States lock in highway stimulus funds

Every state has committed at least half its highway stimulus funds so none will lose any of its allocation, the Obama administration said Thursday.

States had until June 29 to obligate the funds or risk losing half the leftover money. Only a month ago, some 14 states had yet to satisfy that goal. Hawaii was the last to meet the mark, hitting it on June 19.

Maine has secured 100% of its funds and 15 states have more than 80% of their money committed.

"By delivering on these projects ahead of schedule and under-budget, we have been able to do even more than we expected," said Vice President Joe Biden.

The Federal Highway Administration has approved a total of $15.8 billion for more than 4,800 projects, as of June 25. States, however, have spent less than $190 million, as of June 19, according to federal data.

To commit the funds, states had to gain approval for their projects from the Federal Highway Administration, an agency of the Department of Transportation. The money doesn't actually have to be spent, which can take months as projects go through the contracting and construction process.

Some states -- Florida, Georgia, Hawaii, Arizona, Virginia and New Mexico -- have yet to claim any funds. Illinois has spent the most, claiming more than $47.6 million of the $664 million allocated so far.
0:00 /3:00States' budget bummers

Republicans in Congress said they were concerned by the slow pace of spending.

"This is pitiful that we can't get people working, we can't get the stimulus money out," said Rep. John Mica, (R-Fla.), the top Republican on the House Committee on Transportation and Infrastructure. "People want jobs and they want them now."

The administration did not report how many jobs have been created or saved thanks to the infrastructure funding. The issue has become a source of controversy, with Republicans on Capitol Hill questioning the the recovery act's effectiveness in stemming the unemployment tidal wave.

States are sharing $26.6 billion for highway infrastructure projects, though only $18.6 billion is subject to the June deadline. The road allocations are among the earliest of the $280 billion in funds going to states and municipalities as part of the $787 billion recovery act.

Including transit and airport construction, the federal Department of Transportation is making $48.1 billion available, of which $19 billion has already been committed to more than 5,300 projects, according to the administration. Currently, more than 1,900 projects are underway.

A total of $369 million has been spent, Mica said. Only $11 million has flowed to the 10 states with the highest unemployment rates, he said.

Stocks try to rise

Stocks edged higher Tuesday afternoon on news that 10 of the banks that received government loans will be allowed to give the money back, adding to bets that the worst of the financial crisis is over.

The Dow Jones industrial average (INDU) was barely changed 3 hours into the session. The S&P 500 (SPX) index added 3 points, or 0.3%.

The Nasdaq composite (COMP) added 16 points, or 0.9%, with technology shares rising after chipmaker Texas Instruments (TXN, Fortune 500) boosted its quarterly sales and earnings outlook late Monday.

Stocks have been on the rise since early March, with the Dow having risen more than 32%, the S&P 39% and the Nasdaq 46%, as of Monday's close.

The gains have been sparked by a series of not-as-bad-as-expected economic reports.

After such a run, it's not surprising to see markets drifting a bit, said Steven Goldman, market strategist at Weeden & Co. Overall, the trend should remain up, he said.

"The market has had a nice run of around 40%, and so a pullback is to be expected," he said. "But overall, I think stocks will continue to find buyers on pullbacks and the trend will remain up."

He said that historically, stocks tend to gain six months ahead of the end of a recession and for the first three months after a recession is over. Using data that goes back to 1901, he found that the S&P was always higher in the three months after a recession ended.

Banks: The U.S. government said Tuesday morning that 10 banks that received TARP loans last fall can repay a total of $68 billion to the government.

The news shows that the fear of an implosion has subsided and that the risk factor in financial markets has diminished, Goldman said.

Morgan Stanley (MS, Fortune 500), American Express (AXP, Fortune 500), JPMorgan Chase (JPM, Fortune 500), Goldman Sachs (GS, Fortune 500), Bank of New York Mellon (BK, Fortune 500), BB&T (BBT, Fortune 500), Capital One (COF, Fortune 500), Northern Trust (NTRS, Fortune 500), State Street (STT, Fortune 500) and US Bancorp (USB, Fortune 500) have confirmed that they are allowed to repay loans.

