BP (BP) said Wednesday that it has made a "giant" oil discovery in the Gulf of Mexico. Although the company doesn't yet know the volume of oil present, it is thought to be in excess of 3 billion barrels.

World markets: The global market sell off continued, with Asian shares slumping. The Japanese Nikkei lost 2.4%. In Europe, markets tumbled as well.
0:00 /3:02Bailout falls short for homeowners

Bonds: Treasury prices rose, lowering the yield on the benchmark 10-year note to 3.33% from 3.36% late Tuesday. Treasury prices and yields move in opposite directions.

Other markets: COMEX gold for December delivery rose $17.90 to $974.40 an ounce.

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

Market breadth was negative. On the New York Stock Exchange, losers beat winners three to two on volume of 620 million shares. On the Nasdaq, decliners narrowly edged advancers on volume of 960 million shares.

Don't mess with Texas banks

2009-08-31T07:17:00.000-07:00

The old adage that everything is bigger in Texas still seems to hold water --especially when it comes to the business of banking.

Before Guaranty Financial Group collapsed last week, the Austin-based thrift reportedly drew intense interest from lenders and investors across the country. U.S. Bancorp (USB, Fortune 500), Wells Fargo (WFC, Fortune 500) and the private equity pros that bought IndyMac were said to have either bid or consider an offer for its assets. Guaranty was ultimately sold to Spain's Banco Bilbao Vizcaya Argentaria (BBV).

But Guaranty may be an anomaly. Only four Texas banks have failed since the beginning of 2008. And the failure of Guaranty had more to do with exposure to bad real estate loans in California than problems in its home state.

In fact, business has been good for banks operating within the Lone Star State.

In the second quarter, Texas banks reported profitability that surpassed the rest of the country, generating a 0.69% return on assets, compared to the national median of 0.49%, according to a recent report published by investment bank Sheshunoff & Co.

"It is the one area of the country where you could say there is an abundance of interest [on behalf of bankers]," said Brett Rabatin, a senior research analyst at Sterne Agee who tracks a number of Texas-based lenders.

In some ways, Texas seems to have everything a bank could love: a rapidly growing population in need of a place to park their money and a relatively resilient economy that could be among the first to emerge from the recession.

As of July, the state's unemployment rate stood at 7.9%, one of the lowest in the nation. But other recent economic indicators have also been encouraging. Median home prices and sales activity, for example, have both been on the rise this summer, while manufacturing activity has also improved in recent months, according to recent data from the Federal Reserve Bank of Dallas.

That has helped many local banks avoid the hefty credit costs that have saddled so many of their peers across the country -- and ultimately boosted their bottom lines.
A crowded playing field

Such factors, combined with a tough-but-fair state regulatory regime, have made Texas the destination of choice for the banking industry in the past few years.

Before being acquired by Wells Fargo last fall, Wachovia had planned to build about 250 branches in Texas by the end of next year. Citigroup (C, Fortune 500), Bank of America (BAC, Fortune 500) and JPMorgan Chase (JPM, Fortune 500) all have a significant presence in Texas already, with each boasting several hundred retail locations.

With nearly 640 different lenders operating within the state, overseeing some 5,800 branches, some would argue it makes for a crowded playing field. But that has not deterred many lenders from trying to claim their stake in this lucrative market.

Five of the 28 new banks that have opened so far this year have set up shop in Texas, according to the FDIC. Even veteran lenders, like San Francisco's UnionBank, have taken an interest in the region, reportedly applying for a state charter recently.

But that level of interest cuts both ways, notes Rabatin. With the level of competition so fierce, lenders looking to grow have few options other than stealing market share or through acquisitions.

"The problem is it is so hard to get a critical mass without buying something of decent size, which is why Guaranty piqued a number of peoples' interest," he said.
Lessons learned

While Texas may hold the promise of tidy profit margins for banks, some trouble spots still loom for lenders looking to expand their presence there.

The recent decline in the price of natural gas to below $3 has worried some banks with exposure to the local energy industry, while the extent of the fallout in the souring commercial real estate market have also kept some bankers up at night, said Jim Gardner, chairman of Commerce Street Capital, a Dallas-based investment bank.
0:00 /3:29Banking: Lessons learned

"It's been pretty good up until now, but we really started seeing a deterioration in commercial real estate beginning in the second quarter," he said. "I suspect that trend will continue for a while."

Still, few expect the industry to relive the painful banking period of the 1980s and early 1990s, which was also driven by a combination of collapsing energy prices and deterioration in commercial real estate values. Between 1980 and 1994, 599 Texas banking institutions failed.

Living with that memory, many bankers took precautions in the years leading up to the current crisis, employing thorough underwriting practices and taking care not to overexpose themselves to the energy industry, said John Blaylock, an associate director at Sheshunoff & Co.

"They were simply much more careful about underwriting loans the last 10 years because of that," said Blaylock. "There are bankers here who vividly remember what happened and are not about to repeat it."

Cash for Clunkers: Only hours remain

2009-08-24T06:50:00.001-07:00

Cash for Clunkers is just about at the end of the road.

The government-funded rebate program, popular with consumers, comes to its official completion on Monday.

Dealers have until 8 p.m. to file claims for any deals.

Some dealers said they were participating in the Clunker program right up to the end. Others said they had stopped because they didn't want to risk giving a $4,500 discount on a car and not be reimbursed by the government.

AutoNation (AN, Fortune 500), the country's largest dealership chain, stopped doing Cash for Clunker transactions after Friday. AutoNation had completed nearly 11,000 deals, according to spokesman Mark Cannon.

"It's been a great run," Cannon said.

Under Clunkers, which launched July 27, vehicles purchased after July 1 are eligible for refund vouchers worth $3,500 to $4,500 on traded-in cars with a fuel economy rating of 18 miles per gallon or less.

Car buyers trading in a vehicle must prove that the vehicle has been titled to them for at least a year and, in most states, that the car has been insured for a year. Dealers have to provide copies of that paperwork, among other things, to the National Highway Traffic Safety Administration in order to get their rebates.

The Virginia Automobile Dealers Association reported late last week that about 25% of its member dealerships had already dropped out of the program because of uncertainty over getting paid for their deals.

The Virginia auto dealers' group reports that dealers have been reimbursed for only about 3% of all the deals that have been done in that state. Hall described the submission process as challenging, with frequent problems and rejections.

"It's been ugly, ugly," Hall said.

The principal trade group for dealers made a last-minute push to extend the deadline.
0:00 /1:42Cash for clunkers gets clunked

In a statement released late Friday, the National Automobile Dealers Association called on the government to accept rebate requests until Aug. 31. The group cited computer slowdowns that could result from "overwhelming demand" on Monday. The government has yet to rule on whether it would extend the deadline.

Oil surges to 10-month high

2009-08-21T08:43:00.001-07:00

Oil prices soared on Friday to their highest level since October as investors grow hopeful that a recovery of the world economy is in sight.

On Friday, the price of oil for October delivery rose as high as $74.15, after settling the day before at $72.42. The price of oil hasn't traded that high since Oct. 20, 2008, when it reached an intra-day peak of $76.12.

All told, oil has surged by two-thirds this year since after closing out 2008 at $44.60 per barrel.

Manouchehr Takin, petroleum analyst at the Center for Global Energy Studies in London, said the increases in oil prices don't make sense when you look at them purely at face value.

"On the fundamentals of supply and demand, one cannot explain why the price is high," said Takin. "All the [global] inventories are full. The outlook for the demand for oil in the coming weeks is really weak."

But investors who lack confidence in the volatile stock markets have shifted their money into commodities like oil, which is why prices have been escalating, said Takin.

"There is not much confidence in the stocks around the world," he said. "Obviously commodities is an alternative. They trade in oil, and therefore the paper value goes up."
0:00 /3:12Oil prices endanger recovery

At the same time, analysts say oil investments are being driven by the belief that the worldwide economic downturn has bottomed out and is due for a recovery -- a turn of events that would bolster demand in the near future.

"If things are getting better with the economy, then the demand will rise for commodities, and that's the expectation," said Joseph Stanislaw, independent senior advisor at Deloitte LLP.

In the United States, this perception is likely fueled by positive comments from Federal Reserve Chairman Ben Bernanke and improvements in the housing market.

But Stanislaw noted that it's too early to tell whether this perception of recovery will blossom into a reality.

"What usually happens in this type of economy is that the price rise happens before the demand rise," Stanislaw said. "People want to be there before it happens."

How Obama's transparency promise holds up

2009-08-17T07:56:00.000-07:00

The Obama administration pledged unprecedented transparency in its accounting of the $700 billion bank and auto bailouts (TARP) and the $787.2 billion Recovery Act. A lot of information has been made public but there are some key details where the transparency falls far short.

Here's what we still don't know:

1. How are banks using TARP funds?
2. Who are bailed out banks lending to?
3. What is the value of the assets that Treasury has accumulated as a result of TARP?
4. Where are stimulus funds ultimately going?

They're important questions: We want the government to ensure it is spending our money wisely, and experts want to know why the Obama administration won't provide the answers.

"Why are we bailing out banks, and what are we getting out of it?" asked Craig Jennings, senior fiscal policy analyst at transparency research organization OMBWatch. "These are very big questions, and the administration doesn't seem to be willing to answer them."

What we do know. To make the bailouts and stimulus more transparent, the administration commissioned Web sites like recovery.gov and financialstability.gov, which have given the public previously unattainable information about how taxpayer funds are spent.

"The president and vice president made a clear commitment from the beginning that we would provide unprecedented accountability and transparency," said Liz Oxhorn, the Obama administration's spokeswoman for the Recovery Act. "Look at recovery.gov and compare it to the standard of how government worked in the past. It is truly a pioneering site in terms of access."

But many analysts and overseers say that the provided information is not nearly enough.

"The administration's transparency goals clearly have not been reached," said John Clippinger, co-director, of the Berkman Center for Internet & Society at Harvard University. "I think this administration is making a huge effort to enable them, considering where we've been in the last eight years, but they're certainly not there yet."

Accounting for TARP. The Treasury Department states on financialstability.gov that the $204 billion in capital investments in banks are "for stability or lending." But it does not require banks who have received the funds to show how they are using the money.

Special Inspector General for TARP (SIGTARP) Neil Barofsky, and Prof. Elizabeth Warren's Congressional Oversight Panel (COP) have been outspoken on this issue, and Barofsky even performed his own voluntary survey to show the accounting could be done. Treasury responded that its current method of accounting is sufficient -- reporting on broad trends for the top 21 banks' lending habits.

"We share SIGTARP's interest in tracking the level of lending by those institutions that have received government investment," a Treasury official said. "To that end, Treasury has released monthly reports tracking how much these institutions are actually lending."

Experts say without deeper digging into the question of "where the money is going," the public will never really know if the program is working: If banks are lending, what do they have to show for it? How has lending improved?

"Are they giving loans just to extremely credit-worthy people? Subprime borrowers? Are minorities able to secure loans?" asked Jennings.

Besides "is it working," Treasury also won't answer how taxpayers' investments are faring, declining to make public the fair market value for the shares and warrants it holds as a result of TARP. Taxpayers won't have any way of knowing whether they have lost or gained money on their investments in companies like General Motors, AIG (AIG, Fortune 500), Citigroup (C, Fortune 500) and Bank of America (BAC, Fortune 500) until after the government sells its stakes.

Digging into stimulus. The accounting of stimulus has been met with less scrutiny, mostly because Congress made it a point to track how every dollar was spent after struggling to get the same information from the TARP program.

Still, the government's accounting only goes as far as the first tier recipients from the states. For example, say a construction company gets stimulus funds from the state of Nebraska. That company has to report the receipt of those funds to the government, but if they hire a dump truck company and an asphalt company to do the work, that doesn't get reported.

Why do we care? "It would enable the Obama administration to say there were X amount of businesses that benefited from a particular project, and the government could connect the dots if there is fraud, waste or abuse," said Jennings.

What can be done. Some argue open-source technology is the best solution for both the government and the public.

That is, use the Internet to provide all forms of government data in a very sortable, searchable database, said Clippinger. He argues that if all the data are in one place, with independent eyes looking at it, then the data couldn't be co-opted, or selectively made available.

"When you get lots of people looking at it, you'll create better accountability and efficiency," said Clippinger.

That idea is supported by House bill H.R. 1242, backed by Reps. Carolyn Maloney (D-N.Y.) and Peter King (R-N.Y.). The bill would take the reporting out Treasury's hands, and require the administration to send all data straight into a database.

It's similar to the model used by recovery.gov, which is run by the independent Recovery Accountability and Transparency Board (Recovery Board), not by the Obama administration, which runs financialstability.gov.

"We're fully aware of what our name is and what the public expects of us," said Ed Pound, a Recovery Board spokesman. "We're not going to fall into that trap of not sharing certain information."

In the end, experts say the Obama administration will have to find ways to make a greater amount of data even more accessible to achieve the transparency goals it set out for itself.

"There are other ways of skinning this cat," said Clippinger.

Stocks: The latest Fed bubble

2009-08-12T08:55:00.001-07:00

The Federal Reserve has spent the past year cleaning up after a housing bubble it helped create. But along the way it may have pumped up another bubble, this time in stocks.

To head off the worst downturn since the Great Depression, the central bank has slashed interest rates while funneling money to banks.

The Fed has mostly won praise for its efforts. The pace of job losses has slowed, and there has been a modest recovery in output.

At the same time, stocks have bounced back with startling speed. Since global markets hit their bottom in March, the S&P 500 has jumped 51% -- even as the outlook for economic recovery remains dim.

"This is the most speculative momentum-driven equity market since the early 1930s," Gluskin Sheff economist David Rosenberg wrote in a note to clients Monday.

Of course, stocks have rallied in part because investors perceive the worst-case scenario -- a 1930s-style Depression -- is off the table. And while the gains have been remarkable, they come after an even bigger decline. The S&P is still down 16% since Lehman Brothers collapsed in September.

But while most people take the rise in stocks as a hopeful sign for the economy, some see evidence that the Fed has been financing a speculative mania that could end in another damaging rout.

Recent weeks have brought huge rallies in some of the lowest-quality stocks -- including firms such as AIG (AIG, Fortune 500), Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) that are being propped up by the government and are unlikely to return to health any time soon.

What's more, this year has brought an 80% surge in emerging market stocks, while the dollar has posted a 10% decline since March. A declining dollar and surging emerging markets were the hallmarks of the credit-fueled bull run earlier this decade.

"We have put the band back together on a lot of this," said Howard Simons, a strategist at Bianco Research in Chicago. "That couldn't have happened without liquidity."

Though liquidity is admittedly a nebulous concept, there's no question that central bankers around the globe have poured huge amounts of money into the markets to ease the financial crisis. Given free money, investors' appetite for risk shoots higher and they gobble up stocks.

That's good, except when the outlook for economic growth doesn't seem to support the higher stock values.

"Many observers are wondering whether the strong stock market rebound since mid-March is already a forerunner of the next recovery or simply driven by a reflux of liquidity into riskier asset markets," Deutsche Bank Research analyst Sebastian Becker wrote in a report last month.

Rosenberg, who notes that consumer credit has dropped an unprecedented five straight months, said it's far from clear the recession is over. He says the risk of a market relapse later this year is high.

Simons said another factor that could work against recovery is that short-term interest rates could soon head higher, judging by action in futures markets. That could raise companies' borrowing costs at a time when policymakers have committed to holding rates near zero to restore economic growth.
0:00 /1:22Greenspan: New rules required

Fed officials have stressed that they will start to unwind their financial support programs at the earliest sign of inflation. Given the cost of cleaning up after the last bubble, Becker writes that "this time, policymakers are unlikely to remain inactive should they suspect the formation of another asset price bubble."

But it's clear that bankers are loath to pull back on their support for the financial system before it's clear the economy has staged a stronger recovery. And the Fed has a long and painful history of ignoring asset price inflation.

"The central bankers have this textbook belief that the only inflation is the kind that appears in consumer price indexes," said Simons. "They don't believe what they're doing could cause an asset price bubble."

For now, Fed chief Ben Bernanke and other central bankers can console themselves for now with stable consumer price inflation readings in major economies.

But comparing the bankers with a driver pulled over for speeding for the umpteenth time, Simons said, "At some point, you have to say maybe your speedometer's broken."

Cash for Clunkers vote set for Thursday

2009-08-06T07:37:00.001-07:00

The Senate is expected to vote Thursday on a $2 billion extension of the popular Cash for Clunkers program, as lawmakers rush to finish business before their August recess.

The House voted to extend the program, which blew through its $1 billion in initial funding, before it adjourned for the summer last Friday.

Now the Senate must agree to make the additional money available so that President Obama can sign the extension into law.

Debate on the bill is expected to begin after the Senate's confirmation vote on the Supreme Court nomination of Judge Sonia Sotomayor.

Senate Majority Leader Harry Reid of Nevada indicated that an agreement had been reached with Senate Republicans and that a vote is expected Thursday.

"We'll pass Cash for Clunkers ... before we leave here" for the August break, Reid told journalists Tuesday.
0:00 /5:09Against Cash for Clunkers

Sen. John Thune of South Dakota, the third-ranking Republican, said he expects all Senate Democrats and several Republicans to vote for additional funding.

"In the end, we know where the numbers are," said Thune, who opposes the program.

Senate Minority Leader Mitch McConnell of Kentucky said the Senate would vote on the measure before going on holiday, but wouldn't guess about the outcome.
How it's going

Under the Clunkers program as enacted, vehicles purchased after July 1 are eligible for refund vouchers worth $3,500 to $4,500 on traded-in gas guzzlers. The trade-in vehicle has to get a combined city and highway fuel economy rating of 18 miles per gallon or less.

According to government figures, compact cars and hybrids have been the top sellers so far.

The top-selling car was the Ford Focus, and the top three -- including the Honda Civic and Toyota Corolla -- were compacts. The list also includes three vehicles that are available as hybrids. One, the Ford Escape, is a small crossover SUV also available as a hybrid.

The sales results indicate that consumers are buying more fuel-efficient vehicles than most people expected. The average combined city and highway fuel economy of the 10 cars ranges from at 27 to 33 miles per gallon, depending on which versions people choose.

While critics had feared that car shoppers would use the program mostly to buy trucks, in fact 83% of the vehicles traded in have been trucks and SUVs while 60% of vehicles purchased were passenger cars, according to Secretary of Transportation Ray LaHood.

The broad category of SUVs includes many small car-like crossover SUVs, including the Escape.

Last month, many of the vehicles with the biggest reported year-over-year sales gains were small crossovers, a fact that several of the top automakers attributed to the Cash for Clunkers program.

The average fuel economy of new vehicles being purchased under Cash for Clunkers is 25.4 mpg, LaHood said, and the average fuel economy increase from the old vehicle to the new is about 61%.

Service sector index falls back

2009-08-05T09:11:00.000-07:00

The U.S. service sector contracted in July at a faster pace than in June, according to a report released Wednesday.

The Institute for Supply Management's services index fell to 46.4 last month from 47.0 in June, below economists' median forecast for a rise to 48.0. The dividing line between growth and contraction is 50.

The services sector represents about 80% of U.S. economic activity, including businesses such as banks, airlines, hotels and restaurants.

Ford says it will post July sales rise

2009-08-02T15:48:00.000-07:00

Ford Motor Co. will report its U.S. sales for July rose from a year ago on a late-month surge under the federal government's "Cash for Clunkers" incentive program, senior U.S. executives said Sunday.

The July increase marks Ford's first year-over-year monthly rise since November 2007, just before the U.S. economic downturn began, and the first increase for any of the largest automakers since the start of the financial crisis a year ago.

The result is "important to Ford, but it is also a very good indication for the economy," Ford U.S. sales chief Ken Czubay said in a telephone interview.

"It was a deep hole that the entire economy was in," Czubay said. "We may not be out of the hole, but we are seeing very encouraging signs in July."

Ford (F, Fortune 500), the only U.S automaker that has not restructured in bankruptcy with federal funding, has consistently outperformed the other six largest automakers in the U.S. market this year, with less severe sales declines than its rivals amid the lowest vehicle sales rate in nearly three decades.

"The beginning of July was firming up for us and then a week ago last Friday the government's 'Cash for Clunkers' program kicked in and there was a substantial increase in business and that kicked us over the top," Czubay said. "We don't know about the others, but we do know that we are going to have an increase year over year."

The "Cash for Clunkers" program took effect on July 24, a week before the end of the July sales period. Automakers will report their July U.S. sales on Monday.

The "Cash for Clunkers" program provides consumers payments of up to $4,500 for the purchase of a new car when an older vehicle is traded in for a more fuel-efficient one. The initial $1 billion of funding could cover 222,000 to nearly 286,000 vehicles.

Ford will also report its first year-over-year retail sales increase since July 2007, supported by sales of more fuel-efficient vehicles, chief sales analyst George Pipas said.

"You are going to see large gains in almost every Ford product that is powered by a four-cylinder engine -- the Focus, the Fusion, Fusion Hybrid, the Escape small utility and its hybrid version, the companion Mercury products -- that is where the demand was, particularly this past week," Pipas said.

July's monthly U.S. seasonally adjusted annualized sales rate is expected to be the strongest of 2009, though weak by historical standards.
0:00 /02:56Auto families still believe

Czubay said the annualized rate, a figure economists use, was expected to be "well into" the 10 million unit range.

Automakers sold about 13.2 million light vehicles in the United States in 2008, a sharp decline from more than 16 million sold in 2007, but sales rates plunged further in the first half of 2009 to an annualized rate as low as 9.1 million in February.

"No one is happy with a 10-plus (million unit annual rate), but it's a solid indicator for the economy that we are into the double-digits," Czubay said.

The sales downturn has left Ford burning cash and helped push its rivals General Motors and Chrysler into bankruptcy.

U.S. Transportation Secretary Ray LaHood said Sunday in an interview with C-SPAN that the initial funding for "Cash for Clunkers" could last through at least Tuesday.

The U.S. House has approved an additional $2 billion for the program. The extra funding, which the White House backs, is contingent on backing by the Senate.

Ford shares closed at $8 on Friday.

Technology stocks lead selloff

2009-07-29T07:31:00.000-07:00

Stocks slid Wednesday, with technology leading the way, as investors dumped Yahoo shares after the company announced a partnership with Microsoft.

Wall Street was also vulnerable to a pullback in the wake of a big two-week rally.

The Dow Jones industrial average (INDU) lost 62 points, or 0.7%. The S&P 500 (SPX) index fell 8 points, or 0.8%. The Nasdaq composite (COMP) gave up 15 points, or 0.8%.

U.S. stocks were volatile Tuesday and finished the session mixed as investors weighed a weak reading on consumer sentiment and had trouble finding momentum in the aftermath of the recent rally.

Peter Cardillo, chief market economist for Avalon Partners, said Tuesday's weak Treasury auction "gave the market a bad case of indigestion" that was offset somewhat by bullish traders.

