Monday, March 30, 2009

Second home sales slide

Sales of vacation and investment homes in the United States slipped to 30% of all transactions of existing and new homes in 2008, the National Association of Realtors said on Monday.

However, more than four out of 10 investment buyers and more than three in 10 vacation-home buyers paid cash for their properties, with large percentages indicating that portfolio diversification was a factor in their purchase decision, the NAR said in a report.

The market share of homes purchased for investment was 21% last year, unchanged from 2007, while another 9% were vacation homes, compared with a 12% market share in 2007, the NAR said.
0:00 /1:41Reassess property taxes

The total share of second homes declined from 33% of all transactions in 2007, while in 2005, the peak year for home speculation, 40% of sales were second homes, the NAR said.

Friday, March 27, 2009

Down day for stocks at end of up week

Wall Street tumbled Friday at the end of an otherwise upbeat week, stretching the market rally to three straight weeks, for the best run in a year.

The Dow Jones industrial average (INDU) fell 148 points, or 1.9%. The S&P 500 (SPX) index lost 17 points, or 2%. The Nasdaq composite (COMP) lost 42 points, or 2.6%.

All three major gauges rallied more than 20% in just three weeks, but Wall Street pled exhaustion Friday as investors stepped back.

Still, early week gains were enough to boost the weekly tally. The market gauges have now posted gains for three consecutive weeks, the best stretch since May of last year.

While the run could have another 10% to go, it's likely to peter out after that, said Dean Barber, president at Barber Financial Group.

"I think there is momentum here in the short run, but this is the classic bear market rally and investors need to be careful not to fall into the classic bear-market trap," Barber said.

He said that the advance has been based on hope that the recession will soon end because a lot of money has been thrown at the financial sector and the economy. However, fundamentally, the economy remains in bad shape, as do the state of corporate profits.

Financial and technology shares, which led the advance on Thursday, led the retreat on Friday. But declines were broad based and 24 of 30 Dow stocks fell.

President Obama met Friday with executives from JPMorgan Chase (JPM, Fortune 500), Citigroup (C, Fortune 500), Bank of America (BAC, Fortune 500) and other large banks to discuss the financial crisis.

The bankers gave their approval of Treasury's plan to strip bad assets off bank balance sheets. They also discussed the Obama administration's recent proposal to overhaul the financial regulation system.

On the downside, executives at JPMorgan and BofA said that March business conditions weakened after a more encouraging start to the year.

Upbeat comments about the first two months of the year from a number of executives at the nation's largest banks helped fuel the recent advance.

Rapid rally: Since falling to more than 12-year lows on March 9, the Dow has gained 18.8% and the S&P 500 had gained 20.6% as of Friday's close. Also on March 9, the Nasdaq touched a more than six-year low. Since then, it has gained 21.8%.

Better-than-forecast economic reports on housing and durable goods orders this week have added to hopes that the economy is closer to turning around. Investors have also responded well to the latest plans from the government to stabilize the financial system.

On Thursday, Treasury Secretary Tim Geithner outlined a huge overhaul of the regulatory system. On Monday, he detailed plans to purge bank balance sheets of up to $1 trillion in bad debt that is limiting lending.

Economic news: Personal income fell 0.2% in February after rising 0.2% in January. Economists surveyed by thought it would fall 0.1%. Personal spending rose 0.2% in February after rising 1% in January. Economists thought it would rise 0.2%.

The University of Michigan consumer sentiment index rose to 57.3 in March from 56.3 in February, versus economists' forecasts for a reading of 56.8.

Company news: Google (GOOG, Fortune 500) said late Thursday that it was cutting just under 200 sales and marketing positions worldwide. It is the second round of layoffs in Google history.

General Motors (GM, Fortune 500) shares gained on published reports that the government could extend the automaker's restructuring deadline, giving it more time to gain concessions from unions and qualify for more taxpayer help.