But banks that were stress-tested earlier this year should undergo another round of tests, a U.S. watchdog group said Tuesday.

The Congressional Oversight Panel said that recent signs that the recession could be worsening show the tests did not go far enough. In particular, the group pointed to the May employment report, which showed a slower pace of job losses but also that the unemployment rate rose to a 26-year high of 9.4%.

Chrysler: The Supreme Court delayed the sale of Chrysler's assets to Italian automaker Fiat, in a late-Monday move that threw a wrench into the automaker's plans for a quick exit from bankruptcy.

Under terms of the agreement, Fiat can ditch the deal if it is not finished by June 15. However, the company said Tuesday that it won't walk away from Chrysler.

Economy: Wholesale inventories fell 1.4% in April, the Census Bureau reported, after falling 1.8% in the previous month. Economists surveyed by Briefing.com expected a decline of 1.1%, on average.
0:00 /5:11Getting tough on Treasury

Bonds: Treasury prices inched higher, lowering the yield on the benchmark 10-year note yield to 3.85% from 3.82% late Monday. Treasury bond prices and yields move in opposite directions.

The Treasury is set to auction $65 billion this week, including 3-year and 10-year notes. It will also reopen 30-year bonds.

The recent rise in the 2-year note has raised concerns that the Federal Reserve will need to lift interest rates again before the end of the year, something stock investors don't like.

And the spike in the 10-year has caused worries that it may stunt a burgeoning recovery, as the longer-term bond yields are tied to mortgage rates. Higher mortgage rates could dissuade home buyers at a time when the housing market is just starting to stabilize in some areas.

Other markets: In global trading, Asian markets ended lower and European markets were mixed in late trading.

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

U.S. light crude oil for July delivery rose $1.05 to $68.14 a barrel on the New York Mercantile Exchange.

COMEX gold for August delivery rose $5.50 to $958 an ounce.

GM moves step closer to bankruptcy

General Motors said Wednesday that it has fallen far short of the bondholder support it needed for its proposed debt-for-stock offer, virtually guaranteeing that the nation's largest automaker will be forced to file for bankruptcy court protection within the next five days.

The bondholders were not satisfied with the prospect of owning only 10% of the company when the U.S. government would own nearly 70% and a union-controlled trust fund up to 20%.

The bondholders own $27 billion in corporate notes. GM (GM, Fortune 500) needed owners of 90% of those bonds to accept stock in return for the debt in order to reduce its interest expenses to a more manageable level.

But GM's announcement said that bondholders who took the company's offer were "substantially less than the amount required."

The company owes the bondholders $1 billion in interest payments on June 1 - money it says it does not have.

The company also faces a June 1 deadline to win concessions from its union, creditors and other parties or be forced into bankruptcy by the U.S. Treasury Department, which is funding GM's operations through direct federal help.

"The GM board of directors will be meeting to discuss GM's next steps in light of the expiration of the exchange offers," said the company's statement.

In another sign that a bankruptcy filing could come as soon as Friday, GM moved up the pay date for its U.S. employees this week.

Hourly employees represented by the United Auto Workers union were paid Wednesday, and salaried employees will be paid Thursday, said GM spokesman Chris Lee. Both normally would have been paid Friday.

"Obviously there's a lot of anxiety as we approach the June 1 deadline," said Lee. "We just moved the payroll up as a way to reassure our employees that payroll will continue regardless of what takes place next week."

GM had previously announced that it would make about $2 billion in payments due to suppliers on Thursday, rather than waiting for the normally scheduled payment on June 2. If the company files for bankruptcy, it would need court approval to make payments to employees and suppliers.

Lee said the early payroll payments should not be taken as an indication that the filing would come on Friday.
What next for bondholders?

The ad hoc committee of major bondholders had no immediate comment on the vote. The group, which includes major pension funds and mutual funds that own large blocks of the bonds, had proposed the bondholders as a group receive 58% of the stock in GM, rather than the 10% being offered.