Microsoft-Yahoo: Microsoft (MSFT, Fortune 500) and Yahoo (YHOO, Fortune 500) have reached a long-awaited 10-year search deal, the companies announced. Microsoft will acquire Yahoo's search technologies to integrate into its existing platforms, while Yahoo will become the exclusive sales force for both companies' search business, according to their joint statement.

Yahoo shares slumped almost 8% on the news, while Microsoft shares added 1%.

Oil prices and stocks: The price of oil dropped $1.83 per barrel, to $65.40. Oil stocks declined in tandem, with Dow components Chevron (CVX, Fortune 500) and Exxon Mobil (XOM, Fortune 500) both sliding 2%.

Economy: The U.S. Census Bureau reported that durable goods orders fell 2.5% in June, which was much worse than expected.

The durable goods orders, which reflect manufacturing activity, were expected to slip 0.6% for the month of June, according to a Briefing.com consensus, compared to an increase of 1.3% in May.

Investors will also look to the Fed's Beige Book of economic conditions, due out at 2 p.m. ET.

Corporate results: Investors have another batch of results to consider.

Time Warner (TWX, Fortune 500), the largest media company in the world and the parent company of CNNMoney.com, reported that its second-quarter profit from continuing operations slipped to 43 cents per share from 47 cents a year earlier.

Sprint Nextel (S, Fortune 500) a wireless communications provider, reported a diluted loss of 13 cents per share in the second quarter, which was slightly larger than the 12 cent loss per share in the year-ago quarter.

World markets: Asian shares dived, with Shanghai stocks losing 5%. European shares ended higher.

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

Microsoft and Yahoo near ad deal-AllThingsDigital

2009-07-17T10:01:00.000-07:00

Microsoft Corp and Yahoo Inc are close to a long-discussed search and online advertising deal, which could be announced in the next week, according to the AllThingsDigital blog.

The two companies have talked about cooperating for months, after Microsoft's bid to buy Yahoo was rebuffed last year and Yahoo's attempt to seal a search advertising deal with Google Inc fell apart under regulatory scrutiny.

The latest discussions involve Microsoft paying Yahoo "several billion dollars upfront to take over its search advertising business and guarantee certain payments back to Yahoo," according to AllThingsDigital's Kara Swisher.

Yahoo is likely to take the lead on selling display advertising for the companies, she wrote.

Microsoft Senior Vice President of Online Audience Business Group Yusuf Mehdi, search head Satya Nadella, top digital executive Qi Lu and others flew to Silicon Valley on Thursday to iron out remaining issues, related with technology deployment, the blog said.

If all goes well, a deal could be announced within the next week, Swisher wrote, citing sources at both companies. But she cautioned that an agreement was not certain, since both companies have been in talks before.

Representatives for Microsoft and Yahoo declined comment. Yahoo is scheduled to report quarterly results next Tuesday, and Microsoft on Thursday.

Yahoo Chief Executive Carol Bartz said in May that any deal to spin off or combine its search assets will require a partner with "boatloads of money." She said at the time that Yahoo was talking "a little bit" with Microsoft, but gave no details.

Microsoft withdrew its $47.5 billion offer to buy Yahoo in May 2008 after Yahoo's board said the price was too low. The software giant then offered to buy Yahoo's search advertising assets for $1 billion upfront, and guarantee $2.3 billion in annual revenue for five years.

Google is the dominant player in the search market, with a 65 percent market share in June, according to comScore. Yahoo was second with 19.6 percent, while Microsoft was third with 8.4 percent. While Microsoft's share remains small, its new search engine Bing has won positive early reviews.

Shares of Yahoo rose 3.9 percent to $16.82 in morning Nasdaq trading. Oppenheimer raised its price target on Yahoo shares to $19 from $13.25, with a 'perform' rating, saying the company was likely to benefit from a rebound in large advertiser spending.

Source: Cnn.com

Who caused the financial crisis — villains or jerks?

2009-07-12T07:48:00.000-07:00

Bloggers are buzzing over what one writer has called “Taibbi’s Scream” — that is, Rolling Stone writer Matt Taibbi’s muckraking takedown of Goldman Sachs in the latest issue of that magazine.

Well, “muckraking” isn’t perhaps the best word for it, for Taibbi doesn’t so much rake the muck as fling it. The article starts off, after all, by describing the investment bank as “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.” In the rest of the article, which is full of such invective, Taibbi argues that Goldman Sachs was at the center of — and a prime beneficiary of — every financial bubble in America from the market crash of 1929, to our millennial Internet madness, through the housing market collapse and the subsequent bailout. Heck, he even blames the firm for a bubble that doesn’t yet exist: what he foresees as the cap-and-trade boom and bust.

Goldman’s devious formula “is relatively simple,” writes Taibbi. “Goldman positions itself in the middle of a speculative bubble, selling investments they know are crap. Then they hoover up vast sums from the middle and lower floors of society with the aid of a crippled and corrupt state that allows it to rewrite the rules in exchange for the relative pennies the bank throws at political patronage. Finally, when it all goes bust, leaving millions of ordinary citizens broke and starving, they begin the entire process over again.”

cracked_bank.cr.03Goldman, naturally, has denounced Taibbi’s article as “hysterical,” a “compilation of just about every conspiracy theory ever dreamed up about Goldman Sachs.” Unfortunately, that’s not too far from the truth. It’s not that Taibbi’s article is a collection of lies; it’s, that, like most conspiracy theorists, Taibbi dramatically exaggerates Goldman’s role in all the bubbles, and, perhaps more importantly, exaggerates the firms supposed omniscience. Like most Wall Street firms, Goldman has done plenty of sleazy stuff over the years, but Goldmanites aren’t the diabolical masterminds Taibbi thinks they are, creating and deflating bubbles at will and cackling with glee as they rip off the rest of us.

You can find excerpts of Taibbi’s screed on RollingStone.com, but if you’re really interested you should probably read the whole thing in the magazine. (Look for the Jonas Brothers on the cover.)

If, however, you’re looking for a more sophisticated — and ultimately much more enlightening — look at the financial skullduggery behind our current crisis, you’d do far better to turn to Michael Lewis’s take on the AIG collapse in the latest Vanity Fair. (You can find the whole thing here.)

“Nearly a year after perhaps the most sensational corporate collapse in the history of finance, a collapse that, without the intervention of the government, would have led to the bankruptcy of every major American financial institution, plus a lot of foreign ones, too, A.I.G.’s losses and the trades that led to them still haven’t been properly explained,” Lewis notes. His article is an attempt to explain just what happened. A onetime bond trader who’s been a perceptive writer on the money culture for decades, Lewis talked to those who’d been there at ground zero, at AIG’s Financial Products division.

The story that he tells is a complicated one, impossible to easily summarize; even the villain at the center of it all, former AIG FP head Joe Cassano, turns out to be more of an egotistical jerk than a diabolical mastermind — as trapped as anyone else in the bubble he helped create. Though Taibbi may find it hard to believe, that’s how it usually is.

Source: Cnn.com

Is the job market really turning around?

2009-06-20T07:51:00.000-07:00

According to some recent headlines, conditions are finally starting to improve for the unemployed.

Some indicators are showing positive signs in the job market for the first time since the credit crisis caused job losses to soar last fall. But for the growing number of unemployed workers in the U.S., macroeconomic statistics aren't worth much.

After peaking in January, the pace of job losses has slowed dramatically, according to the Labor Department. Employers cut 345,000 jobs from their payrolls in May -- 32% fewer than the previous month. And the number of Americans filing for continuing claims for unemployment insurance fell last week for the first time since early January.

But for those unemployed workers pounding the pavement, jobs are still hard to come by.

That's because even though job cuts have slowed, employers have not started hiring just yet. According to the Job Openings and Labor Turnover Survey from the Bureau of Labor Statistics, the number of new hires remains near an all-time low.

"In general, companies have been in a wait-and-see posture," explained Dr. Jane Goldner, a human resources expert and author of "Driven To Success: A 10-Point Checkup for Achieving High Performance in Business." "There's some level of confidence coming back," but in terms of hiring, "I don't think we're there yet," she said.

Many unemployed workers agree.

Ann Fry made a good living as professional speaker and executive coach in New York until last fall. Now the companies that hired her in the past have cut back and individual clients signed off.

"I completely rely on whether conferences are happening and whether they are hiring speakers," she explained. "What I notice is that companies are reluctant to pay for 'extras' like corporate training and coaching," she said. "Also, the professional associations I speak for nationally are cutting their budgets way back."

With fewer clients and fewer gigs this year, Fry, 63, has had to tap into her savings in recent months to make ends meet. As a self-employed professional, there is no safety net such as unemployment insurance to fall back on, but she's hopeful that business will pick up again.

"I think we're already seeing some signs of improvement," Fry says of the economic environment. "Do I see it turning around yet?" she asked of her own employment status, "no, not yet."

"For the job seeker it's probably not necessarily obvious right now that things are improving," said Jennifer Schramm, the manager of workplace trends and forecasting for The Society for Human Resource Management.

Although anecdotal evidence suggest that hiring expectations will improve in the second half of the year, "we have to wait a few months to see if this is a trend," she said.

Once companies stop decreasing headcount, it could still take time before hiring plans take hold, and even longer for there to be a noticeable change in workers' attitudes.

Chuck Jentlie has been through this before. His career as a recruiter for the tech industry was rocked by the dot-com bust earlier in the decade. Since then the 52-year-old went back to college at Arizona State University to get a degree in architecture.

But once a growing industry, architectural services has steadily lost jobs since the beginning of the year. Now a large percentage of architects are out of work, including recent graduate Jentlie.

"None of us can find a job," he said of his classmates.

Although the industry as a whole could bounce back quickly once the economy improves, "a lot of the reports seem like wishful thinking," Jentlie said.

"I'm definitely not seeing [employers] saying 'yeah we're looking for workers,'" he said. "Realistically I think we're probably looking at another year."

Stocks dip on inflation woes

2009-06-10T15:29:00.000-07:00

Stocks cut losses, but still ended lower Wednesday, as spiking Treasury yields and rising commodity prices added to worries that inflation could limit any recovery effort.

The Dow Jones industrial average (INDU) lost 24 points, or 0.3%, according to early tallies. The S&P 500 (SPX) index lost almost 3 points, or 0.4%. The Nasdaq composite (COMP) lost 7 points, or 0.4%.

Treasury prices slumped, boosting the corresponding yields. The benchmark 10-year note fell 22/32 and its yield rose to 3.94% from 3.86% Tuesday. The yield had risen as high as 4%.

Although the momentum is still with the bulls, new worries have surfaced over the last few days, said John Wilson, chief technical strategist at Morgan Keegan.

"The concern has been that the bond market is worried about inflation and the rise in commodity prices is adding to that," Wilson said. "There's a little bit of a worry that this will dampen what is hopefully the start of a recovery."

The concerns about pricing pressure overshadowed any relief Wednesday about Chrysler's completed deal with Fiat and Home Depot's improved forecast.

U.S. light crude oil prices climbed as high as $71.79 a barrel, rising along with the price of gold and other commodities.

Commodity prices have been rallying lately, due to the weak dollar and bets that the economic recovery will drive demand for so-called hard assets. But the rise in commodity prices also added to worries over inflation.

Concerns that rising borrowing costs could derail a tentative economic recovery have dragged on sentiment over the last few sessions.

Chrysler: Italian automaker Fiat has closed a deal to buy the good assets of the bankrupt automaker, after the Supreme Court cleared the way for the deal late Tuesday.

Fiat will take a 20% stake in the company to start with, but that holding can increase to 35% if the company reaches certain goals. The new company -- called the Chrysler Group -- will be majority owned by the United Auto Workers union. The U.S. and Canadian governments will also own stakes.

Chrysler is expected to start operating immediately.
0:00 /2:47Mortgage rates tick back up

Banks: On Tuesday, the government said 10 of the biggest banks were well-enough capitalized to pay back a collective $68 billion in loans received last fall at the height of the financial crisis.

The list included American Express (AXP, Fortune 500), JPMorgan Chase (JPM, Fortune 500) and Goldman Sachs (GS, Fortune 500).

The Obama administration dropped its plan to limit salaries at firms that have taken bailout money, and will instead propose legislation that gives shareholders a bigger say in executive pay. Washington attorney Kenneth Feinberg was named the new "pay czar" later Wednesday.

Retail: Home improvement retailer Home Depot (HD, Fortune 500) said it now expects full-year earnings in a range of flat to down 7%, versus its earlier guidance for a decline of 7%. Shares were little changed.

Economy: The Fed released its periodic "beige book" reading of the economy in its 12 districts. The report showed the economy remained weak or got weaker between mid-April and early May, although five of the districts said there are signs the pace of the recession is slowing.

Another report showed the U.S. fiscal year deficit is now near $1 trillion after a $189.7 billion shortfall in May.

The April trade balance widened to $29.2 billion from a revised $28.5 billion in March, the Census Bureau reported. Economists surveyed by Briefing.com thought it would widen to $28.7 billion.

Other markets: In global trading, Asian and European stocks ended higher.

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

U.S. light crude oil for July delivery rose $1.32 to settle at $71.33 a barrel on the New York Mercantile Exchange, building on earlier gains after the government's weekly inventory report showed a surprise plunge in crude supplies.

COMEX gold for August delivery settled at $954.70 an ounce, unchanged from Tuesday.

Leading indicators suggest pickup in late '09

2009-05-21T09:34:00.001-07:00

A forward-looking measure of the U.S. economy in April posted its first rise since June 2008, a private research firm said Thursday, suggesting a pickup in growth awaits the economy in the second half of 2009.

The index of leading indicators, which is supposed to forecast economic trends six to nine months ahead, rose 1% in April after a revised 0.2% fall the previous month, the New York-based Conference Board said.

"The leading indicators suggest that while the recession will continue in the near term, the declines will be less intense," said Ken Goldstein, a Conference Board economist.

"If the indicators continue on the current track, that point might be reached in the second half of the year," Goldstein said.

Wall Street economists had forecast a rise of 0.8% after an initial 0.3% March drop.

Citigroup puts more TARP $ to work

2009-05-12T09:22:00.001-07:00

Citigroup said Tuesday it authorized $8.2 billion in lending to U.S. consumers and businesses so far this year backed by taxpayer funding.

In its latest update on how it is spending government bailout money, the troubled financial giant said it made a number of loan commitments during the quarter, including a $5 billion direct loan program to state and local governments and $1 billion to help homeowners refinance their mortgages.

Citigroup (C, Fortune 500) and other large banks have been under intense scrutiny about their lending practices since taking in billion of dollars in taxpayer funds from the government's Troubled Asset Relief Program, or TARP, last fall.

Citigroup has been one of the biggest recipients of government aid to date, taking in approximately $45 billion in TARP funds.
0:00 /3:44Roubini: Stress tests too weak

"We are using this capital to expand personal and business lending in the United States, consistent with Citi's prudent lending standards, and will continue to explore every opportunity to put it to work in a disciplined, transparent and responsible fashion," Citigroup CEO Vikram Pandit said in Tuesday's report.

The bank said it also earmarked $2 billion in TARP money for purchasing small and medium-sized business debt and is making $250 million in new automobile loans to consumers via dealerships around the country.

Since first taking hold of government funds last fall, Citigroup has authorized $44.75 billion in loans and other commitments backed by TARP, the company said Tuesday.

That amount however, does not necessarily suggest that nearly all of the taxpayer aid has been spent. Experts have indicated that capital injected into banks tends to have a multiplier effect. So for every dollar of government capital, banks are able to make $10 in loans.

Tuesday's news comes just days after federal regulators revealed that Citigroup faced a $5.5 billion capital shortfall as a result of the so-called "stress tests" on the nation's 19 largest institutions.

Stocks wrestle with jobs and banks

2009-05-06T08:28:00.001-07:00

Stocks turn mixed Wednesday, giving up some gains, as investors welcomed a pair of not-as-bad-as-expected jobs reports but were cautious after the recent rally.

The employment reports distracted investors from reports that banks might need billions more in capital to meet the requirements of the regulators conducting so-called stress tests.

The Dow Jones industrial average (INDU) gained 18 points, or 0.2%, roughly 90 minutes into the session. The S&P 500 (SPX) index climbed 3 points, or 0.3%. The Nasdaq composite (COMP) fell 15 points, or 0.9%.

Stocks drifted lower Tuesday as investors retreated after a roughly 8-week advance that saw the S&P 500 jump 34%. The rally followed a rout that left the broad stock index at a more than 12-year low.

Since then, investors have been moving back into the market on indications that the economy is starting to find its footing. Wednesday's two job market reports continued that trend.

Employment: A pair of reports released before the open showed that the pace of unemployment is starting to slow.

Employers in the private sector pared 491,000 jobs from their payrolls in April, after cutting 708,000 jobs in March, according to payroll services firm ADP. Economists surveyed by Briefing.com expected a decline of 645,000.

The number of job cuts announced in April decreased for the third month in a row, according to outplacement firm Challenger, Gray & Christmas Inc. U.S. employers announced 132,590 cuts in April, the lowest number since October, but still 47% more than in the same month a year ago.

The reports raised bets that Friday's bigger non-farm payrolls report from the government will show a slower pace of job losses too. Employers are expected to have cut 620,000 jobs from their payrolls after cutting 663,000 in March. The unemployment rate, generated by a separate survey, is expected to have risen to 8.9% from 8.5% in March.

Stress tests: Investors are gearing up for the release of the government's review of the 19 biggest U.S. banks, expected Thursday afternoon. More than half the banks may have to raise additional capital, according to reports this week.

The government is testing to see that the banks have enough money on hand to withstand a potential bigger downturn in the economy. Bank of America (BAC, Fortune 500) may need to raise an additional $34 billion in order to meet regulators' standard.

Earlier reports said that the Dow component would need to raise around $10 billion. Citigroup (C, Fortune 500) and Wells Fargo (WFC, Fortune 500) have also reportedly been told that they will need to raise more money.

Nonetheless, bank shares rallied, with the KBW Bank (BKX) sector index adding over 5%.

Corporate news: Walt Disney (DIS, Fortune 500) issued quarterly results late Tuesday. The Dow component reported weaker earnings that topped estimates on weaker revenue that missed estimates. Shares jumped more than 9% Wednesday.

Bonds: Treasury prices slipped, raising the yield on the benchmark 10-year note up to 3.16% from 3.15% Tuesday. Treasury prices and yields move in opposite directions.

Borrowing costs continued to improve. The 3-month Libor rate fell to an all-time low of 0.97% from 0.99% Tuesday, according to Bloomberg.com. The overnight Libor held steady at 0.24%. Libor is a bank lending rate.
0:00 /5:27Buffett: Behind the scenes

Other markets: In global trading, most Asian markets ended higher. Japanese markets have been closed all week for a holiday. European markets rose in afternoon trading.

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

U.S. light crude oil for June delivery rose $1.51 to $55.35 a barrel on the New York Mercantile Exchange.

COMEX gold for June delivery rose $6.20 to $910.50 an ounce.

Obama's success: It's all about 2010

2009-04-30T12:01:00.001-07:00

President Obama has said if the economy doesn't turn around on his watch, voters won't give him a second term.

"If I don't have this done in three years, then there's going to be a one-term proposition," he said in an NBC interview in February.

Policy experts agree Obama's presidency will be rated on the speed and depth of the economic recovery. But they think he may only have until mid-2010 to get the economy moving in the right direction before Americans start blaming him for what ails them.

"If we get back to an upward economy in 2010, it'll be good. But if we're in it [longer] ... people's opinions will be formed. That's as much patience as Americans will have," said Gary Clyde Hufbauer, Reginald Jones senior fellow of the Peterson Institute.

And voters could take it out on Democrats in the November 2010 midterm congressional elections.

"Republicans could cut into Democratic majorities," said American University Professor Allan Lichtman, a political historian and presidential election expert.

What specifically needs to happen by mid-2010? There needs to be clear evidence of a recovery, with unemployment back down around 8%, production up, foreclosures on the decline, and stocks higher. "Take your headlines today and flip the verbs," Hufbauer said.
0:00 /3:57Mixed grade on economic agenda

The economy has worsened since Obama took office. Indeed, he has said many times that things would get worse before they get better.

Economists are in two camps: those who are cautiously optimistic that the economy is poised for near-term recovery, and those who may concede the economy could be touching bottom but aren't convinced a bounce-back will occur soon.

Lakshman Achuthan, managing director of the Economic Cycle Research Institute, is in the optimists' camp for two reasons.

For one thing, despite a very sour economy, Obama has helped to boost confidence, which is an intangible necessity for recovery, Achuthan said. Second, the leading indicators he analyzes suggest the country may be at or very near a bottom -- and that could mean an economic recovery could begin over the next four months, he said.

Brian Bethune, chief U.S. financial economist of Global Insight, said he is also seeing data that suggest a trough may be near, but he is less certain a recovery is in the offing.

"You get a sense there's a breadth of things improving although not a depth," Bethune. "There's not enough to say there's a definite trough or beyond that a recovery."
Beyond economic recovery

While the pace of economic recovery may make or break Obama's chances for another term, his presidency will also be assessed on his ability to foster reform in terms of health care, Medicare, Social Security and energy.

Particularly when it comes to entitlement programs, the onus on Obama is "not to solve them but to turn the corner. That's all landmark stuff," Hufbauer said.

Administration officials and others make the case that the country's long-term debt problem will only be resolved once health care costs are brought under control. And the president wants to earmark $634 billion as a down payment on the cost of health care reform. He's also calling for that fund to be deficit neutral, meaning lawmakers will have to come up with ways to pay for it.

Budget hawks applaud his deficit-neutral stance on issues like health care reform and his vow to reduce the annual deficit by 2013. But they're not happy with the fact that his budget would start running it up again by 2019, under even optimistic economic forecasts.

"He's been saying a lot of the right things," said Marc Goldwein, policy director at the Committee for a Responsible Federal Budget. "[But] the numbers in his 2010 budget assume the economy recovers very quickly and the deficits in the out years are still very bad."

Last year, the public debt -- the sum of all annual deficits to date plus interest -- was 41% of GDP. Under Obama's budget it would jump to 67% by 2019, according to administration estimates, which may be revised this summer. The Congressional Budget Office, using different assumptions than the White House, estimates the president's budget will push public debt to 82%.

Those levels are considered unsustainable by some, but there is no hard-and-fast limit that defines sustainable.

Generally speaking, the more debt the government issues over time, the more likely it is to crowd out private investment in corporate bonds, slowing economic growth. And there's a greater the risk that the interest the government owes on its debt would grow at a faster rate than the economy.

"If we're permanently spending significantly more than we're raising that should be cause for concern," Goldwein said.

Of course, Obama is betting his presidency that running up debt to reform energy and health care now may be less expensive in the long run than not reforming them.