The Wall Street Journal said that the government could extend the March 31 deadline by 30 days. On Thursday, GM said that 12% of its U.S. workforce has taken its latest buyout offer. However, the company is still looking to work with the union to alter retiree health care benefits, among other things.

Market breadth was negative. On the New York Stock Exchange, losers beat winners three to one on volume of 1.44 billion shares. On the Nasdaq, decliners topped advancers by almost three to one on volume of 2.12 billion shares.

Bonds: Treasury prices fell, raising the yield on the benchmark 10-year note to 2.76% from 2.73% Thursday. Treasury prices and yields move in opposite directions.

Lending rates declined. The 3-month Libor rate fell to 1.22% from 1.23% Thursday, according to The overnight Libor rate fell to 0.28% from 0.29%. Libor is a bank-to-bank lending rate.
0:00 /02:39Life in the pits

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

In currency trading, the dollar gained against the euro and fell against the yen.

U.S. light crude oil for May delivery fell $1.96 to settle at $52.38 a barrel on the New York Mercantile Exchange.

COMEX gold for June delivery fell $16.90 to settle at $925.30 an ounce.

Don't run with the bulls quite yet

All of a sudden, it's a bull market. The Dow Jones Industrial Index has risen by 21% since March 9, just crossing the traditional 20% threshold that some chart-watchers use to separate a mere rally from the real thing, But this three-week old may not live to a ripe age.

The previous Dow (INDU) rally started after the November 2008 rescue of Citigroup (C, Fortune 500), lasted until the New Year and came a mere 0.8 percentage points short of qualifying as a bull market - before yielding to a 28% rout. The current recovery has largely been a vote of confidence in a subsequent U.S. banking system rescue, along with massive government help.

Will this upward market movement prove more durable than the last? Mathematically, it has the advantage of starting from a much lower base. From Thursday's close, the Dow will have to rise a further 14% just to match the 2009 high, hit on January 2.

The economic case is less clear. True, after the nationalization of financial risk through guarantees and money-printing, panic over a possible imminent financial sector collapse looks overdone. And while GDP in the first quarter of 2009 looks to have been substantially lower than in the fourth quarter of 2008, the pace of decline seems to have slowed.

But the global downward economic momentum remains strong. The International Monetary Fund doesn't expect growth to return until "the course of 2010". While waiting, profits are going to be slaughtered.

Profits at non-financial U.S. corporations fell by 9% in 2008. In severe recessions, the average drop is more like 25%, according to BNP Paribas. Globally, the rate at which analysts are cutting their earnings forecasts - a fairly accurate indicator of current profit, according to Société Générale - suggests a 40% decline for quoted companies this year. That suggests investors are paying 20 times current earnings for stocks.

The bull market will only last if it can trample over a thicket of terrible earnings announcements. That is a lot to ask from investors who have not yet fully recovered from a too-long series of financial shocks.

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Art dealer arrested in $88 million fraud

A Manhattan art dealer was arrested Thursday on an indictment charging that he stole $88 million from clients and investors, including tennis champion John McEnroe, authorities said.

Lawrence B. Salander, 59, owner of the now-defunct Salander-O'Reilly Galleries, was indicted on multiple charges, including grand larceny, securities fraud, forgery, criminal possession of a forged instrument, falsifying business records and perjury.

He defrauded 26 victims, Manhattan District Attorney Robert Morgenthau said in a statement.

"Salander stole from his victims in two primary ways: He sold artwork not owned by him and kept the money, and lured investment money in fraudulent investment opportunities," Morgenthau said.

In other cases, Salander inflated the estimated cost of artwork, oversold shares in works, claimed to own works he did not, and misrepresented or failed to pay the full return on sales when money came in, authorities said.

In one instance, to secure a $2 million personal loan from Bank of America, Salander offered pieces owned by others, including McEnroe, as security by providing phony documents to establish that he and his wife owned the art, Morgenthau said.

Salander's lawyer Charles Ross told CNN affiliate NY - One that his client is trying to raise money for bail, which was set at $1 million.