The major bondholders have also said they want to continue negotiating with Treasury's auto industry task force overseeing the federal bailout of GM and Chrysler LLC.

A source with knowledge of GM's restructuring discussions said Treasury is willing to hold negotiations up until June 1.

"We've said consistently that we were happy to talk to any stakeholder any time about anything," the source said. "Recently there have been far more constructive and orderly conversations."
0:00 /02:53Remove GM from the Dow

But the source added that Treasury believed the offer made to GM creditors, which would give them 225 shares of GM stock for every $1,000 they are owed, is fair and equitable, and that it is not likely to be substantially increased. The 225 shares would be worth $324 based on Tuesday's closing price, although the value of these shares could be significantly less after a reorganization.

However, if GM does go into bankruptcy, the source said that Treasury believes the bondholders would likely get even less than what was offered.

"In any kind of liquidation scenario, they would get nothing or something unbelievably small," said the source.

It is estimated that about 20% of the $27 billion in debt, between $5 billion and $6 billion, is held by individual investors who bought the bonds for the steady revenue stream they provided. Most of the bonds pay better than 7% interest, and those that were purchased at a discount since GM debt was downgraded to junk bond status in 2005 pay an even better return.

GM stock does not pay any dividend and will not do so for the foreseeable future. Stock is also a riskier investment than bonds because stockholders are certain to be wiped out if there is a bankruptcy filing, while bondholders can hope that they will recover some of their investment in court.

But rating agency Standard & Poor's estimates that the bondholders, whose debt is not secured by specific company assets, will get between 0% and 10% of their investment back in bankruptcy court.

The stock being offered bondholders would be equal to only about 10% of the company. GM's stated plan is for the government and a union-controlled trust fund to own 89% of the company between them.

The UAW disclosed to its local presidents Tuesday that it has agreed to accept 17.5% of GM's common stock to cover future retiree health care costs, as well as warrants for an additional 2.5% that give the trust fund the right to buy shares at a very low price.

Previously, many had expected the union to control nearly 40% of GM shares, rather than 20%. But the source familiar with the restructuring discussions said the lower stake for the UAW does not open the way for bondholders to get a larger stake in GM.

The source said the Canadian government will own a small percentage of GM, as it does of Chrysler. The source added that a Treasury stake well above 50% is fair given that the government has provided GM with $19.4 billion in help so far and will likely give the company tens of billions of dollars more to fund its operations during bankruptcy.

General Motors' U.S. operations are not the only ones experiencing trouble. The company is looking to sell a majority stake in its money-losing European business, which operates under the Opel and Vauxhall brands.

On Wednesday, GM spun off those brands - including plants, sales organizations and patents - into a new company. GM said the move will allow the German government to place those assets into a trusteeship and provide its own bailout to continue operations until a sale can be finalized.

Economy to resume growth this year

The economy will start growing in the second half of 2009, but it will be several years before the positive effects of a turnaround will be felt, the Congressional Budget Office said Thursday.

"Even if the economy returns to positive growth this year, the loss in output, income and employment during the recession and the next few years will be huge," said Douglas Elmendorf, director of the CBO, in testimony before the House Budget Committee.

The CBO is updating its economic forecasts and will release new estimates in August. Elmendorf expects the new numbers will be less optimistic than the estimates the agency released in March.

"CBO's forecast in August is likely to show even larger shortfalls in output over the next few years," he said.

The agency is expecting that the unemployment rate will continue to rise into the second half of next year and will peak at 10.5%. In March, CBO forecast unemployment would peak in the first half of next year at 9.5%.

The $787 billion economic stimulus package enacted in February is helping to boost GDP this year and, to a lesser extent, will do so in 2010 as well. Thereafter, economic growth will be hindered if private demand does not pick up, he told lawmakers.

And even if private demand picks up, "it still takes a long time to catch up with the weak growth last year and this year," Elmendorf said.

Elmendorf was asked to lay out what he saw as potential risks going forward. "The number of sandpits we see ahead would scare a good golfer," he said.