Stocks struggle higher

2009-04-28T08:50:00.000-07:00

Stocks erased losses, mustering small gains early Tuesday after a stronger-than-expected consumer confidence report countered fears about the viability of U.S. banks and the potential economic impact of swine flu.

The Dow Jones industrial average (INDU) gained 20 points, or 0.3%, over an hour into the session. The S&P 500 (SPX) index gained 2 points, or 0.2%. The Nasdaq composite (COMP) gained 5 points, or 0.3%.

The April consumer confidence index rose to 39.2 from a revised 26.9 in the previous month. Economists surveyed by Briefing.com thought it would improve to 29.7.

Stocks had tumbled in the first minutes of trade, extending the previous session's selloff, as investors stepped back after the recent run. Stocks rallied for six straight weeks on bets that the worst for the economy has already happened, then seesawed last week as quarterly results began to pour.

This week investors have been keeping an eye on the banks and the latest reports on the swine flu outbreak.

Bank sector: Bank of America (BAC, Fortune 500) and Citigroup (C, Fortune 500) will need to raise more capital, according to initial government "stress tests," the Wall Street Journal reported. Regulators reportedly told the banks that they need to boost their reserves to prepare for a potential worsening of the economy.

Results of Treasury's tests of the largest U.S. banks aren't due until next week.

Bank of America shares fell 5%, Citi dropped 4% and the KBW Bank (BKX) sector index fell 1%..

Swine flu: Concerns about the economic impact of the swine flu outbreak remained in place Tuesday as health officials have confirmed at least 90 cases of the disease worldwide and 50 in the United States.

Economists are concerned that should the outbreak become a large-scale pandemic, it would throw off a global economic recovery attempt and even intensify the recession.

Economy: The S&P/Case Shiller 20-city home price index fell 18.6% in February from a year ago, extending the losing streak to 31 months. But it was the first time since October 2007 that the index didn't hit a record low in its year-over-year drop.

Bonds: Treasury prices slipped, raising the yield on the benchmark 10-year note to 2.93% from 2.92% Monday. Treasury prices and yields move in opposite directions.

Lending rates were mixed. The 3-month Libor rate fell to 1.04% from 1.05% Monday, according to Bloomberg.com. The overnight Libor rate was unchanged at 0.21%. Libor is a bank-to-bank lending rate.

Oil rises slightly

2009-04-22T20:03:00.001-07:00

Oil prices rose slightly Wednesday as the stock market posted modest gains, despite a government report that showed crude supplies increased more than expected.

In its weekly inventory report, the Energy Information Administration said crude stocks rose 3.9 million barrels in the week ended April 17.

Analysts were expecting an increase of 3 million barrels, according to a consensus estimate compiled by Platts, an energy information provider.

Oil prices rose 30 cents to settle at $48.85 a barrel Wednesday.

"At this point, it's no secret we have a lot of supply," said Phil Flynn, analyst at Alaron Trading. "Oil is following the stocks (market) pretty consistently in recent weeks."

Stocks turned slightly higher Wednesday afternoon. Oil investors look to the U.S. stock market because crude is priced in dollars around the world.

The Dow Jones industrial average was up 63 points with around 45 minutes left in the session.

Oil prices were also boosted by the refinery utilization rate, which rose by 3 percentage points to 83.4% of capacity. Analysts expected 81.45%.

A higher run rate signals an expectation of more upcoming demand, Flynn said.

Gasoline: Stockpiles of gasoline jumped by 800,000 barrels, while analysts predicted a decrease of 860,000 barrels.

The national average price for a gallon of regular unleaded gasoline increased for the fifth consecutive day to $2.062, up from the previous day's $2.06, according to survey results released Wednesday by motorist group AAA.

That's down $2.052, or 49%, from the record high price of $4.114 in July.

The EIA report also said distillates, which are used to make heating oil and diesel fuel, increased by 2.7 million barrels. Analysts expected distillate supplies to fall by 1.25 million barrels.

Outlook: For the foreseeable future, oil prices will be "driven by the fortunes of the stock market," Flynn said.

Crude has hovered near both sides of the $50 mark, and it should rise amid mild but growing optimism about the economic recovery, Flynn said.

"Barring any major news, the stock market should creep higher on that optimism," he said. "And when the mood is better for stocks, the oil market is happy."

Stocks slip despite Citi, GE

2009-04-17T10:08:00.000-07:00

Stocks slipped Friday morning as investors welcomed better-than-expected earnings from Citigroup and General Electric, and pulled back from a six-week advance.

The Dow Jones industrial average (INDU) lost 30 points, or 0.3% almost 90 minutes into the session. The S&P 500 (SPX) index lost 3 points, or 0.4%. Both had ended the previous session at more than two-month highs.

The Nasdaq composite (COMP) lost 15 points, or 0.9%, after ending the previous session at a more than five-month high.

Stocks, as represented by the S&P 500, have gained more than 26% in the past six weeks, on bets that the economy is closer to stabilizing. The gains followed a selloff that left the S&P 500 at a 12-1/2 year low. A rash of better-than-expected profit reports has helped sentiment this week.

Quarterly results: Citigroup (C, Fortune 500) reported a quarterly profit Friday morning, due to strength in its investment banking division. But after paying out preferred dividends, results amounted to a per-share loss of 18 cents. Nonetheless, that was smaller than the 34-cent per share loss analysts expected. Shares fell 8%.

JPMorgan Chase (JPM, Fortune 500) and Goldman Sachs (GS, Fortune 500) both reported weaker quarterly profit that beat estimates earlier this week. Last week, Wells Fargo (WFC, Fortune 500) forecast that it would report a $3 billion profit.

Fellow Dow component General Electric (GE, Fortune 500) reported weaker quarterly earnings that beat estimates on weaker quarterly sales that missed forecasts. Weakness in the company's finance unit countered mixed results at other divisions. Shares were little changed.

After the close, Google (GOOG, Fortune 500) posted quarterly earnings that rose from a year ago and topped estimates on revenue that rose from a year ago but was shy of forecasts. Shares rose 1% Friday morning.

Economy: The April consumer sentiment index from the University of Michigan rose to 61.9 from 57.3 in March. Economists surveyed by Briefing.com thought the index would rise to 58.5.

Bonds: Treasury prices fell, raising the yield on the benchmark 10-year note to 2.87% from 2.83% Thursday. Treasury prices and yields move in opposite directions.
0:00 /02:39Life in the pits

Other markets: In global trading, Asian markets ended higher. European markets rallied in afternoon trading.

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

U.S. light crude oil for May delivery rose 29 cents to $50.27 a barrel on the New York Mercantile Exchange.

COMEX gold for June delivery fell $11.40 to $868.40 an ounce.

Recovery hopes begin to blossom

2009-04-07T08:00:00.001-07:00

Unemployment at a 25-year high. Housing prices continuing to fall. Corporate titans such as General Motors on the brink of bankruptcy. There's no lack of bad economic news.

And yet, amid the gloom, there are a growing number of economists that see a recovery on the horizon -- perhaps even a strong rebound.

They say that a number of indicators appear to have bottomed out in recent months. Job losses may have peaked in January. Home sales are starting to pick up. Stocks are enjoying a strong rally.

And because the economy has experienced such a steep decline in the current downturn, some economists are hopeful the recovery ahead will be much stronger than the anemic gains that came about after the end of the previous two recessions.

Lakshman Achuthan, managing director of Economic Cycle Research Institute, said the economy could be as close to four months away from a recovery.

He says his firms' readings on long-term and short-term economic indicators give him significantly more hope that the economy is closer to a turnaround than he had thought even a month ago. Among the more than dozen different things his firm looks at are home prices, the jobs picture and stock prices.
0:00 /4:50First inning of recovery?

"These readings don't really turn unless something is happening," he said.

To be sure, many economists still think that the recession won't end until much later this year, if not 2010. But Mark Zandi, chief economist of Moody's Economy.com, also believes that a recovery could be closer than most people think. However, he said an end to the recession will largely depend on improvement in the labor markets.

"We're starting to see some pent up demand for goods. But first things first, we need to see job losses moderate," he said.

Zandi said just a slowing rate of job losses should help make people more confident about their own job outlook, as will a continuation of the recent gains for stocks.

Those two factors, plus a sign that home price declines have ended will help to turn around consumer confidence, Zandi said. That should help spur more spending.

Zandi said the problem with confidence today is that when things aren't going well, many people can't picture things getting better, just as they have trouble imagining declining prices of homes and stocks during a boom period.

"Confidence is a very fickle thing. It can go from abject pessimism that pervades now to a more balanced view of the world rather quickly," he said.

Robert Brusca of FAO Economics, also believes there will be a fairly sharp recovery, mainly because this recession was so much worse than the ones in 1991 and 2001.

A slow, jobless recovery took place after those recessions, which were both fairly mild by historical standards. But the economy has often bounced back sharply following more severe recessions.

Brusca points out that, prior to the 1991 and 2001 downturns, the nation's gross domestic product has gained about 7%, on average, during the first year of a recovery.

For this reason, he is predicting strong growth in at least one of the year's final two quarters as well as a quicker return to health for the labor market.

"You've lost 5 million jobs. It shouldn't be hard to put 2.5 million jobs back on rather quickly after you hit bottom," he said.

Joseph Carson, chief economist at AllianceBernstein, said the economy is already showing early indications of turning around. In addition to improving home sales and positive signs from the stock and bond markets, retail sales in February and March were stronger than expected.

And all of this has happened before the nearly $800 billion stimulus package that was enacted earlier this has had much of an effect. Because of this, Carson said the stimulus plan could create stronger than expected growth -- and much sooner than consensus forecasts.

"Stimulus has a much better chance of working if trends are already turning up than if it needs to halt a decline," he said.

Treasurys fall after jobs report

2009-04-03T09:32:00.000-07:00

Treasurys edged lower Friday morning after the government reported that unemployment rose to a 25-year high.

The Labor Department said the economy lost 663,000 jobs in March, after a loss of 651,000 jobs in February. The unemployment rate rose to 8.5% - its highest level since November 1983.

March's tally was worse than the 658,000 job loss predicted by a consensus of economists surveyed by Briefing.com. But many analysts were expecting the report to be even worse.

The jobs report is a closely watched indicator of economic health. Bond prices typically rise when the economic outlook darkens as investors shy away from more risky assets.

But investors are also concerned that the supply of Treasurys will outpace demand as the government issues record amounts of debt to fund its economic rescue efforts. Bondholders are also worried about inflation, which erodes the value of fixed income assets.

Kevin Giddis, managing director of fixed-income at Morgan Keegan, said the market is approaching an "inflection point" where investors, concerned about rising inflation, no longer flock to Treasurys in response to signs of economic weakness.

"I wouldn't necessarily want to be short Treasuries yet," Giddis wrote in a research note. "But the longest-running flight-to-quality trade may be finally running out of steam."

Bond prices: The benchmark 10-year bond slipped 6/32 to 99 21/32, and its yield rose to 2.79% from 2.76% Thursday. Bond prices and yields move in opposite directions.

The 30-year long bond fell 1/32 to 98 6/32, and its yield rose to 3.6% from 3.59%.

The 2-year note slipped less than 1/32 to 99 31/32, and yielded 0.9%.

The 3-month yield held at 0.21%.

Lending rates: The 3-month Libor rate was 1.16%, down from Thursday's level of 1.17%, according to Bloomberg.com. The overnight Libor rate slipped to 0.27% from 0.29%.

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 narrowed Friday. The "Ted" spread fell to 0.95 percentage points from 0.96 points on Thursday. The narrower the Ted spread, the more willing investors are to take risks.

The Libor-OIS spread slipped to 0.94 percentage points from 0.95 points. The narrower the spread, the more cash is available for lending.

Stocks make it a 3-day rally

2009-04-02T17:31:00.001-07:00

Stocks rallied Thursday afternoon after regulators changed an accounting rule that critics say exacerbated the financial sector crisis, and by extension, the recession.

The G-20 meeting of the world's leading economies was also on the radar.

The Dow Jones industrial average (INDU) closed with a jump of 216 points or 2.8%. The Dow had risen as much as 314 points during the afternoon, topping 8,000 for the first time during a session since Feb. 9.

The S&P 500 (SPX) index gained 23 points, or 2.9%. The Nasdaq composite (COMP) added 51 points, or 3.3%.

Stocks surged Thursday after the Financial Accounting Standards Board (FASB) voted to change the "mark-to-market" accounting rule.

The rule requires banks to value so-called bad debt on their balance sheets based on the fire sales of similar assets at other banks and critics say it exacerbated the financial crisis. Supporters say it is the only way to fairly account for the bad debt. (Full story)

J. Stephen Lauck, president and CEO at Ashfield Capital Partners, said that the change in the accounting rule had been expected, but it was still a big positive for sentiment.

"The change in the rule is driving the advance today, along with the continuation of data points that show things are getting less bad and in some ways stabilizing," Lauck said.

Equities have been rising on bets that the worst has already happened and that some of the government's efforts to stimulate the economy and aid the financial sector will help.

Stocks rallied Wednesday on the first day of the new quarter, building on the big March run-up. Since hitting a 12-1/2 year low on March 9, the S&P 500 has rallied 23% as of Thursday's close.

After several attempts at "bottoming" failed last autumn, analysts remain wary of saying that the recent advance is more substantial than a rally within a longer bear market.

"It's hard to say whether it's a bear market rally or the real thing," said Mike Stanfield, CEO at VSR Financial Services. "But what's encouraging is the fact that the financials have led us off the bottom this time."

He said that this factor was critical because the stock market can't make a strong comeback without the financial sector taking the lead.

On Friday, investors will take their cue from the government's March jobs report, due out before the start of trade. Employers are expected to have cut 658,000 jobs from their payrolls after cutting 651,000 in February. The unemployment rate, generated by a separate survey, is expected to have risen to 8.5% from 8.1% in February.

The Institute for Supply Management releases its services sector index for March after the start of trade. Also, Federal Reserve Chairman Ben Bernanke speaks in the afternoon about the Fed's balance sheet at a symposium in North Carolina.

G-20: Investors also kept an eye Thursday on the G-20 meeting in London, which brought together leaders from the world's largest economies. The group pledged more than $1 trillion to boost the International Monetary Fund and also agreed to more closely monitor the global financial system. (Full story)
0:00 /02:39Life in the pits

Stock movers: A variety of stocks gained, including financial shares such as Bank of America (BAC, Fortune 500), Wells Fargo (WFC, Fortune 500) and Goldman Sachs (GS, Fortune 500).

But the gains were broad-based, with all but three of the Dow 30 rising, led by IBM (IBM, Fortune 500), McDonald's (MCD, Fortune 500), 3M (MMM, Fortune 500), Procter & Gamble (PG, Fortune 500) and United Technologies (UTX, Fortune 500).

A nearly 9% spike in oil prices gave a boost to the Dow's oil components, Chevron (CVX, Fortune 500) and Exxon Mobil (XOM, Fortune 500).

Market breadth was positive. On the New York Stock Exchange, winners beat losers by more than 7 to 1 on volume of 1.87 billion shares. On the Nasdaq, advancers topped decliners by more than three to one on volume of 2.83 billion shares.

Economy: The number of Americans filing new claims for unemployment rose to 669,000 last week from a revised 657,000 in the previous week, topping economists' forecasts.

Continuing claims, a measure of Americans receiving benefits for a week or more, rose 161,000 to 5.7 million, the highest reading since the Labor Department started keeping records in 1967.

February factory orders rose 1.8%, the Commerce Department said, versus expectations for a rise of 1.5%. Orders fell 3.5% in January.

Bonds: Treasury prices tumbled, raising the yield on the benchmark 10-year note to 2.77% from 2.65% Wednesday. Treasury prices and yields move in opposite directions.

Lending rates mostly dropped. The 3-month Libor rate dipped to 1.17% from 1.18% Wednesday, according to Bloomberg.com. The overnight Libor rate fell to 0.29% from 0.3% Wednesday. Libor is a bank-to-bank lending rate.

Other markets: In global trading, Asian and European markets rallied.

In currency trading, the dollar fell versus the euro and the yen.

U.S. light crude oil for May delivery jumped $4.25 to settle at $62.54 a barrel on the New York Mercantile Exchange, a jump of 8.8%.

COMEX gold for June delivery fell $18.80 to settle at $908.90 an ounce.

Obama to shop market reforms to G-20

2009-03-30T09:08:00.001-07:00

Last week, Congress. This week, the world.

At the Group of 20 meeting on Thursday, President Obama is expected to push the new regulations that he and Treasury Secretary Tim Geithner pitched to Congress last week as a way to prevent another financial market collapse. He heads to London on Tuesday and will meet the next day with the leaders of Great Britain, Russia and China.

The president will emphasize the need to regulate hedge funds and derivatives markets, encourage better capitalization of financial companies and "forge coordination among regulators," said Michael Froman, a deputy Obama adviser on international economic affairs. The need to crack down on offshore tax havens is also on the agenda, Froman added.

A lot is at stake beyond the call for tougher regulations, experts say.

Last week, billionaire investor George Soros, while addressing a Senate panel on foreign relations, called it a "make or break event" for the global markets.
0:00 /3:39Global glimpses of recovery

The United States has faced criticism for emphasizing the need for economic stimulus rather than strengthening its own regulatory system, which many blame for triggering the global crisis.

Global economists say they expect the proposed regulatory platform to blunt that criticism and help the United States push for broader global stimulus efforts and other shorter-term economic crisis reforms.

"The U.S. is on better grounds going into the summit now," said Morris Goldstein of the Peterson Institute for International Economics. "It's hard for other countries to say the U.S. is dragging its feet on regulatory reforms."

Many countries are, in particular, expected to applaud increased regulation on hedge funds and investment firms, experts say. In fact, some may consider the U.S. efforts in that area too weak and push for even more of a crack down.

"The Europeans believe the reason we got into this was shadow banks," said Nariman Behravesh, chief economist for IHS Global Insight, a global research firm. "Geithner's proposals don't go very far in that direction."

Brad Setser of the Council on Foreign Relations said he expects all countries to "rally behind" a push to move derivatives trading to clearinghouses or exchanges. He said that would reduce risk associated with hedge funds even more than direct regulation.

Some European countries may also push for the establishment of a risk regulator to oversee banks and investment firms globally -- an idea that will not sit well with the United States and emerging nations, said Eswar Prasad, a global economics expert at the Brookings Institution.

Generally, the proposed new regulations should help "dissipate tensions" between the United States and other countries who had been wanting to see a discussion of tighter rules, Prasad said.

However, some leaders, including those in India and Eastern Europe, are worried about how tougher rules would be implemented. Requiring more capital to back up financial deals could dampen lending and ability for some emerging markets to grow.

Prasad said he also expects some tension from countries that don't want to talk about new regulations while they're struggling with a crisis and trying to get their economies back on firm ground.

But that's exactly why they need to work on a global regulatory agenda, said Homi Kharas, another Brookings Institution economist.

"The danger is if you don't move on putting in place some processes, you're going to end up with a substantially different regulatory framework, as recovery starts to pick up," Kharas said.

Wall Street in rally mode

2009-03-26T09:16:00.001-07:00

Stocks gained Thursday morning, extending the recent rally, thanks to better-than-expected earnings from Best Buy and ongoing bets that the economy is closer to stabilizing.

The Dow Jones industrial average (INDU) rose 72 points, or 0.9% almost two hours into the session. The S&P 500 (SPX) index rose 9 points, or 1.2%. The Nasdaq composite (COMP) rose 31 points, or 2%.

A better-than-expected new home sales report helped investors push stocks higher Tuesday at the end of a choppy session. It was the latest in a string of slightly better-than-anticipated news that has bolstered hopes that the economy could be closer to stabilizing.

Such signs - along with the latest initiatives from Treasury and the Fed - have propelled the S&P 500 by 20% in 2-1/2 weeks. Market pros are cautiously optimistic that the bear market saw a bottom on March 9, when the S&P 500 and Dow industrials both ended at more than 112-year lows.

Yet stocks supposedly hit bottom twice before in the current bear market, in both November and October. As such, investors are likely to remain wary of calling a floor until more time has passed.

Washington: Treasury Secretary Tim Geithner outlined a massive overhaul of the regulatory system in the wake of the financial meltdown of the last 18 months. Speaking before the House Financial Services Committee, he said the changes are needed to repair a system that has "proved too unstable and fragile."

Changes include having a single regulator oversee the biggest financial firms and requiring large hedge funds to register with the Securities and Exchange Commission. Any such changes need Congressional approval. (Full story)

Earlier in the week Geithner and Federal Reserve Chairman Ben Bernanke made the case for broader powers to regulate non-bank financial institutions like insurer AIG (AIG, Fortune 500).

On Monday, Treasury introduced its plan to purge bank balance sheets of up to $1 trillion in bad assets that are limiting lending and prolonging the recession.

Economy: The number of Americans filing new claims for unemployment rose to 652,000 from a revised 644,000 the prior week. Economists surveyed by Briefing.com thought sales would have risen to 650,000.

Continuing claims, a measure of people who have been receiving unemployment for a week or more, rose to an all-time high of 5.56 million.

Fourth-quarter GDP shrank at an annual rate of 6.3% in the fourth quarter of last year, versus an earlier reading of 6.2%. The decline was a 26-year low. Economists thought GDP would shrink by a 6.6% annual rate.

In other news, Best Buy (BBY, Fortune 500) reported a 23% drop in fiscal fourth-quarter earnings versus a year ago. Excluding charges, the retailer earned $1.61 per share, versus economists' forecasts for $1.40 per share. The company also forecast full-year earnings in a range of $2.50 to $2.90 per share versus estimates for a gain of $2.45 per share. Shares rallied 15% in the morning.
0:00 /02:39Life in the pits

Bonds: Treasury prices rose, lowering the yield on the benchmark 10-year note to 2.22% from 2.79% Wednesday. Treasury prices and yields move in opposite directions.

Lending rates were unchanged. The 3-month Libor rate held steady at 1.23%, where it stood Wednesday, while the overnight Libor rate held steady at 0.29%, according to Bloomberg.com. Libor is a bank-to-bank lending rate.

Other markets: In global trading, Asian markets ended higher and European markets weakened in afternoon trading.

In currency trading, the dollar gained against the euro and the yen.

U.S. light crude oil for May delivery rose 78 cents to $53.55 a barrel.

COMEX gold for May delivery rose $3.40 to $940.10 an ounce.

Health tax break: Sacrosanct no more

2009-03-19T07:54:00.000-07:00

Get ready. Washington is again debating how to fix the health care system. And the outcome might affect your wallet.

The discussions are just beginning and much remains undecided. But expect at least one thing: To help pay for changes and reduce overall costs, lawmakers will consider curbing the tax benefits that employees enjoy when they get their health insurance plans through work.