"He has been aware that there is an investigation for quite some time and he has prepared for this day," Ross told NY - One. "And as I said, he entered a not-guilty plea and we're gonna fight the charges."

The scheme funded a lifestyle that included trips to Europe by private jet, and the purchase of a Manhattan townhouse and a 66-acre estate in upstate New York, officials said.

Salander's indictment points to dealings dating to 1994. If convicted, he would face up to 25 years in prison for grand larceny and additional time for other charges.

Salander-O'Reilly Galleries went bankrupt in 2007 after more than 30 years of operation.

Thursday, March 26, 2009

Jobless claims top 5.5 million

The number of people filing initial claims for unemployment benefits rose last week, while those filing continuing claims hit an all-time high for the ninth straight week, according to a government report released Thursday.

In the week ended March 21, a total of 652,000 people filed initial jobless claims, up 8,000 from the previous week's revised figure of 644,000, the Labor Department reported.

Economists had expected new claims to rise to 650,000, according to a survey by

The number of people continuing to file for jobless benefits rose 122,000 to 5,560,000 people in the week ended March 11 - the latest week for which data was available. It was the highest number since the government began keeping records in 1967.

Continuing claims have hit record highs as more unemployed Americans struggle to find work. But the 4-week moving average of initial claims, which economists say gives a more accurate indication of unemployment trends, came down for the first time in 10 weeks.

The 4-week moving average for weekly filings, which smoothes out volatile peaks and troughs, was 649,000, down 1,000 from the previous week's revised average.
0:00 /2:17Unemployed banker's journey

Still, the unemployment rate stands at 8.1% - the highest level in 25 years - and many economists expect it to exceed 10% later this year.

"The trend in claims is still upwards, though the rate of increase might be slowing," wrote Ian Shepherdson, chief U.S. economist at High Frequency Economics, in a research note.

Thursday's jobs data come amid a recent bout of better-than-expected economic reports on housing, manufacturing and other critical areas. These early sings of improvement have helped boost stock prices in recent sessions, but many economists remain skeptical about the prospects for a long-term economic recovery.

"There is no sign of recovery here," Shepherdson said. "And claims are usually one of the very first numbers to turn."

Wednesday, March 25, 2009

Oil ends lower

Oil prices remained lower but recovered some losses Wednesday after positive economic data and the Treasury Department's bad-bank plan outweighed a mixed inventory report.

Crude prices settled down $1.21, or more than 2.2%, to $52.77 Tuesday. Oil traded almost 4% lower just prior to the report's release.

The Energy Information Administration said oil supplies soared by 3.3 million barrels in the week ended March 20.

Analysts were expecting an increase of 1.4 million barrels, according to a consensus estimate from Platts, an energy information provider. Crude supplies are above average for this time of year.

Surprisingly strong economic data released Tuesday helped oil prices recover losses, said Phil Flynn, an analyst at Alaron Trading. Durable goods orders jumped 3.4% after tumbling the previous month, and new home sales rose almost 5%.
Market cheers government action

On Monday, the Treasury Department unveiled its "Public-Private Investment Program," in which taxpayer money will be used to seed partnerships with private investors that will buy up toxic assets of banks' balance sheets.

Major actions from the government have weakened the greenback, which push crude prices higher because oil is priced in U.S. dollars across the world.

"Inflationary action is happening right in front of our eyes, and it's changed the rules of the game," Flynn said. "For now, this is what's affecting the market - not supply and demand anymore."

Crude investors are optimistic about the Fed and Treasury actions, as well as the economic stimulus package, Flynn said.

"In the short term, the market is focused on future of what may be and not what is," he said.

The EIA report said stockpiles of gasoline fell by 1.1 million barrels, while analysts were looking for a decrease of 900,000 barrels. U.S. refineries are running at just 82% of capacity, down slightly from the previous week, the report said.

The national average price for a gallon of regular unleaded gasoline increased to $1.986, up 2 cents from the previous day, according to motorist group AAA.