Among them is the exposure of small- and medium-sized banks to the fortunes of commercial real estate.

"The fundamentals in the market are very weak," Elmendorf said. He said current price declines of between 35% and 45% exceed those of the early 1990s, when commercial property collapsed. Meanwhile, delinquency rates are up.

With estimates of commercial real estate losses totaling more than $200 billion, that could exceed the revenue small and mid-size banks take in, thereby reducing their capital.
As goes Britain?

This week, Standard & Poor's lowered its ratings outlook to negative for the United Kingdom, in great part due to its growing debt levels.

House Budget Committee Ranking Member Paul Ryan, R-Wisc., asked Elmendorf to assess whether the United States is likely to suffer the same fate.

The U.S. government and others around the world flood the debt markets with government issues. That, in turn, can cause interest rates to rise as investors start to demand greater reward for the risk they're taking.

"Certainly in the next several years, there's likely to be significant upward pressure on interest rates," Elmendorf said. But any increase "is likely to be delayed until the economy comes out of its [downturn]."

CBO projects that, under the current congressional budget resolution for fiscal year 2010, the debt held by the public could rise to more than 60% of GDP over the next 5 years. Under the president's budget proposals, it could rise more than 80% over the next 10 years.

"This is a grim outlook for the federal budget," Elmendorf said. "At some point investors may decide the United States is not the safest haven. [But there's great] uncertainty when sentiment will turn." If it does, it could turn more quickly than expected, he noted.

GM falls to 76-year low as execs sell stock

General Motors Corp. stock plunged more than 22% to a 76-year low Tuesday, a day after a group of GM executives disclosed they had sold shares in the struggling automaker.

Six GM executives, led by former GM Vice Chairman and product chief Bob Lutz, disclosed Monday that they sold almost $315,000 in stock and liquidated their remaining direct holdings in the automaker.

The stock sale underscores the extreme pressure on GM with less than three weeks remaining for the embattled automaker to win deals to slash debt and operating costs with its major union and bondholders to avoid bankruptcy.

GM (GM, Fortune 500) is headed for either a bankruptcy filing or an out-of-court restructuring that would wipe out current stockholders by flooding the market with new shares to pay off creditors.
0:00 /00:49GM CEO: Bankruptcy is an option

The automaker's stock could be worthless in a bankruptcy or worth less than 2 cents apiece if it proceeds with plans to issue shares to creditors led by the U.S. Treasury Department, the company has said.

"It's a lose-lose situation as far as we see it, and the shares kind of seem to have been doing a levitating magic trick and just staying up there in the $1.50 to $2.00 range," Standard & Poor's equity analyst Efraim Levy said.
0:00 /2:09GM brands, jobs junkyard-bound

"Given that there is a two-week deadline coming there should be additional downside pressure," Levy said.

The automaker has historically been one of the powerhouses in the best-known measurement of U.S. stocks, the Dow Jones Industrial Average. It has been on the index for 83 consecutive years and despite the dramatic fall in the price of its shares, Dow has still kept the stock as part of the index.

GM's market capitalization as of Tuesday was about $690 million, making it one of the smaller Dow members.

The company has lost $88 billion since its turnaround efforts began in 2005 under former Chief Executive Rick Wagoner.

The automaker's shares were down 21% or 30 cents, at $1.14 on the New York Stock Exchange. The stock had fallen to as low as $1.09 earlier in the day, the lowest since 1933.

GM was first listed on the Dow in 1915. Journal editors removed it - as they did more frequently back then - adding it again in 1925, and it has remained ever since. Only General Electric Co. (GE, Fortune 500), which joined in 1907, has been there longer.

Stocks flip-flop in early trade

Stocks were mixed Tuesday as investors were cautious after the previous session's big run and ahead of comments from Federal Reserve Chairman Ben Bernanke.

The Dow Jones industrial average (INDU) added a few points in the early going. The S&P 500 (SPX) index was barely changed. The Nasdaq composite (COMP) fell 6 points, or 0.4%.