Here's the crux of the issue: President Obama wants to create a $634 billion fund to pay for health care reforms. Leading lawmakers appear willing to go along, but they're not keen on how he has proposed to pay for a big part of it. Obama wants to cap how much of a deduction high-income taxpayers may take. The administration estimates doing so could raise $318 billion over 10 years.

The Senate's top tax writer, Max Baucus, D-Mont., who is also leading the push for health care reform, has asked White House budget chief Peter Orszag to consider instead changing the tax break that employees receive when their employers foot part of the bill for their health insurance.

Right now the portion of premiums paid by employers is treated as tax-free compensation to employees. And there is no limit on how much employers may contribute.

Some lawmakers have proposed eliminating the exclusion entirely and replacing it with a tax credit or deduction.

But Baucus isn't in that camp. "I do not favor eliminating it ... and I don't think that's where the vast majority of Congress is either. But I do think it needs to be trimmed, limited, looked at," he said at a presentation at the Kaiser Family Foundation earlier this month.

While the president doesn't support the idea of taxing employees on employer-provided health benefits -- and in fact, promised during his campaign that if elected nothing would change for employees who get their insurance through their jobs -- administration officials have indicated in different forums that no idea is off the table when it comes to health reform.
What a cap may ... or may not ... do

The health care exclusion is the federal government's single biggest tax expenditure. In other words, Uncle Sam forgoes more potential tax revenue from this tax break than any other. The exclusion was worth $246 billion in potential revenue in 2007, according to the Joint Committee on Taxation. That number is expected to increase every year as health care costs rise.

But imposing a cap isn't likely to raise anywhere near that kind of money although it may lower costs in the long run because of that old show stopper: human behavior.

"The goal of the cap is to get people to buy less comprehensive plans," said Paul Fronstin, the director of health research at the Employee Benefit Research Institute.

Translation: Workers who have to start paying tax on a portion of their health care compensation may opt for lower-cost, less comprehensive plans to escape having to pay any tax. And that would curb how much revenue the federal government could raise overall.

"When they get down to the numbers, it won't raise as much money [as they might need]," Fronstin said.
Figuring out what's fair

Questions of fairness will play a role in the debate over whether and where to cap the exclusion and on whom.

One of the criticisms of the work-based tax break is that it disproportionately benefits high-income employees, because they pay the highest tax rates and the value of the exclusion is based on an employee's top tax rate.

One idea under consideration is to impose a cap that "wouldn't affect the majority of Americans," a Baucus aide told CNNMoney.com. The aide didn't specify whether that meant only high-income taxpayers, only those in the very highest-priced plans or some other group.

Another criticism is that the work-based tax break disproportionately benefits those who buy very expensive and comprehensive plans. The thinking is that Americans aren't aware of the true cost of health care plans because they only pay for a portion of their plans, so they're not likely to be cost-conscious when it comes to deciding on their insurance, treatments or drugs.

"The goal of capping the tax exclusion is to tax Cadillac plans, but it won't just tax Cadillac plans," Fronstin said.

By that he means Cadillac plans aren't the only ones that are expensive.

The cost of employer-based insurance plans is dependent on a number of factors, including the average age of the participants. So, a younger worker at a company where the average age is 55 will pay more for the same plan as she would if she worked at a company with a younger employee base. The same applies if she lives in the Northeast, where health insurance is more expensive, or if she works for a small business.

"Those disparities exist now, but you're not being taxed on them," Fronstin said.

GE's credibility gap with investors

2009-03-18T09:06:00.001-07:00

General Electric stock has fallen 72% over the past year amid concerns about rising losses at its finance arm, GE Capital. In an attempt to reassure investors, the company will deliver a detailed, five-hour presentation on GE Capital to investors in New York this Thursday.

In an interview on CNBC that aired March 5, GE's chief financial officer Keith Sherin acknowledged that GE (GE, Fortune 500) has a credibility problem with investors. "We've got to earn that trust back." he said.

"We recognize that we've made statements about both not raising equity and about not cutting the dividend and we've had to backtrack on those," Sherin said. He blamed these reversals not on on the uncertain economy.

He said that the best way to regain trust is to be as transparent as possible, and that Thursday's presentation about GE Capital should help provide that clarity.
0:00 /2:11A financial solution for GE

"This meeting is clearly an attempt to lessen investor worries about rising credit losses, asset write-downs and dilutive equity raises," wrote Sanford Bernstein analyst Steve Winoker in a research note. "GE Capital has always been a 'black box' in terms of disclosure relative to its banking peers. CFO Keith Sherin has promised more detailed disclosure of GE Capital's assets and loss estimates at this meeting, and we applaud the move, but our opinion is that GE must disclose nearly everything investors demand or else risk exacerbating investor doubts about credibility and transparency."
The big questions

Some analysts believe credit losses at GE Capital will be greater than the company says it expects, specifically in commercial real estate, U.S. credit cards, and U.K. residential real estate. In his CNBC interview, Sherin said that these segments would all be discussed during the presentation.

Analysts also have questions about GE Capital's earnings. Citigroup analyst Jeffrey Sprague believes that it is unlikely that GE Capital (referred to in his note as GECC) will meet the company's previous guidance. He writes: "S&P noted that management's GECC earnings guidance of $5 billion is unlikely and even has the potential to be negative in '09. We are currently modeling GECC net income at [about] $3 billion."

Deutsche Bank sees GE Capital earning $2.9 billion for 2009. Citi's Sprague adds that large tax credits could offset losses at GE Capital, but that "the reliance on big tax credits underscores the erosion of GECC's earnings power. That said, it is clear management's outlook remains substantially too optimistic."

Sanford Bernstein's Winoker says he wants more clarity around GE exposure to what he calls "at-risk geographies," including Eastern European banking and real estate exposure in Florida, California, and Nevada.

He also wants to know whether the industrial side has the capacity to inject more money into GE Capital and, if so, how much more. He also wants to know under what circumstances the company would raise common equity or consider using TARP, or even spin off GE Capital.

The company has on several occasions said that it has no plans to separate GE Capital from GE. In his CNBC interview, Sherin said that an "incredibly disastrous economic situation" would have to unfold before GE would use TARP funding, and it would only do so if all other backup plans would not work.

Sherin also said that the speculation about GE Capital is overdone, that the company is in an "incredibly strong liquidity position" that includes $45 billion in cash, and that GE Capital will be profitable in the first quarter.

Much is riding on Sherin's ability to back up these statements. As Winoker said in his note, "After numerous quarters and years of disappointments, with GE, investors have adopted a 'show me' attitude to the company and are now punishing the stock with the same pressures faced by financial institutions over the last year."

Housing starts unexpectedly surge

2009-03-17T06:01:00.001-07:00

Initial construction of U.S. homes unexpectedly surged in February, according to a government report released Tuesday.

Housing starts rose to a seasonally adjusted annual rate of 583,000 last month, up 22% from a revised 477,000 in January, according to the Commerce Department.

Economists were expecting housing starts to decline to 450,000, according to consensus estimates compiled by Briefing.com.

Applications for building permits, considered a reliable sign of future construction activity, rose 3% to a seasonally adjusted annual rate of 547,000 last month. Economists were expecting permits to fall to 500,000.

Dow extends rally on bank gains

2009-03-16T09:24:00.000-07:00

Blue chips extended gains Monday, with the Dow and S&P 500 bouncing for a fifth straight session, but the tech-fueled Nasdaq struggled to extend its advance.

The Dow Jones industrial average (INDU) added 86 points, or 1.2% over an hour into the session. The S&P 500 (SPX) index added 10 points, or 1.4%. The Nasdaq composite (COMP) lost 4 points, or 0.3%.

Stocks rallied last week, bouncing back after the Dow and S&P 500 hit 12-year lows. The week was Wall Street's best since last November with the Dow gaining 9%, the S&P 500 gaining 10.7% and the Nasdaq adding 10.6%.

Talk about reinstating the "uptick rule" that limits short selling - and changing mark-to-market accounting - helped spark the gains. Also, 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. On Monday, British bank Barclays (BCS) continued the trend, saying that it had a good start to the year.

The banking sector faces more writedowns and turmoil in the months ahead, but the announcements from the companies were nonetheless reassuring to investors.

Technology stocks retreated after the recent rally, with Intel (INTC, Fortune 500), Dell (DELL, Fortune 500) and Oracle (ORCL, Fortune 500) all lower.

G-20: Finance ministers of the Group of 20 industrialized nations meeting over the weekend promised to do whatever is necessary to fix the global economy and repair the shaky banking system. The group also backed increased support for emerging markets.

But the group remained wary of a U.S. proposal for a broader coordinated government spending plan to stimulate global economies. A summit of the group's national leaders is scheduled in London on April 2.

Bernanke: Speaking on CBS's "60 Minutes" this weekend, Federal Reserve Chairman Ben Bernanke said that the recession will "probably" end this year if the government is successful in stabilizing the flailing banking system.

The Fed is meeting Tuesday and Wednesday to discuss interest rates, with an announcement expected Wednesday afternoon. The central bank is expected to hold the fed funds rate, its key short-term interest rate, essentially at zero.

However, the Fed could announce that it's going to start buying long-term U.S. Treasurys after saying it was prepared to do so at its last few meetings.

Economy: February industrial production continued to decline last month, as the recession wore on. The government said production fell by a seasonally adjusted 1.4% in the month versus forecasts for a fall of 1.3%. Production fell 1.9% in the previous month.

Capacity utilization, a measure of factory output, fell to 70.9% from 71.9% in January. Economists surveyed by Briefing.com thought it would fall to 71%.

The NY Empire State index, a key regional manufacturing report, fell to a record low of negative 38.2 in March from negative 34.7 in February.

Bonds: Treasury prices inched lower, raising the yield on the benchmark 10-year note to 2.97% from 2.90% Friday. Treasury prices and yields move in opposite directions.

Lending rates were little changed. The 3-month Libor rate fell to 1.31% from 1.32% Friday, while the overnight Libor rate held at 0.33%, according to Bloomberg.com. Libor is a bank-to-bank lending rate.

Other markets: In global trading, Asian markets ended higher and European markets gained 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 fell $1.88 to $44.37 a barrel on the New York Mercantile Exchange.

COMEX gold for April delivery fell $13.60 to $916.50 an ounce.

Stocks recharge rally

2009-03-12T08:06:00.000-07:00

After a brief sputter at the open, stocks recharged the two-day rally Thursday, with a smaller-than-expected drop in retail sales and strength in bank and drugmaker shares fueling the run.

Investors also sent GE higher, despite news that it lost its top credit rating in a S&P downgrade.

The Dow Jones industrial average (INDU) gained 103 points, added 12 points, or 1.6%. The Nasdaq composite (COMP) gained 14 points, or 1%

The Nasdaq rallied Wednesday and the Dow eked out a gain, managing a two-day win streak for the first time in five weeks. Stocks initially slipped Thursday morning, before making a move higher in the late morning.

Also in the mix: Bernard Madoff, one of Wall Street's biggest swindlers, entered a guilty plea on 11 charges. (Full story)

Economy: February retail sales fell 0.1% after falling a revised 1.8% in the previous month, the Commerce Department reported Thursday. Sales were expected to have fallen 0.5%, according to a consensus of economists surveyed by Briefing.com.

Sales excluding volatile autos rose 0.7% versus a revised 1.6% in January. Economists thought sales would fall 0.1%.

Another government report showed that the number of Americans filing new claims for unemployment last week rose to 654,000 from a revised 645,000 the previous week. The number of Americans continuing to receive benefits rose to a record 5.3 million.

General Electric: Standard & Poor's downgraded GE and GE Capital's long-term credit ratings to AA+ from AAA, with a "stable" outlook. But Wall Street had been speculating that one of the major ratings agencies might issue a downgrade, and the stock had already slumped in anticipation of an announcement. GE shares rallied 8% Thursday.
0:00 /5:32Turn banks into utilities

Financials: Bank stocks were mostly higher, with Bank of America (BAC, Fortune 500), Wells Fargo (WFC, Fortune 500) and Morgan Stanley (MS, Fortune 500) all rising. The KBW Bank (BKW) sector index rose 3%.

The bank sector drove a bigger stock market advance Tuesday after regulators said they may reinstate the "uptick rule" that stops short sellers from driving a floundering stock lower. Critics say the absence of the rule has played a role in the steep selloff of bank stocks this year.

Stocks also got a boost Tuesday after Citigroup (C, Fortune 500) cooled some worries about its future by saying it was profitable in the first two months of the year.

Also in focus: Thursday's congressional hearing on mark-to-market accounting. Critics say the accounting rule has hurt the bank sector by forcing companies to write down bad assets at fire sale prices. Supporters say it provides a clear picture of the assets banks are holding.

In other financial news, mortgage lender Freddie Mac, now under federal conservatorship, reported its sixth straight quarterly loss late Wednesday and asked the government for another $30.8 billion.

Drugmakers: Swiss company Roche Holding said it's buying the remaining 44% of U.S. biotech Genentech it doesn't already own. The $46.8 billion deal ends an almost 8-month battle in which Genentech (DNA) repeatedly spurned Roche's offer.

Biotech Gilead Sciences (GILD) said it will buy drugmaker CV Therapeutics (CVTX) for $1.4 billion. CV shares jumped 28%, while Gilead shares fell 2%.

Pfizer (PFE, Fortune 500) said that a late-stage clinical trial of its cancer drug Sutent has been stopped early after the drug produced a significant benefit in patients with a rare form of cancer. Shares of the Dow component jumped 4.5%.

Bonds: Treasury prices inched higher, lowering the yield on the benchmark 10-year note to 3.01% from 3.02% Wednesday. Treasury prices and yields move in opposite directions.

Lending rates were little changed. The 3-month Libor rate eased to 1.32% from 1.33%, while the overnight Libor rate held at 0.33%, according to Bloomberg.com. Libor is a bank-to-bank lending rate.

Other markets: In global trading, most Asian markets ended higher, with the exception of the Japanese Nikkei. European markets were mixed in afternoon trading.

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

U.S. light crude oil for April delivery gained $1.73 to $44.06 a barrel on the New York Mercantile Exchange.

COMEX gold for April delivery rose $14.30 to $925 an ounce.

Bernanke: Fix banks to get a recovery

2009-03-10T09:00:00.000-07:00

Federal Reserve chairman Ben Bernanke said Tuesday that economic recovery hinges on stabilizing the financial system, and proposed new policies aimed at absorbing financial shocks in the future.

"Until we stabilize the financial system, a sustainable economic recovery will remain out of reach," Bernanke said in prepared remarks.

If the financial system is put back in order, the U.S. economy could work its way out of recession "later this year" and experience "a period of growth" next year, Bernanke said.

"In the near term, governments around the world must continue to take forceful and, when appropriate, coordinated actions to restore financial market functioning and the flow of credit," he said.

The Fed chairman said steps should be taken to address problems tied to financial institutions deemed too big to fail. These large, interconnected financial firms pose a "systemic risk" to economic stability, he said.

"In the present crisis, the too-big-to-fail issue has emerged as an enormous problem," he said.

Bernanke said allowing firms to become too big to fail reduces market discipline and encourages excessive risk-taking. Moreover, government rescues of firms that are too big to fail can be costly to the taxpayer, he said.

Speaking in Washington to the Council on Foreign Relations, Bernanke said regulators need new tools to respond to the failure of a "systemically important nonbank financial firm." Federal bankruptcy laws are not sufficient to protect the public's interest when a major nonbank financial firm fails, he said.

The comments came one week after the Treasury Department restructured its bailout of insurance giant American International Group (AIG, Fortune 500) and gave the company another $30 billion infusion.

Bernanke also said regulators should strengthen the nation's "financial infrastructure" to make it more secure in the event of another crisis.

Among other things, the Fed and other regulators will continue to work toward establishing "stringent targets" and "performance standards" for market participants, he said.

To that end, the government should work with the private sector to improve the way certain exotic derivatives, such as credit default swaps, are cleared from the market.
0:00 /5:10Bernanke: banks need more funds

Bernanke also said that more steps should be taken to support the credit and mutual fund markets. The Fed has emergency programs in place to increase liquidity in these markets.

Additionally, certain accounting rules and other regulations have made the financial sector excessively "procyclical" or sensitive to economic booms and busts.

To assess threats to the broader economy, Bernanke proposed that Congress create a "systemic risk authority." The authority could oversee, among other things, standards for capital, liquidity, and risk-management practices for the financial sector, he said.

Consumer credit: Surprise $1.8 billion jump

2009-03-08T07:53:00.001-07:00

Consumer borrowing showed a surprise rise in January, snapping a three-month decline and signaling that households may have started to loosen their purse strings.

However, one month of upbeat news does not make a trend, said Wachovia economist Adam York.

"The combination of consumers wanting to rein in their spending - especially for big ticket durables, things that get financed - coupled with banks looking to lower the risk of their balance sheets means that we will look for weak growth in consumer credit at best or potentially further declines," said York.

Credit card borrowing, or revolving debt, increased at an annual rate of 1.2% in January, following a revised 9.5% drop in the prior month, according to the Federal Reserve. Non-revolving credit, including student and auto loans, increased by an annual rate of 0.6%, versus a revised uptick of 0.1% in December.

Total consumer borrowing rose by $1.8 billion to $2.564 trillion in January, according to the Fed. That's an increase from a revised $2.563 trillion in December.

Economists were expecting consumer credit to fall by $5 billion in January, according to a consensus of economists polled by Briefing.com.

The annual rate of consumer borrowing rose by an annual rate of 0.75% in January, following a revised 3.5% drop in the prior month.

York said that he will be looking closely at next week's government report on monthly retail sales for a better read on consumer sentiment going forward, especially following the surprise 1% jump reported in December. Economists polled by Briefing.com anticipate sales will show a 0.4% slide for January.

Last August, consumer credit contracted for the first time since January 1998. After a rebound in September, credit started contracting and the amount of consumer debt fell for the remainder of 2008.

Consumers have been skittish to spend and lenders have been skittish to lend in an environment where the economy is shedding jobs by the droves and foreclosures keep rising.

Friday, the government reported that the unemployment rate surged to its highest level in 25 years. Employers slashed 651,000 jobs in February, down from a revised loss of 655,000 jobs in January, according to the report from the Labor Department. The unemployment rate rose to 8.1% from 7.6% in January.

Reality check on Obama's deficit plan

2009-03-03T09:10:00.000-08:00

President Obama won't submit a formal 2010 budget request to Congress until next month. But the head-knocking on the Hill over fiscal priorities begins in earnest this week.

Starting on Tuesday, White House budget director Peter Orszag, Treasury Secretary Tim Geithner and Federal Reserve Chairman Ben Bernanke will all be testifying before Congressional committees about the budget.

A main question will be whether Obama's proposals can reduce the deficit as much as the administration estimates they will: $2 trillion over 10 years.

Orszag bases that deficit-reduction estimate on four main factors: economic recovery, collecting more revenue from high-income taxpayers, curbing corporate tax breaks and winding down the war in Iraq.

Given how unprecedented the downturn has been and the uncertainties in the geopolitical situation, several of the factors the administration is relying on to deliver its deficit-reduction promises are far from guaranteed.
Banking on economic recovery

The assumptions: The economy will start its recovery in 2010, with 3.2% growth in gross domestic product (vs. a 1.2% drop this year). GDP will grow 4.0% in 2011 and 4.6% in 2012.

Reality check: The White House's GDP estimates, while roughly in line with those projected by the Federal Reserve, are higher than average. Some say the administration is being too optimistic.

But Orszag says larger-than-average increases isn't unusual.

"As you emerge [from a very deep recession] the economy temporarily grows faster than normal just because your starting point is so low," he told CNN.

Economic recovery can help reduce the deficit by reducing the government's need to borrow money to fund its efforts. That's because tax revenue starts to rise as more employers start hiring and boost production, while demand for government services and benefits such as unemployment insurance falls as more people find work.

Should the economy take longer to recover than forecast by the White House, however, the deficit will be reduced by something less than promised.

Last week, the government reported that the nation's economic slide during the last three months of 2008 was even sharper than expected. Gross domestic product fell at an annual rate of 6.2%, its worst decline in 26 years.

Some economic news, though, has surprised to the upside. Consumer spending rose more than expected in January after declining for six consecutive months.
Raising taxes on high-income filers

The assumptions: Reduce the deficit by $637 billion over 10 years by letting the Bush tax cuts expire in 2011 for singles making more than $200,000 and couples making more than $250,000.

Reality check: Letting the tax cuts expire has a good chance of happening. But the savings that achieves could be undercut if two other revenue raising efforts don't pan out.

Already, some leading Democrats -- including Senate Budget Chairman Kent Conrad, D-N.D., and Senate Finance Chairman Max Baucus, D-Mont. -- have questioned Obama's plan to limit itemized deductions on high-income filers.

Obama hopes to raise $318 billion over 10 years with this provision and use it to help pay for his new health reform fund.

Separately, he wants to make permanent his signature credit for low- and middle-income families and fund it by requiring companies to pay for the amount of carbon emissions they produce. He estimates a cap and trade program, which is the subject of much debate, would raise $646 billion.

If either or both of these revenue raisers don't pan out, the administration will have to propose other ways to help pay for his new initiatives or risk further increasing the deficit.

"The key to the budget is whether they stick to that pledge [to pay for their new proposals] because they have the potential to add enormously to the deficit if they're not paid for," said Bob Bixby, director of the Concord Coalition, a deficit watchdog group.
Curbing corporate tax breaks

Assumptions: Raise $354 billion by changing a variety of corporate tax provisions, including repealing some tax benefits for oil and gas companies.

Reality check: The biggest piece of it -- estimated to raise $210 billion -- is a vaguely worded item called "international enforcement, reform deferral and other tax reform policies."

Analysts expect that a significant chunk of that $210 billion will come from a change to current policy that lets U.S.-based companies defer tax payments on their foreign subsidiaries' profits until they bring the money back to the United States.

How the rule is changed will affect how much revenue may be raised. And corporate resistance to it will be stiff.

"We don't know where members [of Congress] will fall after a very powerful lobbying effort," said Dan Clifton, the head of policy research at Strategas Research PartnersClifton.

Lawmakers' positions will be driven in part by the the economic interests of their states. Sen. Barbara Boxer, D-Calif., has sponsored bipartisan amendments to make it less costly for companies to repatriate earnings. A number of California-based technology companies have large portions of their business based abroad, Clifton said.
Winding down the war in Iraq

Assumptions: Obama is planning to pull a large number of combat troops out of Iraq by the end of August 2010.

The White House estimates the troop withdrawal, even as operations in Afghanistan continue, will preserve $1.5 trillion over 10 years that would otherwise be spent.

Reality check: The real savings, some say, is actually going to be less since the administration was measuring its proposals against a baseline that assumes the country would spend what it currently spends in Iraq for each of the next 10 years.