The EIA report also said distillates, which are used to make heating oil and diesel fuel, decreased by 1.6 million barrels. Analysts expected a fall of 200,000 barrels.
Bullish outlook

"At some point supply and demand will matter again, but the Fed is going to control the markets for the short-term," Flynn said.

Oil prices will likely move toward $60 a barrel, he added.

"I was bearish on oil, thinking it would bottom at $25," Flynn said. "But now that the Fed has devalued the dollar, $45 is the new $25."

Wall Street manages gains

Stocks gained Wednesday, mustering up a late-session rally after a choppy session that helped push the S&P 500's two-week gains to 20%.

The Dow Jones industrial average (INDU) rose 90 points, or 1.2%. The S&P 500 (SPX) index rose 7 points, or 0.9%. The Nasdaq composite (COMP) rose 12 points, or 0.8%.

Stocks spiked in the morning on better-than-expected readings on new home sales and durable goods orders, but the advance sputtered out through most of the afternoon. A late-session jump in financial stocks and tech shares helped markets finish higher.

Joseph Saluzzi, co-head of equity trading at Themis Trading, said that the market is having trouble as it is bumping up against some key resistance levels around 820 or 825. He said that the perception of a weak 5-year Treasury auction was also having an impact Wednesday.

Stocks have bounced 20% since March 9th, when the Dow and S&P 500 hit roughly 12-year lows.

Equities have been rallying on optimism that the economy and financial markets are getting closer to stabilizing. In addition, many stocks have been hammered so heavily as to make them attractive to investors again.

But that advance has been losing steam, particularly after Monday's spike of roughly 7% for the major stock gauges, said Christopher Colarik, portfolio manager at Glendmede.

"There's meaning behind the rally,and I do think we've seen the lows, but the bottoming process is going to take time," he said.

Thursday preview: The House Financial Services Committee holds a hearing on regulatory reform, with Treasury Secretary Tim Geithner due to testify.

Economic reports include readings on weekly jobless claims and gross domestic product growth.

The number of Americans filing new claims for unemployment is expected to have risen to 650,000 from 646,000 the previous week, economists estimate. Continuing claims, a measure of people who have been receiving unemployment for a week or more, will also be in focus. Last week, continuing claims hit an all-time high of 5.473 million.

Fourth-quarter GDP is expected to have shrunk by a 6.6% annual rate versus the previous reading of a 6.2% rate. The 6.2% rate was a 26-year low.

Best Buy (BBY, Fortune 500) and homebuilder Lennar (LEN, Fortune 500) report quarterly results before the start of trading.

Bank focus: Stocks overall followed financials, with the broad market retreating in the afternoon along with bank stocks and recharging in the late afternoon as the sector found its footing.

"We're again being led by the financials," Themis Trading's Saluzzi said. "If they break down, the market breaks down."

Bank of America (BAC, Fortune 500), JPMorgan Chase (JPM, Fortune 500) and Wells Fargo (WFC, Fortune 500) ended higher after a shaky afternoon. Citigroup (C, Fortune 500) cut some losses. The KBW Bank (BKX) sector index rose 5%, erasing a drop of over 5%.

Market breadth was positive. On the New York Stock Exchange, winners beat losers seven to three on volume of 1.77 billion shares. On the Nasdaq, advancers topped decliners by over two to one on volume of 2.5 billion shares.

Economy: A pair of better-than-expected economic reports added to optimism that the economy is getting closer to stabilizing.

February new home sales rose at an annual unit rate of 337,000 versus a revised 322,000 in the previous month. Sales were expected to rise at a 300,000 unit annual rate, according to a consensus of forecasts from

An earlier report showed that durable goods orders rose 3.4% in February after falling 5.2% in the previous month. Economists surveyed by thought orders would fall 2.5%.

Durable goods orders excluding transportation rose 3.9% after falling 5.9% in January. Economists thought they would fall 2%.

Also, a report from the UCLA Anderson School of Management showed that real domestic product growth is on track to see quarterly growth in 2010 and 2011, although not in 2009.