U.S. stocks climbed Monday, buoyed by optimism about the economic recovery. The Nasdaq rose to a six-month peak while the Dow and S&P 500 reached their highest levels in almost four months.

"It's going to take a powerful catalyst to [continue to] move us forward," said Art Hogan, chief market strategist at Jefferies & Co.

Economy: Federal Reserve Chairman Ben Bernanke is due to give his outlook on the economy to the Joint Economic Committee.

A reading on the services sector of the economy from the Institute for Supply Management, a purchasing managers' group, is also due out.

Banks: The financial sector will remain in focus as investors await the release of the results of the U.S. government's stress tests on banks, which are due out Thursday.

At least 10 of the 19 big banks under review -- including Bank of America (BAC, Fortune 500) and Citigroup (C, Fortune 500) -- may need to boost their capital, according to a report in The Wall Street Journal. The number of reported banks that may need to boost their capital requirements has been fluctuating in the runup to the release of the results.

Companies: Swiss bank UBS (UBS) reported a $1.76 billion quarterly loss and said it remains cautious about the outlook because the global economy has continued to worsen.

Dow component Kraft Foods (KFT, Fortune 500) reported higher quarterly earnings that topped estimates. But revenue fell as the stronger U.S. dollar hurt sales overseas. Kraft shares rallied 6% Tuesday morning.

Fellow Dow component Walt Disney (DIS, Fortune 500) was expected to release results after the closing bell.

New Chrysler auto incentives coming

With bankruptcy threatening to further weigh down the carmaker's sales, Chrysler is expected to announce a new incentive program Tuesday.

Chrysler's "Employee Pricing Plus Plus," program ended just days after the carmaker declared Chapter 11 bankruptcy. That program combined cash rebates with price reductions and cut-rate financing for qualified customers.

The new sales program is expected to rely heavily on giving dealers cash incentives, which means that customers will see big price reductions at the dealership, said Jessica Caldwell, an industry analyst with the automotive Website Edmunds.com.

Dealer incentives give auto dealers extra cash that can, in turn, be used to offset price reductions negotiated with customers. Dealer cash incentives are more subtle than straight cash rebates, so they aren't as damaging to a car brand's image and they don't reduce resale value of cars the way more straightforward customer rebates do.

But incentive money for dealers will likely be paired with limited customer rebates as well, Caldwell said. The carmaker announced in a conference call on Friday that the incentive plan would include some "loyalty" incentives for returning Chrysler, Dodge and Jeep buyers.

Chrysler has been the biggest spender among all auto manufacturers on incentives in the U.S. market. Last month, Chrysler spent $4,288 per vehicle on incentives.
0:00 /2:06Chrysler then and now

The next highest spender was General Motors, which is also undergoing a government-driven restructuring and may declare bankruptcy later this month. GM spent $4,063 per sale.

Despite the incentive spending, Chrysler sales were down 48% last month compared to April, 2008. Reduced fleet sales were a big part of the drop, the carmaker said.

Chrysler will probably not follow the lead of GM (GM, Fortune 500) and Ford (F, Fortune 500) by offering payment protection to buyers who might lose their jobs, Chrysler vice president of sales Steve Landry said in the Friday call. Those sorts of incentives didn't seem to be working well for other automakers, he said.

Media reports have drawn conflicting pictures of the bankruptcy announcement's impact on sales with some dealers reporting empty showrooms over the weekend and others higher-than-normal customer traffic.
12 cars that made Chrysler

Not everyone sees bankruptcy as a disaster for Chrysler sales. Some customers are optimistic, focusing more on the possibility of a Fiat deal and on the fact that Chrysler isn't going out of business, said Scott Painter, chief executive of Zag.com, an automotive buying service provider, and Truecar.com, an auto pricing Website.

Interest in Chrysler, Dodge and Jeep products has actually gone up, he said.

Chrysler rolled out a new print advertising campaign over the weekend aimed at reassuring customers that the carmaker will not be going away anytime soon.

Over the tagline "Come see what we're building for you," the ad describes Chrysler's planned relationship with Fiat and points out that the carmaker's warranties are now backed by the federal government.