That's the way budget baselines are normally constructed, said Josh Gordon, policy director at the Concord Coalition. But, he added, no one was expecting U.S. involvement in Iraq to continue at current levels for the next 10 years.

It's also not clear how much more money will be needed to fund military efforts in Afghanistan. Currently the budget request has assumed $50 billion a year as a place holder. Any more than that would negate the savings realized from the Iraq withdrawal.

HSBC cuts 6,100 jobs

2009-03-02T07:41:00.000-08:00

HSBC is cutting 6,100 jobs and closing most of its U.S. consumer lending business amid slumping profits, the bank said Monday.

HSBC (HBC), Europe's biggest bank, launched Britain's biggest rights issue on Monday, to raise 12.85 billion pounds ($18.3 billion) to help it overcome big losses in the United States and exploit the woes of weaker rivals.

The company said that while it is shutting most of its U.S. consumer lending business and cutting 6,100 jobs, it was ready for acquisitions in its traditional stronghold of Asia where many banks are pulling out to focus on their core markets.

HSBC said it would sell 5.1 billion shares at $3.61 each, which is a 48% discount to Friday's close.

Shares in the bank were down 5.1% to $34.80. HSBC's Hong Kong-listed shares were suspended.

"It's always difficult for a market that's feeling jittery to absorb 12.5 billion of new stock," said Jane Coffey, head of equities at Royal London Asset Management which is HSBC's 24th largest shareholder according to Thomson Reuters data.

"I am not surprised the stock is down but they are doing the right thing and we are going to support the issue."

The stock has halved in value since Lehman Brothers collapsed in September but HSBC's relative resilience to the global financial crisis means it has outperformed European peers which have lost almost two-thirds of their value.

Its share price fall ranked it as the world's fourth-biggest bank, just behindJP Morgan Chase (JPM, Fortune 500), with a market value of just over $70 billion.

Several investors had told Reuters last week they would support a rights issue, and wanted management to act quickly to remove uncertainty hanging over its share price.

"The move seems to be timely and gives them greater flexibility and it certainly puts the bank in a better position but the success will be determined by the manner in which the market moves on from here," said one top ten shareholder in HSBC who asked not to be named.
U.S. job losses

Unlike many global players HSBC reported a profit for 2008 but it still took a hit with a pretax profit of $9.3 billion some 62% below the $24.2 billion reported for 2007.

The slide in profits was largely the result of a goodwill impairment charge of $10.6 billion in the United States.

Excluding the charge, pretax profit fell to $19.9 billion which was ahead of the $19 billion expected by analysts.

The bank also cut its dividend for the full year by 29% to 64 cents per share and said it would close its troubled U.S. consumer loans business, HFC.

HSBC's losses in North America last year amounted to $15.5 billion, including the $10.6 billion goodwill charge which follows its troubled acquisition of Household, the U.S. consumer lending business bought six years ago for $14.8 billion.

"With the benefit of hindsight, this is an acquisition we wish we had not undertaken," chairman Stephen Green said in a statement.

Group-wide the bank said that losses on bad loans jumped 44% versus 2007 to $24.9 billion.
Acquisitions

HSBC has traditionally been among the best-capitalized banks in the world and had resisted raising capital or turning to governments for help while rivals absorbed billions of dollars in losses and scrambled for cash as the credit crisis deepened.

But finance director Douglas Flint said the bank may want to finance acquisitions as weaker rivals retreat from international markets, especially those that have had to take state help.

"We want to position ourselves both defensively for turbulent times and opportunistically for the options that will appear," Flint told reporters. "There's nothing on the go but we believe the opportunities will come to banks that have the ability to take such options."

HSBC said the rights issue would add 150 basis points to its capital ratios, strengthening the core equity tier 1 ratio to 8.5% and the tier 1 ratio to 9.8%, restoring its capital advantage over rivals.

Alex Potter, analyst at Collins Stewart, said the improved capital strength was not enough to form an "obvious war chest" for acquisitions but that it meant HSBC still remained a "very conservative bank."

"With stronger capital, greater diversity and better funding -- these are rare qualities for a bank and we remain long-term buyers of the stock but see short-term weakness," Potter said.

Others felt that even HSBC would struggle, however, as the global economy deteriorates.

"In HSBC we see vulnerability to the collapse in world trade and rising balance sheet risks," said Sandy Chen, analyst at Panmure Gordon.

The company itself said it was "extremely hard to predict" its 2009 performance but added that business in January had been "strong and ahead of our expectations."

The rights issue is being underwritten by Goldman Sachs (GS, Fortune 500), JPMorgan Cazenove, HSBC and three other co-bookrunners. It overtakes a 12 billion pound rights issue by Royal Bank of Scotland last year although exchange rate fluctuations mean the RBS one was bigger in dollar terms.

Responding to growing public anger of the scale of bonuses paid to many senior bankers, HSBC said no performance share awards would be made for 2008 and that no executive director would receive a cash bonus.

Dollar gains after grim GDP data

2009-02-27T07:41:00.001-08:00

The dollar gained against most currencies other than the yen Friday after government data showed the U.S. economy contracted 6.2% in the fourth quarter, more than market expectations.

"These figures are just awful," said Matt Esteve, currency trader at Tempus Consulting in Washington. "This shows the weak state of the world's largest economy. It will have to boost risk aversion and that will keep sustaining the dollar, in particular against the euro."

The euro was down 0.9% against the dollar at $1.2614 , sterling fell 1.2% to $1.4126, while the dollar gained 0.8% against the Swiss franc to 1.1736 francs.

The yen gained sharply, snapping a string of losses that took it to three-month lows this week against the dollar, with traders citing month-end flows even as weak Japanese data paints a bleak picture of their economy.

The dollar was last down 1.5% against the yen at ¥96.94, close to a session low of ¥96.88.

Obama calls for stricter rules for Wall Street

2009-02-25T19:03:00.001-08:00

Financial institutions that pose a serious risk to markets should be subject to serious government oversight, President Barack Obama said Wednesday.

Speaking after meeting with Treasury Secretary Tim Geithner and lawmakers on financial regulatory reform, Obama also said: "But let me be clear - the choice we face is not between an oppressive government-run economy and a chaotic and unforgiving capitalism.

"Rather, strong financial markets require clear rules of the road, not to hinder financial institutions, but to protect consumers and investors."

Wall Street retreats

2009-02-23T08:20:00.000-08:00

Stocks tumbled anew Monday morning as any enthusiasm that the government may boost its stake in Citigroup was tempered by ongoing worries about the economy.

The Dow Jones industrial average (INDU) lost 62 points, or 0.9%, after ending the last session at the lowest point since Oct. 9, 2002, at the bottom of the last bear market.

The S&P 500 (SPX) index lost 8 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 23 points or 1.7%.

Weakness in the technology sector caused the broader market to give up early gains. Intel (INTC, Fortune 500), Microsoft (MSFT, Fortune 500) and Dell (DELL, Fortune 500) were among the big technology losers.

Stocks have tumbled over the last two weeks on worries that the government won't be able to slow the recession, despite announcing a series of programs. On Friday, stocks slipped on worries that Citigroup and Bank of America might have to be taken over by the government altogether.

Some of those worries were tempered Monday after reports surfaced that the government is looking to boost its stake in Citigroup (C, Fortune 500), something that would fall short of full nationalization but would enable it to avoid bankruptcy. Should Citigroup be fully nationalized by the federal government or forced to declare bankruptcy, that would wipe out all shareholder value.

Separately, Treasury said in a statement that the government is ready to offer more money to banks if needed. Treasury begins its Capital Assistance Program Wednesday. The program, previously announced by Treasury Secretary Timothy Geithner, involves giving banks "stress tests" to determine how they are doing and whether they need more money.

Company news: Meanwhile, the Treasury is also considering its options as General Motors (GM, Fortune 500) and Chrysler continue to flounder, despite having received billions in federal aid. According to a Wall Street Journal report Monday, the administration believes the possibility of Chapter 11 bankruptcy filings by the two companies must be seriously considered.

Meanwhile, Ford Motor (F, Fortune 500) has reached a tentative deal with its union on changed to retiree health care benefits, considered to be a critical concession on the part of the UAW. Shares rallied 13%.

Yahoo (YHOO, Fortune 500) could announce a major management reorganization as early as Wednesday, although more likely next week, according to a published report Monday. Yahoo shares were little changed.

Bonds: Treasury prices fell, raising the yield on the benchmark 10-year note to 2.80% from 2.79% Friday. Treasury prices and yields move in opposite directions.

Other markets: In global trading, most Asian markets ended mixed, while European shares fell in afternoon trading.

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

U.S. light crude oil for April delivery rose $1.27 to $41.30 a barrel on the New York Mercantile Exchange.

COMEX gold for April delivery fell $9.20 to $993 an ounce.

The stock market isn't as bad as you think

2009-02-16T17:20:00.000-08:00

Happy Presidents' Day! Even if you have to work (like I do), the best part of this holiday is that the stock market is closed. And after last week, we all need a break.

The market tanked, with the S&P 500 falling 4.8%, putting it down 8.5% for the year. This despite a new bank bailout plan and the passage in Congress of the economic stimulus bill.

Still, there is a bit of good news

Unlike last year, much of the selling has been contained to shares in financial companies - the S&P Banking Index is down 46% so far this year.

In fact, 172 of the stocks in the S&P 500 are in positive territory.
Talkback: Will the stock market bounce back later this year?

That may not sound great. But in 2008, a mere 25 stocks finished in the black. It's promising to see that more than a third of S&P 500 stocks are holding up reasonably well.

It's not surprising that many of this year's winners are in defensive sectors, companies that should be able to fare okay during a recession.

Several healthcare stocks, for example, are among the market's leaders, such as managed-care provider Cigna (CI, Fortune 500), generic drug maker Mylan (MYL) and cardiovascular-device manufacturer St. Jude Medical (STJ).

There are also a handful of consumer-staples companies, i.e. firms that make everyday items like food, beverage and personal care products.

Shares of tobacco company Lorillard (LO), milk producer Dean Foods (DF, Fortune 500) and soft drink bottler Coca-Cola Enterprises (CCE, Fortune 500) are all up more than 10% this year.

But what you may not have realized is that shares of many more economically-sensitive companies that were pummeled last year have started to bounce back. That could be a sign that bargain hunters may be betting on an economic rebound later this year or in early 2010.

For example, shares of online retailer Amazon.com (AMZN, Fortune 500), which plummeted 45% in 2008, are up more than 23% so far this year. Other beaten down retailers, such as video-game seller GameStop (GME, Fortune 500) and grocery-store chain SuperValu (SVU, Fortune 500), are both up more than 20% in 2009.

A couple of brand name tech companies have also enjoyed a comeback: shares of Corning (GLW, Fortune 500), Google (GOOG, Fortune 500) and EMC (EMC, Fortune 500) are all up at least 15%. And according to fund tracker Morningstar, technology sector funds are up 2% year-to-date. The only other class of stock funds that have gained ground this year are healthcare funds.

Several companies in the oil patch have begun to recover as well -- despite a continued drop in crude prices.

Shares of Tesoro (TSO, Fortune 500), an oil and gas refiner, are up more than 40% this year following a 72% drop in 2008. Other beaten-down energy companies, such as oil-driller Noble (NE) and equipment provider National Oilwell Varco (NOV, Fortune 500), have also enjoyed double-digit percentage pops this year.

And even in the sector that everybody loves to hate -- finance -- there are a few standouts. Shares of Morgan Stanley (MS, Fortune 500) are up 43% while Wall Street rival Goldman Sachs (GS, Fortune 500) has gained 14%.

It's interesting that both stocks have rallied considering that shares of the other troubled big banks that received the first round of bailout money last fall, most notably Citigroup (C, Fortune 500) and Bank of America (BAC, Fortune 500), have continued to sink. Even "healthy" banks such as JPMorgan Chase (JPM, Fortune 500) and Wells Fargo (WFC, Fortune 500) have been hit hard.

So what's this all mean? Of course, this is not to suggest that the financial pain will be over anytime soon. As I pointed out two weeks ago, the banking sector has to be fixed first for there to be a sustainable recovery in the economy and stock market.

But the fact that investors are bidding up some stocks and not just dumping all equities in favor of safer havens like gold and Treasury bonds is somewhat encouraging.

The indiscriminate selling that was a hallmark of the market at the end of last year appears to be over...hopefully for good.

Obama may subsidize mortgage debt

2009-02-13T07:02:00.000-08:00

The Obama administration is looking at subsidizing the mortgage payments of struggling borrowers before they default, according to sources familiar with the discussions.

If it comes to pass, the program would blaze a new trail in the federal government's foreclosure prevention initiatives. Until now, the efforts have focused on helping those already behind in their payments through interest-rate reductions and other loan modifications. The Bush administration had not committed any money to helping borrowers.

Obama, however, has pledged to spend at least $50 billion to help borrowers in trouble. Treasury Secretary Tim Geithner said Tuesday that the administration would release its plan within a few weeks. He and Housing Secretary Shaun Donovan have been meeting with banks, housing advocates and trade organizations this week to listen to their foreclosure prevention proposals.

Details remain scarce, but at this point the subsidy plan entails having struggling homeowners take an affordability test and undergo a re-appraisal to see if they are eligible. The subsidy would allow servicers to adjust the loan terms without having the mortgage's investors take a loss, which should make them more open to the loan modification.

Assisting borrowers before they default would help stop the wave of foreclosures, which are estimated to top two million this year. That, in turn, will help stabilize home prices.

"This will help put a floor on home values," said one person familiar with the negotiations.

Obama's plan is also likely to include ramping up the streamlining of modifications for borrowers already in default. Already, several banks and Fannie Mae and Freddie Mac are working with homeowners to make their monthly payments more affordable by reducing interest rates, lengthening loan terms and deferring principal to the end of the loan.

Stocks on Wall Street reversed early losses after reports of the plan began to surface.

Meanwhile, lawmakers and regulators are asking financial institutions to halt foreclosures until Geithner unveils his plan. Rep. Barney Frank, D-Mass., said that 95% of banks should put a temporary moratorium in place.

Foreclosure filings - default notices, auction sale notices and bank repossessions - continued to climb in January, though at a slower pace than the month before, according to RealtyTrac. That was still 18% higher than in January 2008.

Lenders repossessed 66,777 homes in January. A total of 1,081,395 homes have been lost to foreclosure since the housing crisis hit back in August 2007.

Stocks jump in early trading

2009-02-11T07:10:00.000-08:00

Stocks bounced Wednesday morning, rising after the previous day's battering, as investors continued to mull the outlook for the banking system while some of the industry's key executives prepare to testify before Congress.

The Dow Jones industrial average (INDU) added 0.7% in the early going. The Standard & Poor's 500 (SPX) index gained 0.8% and the Nasdaq composite (COMP) rose 0.7%.

Asian stocks ended lower Wednesday, and European stocks were mixed in morning trading.

Oil edged up 53 cents to $38.08 a barrel. The dollar slipped versus the euro and the yen but rose against the British pound.

U.S. stocks slumped Tuesday, with the Dow industrials ending at a 3-month low, as Treasury Secretary Tim Geithner's bank rescue plan failed to soothe investors. All three major gauges lost at least 4%.

"The investors wanted clarity," said Anthony Conroy, head trader at BNY ConvergEx Group. "They didn't get that, so I think that's why they started to sell."

"We need the government guys to stop talking on TV," said Todd Leone, head trader at Cowen & Co. "Nobody liked what Geithner said, obviously. The perception was not good."

Banks: The banks will be in focus again Wednesday as the heads of eight major institutions testify about the Treasury rescue plan before a House committee.

Industry leaders - including Bank of America's (BAC, Fortune 500) Ken Lewis, Citigroup's (C, Fortune 500) Vikram Pandit and JPMorgan Chase's (JPM, Fortune 500) Jamie Dimon - will face questions about executive pay and how their banks have spent their share of the first $350 billion in the rescue plan.

Stimulus: Senate and House conferees are expected to take up the task of reconciling the stimulus measures passed by the two houses. Proponents hope to get a final vote on a compromise measure completed in time so that President Obama can sign the bill into law on Presidents Day, next Monday.

Economy: The government reported a trade gap of $39.9 billion for December, down from a revised $41.6 billion the prior month. Economists surveyed by Briefing.com had expected the deficit to shrink to $35.5 billion.

Later this morning, the Energy Department releases its weekly oil inventory figures.

Company news: Applied Materials (AMAT, Fortune 500) cautioned late Tuesday that chipmakers will spend 50% less this year for its products. The company also posted a fiscal first-quarter loss of nearly $133 million and said it will cut 14% of its workforce, or about 2,000 jobs. Shares fell 1% Wednesday morning.

Nike (NKE, Fortune 500) said late Tuesday that it may have to cut up to 4% of its workforce, or 1,400 jobs, due to a global restructuring. Shares were little changed Wednesday.

Debt prices creep higher

2009-02-10T05:55:00.000-08:00

Bond prices edged higher Tuesday as the market focused on the severity of the recession that has President Obama pushing hard for his stimulus plan to be passed.

Bond prices have been seesawing in recent sessions as recessionary fears compete with the record volume of debt being sold to finance the government's rescue package.

Late Monday, Obama used his first ever prime-time televised news conference as president to garner support for the financial rescue package and emphasize its urgency. Given the weakened private sector, "the federal government is the only entity left with the resources to jolt our economy back to life," he said.

Meanwhile, Treasury Secretary Tim Geithner is set to unveil the new financial sector stabilization plan Tuesday. He is expected to offer plans to shore up losses in the banking system and to support homeowners struggling with foreclosure.

And as both Obama and Geithner look to spend cash on an economic recovery, the Treasury market is set to start its first day of quarterly refunding auctions. Last week, the Treasury announced a record-sized $67 billion refunding plan, adding longer-term maturity bonds to the auction schedule in an effort to pay for the government's stimulus spending.

Tuesday, $32 billion of 3-year notes are set to be auctioned. On Wednesday, the government will auction $21 billion of the 10-year note and $14 billion worth of 30-year bonds will be sold Thursday. Meanwhile, the government is also set to auction $84 billion of shorter-term notes this week as well.

Debt prices: The 10-year benchmark bond was up 10/32 to 106-24/32 and its yield dipped to 2.95%. Bond prices and yields move in opposite directions.

The 30-year bond rallied 14/32 to 115-23/32 and its yield fell to 3.63%. Meanwhile, the 2-year note ticked up 1/32 from 99-24/32 and its yield dipped to 1.01%.

The yield on the 3-month note rose to 0.33%. Demand for the shorter-term note has been seen as a gauge for investor confidence.

Lending rates: Bank-to-bank lending rates were largely unchanged. The 3-month Libor rate ticked lower to 1.22% from 1.23% Monday, according to data on Bloomberg.com. The overnight Libor rate, meanwhile, dipped to 0.30% from 0.31% Monday.

Libor, the London Interbank Offered Rate, is a daily average of rates that 16 different banks charge each other to lend money in London and is used to calculate adjustable rate mortgages among other consumer loans. More than $350 billion in assets are tied to Libor.

Two credit market gauges showed increased confidence in the marketplace. The "TED" spread narrowed to 0.89 percentage point from 0.94 percentage point the day before. The smaller the TED spread, the more willing investors are to take risks.

Another market indicator, the Libor-OIS spread, dipped to 0.95 percentage point from 0.96 percentage point the day earlier. The narrower the spread, the more cash is available for lending.

Time for Geithner to show his cards

2009-02-08T04:54:00.000-08:00

The Obama administration is about to face its first significant financial test.

Treasury Secretary Tim Geithner is expected to lay out the government's strategy for reviving the banking system in a speech Monday.

Since taking office last month, top Obama administration officials have promised to present a comprehensive plan to address the problems in the financial system, which has been struggling with losses on bad loans and souring mortgage-related securities.

Fixing the problems at the banks won't be simple or cheap. Economists say it will likely take more than the $350 billion remaining under the Troubled Asset Relief Program to fund the next round of federal programs.

One senior administration official told CNN the package being put together by Geithner and other top economic advisers to the President would "be an overhaul of the whole program."

Whatever shape the plan takes, it's crucial that officials reassure investors worried about the health of financial institutions and their capacity to extend credit to consumers and businesses.

Bank stocks have fallen sharply again this year, deepening a plunge that started in late 2007. Some fear that a plan the market deems insubstantial or ill-advised could lead to another leg down.

"We have to repair the banking system," said George Kaufman, an economics professor at Loyola University Chicago. "You have to do that first before you can address any other problems."

A number of options have been under discussion in Washington, notably a government-funded bad bank that would remove toxic assets from bank balance sheets as well as a taxpayer-funded insurance plan to cover losses on troubled bank investments.
Skepticism growing about bad bank idea

The bad bank idea has gotten the lion's share of the attention, with officials including Federal Deposit Insurance Corp. chief Sheila Bair speaking out in favor of a variation of the plan. Proponents say the nation's banks won't be able to lend aggressively and support economic growth until troubled assets like illiquid trading securities are removed from their balance sheets.

Recently, though, there has been some talk of a shift toward a program that focuses more on the asset guarantee approach.

Sen. Charles Schumer, D-N.Y., said earlier this week that the upfront cost of a bad bank approach -- projected by some observers to run into the trillions of dollars -- was among the factors leading legislators and administration officials to turn increasing attention to the guarantee concept. The government has already guaranteed some troubled assets held by Citigroup (C, Fortune 500) and Bank of America (BAC, Fortune 500).

Whatever their merits, the bad bank and guarantee approaches share a common Achilles heel: They would commit hundreds of billions of additional taxpayer dollars at a time when Americans are wondering if aiding well-paid bank employees is the best use for their money.

Many taxpayers are up in arms about the gobs of money being made by employees of failing financial firms, despite President Obama's proposed new rules to cap compensation at banks requiring federal assistance.

Meanwhile, U.S. workers are losing their jobs at a sobering clip, and states and municipalities are cutting back on services as tax receipts plunge.

"The bad bank idea is just ridiculous," said Len Blum, a managing director at New York investment bank Westwood Capital. "The problem with these sorts of approaches is that for the government to help the institutions, it has to overpay -- which is bad for taxpayers and adds to this lack of transparency."

Having the government provide financing for private-sector purchases of troubled assets is another idea that may come into play.

This approach, in which private investors could commit funds and then borrow from the Fed or other government bodies to expand their buying power, could accomplish two important objectives. It could draw new capital into the markets, and help establish market prices for securities that have traded only infrequently and at deeply distressed prices in recent months.

One question mark hanging over this concept is how willing the banks will be to sell toxic assets at the market prices.

If the newly established market prices are below the prices at which the banks have marked the assets on their balance sheets, the banks could face more writedowns -- which could force the government to pour in even more capital.
Shouldn't some banks be allowed to fail?

Whatever the government does, there is a rising call to get taxpayers more than they got in return for the first round of TARP funding under former Treasury Secretary Henry Paulson.

"There has been a reticence on the part of the government to give out capital with appropriate restrictions," said Blum. "The problem with that approach is that it is bad for taxpayers and adds to the lack of transparency."

Estimates by the Congressional Budget Office and the Congressional Oversight Panel put the federal overpayments in the first half of TARP -- which focused on buying preferred stock from both troubled and healthy institutions -- in the range of $64 billion to $78 billion.

With questions about how taxpayer funds are being used growing, some observers say the best answer is to stop trying to prop up troubled institutions and instead resolve failing banks through the existing FDIC process - essentially letting banks fail and finding new buyers for them after the FDIC has taken them over.

The advantage to this approach, said Garett Jones, an economics professor at George Mason University in Fairfax, Va., is that it would help to spread the losses in the financial system to shareholders and bank creditors, instead of leaving the whole tab with taxpayers.

He said the government should force debt-for-equity swaps at institutions needing assistance. Existing shareholders would be wiped out and current creditors would give up some of their debt claims in exchange for ownership of the restructured firm.

In addition to being fairer, Jones said, swapping debt for equity would reduce the amount of debt weighing on the economy. That's a crucial concern at a time when the amount of domestic nonfinancial debt outstanding more than doubles gross domestic product, according to Ned Davis Research data - a ratio that's well above its long-run average.

"Why should taxpayers be bailing out firms when debtholders have plenty of skin in the game?" Jones said. "In the current bailout, what you're really doing is converting the debt of these problem banks to government debt -- and that's not what you need to do."

Stimulus: What got cut

2009-02-08T04:53:00.000-08:00

A coalition of Democrats and some Republicans reached a compromise Friday that trimmed billions in spending from an earlier version of the massive economic recovery package.

Here is an initial list of some of the items cut, according to a Democratic leadership aide.

Items Cut:

-- $3.5 billion for energy-efficient federal buildings (original bill was for $7 billion)

-- $75 million for Smithsonian (original bill was for $150 million)

-- $200 million for Superfund (original bill was for $800 million)

-- $100 million for National Oceanic and Atmospheric Administration (original bill was for $427 million)

-- $100 million for Law enforcement wireless (original bill was for $200 million)

-- $300 million for federal fleet of hybrid vehicles (original bill was for $600 million)

-- $100 million for FBI construction (original bill was for $400 million)

Items Fully Eliminated:

-- $55 million for historic preservation

-- $122 million for new Coast Guard polar icebreaker/cutters

Stocks look to extend rally

2009-02-06T04:42:00.001-08:00

U.S. stock futures were modestly higher Friday, ahead of a key reading on employment.

At 6:42 a.m. ET, Dow Jones industrial average, Standard & Poor's 500 and Nasdaq 100 futures were up slightly.

Futures measure current index values against perceived future performance and give an indication of how markets may open when trading begins in New York.

Jobs: The mood on Wall Street is likely to be influenced by the Labor Department's monthly employment report, due out at 8:30 a.m. ET.

Employers are expected to have cut 540,000 jobs in January after dropping 524,000 jobs in December. The unemployment rate, generated by a separate survey, is expected to have risen to 7.5% from 7.2% the previous month.

Stimulus: The Senate is set to resume deliberations Friday morning over a nearly $900 billion stimulus bill. Lawmakers generally agree that an economic recovery package is required but there are concerns about the size of the bill and some of its measures.

President Obama is also expected to name members of his Economic Recovery Advisory Board Friday. The panel, which will be headed by former Federal Reserve chairman Paul Volcker and made of a mix of leaders from the business world, will advise the White House on reviving the ailing U.S. economy.

Bank bailout: Treasury Secretary Tim Geithner is expected to detail the Obama administration's strategy for reviving the banking system on Monday. Several options have been under discussion, including a government-funded "bad bank" that would remove toxic assets from bank balance sheets.

Corporate results: After the market close Thursday, News Corp. (NWS, Fortune 500) reported a quarterly loss of $8.4 billion. Excluding charges, the media conglomerate reported earnings of 12 cents per share, which was short of Wall Street's estimates.

Toyota Motor (TM) warned of a much bigger yearly loss Friday, hurt by a sharp decline in automotive sales around the globe. The Japanese firm said it expects to report an operating loss of $4.95 billion when it reports its full-year results in March.

World markets: Global stocks mostly rose, boosted by hopes that the U.S. was close to taking more steps to bolster its economy. In Asia, the Nikkei and Hang Seng rallied. Stocks in London, Paris and Frankfurt were modestly higher in early trading.

Oil prices retreated towards $40 a barrel Friday, falling $1.05 to $40.12 a barrel in NYMEX electronic trading.

In currency trading, the dollar was little changed versus both the euro and the British pound, and was slightly weaker versus the yen.

Higher open seen for stocks

2009-02-03T06:35:00.000-08:00

U.S. stocks were set for a higher open Tuesday ahead of the January auto sales reports, aided by better-than-expected Merck earnings.

At 8:17 a.m. ET, Dow Jones industrial average, Standard & Poor's 500 and Nasdaq 100futures were higher.

Futures measure current index values against perceived future performance and offer an indication of how markets will open trading begins in New York.

Peter Cardillo, chief market economist for Avalon Partners, said that investors appeared to be reacting to Merck's relatively strong earnings.

Merck (MRK, Fortune 500) reported net income of more than $1.6 billion for the fourth-quarter, compared to a loss in the year-earlier quarter. The drugmaker announced earnings of 78 cents per share, excluding charges related to restructuring. Analysts had expected Merck to report earnings of 74 cents per share, according to a survey from Thomson Reuters.

This follows mixed trading on Monday, when investors were focused on the Senate debate over the $885 billion stimulus package. The debate continues Tuesday.

"The moving factor today, initially, will be earnings and car sales and then, as we move through the rest of the day, the rhetoric out of Washington," said Cardillo.

Corporate results: Dow Chemical (DOW, Fortune 500) reported a loss of $1.55 billion for the fourth quarter, or a loss of $1.68 per share. The company blamed nearly $1 billion in charges stemming from restructuring costs, the impact of Hurricanes Gustav and Ike, and other factors.

Motorola (MOT, Fortune 500) reported a fourth-quarter net loss of $3.6 billion, or $1.57 per share, and said it was suspending its dividend. The company said it would cut $1.5 billion in costs this year, and appointed an acting chief financial officer.

UPS (UPS, Fortune 500) reported adjusted diluted earnings of 83 cents per share for the fourth quarter, down 22% from the year-ago quarter. Chief Executive Scott Davis blamed "a severe decline in economic activity around the world" resulting in "sharply lower package and freight volume for UPS."

Economy: The National Association of Realtors' pending home sales index for December is due after the opening bell. Auto sales, which are expected to plunge, are due beginning at midday.

World markets: Stocks closed lower in Asia, despite new measures from the governments of Australia and Japan to boost economic growth. European indexes were higher.

Oil and money: Oil prices rose 32 cents a barrel to $40.40 in electronic trading. The dollar rose versus the yen and the British pound, but fell against the euro.

The Fed: Life after zero

2009-01-28T07:05:00.001-08:00

The Federal Reserve wraps up its two-day meeting about what to do with interest rates Wednesday afternoon. But that's probably two more days than the central bank needed.

With the Fed having already cut its key interest rate to near zero last month, there is little suspense about what the central bank's Federal Open Market Committee will announce.

In fact, the Fed said in its statement last month that it would likely keep rates near zero "for some time" due to the weakness in the economy.

Still, the rate-setting FOMC, which includes Fed governors and a selection of the presidents from the Fed's twelve district banks, is set to meet eight times this year. And while the Fed probably has more tricks up its sleeve to help the economy, don't expect them to be announced Wednesday.

"I think the Fed always has bullets left, but as a practical matter, the FOMC can disband," quipped Sung Won Sohn, economics professor at Cal State University Channel Islands. "There's not a whole lot they can do right now. "

Of course, the Fed has been unusually creative in the past year. It has established several new programs to pump more than $1 trillion into the economy in an effort to help spur the economy and get banks to start lending again.

But most of these initiatives were approved by the Fed's Board of Governors, not the FOMC. And it's quite likely that even if the Fed comes up with new programs to try to help get credit flowing again, they also won't need the approval of the FOMC.
What will the Fed be talking about?

With that in mind, the Fed provided some hints last month about what to expect at future FOMC meetings. A senior Fed official told reporters that the FOMC would continue to meet on its regular schedule, and it would provide statement's about the central bank's view of the state of economy.

The official said the FOMC would also work in conjunction with the Fed's board of governors on decisions about the Fed's balance sheet, which has ballooned in the past few months due to the various new lending programs.

So once the FOMC is ready to start raising rates again, it may want to see the balance shrink in size by having some of these programs wind down.

The district presidents on the FOMC are also important because they act as the Fed's eyes and ears to banks and businesses throughout the country. Given the economic crisis, former Fed governor Lyle Gramley, who is now an economist with the Stanford Group, said it's more important than ever to have the FOMC discussing policy changes.

"Until we get clear evidence that the economy is turning around, things are going to stay very hectic at the Fed," he said.

Other economists say its clear that Fed Chairman Ben Bernanke wants to keep the Fed's district banks involved in various programs, such as the soon-to-be-implemented plan to back $200 billion in consumer and business loans.

It's also important to have the Fed speaking with one voice on the need for action, rather than having Fed presidents roaming the country criticizing actions by the Fed's governors.

"The fact that the board can do these things without consulting with the bank presidents doesn't mean they should do it that way," said David Wyss, chief economist for Standard & Poor's. "They want to make sure everyone is reasonably informed, but also that there is a consensus that they're doing it right."
Watching what the Fed says

Few expect any new program to be announced Wednesday. Instead, economists will be looking at the language in the Fed's statement for clues the Fed might send about its next policy step.

"At some point, it seems that they'll have to offer a clearer view of what comes next," said Tom Schlesinger, executive director of the Financial Markets Center, a think tank that follows the Fed.

For example, Wyss said that if the Fed includes a mention of the problem caused by troubled assets now held by banks, it will be taken as a signal that the Fed is close to announcing a so-called "bad bank" program to purchase toxic assets.

But Wyss cautions that despite the attention every word and comma in the statement is likely to receive, there probably will be far less concrete information than hoped for by economists and investors.

"People will be picking [the statement] apart because they don't have anything else to analyze," said Wyss. "But that doesn't mean they'll learn anything."

New doubts about a once sure bet

2009-01-26T07:13:00.001-08:00

Retirement investors have long viewed annuities as an effective way to protect their nest egg. But the recent financial crisis has highlighted an inherent paradox: While annuities offer safety and guarantees, their benefits are tied to the financial strength of an insurer. If the company fails, you could be looking at a loss in the very part of your portfolio that you were counting on to be rock solid.

So at a time when one of the world's largest insurers, AIG, has needed government help to stay solvent and other insurers have seen their stocks drop 70% or more in just a few months, should you still consider putting a portion of your retirement assets in an annuity?

I believe the answer is yes. With their unique features - in particular an immediate or income annuity's ability to turn your savings into lifetime payments - annuities can play a valuable role in your retirement. But given the heightened level of risk today, it's more important than ever to follow a few crucial steps when you shop for an annuity. Otherwise, you may be buying only the illusion of security.
Understand what you're buying

I get lots of e-mails about annuities. And what's strikingly clear is that the majority of annuity holders have a pretty vague notion of what they own.

For example, you may know that a return or monthly payment is guaranteed, but do you know how that promise works? Many variable annuities tout guaranteed growth rates of 5% or more a year. What you may not realize is that this return typically applies not to your account value but to the annuity's "benefit base," a hypothetical value the insurer uses to calculate how much income you can draw from your annuity. If the market drops and you want to cash out, you'd get your actual account value, which could be down right along with the market.

Before you commit to an annuity, demand that the salesperson explain what you're buying in terms you comprehend.
Know the cost of getting in - and out

Few investments can match annuities when it comes to confusing fees. Variable annuities, for example, have three layers of annual costs - insurance charges, investment fees and the cost of guarantees and riders - that can easily total 2% to 3%. Surrender fees - what you may owe when you exit the annuity - can range as high as 15%.

These fees are buried in pages of bewildering prose in the prospectus or contract. A consortium of insurance groups is working on ways to simplify fee disclosure. Until that becomes a reality, ask your adviser to break down each fee separately in writing and total them. Better yet, have the adviser fill out the simplified disclosure checklist I proposed last year.
Go for quality, then diversify

To date, no major insurer has failed in this crisis. But when you see firms like Lehman Brothers bite the dust, it's clear that anyone can go down if a meltdown is severe enough.

To reduce your odds of getting swept up in a failure, stick to insurers that get grades of A or better from ratings firms like Standard & Poor's and A.M. Best. That may mean accepting a lower yield or payout, but you're not looking to take chances with this money.

For an additional measure of safety, divvy up your money among two or three insurers. All states have guaranty associations that provide coverage of $100,000 or more per insurer (find your state's limit at nolhga.com). By keeping your exposure to any single firm below your state's coverage ceiling, you ensure you'll be fully covered even in a worst-case scenario.

It's a tech wreck

2009-01-22T10:54:00.000-08:00

So much for the tech sector keeping the economy afloat.

Despite strong earnings reports from IBM (IBM, Fortune 500) and Apple (AAPL, Fortune 500) in the past two days, the news Thursday morning that Microsoft (MSFT, Fortune 500) was cutting up to 5,000 employees -- including 1,400 that will be losing their job today -- is a sobering reminder that few companies, even in technology, are immune from this recession.

Tech stocks, not surprisingly, took it on the chin Thursday. Microsoft plunged 8.5%, helping to drag down the Nasdaq by more than 3%.

One bright spot was Apple, which gained about 7% Thursday morning following the company's better-than-expected sales and profit report Wednesday. However, one market strategist noted that Apple is the exception, not the rule.
Talkback: Is tech in worse shape than the rest of the economy?

"The Microsoft news is a reflection of what is really going on in the technology industry as opposed to the Apple earnings," said Alan Skrainka, chief market strategist with Edward Jones in St. Louis. "Apple's news is company specific. It has had a hot hand for awhile and had products that were in strong demand during the holiday season."

Kent Mergler, chairman of Northstar Capital Management, an investment firm with about $300 million in assets based in Palm Beach Gardens, Fla., agreed that the Microsoft news is more indicative of the trend in technology than the solid reports from IBM and Apple.

"It's tough to do well in this environment, and if a company succeeds, it's a huge compliment to management," he said. "Microsoft has turned into the big old sluggish company that IBM used to be."

Mergler's firm owns shares of IBM, Apple and Microsoft, but he said he and his team will have a "serious discussion about whether or not we continue to own it," following Thursday morning's earnings and layoff news.

And based on other earnings reports, it is clear that other technology leaders are also suffering as well.

Finnish cell phone maker Nokia (NOK) disclosed Thursday morning that sales fell nearly 20% in the fourth quarter and that profit plunged almost 70% from a year earlier.

Semiconductor kingpin Intel (INTC, Fortune 500), which reported a 90% drop in quarterly profit for the fourth quarter last week, announced Wednesday it was cutting production at some facilities, affecting 6,000 manufacturing jobs. It said some of the workers could be offered positions at other facilities.

Investors are even worrying about whether Internet search leader Google (GOOG, Fortune 500), which will release its fourth-quarter results after the closing bell, will feel the pain of the economic slump.

While Google is expected to report an earnings increase of 11% -- not shabby in this market -- that is a slower growth rate than many investors have grown accustomed to.

With that in mind, it will be interesting to see if Google continues to cut back on its capital expenditures. The company has been criticized by some analysts for spending recklessly -- even when times were good. But in the third quarter, Google reported that its capital expenditures were down 18% from a year earlier.

One fund manager said that this type of fiscal discipline is necessary for all technology companies, and hinted that the layoff news from Microsoft, while bad now, could help position the company for better times ahead in the future.

Rafael Resendes, manager of the Toreador Large Cap fund, argues that the layoffs -- the company's first in its history -- show that Microsoft is taking the necessary steps to rein in costs. He said many tech companies had not adequately prepared themselves for the recession and were spending too heavily despite signs of a slowdown.

"Tech needs to circle the wagons and get their businesses ready for the future. This downturn is hopefully imprinting in managements' minds that they can't keep growing for the sake of growth forever," said Resendes, who owns Microsoft, Google, IBM and Oracle (ORCL, Fortune 500) in his fund.

Obama's top priority: the economy

2009-01-19T16:47:00.000-08:00

Senior aides to President-elect Barack Obama say he will convene a meeting of his top economic advisers on Wednesday, his first full day in office, as the incoming president immediately tries to put the financial crisis at the center of his agenda.

Three aides said the incoming president is planning an ambitious first week that will include several other high-profile moves: a Wednesday meeting with military brass to map out a change to the mission in Iraq, appointing at least one envoy to quickly deal with the Mideast crisis, and issuing several executive orders that could spark controversies on issues ranging from the environment to detaining terror suspects.

But the Obama aides said the bulk of the executive orders are not likely to be issued on Tuesday because the incoming administration, in the words of one top aide, "does not want to cloud the first day" by overshadowing the historic swearing-in of Obama as the first African-American president.

That's why aides are pointing to Wednesday as a key marker. Obama is planning to bring together his top economic advisers to map out how to step up his own personal lobbying efforts to get Congress to pass his stimulus plan, which now has a price tag of $825 billion in the House.

"We have got to get an economic recovery and reinvestment plan in place quickly to turn the economy around," said one senior aide, citing the financial crisis as the top priority.

And on Wednesday Obama will also meet with top military commanders to discuss the war in Iraq and move to begin implementing his campaign promise of removing all combat troops within 16 months, according to aides. That is part of an effort to reassure Obama's liberal supporters that despite his heavy focus on the financial crisis, he will stay focused on changing the mission in Iraq, the stance that first propelled his presidential campaign at the grassroots level.

The Obama aides also revealed the Mideast crisis has shot to the top of the incoming president's immediate agenda. The aides said Obama himself has been pushing behind the scenes for quick, decisive action on the matter, overriding the advice of some aides who believe getting active instantly may unrealistically raise expectations for Mideast peace.

The aides told CNN one option under serious consideration is naming at least one high-profile envoy this week to help dig into the long-term problems in the region beyond just the crisis in Gaza, a move that Obama hinted at last week in an interview with USA Today.

On Sunday's "State of the Union with John King" on CNN, incoming senior White House adviser David Axelrod said the president-elect "has said repeatedly that he intends to engage early and aggressively with diplomacy all over the world and using the men and women, the professionals who are in place, who are great, and - where appropriate - special envoys."

Pressed on whether this meant moving to deal with the Mideast crisis as soon as Tuesday, Axelrod said, "I think that the events around the world demand that he act quickly, and I think you'll see him act quickly."
Executive orders

Aides say the incoming president is also mulling several high-profile executive orders that can change U.S. policy with the simple stroke of a pen, particularly major changes to the approach in the war on terror. In addition to an executive order closing the U.S. military prison at Guantanamo Bay, aides say the incoming president is considering another executive order that would specifically ban the use of torture on terror suspects.

CNN has learned that another option under consideration is an executive order raising fuel efficiency on automobiles, a move that would please environmentalists but put more pressure on the struggling U.S. auto industry.

For now, however, aides are being tight-lipped about specifically which executive orders will be issued.

Incoming White House Chief of Staff Rahm Emanuel told reporters on Saturday that "there are a number of things we're looking at" based on campaign promises the president-elect made on domestic and foreign policy.
Focus on economy

Meanwhile, aides say Obama is strongly considering an economic speech to a joint session of Congress just weeks after taking office in order to communicate directly with the American people that the financial crisis is likely to continue for a long time - even if his economic recovery plan is passed into law during the first 100 days.

Aides are expecting the speech to be delivered the week of February 23, after Congress returns from the Presidents' Day recess. Democratic leaders are aiming to get the economic recovery plan to Obama's desk for his signature before that recess.

Obama has been trying to downplay expectations for quick results from his stimulus plan in recent public speeches, which could give him some political breathing space to try and let the plan work.

"We're going to have a tough year, 2009," Obama told CNN in an interview Friday.

"I don't think that any economist disputes that we're in the worst economic crisis since the Great Depression. The good news is that we're getting a consensus around what needs to be done. We've got to have a bold, aggressive reinvestment in a recovery package. It's working its way through Congress. That's going to help create three to four million new jobs," he said.

Aides say the speech to a joint session of Congress is part of a broader strategy by the incoming president to "engage with the public" about the financial crisis to try and build trust with the American people

House Dems offer $825B stimulus bill

2009-01-16T05:31:00.000-08:00

After weeks of talks with President-elect Barack Obama's top aides, House Democrats on Thursday released an expansive economic recovery plan that calls for $550 billion in spending and aid to states and $275 billion in tax cuts.

House Speaker Nancy Pelosi, D-Calif., said lawmakers tried to assemble a package of measures that would be most effective in stimulating the U.S. economy, which is now in its 14th month of recession.

"We wanted to get the biggest bang for the buck," she said at a press conference.

Pelosi expressed confidence that Congress would reach the mid-February deadline for getting a bill to Obama's desk.

But, she noted, "this [package] is just the first step."

The $825 billion bill will now be directed to House committees for review and possible changes and later will be sent to conference with the Senate to resolve any differences the chambers may have.

Obama is scheduled to promote the bill on Friday in Ohio, where he'll speak with workers at a wind turbine factory. The package calls for more than $50 billion to double production of alternative energy.

"This plan is a significant downpayment on our most urgent challenges," Obama said in a statement. "[I]t will contain the kind of strict, independent oversight that will allow the American people to hold Washington accountable for how and where their tax dollars are spent."

The House proposal -- the American Recovery and Reinvestment bill -- is likely the most expensive spending plan Congress has ever proposed. Obama, who takes office on Tuesday, has called it central to stemming what has become the worst economic crisis in decades.
Creating jobs, helping the vulnerable

Obama's top economic advisers have estimated that the stimulus plan they laid out, which is largely reflected in the House Democrats' bill, could create or save between 3 million and 4 million jobs by 2010 across a broad array of industries.

But members of Obama's team and other economists acknowledge that even that level of job creation wouldn't be a panacea for the economy. Rather, it would lead to a lesser rate of unemployment than would otherwise be the case if there was no economic recovery package.

The bill includes roughly $90 billion to modernize roads, bridges, mass transit and waterways, and over $140 billion, mostly to states and localities, to defray their costs for education and to modernize schools.

The bill also calls for a number of measures to help the economically vulnerable. Among them: $27 billion to continue the current extended unemployment benefits program through Dec. 31; and another $9 billion to increase the average unemployment check by $25 a week on top of the roughly $300 a week jobless workers currently receive.

There is also a provision calling for $30.3 billion to subsidize for 12 months the cost of Cobra health insurance coverage and extend the time eligible workers may keep it. Cobra coverage allows newly laid off workers to keep health insurance provided by their former employers. Workers who would be eligible are those 55 and older and those who have at least 10 years' tenure with their employer.

The bill put together by House Democrats doesn't include everything Obama wanted.

After complaints from Democrats in both chambers, negotiators dropped a $3,000-per-hire tax credit that Obama proposed to provide incentives for employers to create jobs in the United States. Critics said the measure wouldn't achieve its aim since it wasn't large enough to help employers who can't afford a worker's total compensation in the first place.

But another tax cut -- one aimed at broadening businesses' ability to write off their losses, called "net operating loss carryback" -- is still in the package, although it's unclear if it will remain in the final bill.

Although no specifics were offered in the House's summary of provisions, the package also includes a "Making Work Pay Credit," which is something that Obama campaigned on.

The credit as Obama described it would provide low- and middle-income workers with a tax cut equal to $500 a year for individuals and $1,000 for couples. The money could be delivered fairly quickly to workers, with companies reducing the tax they withhold from employees' paychecks. The credit would also be refundable, meaning eligible workers can get it even if they don't make enough money to owe income tax.

The bill also includes an expansion of the Earned Income Tax Credit, which is a refundable credit for low-income workers, and an increase in the child tax credit.
Republicans weigh in

While many Republicans in the House and Senate are on board with having a stimulus package, they have been pushing for a different balance of measures, with a much stronger emphasis on tax cuts for businesses and individuals.

House Minority Leader John Boehner, R-Ohio, on Thursday characterized the Democrats' plan as "disappointing."

"The plan ... was developed with no Republican input and appears to be grounded in the flawed notion that we can simply borrow and spend our way back to prosperity," Boehner said in a statement. "It calls for more than half a trillion dollars in questionable new government spending on programs and projects, while providing less tax relief for middle-class families and small businesses than President-elect Obama has proposed."

Alternative stimulus bill proposals were put forth by the Republican Study Committee on Wednesday. The proposals called for far more business tax cuts, such reducing the corporate income tax rate.

Obama has said he's willing to consider any ideas for stimulus that have proven to work in the past, no matter which party proposes them. The problem is there is more ideological passion about whether tax cuts or government spending works best to create jobs than there is definitive research to settle the question.

But both government spending and tax cuts can prove very expensive in the long run if they aren't successful.
Keeping a close eye on the money

A big concern for all lawmakers has been how the government will oversee the monies given to states or spent on federal projects.

The House Democrats' bill calls for several measures to ensure transparency and accountability.

Among them, the creation of a special Web site where lawmakers and the public can track how funds are spent, get contact information for the managers of programs receiving funding and a list of contract or grant recipients. Plus, there would be links to the contracts themselves.

The bill would also require state or local government agencies that receive grant money for operations to post the intended use of the grant money as well as the numbers of jobs saved or created as a result.

The legislation also offers protection to federal and state whistleblowers and calls for those making the funding decisions (i.e., governors, mayors and others) to personally certify that a project has been vetted and that the money spent is an appropriate use of taxpayer dollars.

Lastly, the bill calls for the creation of two boards:

* A Recovery Act Accountability Board, members of which will include the president's chief performance officer and others appointed by the heads of federal agencies.
* An independent advisory panel to that board, members of which will not be in the federal government but will have expertise in economics, public finance, contracting, accounting, auditing or other relevant fields.

Stocks struggle on earnings woes

2009-01-13T18:23:00.001-08:00

Stocks were mixed Tuesday as questions about Citigroup's future and Alcoa's big quarterly loss exacerbated worries about the weak corporate profit environment.

The Dow Jones industrial average (INDU) lost 0.3%, closing lower for the fifth consecutive session. The Standard & Poor's 500 (SPX) index added 0.2%. The Nasdaq composite (COMP) gained 0.5%.

Stocks had swayed on both sides of unchanged through the afternoon, with weakness in banks and Alcoa tempering strength in technology.

But Citigroup (C, Fortune 500) managed a late-session rally after the company confirmed it was in talks with Morgan Stanley (MS, Fortune 500) to sell part of its brokerage business, as had been rumored. After the close, Citigroup confirmed that it is selling 51% of its Smith Barney unit to Morgan.

The onslaught of negative news in the new year has caused investors to step back after an end-of-2008 rally, said Gary Webb, chief executive at Webb Financial Group.

"There's just nothing out there right now that looks promising, between the corporate news and the economic news," Webb said.

"Everyone knows things are going to be bad for a while, because we've all been told that so many times," he said. "But it still doesn't seem to be fully priced into the market."

After hitting the most recent bear-market lows in late November, stocks rallied more than 20% through the first session of the year. But since then, stocks have been slipping again.

The rally was driven mostly by short-covering, said Todd Salamone, director of trading at Schaeffer's Investment Research. Short-covering is when investors who have sold stocks short to take advantage of falling prices have to buy them back as prices start to rise.

"As that rally took place, investors got more comfortable with the price action and the only fear was of missing the rally," Salamone said. "But what that did is put the market in a place where it is less able to deal with all the negative headlines we're seeing now."

On Wednesday, the government releases its December retail sales report and the November reading on business inventories. The weekly energy supply report is also due in the morning, while the afternoon brings the release of the Fed's semi-annual "beige book" reading on the economy.

Company news: Alcoa (AA, Fortune 500) started off the fourth-quarter reporting period on a down note Monday. The aluminum maker lost 28 cents per share in the quarter, versus a profit of 36 cents per share a year ago. Analysts expected Alcoa to lose 10 cents per share on average, according to a Briefing.com survey. The company also reported a bigger-than-expected rise in revenue.

Last week, Alcoa warned that it will lay off 13% of its workforce as a means of cutting costs.

Fourth-quarter results are expected to be weak amid the ongoing recession. Intel (INTC, Fortune 500) and JPMorgan Chase (JPM, Fortune 500) are among the companies due to report later this week.

Yahoo (YHOO, Fortune 500) announced that it has hired Carol Bartz, a longtime technology executive, as its new CEO.

In other corporate news, drugmaker Pfizer (PFE, Fortune 500) said it is cutting up to 800 scientist jobs. Barclays (BCS) confirmed it was going to lay off some employees, but would not give a number. Earlier reports speculated the bank could cut as many as 2,000 jobs.

Market breadth was positive. On the New York Stock Exchange, winners beat losers eight to seven on volume of nearly 1.31 billion shares. On the Nasdaq, advancers topped decliners by five to four on volume of 2.01 billion shares.

Economy: The U.S. federal budget deficit grew by $83.6 billion in December, the government said Tuesday afternoon, versus forecasts for $83 billion. That brings the total deficit for the first three month of fiscal 2009 to $485.2 billion, more than the deficit for all of 2008.

The November trade gap plunged to a five-year low as the recession cut into the demand for oil and imports from China. Exports fell too, on waning demand for American-made farm products and autos. The Commerce Department said the trade gap narrowed to $40.4 billion from $56.7 billion in October.

Speaking in London Tuesday, Federal Reserve Chairman Ben Bernanke said that the almost $800 billion stimulus plan being proposed by President-elect Barack Obama could provide a big boost to the economy. However, he also said additional bank bailouts may be needed.

Confirmation hearings took place Tuesday on Capitol Hill for various Obama nominees for the cabinet and top White House positions, including Sen. Hillary Clinton, who has been nominated for Secretary of State.

The House Financial Services Committee held a hearing on the Treasury's Troubled Asset Relief Program (TARP) Tuesday. On Monday, Obama asked Congress to release the remaining $350 billion in TARP money. Regulators echoed that request Tuesday and talked about different ways they might use the funds to better help homeowners and other consumers.

Bonds: Treasury prices rose, lowering the yield on the benchmark 10-year note to 2.29% from 2.30% Monday. 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 improved. The 3-month Libor rate fell to 1.09% from 1.16% Monday, according to the British Banker's Association. Overnight Libor held steady at 0.10%. Libor is a key bank lending rate.

Other markets: In global trading, Asian and European markets ended lower.

The dollar gained versus the euro and yen.

U.S. light crude oil for February delivery fell 19 cents to settle at $37.78 a barrel on the New York Mercantile Exchange.

COMEX gold for February delivery down 30 cents to settle at $820.70 an ounce.

Gasoline prices held steady at a national average of $1.79 a gallon, according to a survey of credit-card swipes released Tuesday by motorist group AAA.

Another $350 billion: Bush may soon request rest of bailout

2009-01-11T08:15:00.000-08:00

The Bush administration may soon ask Congress for the remaining $350 billion from the $700 billion Troubled Asset Relief Program (TARP) passed in October, a Democratic leadership source confirms to CNN.

Congressional Democrats were notified Friday afternoon by the White House that they could get a request soon for the second half of the allocated bailout funds. Once Congress receives the request for the money, both chambers can try to block the release of the money if they do so within an expedited time frame.

According to the Democratic source, who did not want to be named because no decisions have been made, Democratic leaders are not sure if the votes would be there to block President Bush from accessing the funds. If President-elect Obama signs onto the Bush request, it may make it easier for Democrats to vote yes, the source said.

Lawmakers on both sides of the aisle have expressed unhappiness with the way Treasury used the first $350 billion to capitalize banks. Specifically, they object to how Treasury made investments with few strings attached and no process for tracking how the banks are using the money.

They also are unhappy that none of the $350 billion allocated to date has been used to prevent foreclosures. And while credit markets have eased since the passage of TARP, the program has hardly been a panacea.

Consequently, leading Democratic lawmakers told Treasury officials that Congress would only release the remaining $350 billion if Treasury guaranteed that some of the money would go toward helping those at risk of foreclosure and consumers in search of loans for cars and homes, among other things.

Treasury Secretary nominee Timothy Geithner is working on plans to revamp the way TARP is used to make foreclosure prevention. That could include programs to help cash-strapped municipalities, small businesses and consumers, two transition aides told CNN.

On Friday, House Financial Services Chairman Barney Frank introduced a bill that would place several restrictions on how Treasury may use the remaining TARP funds.

Frank said in a statement that his legislation "will strengthen accountability, close loopholes, increase transparency and require Treasury to take significant steps on foreclosure mitigation."

Under the bailout legislation approved by Congress in October, the administration must formally notify Congress that it wants to access the second installment of $350 billion. Unless Congress passes a resolution rejecting the request within 15 days, the Treasury department can begin tapping the funds.

If Congress rejects the request, the president could veto the resolution, allowing Treasury to proceed. If the president vetoed the resolution, Congress would have to override the veto to stop the administration from accessing the money. A veto override requires a two-thirds majority in both the House and Senate.

As congressional Democrats assess the situation and prepare for a possible vote as early as next week, the Bush administration is sending a public warning down Pennsylvania Avenue.

"If the President does decide to notify Congress of the intention to access the second $350 billion on behalf of President-elect Obama, our shared goal [of both administrations] will be to defeat a resolution of disapproval if Congress goes that route," an administration official told CNN on Saturday.

White House press secretary Dana Perino said Friday that the administration has had discussions with the Obama transition team on how to proceed, "should the President-elect determine that he would like President Bush to notify Congress on his behalf of the intent to use the remaining $350 billion."

But, she added, "No final decisions have been made."

Get ready for more pain ahead

2009-01-10T06:59:00.000-08:00

There is no longer any doubt about the biggest problem facing the economy: the job market.

Economists believe the recession is likely to get worse until the spiraling job losses and unemployment rate start to improve.

Record low mortgage rates won't lead to higher home values and increased home sales as long as 500,000 people a month are losing their jobs.

Rising unemployment will probably make banks even less willing to lend and also lead to increased defaults on a large range of existing loans.

And with more consumers losing, or worried about losing, their jobs, that should lead to a further pullback in spending. In turn, that will make it tougher for companies to increase their profits, which could lead to even more stock market losses.

If all that weren't bad enough, economists worry that that this will put more pressure on employers to lay off even more workers -- prompting the proverbial vicious circle that can make it so hard to get out of a bad economic downturn.

"That's behind the difficulty in seeing a sustainable recovery ahead," said Lakshman Achuthan, managing director of Economic Cycle Research Institute.

With that in mind, there's a very good chance that there could be more months ahead where the economy sheds more than 500,000 jobs.

"When you have an economy in a free-fall, you have to expect job losses of this magnitude," said Rich Yamarone, director of economic research at Argus Research. "The really bad news is that there's no reason to expect this trend to reverse."

Even the people who have jobs are suffering. According to a recent survey by the Society for Human Resource Management, more companies are reporting that they are cutting pay of their employees in response to the difficult environment.

In addition, the average work week has been falling steadily during the past four months. A record 8 million workers that want full-time employment have only been able to get part-time jobs, according to the government's December labor report. That's up 37% from the total of so-called underemployed workers in August.

Pay hikes will be at best modest this year for many employees lucky enough to get increases. A survey by consultant Hewitt Associates found raises will be less than 3% for the first time in the study's 32-year history.

State and local governments are also making tough choices because of the recession, with many reporting big cutbacks in services and suggesting new taxes that could further hurt cash-strapped consumers.

Currently, 43 states have an estimated combined budget deficit of about $100 billion. With many states required by law to balance their budgets, those governments are looking at everything from reduced garbage collection and shortened school years to new taxes on everything from soda to music downloads.

And it could get worse before it gets better for states and local governments. Some retail experts expect a record number of stores to close this year, with thousands of closings beyond those already announced. Vacant storefronts and dead malls can further depress a community's property values and tax collections.

That's why some think that the only way out of the recession is to firmly address the issue of rising unemployment. Tig Gilliam, chief executive of Adecco Group North America, a unit of the world's largest employment firm, said many of his clients tell him they're preparing to make additional job cuts.

Gilliam added that it's not the credit crunch that is causing them to cut back, but the reduced sales due to weak consumer demand, which has largely been driven by job losses and job worries.

"It's not a housing problem. It's not a financial services problem. It's spread across the landscape," Gilliam said. "And it's a lack of confidence of the 92.8% of people who are employed."

AOL "Relaunches" It's $850 Million Social Network, Bebo

2008-12-10T08:17:00.000-08:00

Time Warner subsidiary AOL will "relaunch" its third-place social network Bebo today, reports the Wall Street Journal.

In this case "relaunch" means Bebo gets three new features:

* Users can read email and instant messages from third-parties
* Also they can now import feeds from third party sites like Twitter
* A new media recommendation tool that suggests TV shows, music and Web clips already on the site.

People laughed at AOL when it purchased Bebo for $850 million in March. In August, we wrote:

Per TWX's most recent SEC filing, the company is booking almost all of the purchase price -- $760 million -- as goodwill. Another $86 million went to "specific amortizable intangible assets." That is: Beyond $11 million in actual stuff -- servers, Aeron chairs, etc -- there's almost no there there.

So far AOL's having a hard time proving doubters wrong. While Bebo is popular abroad, its 5.9 million US uniques in October were just a fraction of MySpace's 76 million and Facebook's 46 million.

Worse, experimental social network advertising remains largely untrusted by Madision Avenue's clients, who we hear cut it first when budgets get tight as they have recently.

Bebo's plan -- perhaps encapsulated by the media recommendation tool -- is to become an entertainment destination for its users.

"[Entertainment] is a more natural place for you to see an advertisement," Time Warner CEO Jeff Bewkes told the WSJ. "You are used to seeing media with relevant advertising."

"You would have to be stupid -- you would have to trip -- to not succeed at this at some point," Bebo CEO Joanna Shields told the WSJ.

Bailout in action: Lower lending rates

2008-11-18T09:54:00.001-08:00

As Bush administration officials defended the government's response to the credit crisis Tuesday, there is one immediate and tangible result of their efforts: lower borrowing costs.

The Federal Reserve and Treasury Department have poured billions of dollars into banks in an attempt to increase liquidity and encourage lending. The government has also unveiled other credit-boosting programs, including a purchasing program for short-term business debt and loans in exchanged for toxic assets as collateral.

As a result, lending rates have retreated from historical highs set last month when the credit crisis reached its peak. The 3-month Libor rate fell Tuesday to 2.22% from 2.24%, and the overnight Libor rate held steady at 0.4%, according to Bloomberg.com.

Libor, the London Interbank Offered Rate, is a daily average of interbank lending rates and a key barometer of liquidity in the credit market. More than $350 trillion in assets are tied to Libor.

In testimony before the House Financial Services committee Tuesday, Treasury Secretary Henry Paulson, Fed chief Ben Bernanke and FDIC chairwoman Sheila Bair defended the government's actions thus far, saying lower borrowing costs are a sign that market conditions are improving.

"Quotes for Libor ... have declined in relation to Treasury yields - indicating a slow thaw in the interbank lending market," said Bair in testimony. "While it is clearly too early to declare the end of the crisis in our financial markets, as a result of the coordinated response ... we are making steady progress in returning money and credit markets to a more normal state."

Rates had risen for a several days after Paulson said last week that the government would no longer buy up banks' troubled assets but rather take ownership stakes them. The rise proved to be just a bump in the road, as rates resumed their decline following the Treasury's announcement of more banks receiving liquidity injections.

On Monday, Treasury announced that it had dispersed $33.56 billion to 21 banks in a second round of payments as part of the $700 billion bailout program designed to boost the nation's banking system. The new distribution brings the total to $158.56 billion and 30 banks so far.

Market gauges: As rates held steady, so too did two gauges of banks' confidence in the credit market.

The Libor-OIS spread held at 1.75. The spread measures the difference between actual borrowing costs and the expected targeted borrowing rate from the Fed. It is used as a gauge to determine how much cash is available for lending between banks. The bigger the spread, the less cash is available for lending.

Another indicator, the TED spread, fell slightly to 2.10 percentage points from 2.15 points. 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 lower the spread, the more willing investors are to take risks.

Bonds: Treasury prices moved higher Tuesday as more dour economic data led investors to the perceived safety of government bonds.

Finding little in the way of return on investment in other markets, investors have recently placed conservative bets on the bond market. Recession fears and credit crisis anxiety have sent stocks falling in eight of 11 sessions thus far in November. Likewise, bonds have risen in seven of 10 sessions. The bond markets were closed on Veteran's Day (Nov. 11) while equities markets were open.

A government report on inflation for the month of October showed wholesale prices fell by 2.8%. The huge decline showed consumer demand for goods continues to fall sharply. Consumer prices rose 0.4%.

Even as stocks rose Tuesday afternoon on some encouraging quarterly financial results and hopes that the government will bail out automakers, recession fears remained the main driver, sending bonds higher.

In fact, bonds may continue to rise for the rest of the week, which will bring a number of other economic indicators that are expected to be equally as disappointing. Investors likely will continue to seek Treasurys as a safe-haven investment while stocks look for a market bottom.

The benchmark 10-year note rose 16/32 to 101-9/32, and its yield slipped to 3.60% from 3.66% late Monday. Bond prices and yields move in opposite directions.

The 2-year note was up 1/32 to 100-20/32, and its yield fell to 1.18%

The benchmark yield curve, the difference between the 2-year and the 10-year yield, narrowed to 2.40 percentage points, down from a five-year high of 2.54 points set Friday. The yield curve is a key measure of investor sentiment, with a higher curve indicating a weaker economic environment.

The 30-year bond rose 15/32 to 105-21/32, and its yield fell to 4.17% from 4.20%.

The yield on the 3-month bill rose to 0.11% from 0.08%. The yield on the 3-month Treasury bill is closely watched as an immediate reading on investor confidence, with a lower yield indicating less optimism. Investors and money-market funds shuffle money into and out of the 3-month bill frequently as they assess risk in the rest of the marketplace.

Where the bailouts stand

2008-11-12T07:10:00.001-08:00

The government's $700 billion bailout efforts are well underway. It has committed 70% of the first pile of money -- $250 billion and 40% of a second batch of $100 billion.

Still more bailouts are in the air and Treasury Secretary Henry Paulson is set on Wednesday to give an update on his plans.

So far, the government has pledged about $172 billion of that $250 billion to a total of 52 banks, according to Keefe, Bruyette & Woods. That total may actually be higher, since the Treasury is relying on the banks to announce their participation in the program.

Under the Troubled Asset Relief Program (TARP), the Treasury has already sent $125 billion to nine major banks, with JPMorgan Chase (JPM, Fortune 500), Citigroup (C, Fortune 500) and Wells Fargo (WFC, Fortune 500) leading the pack with $25 billion in federal funding. The 43 remaining banks have been approved for a total of $47 billion in TARP funds, but have not yet received the checks.

That leaves the Treasury with, at most, $78 billion left in the first round of funding. But the government won't just give the money out - banks have to appeal to the Treasury for TARP money.

For the second round of funding, President Bush asked Congress for $100 billion more of the $700 billion approved for the bailout. The Treasury spent $40 billion of that second round funding Monday on insurer AIG (AIG, Fortune 500), as part of a restructured bailout deal for the troubled company.

The Treasury will have to go back to Congress for the remaining $350 billion. If approved, Treasury has been authorized to offer more liquidity injections or buy up toxic assets like mortgage-backed securities from companies. The purchase of mortgage-backed securities is how the Treasury first sold Congress on the proposal, but later decided that capital injections was the more appropriate first step.

But the bailout is not just about banks. AIG has already received TARP funds, and the recent struggles of GM (GM, Fortune 500), Ford (F, Fortune 500) and Chrysler have built momentum for a bailout of the U.S. auto industry. President-elect Barack Obama, House Speaker Nancy Pelosi, D-Calif., and Senate Majority Leader Harry Reid, D-Nev., all threw their support behind such a move.

Some government officials like FDIC Chairwoman Sheila Bair has called for TARP money to be used to guarantee mortgages backed by private lenders to encourage them to restructure loans to troubled homeowners. The Bush administration's new program to modify mortgages announced Tuesday stopped short of providing direct government financial help.

With the possibility of more bailouts on the way, here is how the government has thus far invested billions of dollars to rescue banks, companies, consumers and their homes.
SAVING WALL STREET

The government has taken these steps to aid financial institutions.

Term-auction facility: $1.5 trillion in loans to banks so far in exchange for otherwise unwanted collateral. The Fed increased its monthly auction limit to $300 billion in October, up from $20 billion when the Fed began the program.

Dollar swap lines: Unlimited dollars to 13 foreign central banks to provide liquidity to foreign financial institutions. The Fed lifted its cap after raising it to $620 billion in October from $24 billion in December.

Bear Stearns: $29 billion in a special lending facility to guarantee potential losses on its portfolio. With the lending facility, JPMorgan was able to step in to save Bear from bankruptcy.

Lending to banks: $77 billion lent on average every day to investment banks, after facility opened to non-commercial banks for first time in March.

Cash injections: $250 billion to banks in exchange for equity stake in the financial institutions in the form of senior preferred shares.

Mortgage-backed securities purchases: Up to $410 billion allotted to purchase troubled assets from banks.

Fed rate cuts: Down to 1% in October 2008, from 5.25% in September 2007.
SAVING MAIN STREET

Consumers are benefiting from the government's actions in recent months.

Stimulus checks: $100 billion in stimulus checks made their way to 140 million tax filers to boost consumer spending and help grow the economy.

Unemployment benefits: $8 billion toward an expansion of unemployment benefits, to 39 weeks from 26 weeks.

Bank takeovers: $13.2 billion drawn down so far from the FDIC's deposit insurance fund after 19 bank failures in 2008.

Rehab foreclosed homes: $4 billion to states and municipalities in assistance to buy up and rehabilitate foreclosed properties.

Student loan guarantees: $9 billion so far in government purchases of student loans from private lenders. Higher borrowing costs made student loans unprofitable for a number of lenders, many of whom stopped issuing the loans.

Money-market guarantees: $50 billion in insurance for money-market funds. The Fed then began to lend an unlimited amount of money to finance banks' purchases of debt from money-market funds. The Fed then agreed to purchase up to $69 billion in money-market debt directly. In October, the Fed said it would loan up to $600 billion directly to money-market funds.

Housing rescue: $300 billion approved for insurance of new 30-year, fixed-rate mortgages for at-risk borrowers. The bill includes $16 billion in tax credits for first-time home buyers. But lenders have been slow to sign on.

Deposit insurance: $250,000 in insurance for interest-bearing accounts, up from $100,000. The FDIC also issued unlimited guarantees on non-interest- bearing accounts and newly issued unsecured bank debt.
SAVING CORPORATE AMERICA

Uncle Sam has intervened to help companies in the following ways.

Business stimulus: $68 billion in tax breaks to corporations to help loosen the stranglehold on businesses trying to finance daily operating expenses.

Fannie Mae, Freddie Mac: $200 billion to bail out the mortgage finance giants. Federal officials assumed control of the firms and the $5 trillion in home loans they back.

AIG: $152.5 billion restructured bailout, including a direct investment through preferred shares, a easier terms on a $60 billion loan, and new facilities meant to take on the companies exposure to credit-default swaps.

Automakers: $25 billion in low-interest loans to speed the industry's transition to more fuel-efficient vehicles.

Commercial paper facility: $243 billion in corporate debt purchased so far by the Fed since its so-called Commercial Paper Funding Facility opened.

Low credit costs, but crunch still here

2008-11-11T12:09:00.000-08:00

Lending rates remained around historic lows Tuesday, but don't stick a fork in the credit crunch just yet.

The 3-month Libor rate dropped to 2.18% from 2.24% on Monday, according to Dow Jones, marking the rate's lowest point since Oct. 29, 2004. The overnight Libor rate rose to 0.35% from an all-time low of 0.32%, according to Bloomberg.com.

During the height of the credit crisis last month, 3-month Libor was at 4.82%, and the overnight rate was at an all-time high of 6.88%. Lower rates can boost the strangled credit markets because more than $350 trillion in assets are tied to Libor.

Libor, the London Interbank Offered Rate, is a daily average of what 16 different banks charge other banks to lend dollars in the U.K. and is a key barometer of liquidity in the credit market.

The government has initiated a multitude of programs aimed at easing the stranglehold on credit and encouraging private lending, many of which have helped drive down lending rates. But just because borrowing is cheaper doesn't mean there are a lot of buyers out there.

With anxiety still widespread amid a likely economic recession, two huge corporations demonstrated Monday how the credit crunch is far from over.

Embattled insurance giant AIG (AIG, Fortune 500) announced that it restructured its bailout deal with the Federal Reserve and Treasury Department, giving the company more breathing room to spin off subsidiaries and pay back its $60 billion federal bridge loan. As part of the new package, the expiration on AIG's loan was lengthened to five years from two, as the current credit environment has proven a difficult time to sell off businesses.

Also Monday, AIG reported a loss of $24.5 billion, its biggest quarterly loss ever. CEO Edward Liddy attributed the poor results to "extreme dislocations and volatility in the capital markets" during the three months ended Sept. 8 - a week before the credit crisis gripped Wall Street.

Specialty finance company American Express (AXP, Fortune 500) has also struggled through the credit crunch. Late Monday, the Fed granted "bank holding company" status to AmEx so that the company can gain access to the Fed's emergency lending window to ease its liquidity concerns.

As companies continue to struggle to acquire private financing, they will rely on the government to provide them with the funding they need to stay afloat.

Market gauges: Though credit remains tight, two key gauges of risk sentiment indicated that confidence is returning.

The Libor-OIS spread fell to 1.69 percentage points from 1.8 points on Monday. The spread measures the difference between actual borrowing costs and the expected official borrowing rate from the Fed. It is used as a gauge to determine how much cash is available for lending between banks. The bigger the spread, the less cash is available for lending.

Former Fed chairman Alan Greenspan has said that the Libor-OIS spread will serve as a good gauge for when credit has returned to normal. Though the indicator has fallen from a high of 3.66 points set last month, it is still far above the 0.11 percentage point seen prior to Sept. 15.

Another indicator, the "TED spread," fell to 1.96 percentage points from 2.03 points, falling below 2 points for the first time since the financial crisis gripped Wall Street.

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 less willing investors are to take risks.

The U.S. Treasury market was closed Tuesday for the Veterans Day holiday.

Gas prices near $2.25

2008-11-10T06:46:00.001-08:00

Gasoline prices fell for the 53rd straight day, according a survey released Sunday by the motorist group AAA.

The average price of regular unleaded decreased to $2.259, a 2.3 cent drop from Saturday, according to the national survey, which is based on credit card swipes at gas stations. Before this week, the last time prices were this low was on February 24, 2007, according to AAA.

Over the last 53 days, prices have sunk $1.59, a 41.4% decrease, according to AAA.

A separate national survey found that gas prices dropped a little more than 48 cents in the last two weeks, continuing a dramatic fall.

It was the second largest drop in the six-decade history of the Lundberg Survey. The previous largest drop was just a few weeks ago, the last time the survey was conducted.

The average price of self-serve, unleaded gasoline in the United States on Friday was about $2.30 a gallon, said publisher Trilby Lundberg.

Demand for gasoline has continued to slip, despite the fall in gas prices. MasterCard's weekly survey of gas station credit card swipes showed demand down 3.9% last week, compared to the same period last year.

Prices have dropped 45%, or almost $1.86, from their record high of $4.114 a gallon set July 17, by AAA's count. The average price per gallon dropped below $3 on Oct. 18, the first time in nearly nine months.

The all-time high average was $4.11, set on July 11, according to Lundberg, and prices have been dropping ever since.

She attributed the price reductions to a drop in crude prices and demand.

By state, Alaska reported the highest average gas prices, $3.298 per gallon, while Missouri boasted the cheapest, at $1.949 a gallon, according to AAA.

Gasoline prices have fallen while average crude prices have done the same in the past four months. U.S. crude for December delivery settled at $61.04 a barrel in New York trading on Friday, down from its high of $147.27 a barrel on July 11.

Only two states, Alaska and Hawaii, have average gas prices above $3 per gallon, while 22 states now report prices below $2.25 per gallon, AAA found.

By city, Lundberg found that Tulsa, Oklahoma, posted the lowest average gas price of $1.89 Friday. The highest averages were $3.14 in Anchorage, Alaska, and $3.09 in Honolulu, Hawaii.

Average prices in some other cities, according to Lundberg:

Detroit, Michigan $2.02

Denver, Colorado $2.15

Atlanta, Georgia $2.16

Boston Massachusetts $2.38

Philadelphia, Pennsylvania $2.41

Los Angeles, California $2.61

The AAA figures are state-wide averages based on credit card swipes at up to 100,000 service stations across the nation. Many drivers have reported even lower prices across the country.

The Lundberg Survey is based on responses from more than 5,000 service stations nationwide.

Stocks tumble on recession fears

2008-11-06T08:32:00.000-08:00

Stocks swooned Thursday, as weak reports on retail sales and jobless claims added to fears of a prolonged recession.

The Dow Jones industrial average (INDU) lost 210 points, or 2.3%, over an hour into the session, after having fallen as much as 221 points earlier.

The Standard & Poor's 500 (SPX) index and the Nasdaq composite (COMP) both declined by around 2.5%.

Stocks fell sharply Wednesday, with the Dow losing close to 500 points and all three major gauges off at least 5% as President-elect Barack Obama's historic victory gave way to worries about the economy he in inherits.

Additionally, stocks, as represented by the S&P 500, had shot up 18% in the seven trading sessions through Election Day. After such a run, Wall Street was vulnerable to a pullback.

October retail sales from the nation's chain stores were mostly abysmal, with some discounters like Wal-Mart Stores escaping the fray. The housing market collapse, credit crunch and strained labor market have all taken their toll on consumers' wallets. Even the recent retreat in oil and gas prices has not had much of a positive impact on consumer spending.

Retail sales: With the exception of discount chain Wal-Mart (WMT, Fortune 500), most retailers saw October sales in line with the bruised economy. Thomson Reuters estimates the monthly sales could be the worst in 8 years. (Full story)

Gap (GPS, Fortune 500) reported a 16% drop in sales at stores open a year or more, a retail industry metric known as same-store sales. Macy's (M, Fortune 500) same-store sales fell 6.3% and the company warned November sales would weaken.

AnnTaylor Stores (ANN) said same-store sales fell 19% from a year ago. The women's clothing retailer also said it was expanding its restructuring program and warned that third-quarter results won't meet forecasts. Shares fell 24%.

Signs of the recession were evident in economic reports released earlier this week. They included dour readings on manufacturing, factory orders and the services sector and the worst monthly auto sales in 25 years.

Jobs: The number of Americans filing new claims for unemployment last week topped forecasts.

The weekly number followed a pair of monthly reports Wednesday that showed the labor market continued to get hammered in October.

The reports were especially worrisome ahead of Friday's big government report. That report is expected to show that employers cut 200,000 jobs from their payrolls in October. Meanwhile, the unemployment rate, which is generated by a separate survey, is expected to rise to 6.3% from 6.1% the previous month.

Other markets: In global trade, Asian markets tumbled on recession fears. European markets were lower in afternoon trading, after European and British central banks announced interest rate cuts.

The dollar gained against the euro and the yen.

COMEX gold for December delivery rose $14.60 to $757 an ounce.

U.S. light crude oil for December delivery fell $3.70 to $61.60 a barrel on the New York Mercantile Exchange.

Gasoline prices fell another 2.5 cents to a national average of $2.34 a gallon, according to a survey of credit-card activity released Thursday by motorist group AAA. The decline marks the 50th consecutive day that prices have decreased. During that same time period, prices dropped by $1.51 a gallon, or 39.2%.

Lending rates: The credit market continued to improve. The 3-month Libor fell to 2.39% from 2.51% Wednesday, a nearly four-year low, according to Bloomberg.com. Overnight Libor rose slightly to 0.33%, bouncing off an all-time low of 0.32% the previous day. Libor is a key interbank lending rate.

The yield on the 3-month Treasury bill, seen as the safest place to put money in the short term, fell to 0.36% from 0.39% Wednesday, with investors preferring to take a small return on their money than risk the stock market. Last month, the 3-month yield reached a 68-year low around 0% as investor panic peaked.

Treasury prices slipped, raising the yield on the benchmark 10-year note to 3.72% from 3.70% Wednesday. Treasury prices and yields move in opposite directions.

Chevron's profit soars

2008-10-31T07:32:00.000-07:00

Chevron Corp. said Friday its third-quarter profit more than doubled on the back of record crude prices this summer, though worldwide production fell during the period.

The San Ramon, Calif.-based company, the second-largest U.S. oil company, said it made $7.89 billion, or $3.85 a share, in the three months ended Sept. 30, versus $3.72 billion, or $1.75 per share, at the same time last year.

Analysts were expecting average earnings of $3.25 per share based on a survey by Thomson Reuters.

Revenue shot up 43% to $78.87 billion from $55.2 billion.

Shares in premarket trading slipped 19 cents to $73.99.

Chevron (CVX, Fortune 500) capped off a continued string of robust quarterly profit reports from the world's major oil companies, including another U.S. corporate profit record for No. 1 Exxon Mobil Corp. (XOM, Fortune 500)

Crude prices peaked at $147 near the start of the quarter in mid-July before embarking on a dramatic slide that has continued into the fourth quarter. When the third quarter ended Sept. 30, benchmark crude prices were still around $100 a barrel. In early trading Friday, they slipped below $64 a barrel.

"Our disciplined capital spending and tight control over costs remain extremely important in today's uncertain economic climate," said Chevron chairman and chief executive Dave O'Reilly. "Our strong balance sheet enables Chevron to continue investing in attractive projects that increase the production of oil and gas and improve the efficiency of our refinery network."

Chevron said earnings from its exploration and production, or upstream, business rose about 80% in the quarter to $6.18 billion, buoyed by crude prices.

However, global production fell nearly 6% to an average of 2.44 million barrels of oil equivalent a day, hurt in part from late-summer hurricanes that shut down output in the Gulf of Mexico.

At its U.S. upstream arm, Chevron said the average sales price for a barrel of crude and natural gas liquids was $107 in the third quarter, up from $67 a year ago.

Tough transition for new president

2008-10-26T10:15:00.001-07:00

The next United States president won't have long to savor victory after Election Day.

Facing the worst economic storm since Franklin Delano Roosevelt won the 1932 election, this president-elect will have to quickly announce his key staffers and policy priorities to reassure both the nation and the world.

"The incoming president will be facing many bigger challenges than any president since Roosevelt," said John Kamensky, senior researcher at the IBM Center for The Business of Government, which focuses on public management. "The president will have to have a very organized transition to be able to address it."

Spokesmen for Senator Barack Obama's and Senator John McCain's campaigns declined to comment on the transition, which lasts 77 days. It is widely reported that former Clinton Chief of Staff John Podesta is working with Obama, while former Reagan Navy Secretary John Lehman Jr. is guiding McCain's team.

Presidential transitions are often tumultuous, but this incoming president is facing a host of pressing matters, not the least of which is the global financial crisis. Don't forget, he also must be prepared to address the wars in Iraq and Afghanistan, as well as national security, on Day One of his administration on Jan. 20.

Lining up the cabinet. Traditionally, the president-elect first assembles his key White House appointees, particularly the chief of staff, budget and personnel directors and counsel. The secretaries of State, Treasury and Defense, along with the attorney general, are next in line. The rest of the cabinet is usually in place by Christmas.

This year, however, the Treasury secretary pick is more important than ever. Henry Paulson, the current office holder, is leading the largest federal intervention into the financial sector since the Great Depression. His successor will inherit the effort, which is less than six weeks old and still very much under construction.

Also on the schedule is a global economic summit on Nov. 15 in Washington, D.C. World leaders will look to the incoming president and his economic team -- including the White House Council of Economic Advisers and the National Economic Council -- for guidance on his policy initiatives.

So will the American public, who are waiting to see how the next president addresses critical issues such as the tidal wave of foreclosures and the bailout of the financial system.

Some 71% of people surveyed in a recent USA Today/Gallup poll feel the next president faces more serious or much more serious challenges than any new president in the past 50 years. More than two-thirds feel that stabilizing the economy should be the next president's top priority, compared to 12% who say managing the wars overseas comes first, the poll found.

Experts agree.

"I would expect the Treasury secretary and other economic appointees to be the first priority," said John Burke, professor of political science at the University of Vermont. "The sooner they can announce the key appointments, the better."

Handling the transition. Both campaigns are already working on transition plans. This is the first time nominees can submit names for national security clearance before Election Day. Each camp has already given up to 100 names to the FBI, Kamensky said.

Paulson is briefing the candidates, and the White House has already started working on its transition plans to smooth the way for the next president, experts said.

Past presidents have moved swiftly during their transition periods. Ronald Reagan, for instance, named James Baker his chief of staff shortly after Election Day. Bill Clinton held an economic summit in Little Rock, Ark., and George W. Bush's White House staff met daily before taking office.

Still, the incoming commander-in-chief must remember that he is not yet in office, experts said. While he can name his appointees and discuss his priorities, he can't actually act.

"What can you really do as a president-elect?" asked Martha Joynt Kumar, director of the White House Transition Project, a research group made up of scholars and policy institutions. "It's a really fine line you have to walk because you have to do something but you aren't president."

Stocks hit by recession fears

2008-10-21T18:35:00.001-07:00

Stocks slumped Tuesday as mixed corporate earnings reports gave investors a reason to retreat after the previous session's big rally.

The Dow Jones industrial average (INDU) lost 231 points or 2.5%. The Standard & Poor's 500 (SPX) index lost 3.1% and the Nasdaq composite (COMP) lost 4.1%.

Lending rates continued to improve, helping to reassure investors that the efforts of world governments to try and stabilize financial markets are starting to work. But relief about the credit markets was countered by broader fears about a recession and the health of American corporations.

"The credit market is improving, which is good, but the problem is that everyone is focused right now on earnings as a representation of the economy," said Greg Church, founder and president of Church Capital. "And while there will be exceptions, the overwhelming number of earnings reports won't be positive."

With 21% of S&P 500 companies already having reported results, third-quarter profits are currently on track to have fallen almost 10% from a year ago, according to the latest estimates from Thomson Reuters.

After the close, Yahoo (YHOO, Fortune 500) reported earnings of four cents a share, versus 11 cents a year ago and short of analysts' forecasts for a profit of 9 cents per share. The company also said it will cut at least 10% of its workforce, or around 1,500 people, through the end of the year as a result of the weak economy.

Looking forward, Yahoo warned that 2008 revenue won't meet its earlier forecasts. However, shares gained 7% in extended-hours trading.

Also after the close, Apple (AAPL, Fortune 500) reported fourth-quarter sales and earnings that jumped from a year ago due to strong sales of its new iPhone. Earnings topped forecasts, while sales missed expectations.

Looking forward, Apple forecast fiscal first-quarter sales and earnings that are short of analysts' projections. The company said forecasting the December quarter was a challenge because of the weak economy. Shares gained 4% in extended-hours trading.

The Dow gained 413 points Monday on improved lending rates and comments from Federal Reserve Chairman Ben Bernanke that supported a second fiscal stimulus package. It was the Dow's eighth-biggest one-day point advance ever, but did not spark a follow-up rally Tuesday.

"I think the tone in the stock market has been a little better recently with the credit spreads coming down," said Robert Loest, portfolio manager at Integrity Funds. "But I'm reluctant to get too optimistic because the economy is going to continue to deteriorate both in the U.S. and abroad."

Earnings: Dow component American Express (AXP, Fortune 500) reported weaker quarterly profit after the close of trade Monday. However, the results were better than expected and shares gained 8.4% Tuesday. (Full story)

Four other Dow components reported results Tuesday morning, including 3M (MMM, Fortune 500), which reported higher quarterly sales and earnings that topped estimates. Shares gained 4.8%.

DuPont (DD, Fortune 500) reported a big drop in earnings due to manufacturing disruptions in the wake of Hurricane Ike. The chemical giant also warned that full-year results won't meet forecasts. Shares fell 8%.

Caterpillar (CAT, Fortune 500) reported lower earnings and higher revenue versus a year ago, and shares fell 5%. Pfizer (PFE, Fortune 500) reported higher quarterly earnings that topped estimates. Shares were little changed.

Texas Instruments (TXN, Fortune 500) reported reduced third-quarter profit after the close Monday and forecast fourth-quarter revenue would fall sharply, missing estimates. The chipmaker also said it is looking to sell part of its wireless operations. Shares fell 6.3% Tuesday.

Among other companies releasing results, troubled bank National City (NCC, Fortune 500) reported a bigger-than-expected loss Tuesday and said it was cutting 4,000 jobs. However, investors lifted the shares, which have been battered soundly over the last few months on fears about the firm's solvency. The stock added 3%.

Citigroup (C, Fortune 500) slumped 6% in tune with the broader selloff and also in response to Goldman Sachs' reinstatement of its sell rating on the company.

In other company news, Kirk Kerkorian's Tracinda is dumping 7.3 million shares of Ford Motor (F, Fortune 500) and could end up selling the rest of his 6% stake in the automaker. Ford shares lost 6.9%.

A number of stocks that had led the advance Monday retreated Tuesday, including oil services firms Chevron (CVX, Fortune 500), Exxon Mobil (XOM, Fortune 500), ConocoPhilips (COP, Fortune 500) and BP (BP).

Market breadth was negative. On the New York Stock Exchange, decliners topped advancers by over two to one on volume of 1.16 billion shares. On the Nasdaq, losers beat winners by five to two on volume of 2.17 billion shares.

Credit market: Lending rates continued to improve Tuesday, extending the weeklong recovery.

Libor, the overnight bank-to-bank lending rate, fell to 1.28% from 1.51% Monday, according to Bloomberg.com. That set the rate below the Fed's benchmark lending rate of 1.5%, a good sign for the credit market. Libor hit a record 6.88% earlier this month at the height of the market panic.

The 3-month Libor rate, which banks charge each other to borrow for three months, fell to 3.83% from 4.06% late Monday.

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 2.63% from 2.97% late Monday. The spread hit a record 4.65% earlier this month. The narrower the spread, the more willing banks are to lend to each other.

The improvement in bank lending over the last week is critical and analysts say it must continue to improve in the months ahead. Credit froze up in the wake of the housing market collapse, the subprime lending fallout and contraction in the bank sector.

The lack of available credit has punished the already weak economy, making it hard for businesses to function on a daily basis and for consumers to get loans.

The Federal Reserve and banks around the world have made potentially trillions of dollars available to lending institutions. On Tuesday, the Fed said it will start buying commercial paper from money market mutual funds. Commercial paper is a short-term funding source that companies need for daily operations.

Treasury prices rallied, lowering the yield on the 10-year note to 3.70% from 3.84% late Monday. 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 to 1.19% from 1.05% late Monday as investors began to pull money out of the safer investment and put it back in stocks.

Last week, the 3-month fell to below 0.2%. Last month, it reached a 68-year low around 0% as investor panic hit its peak.

Other markets: In global trade, Asian markets ended higher and European markets ended lower.

U.S. light crude oil for November delivery fell $3.36 to settle at $70.89 a barrel on the New York Mercantile Exchange after hitting a 13-month low last week.

Oil prices have been slowing since crude peaked at an all-time high of $147.27 a barrel on July 11. But the decline has been a mix of speculators leaving the market and investors betting that a slowing global economy means weaker oil demand. As a result, the falling oil prices haven't helped stock investor sentiment much.

Gasoline prices fell another 3.4 cents overnight, to a national average of $2.889 a gallon, according to a survey of credit-card activity by motorist group AAA. It was the 34th consecutive day that prices have decreased - in the past month alone, they're down more than 93 cents a gallon.

COMEX gold for December delivery fell $22 to $768 an ounce.

In currency trading, the dollar rose against the euro and yen.