Washington: On Tuesday, Federal Reserve Chairman Ben Bernanke and Secretary Geithner testified about the government's $180 billion bailout of American International Group. They said AIG (AIG, Fortune 500) demonstrates the need for the government to have broader power over non-bank financial institutions.

Geithner again made his case for broader powers to regulate flailing companies on Wednesday. In a speech in New York, the Treasury Secretary said that the country should never again have to provide a massive bailout or risk seeing a collapse of the financial system.

President Obama, in a primetime news conference Tuesday, said that it is because of a lack of authority that the AIG situation has gotten worse. Obama also defended his $3.6 trillion 2010 federal budget, which he said is "inseparable" from the overall strategy for economic recovery.

Congressional committees began debating the budget Wednesday, with a final budget not expected until at least next fall.

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.
0:00 /02:39Life in the pits

Bonds: Treasury prices tumbled, raising the yield on the benchmark 10-year note to 2.79% from 2.70% Tuesday. 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 Monday, while the overnight Libor rate held steady at 0.29%, according to Libor is a bank-to-bank lending rate.

Last week, the Federal Reserve announced it was pumping another trillion into the economy to try to get credit flowing, including $300 billion to buy long-term Treasurys. The N.Y. Fed Bank began buying the securities Wednesday.

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

In currency trading, the dollar fell against the euro and the yen, recovering from bigger morning losses following comments from Treasury Secretary Geithner.

U.S. light crude oil for May delivery fell $1.21 to settle at $52.77 a barrel.

COMEX gold for May delivery rose $12 to settle at $936.70 an ounce.


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Friday, March 20, 2009

Bernanke defends big bank bailouts

Federal Reserve Chairman Ben Bernanke responded to ongoing criticism of the government's efforts to keep alive institutions it has deemed "too big to fail," saying that this is an "enormous problem" that needs to be addressed.

Speaking before a group of community bankers in Phoenix, the central bank chief argued that actions taken thus far to prop up the nation's largest banks have been extremely unpleasant, but necessary to preventing further harm across financial markets and the broader economy.

"I do not think we have had a realistic alternative to preventing such failures," he said.

Many smaller community banks avoided making too many subprime mortgages and also did not own the types of toxic securities backed by these loans that have plagued big banks.

These smaller banks, along with taxpayers, have become increasingly frustrated by the government's stance that major financial institutions like Citigroup (C, Fortune 500), Bank of America (BAC, Fortune 500) and American International Group (AIG, Fortune 500) continue to require billions of dollars in government support because they have been viewed as too big and important to the broader economy to fail.
0:00 /02:30Fed's trillion dollar gamble

Those remarks were echoed by Sheila Bair, chairman of the Federal Deposit Insurance Corp., who addressed the same industry group Friday.

In her prepared comments, Bair reiterated comments she made before the Senate Banking Committee Thursday, adding that ending the "too to big to fail" issue required a number of new tools including a systemic risk regulator and a program that would help resolve problems at a large financial institution, similar to how the FDIC handles other banks that fail.

"I hope Congress acts soon," she said. "Nobody wants to go through another banking crisis like this one."

Bair also reiterated previously made remarks that she expected bank failures to cost about $65 billion over the next five years. The FDIC recently moved to raise assessments fees charged to banks to fund the industry's deposit insurance fund, which is used to cover deposits when a bank fails.

She also repeated an earlier assertion that without "additional revenue beyond the regular assessments, current projections indicate that the fund balance will approach zero."

With that in mind, Senate Banking Committee Chairman Chris Dodd, D-Conn. and Sen. Mike Crapo, R-Idaho have already proposed a bill that would allow the FDIC to borrow up to $500 billion from the government to shore up the fund.

But even though many big banks face significant challenges, Bernanke and Bair urged the community bankers in attendance Friday to keep lending.

Local lenders have become a key source of credit at a time when large banks and other finance firms outside the reach of regulatory agencies have withdrawn massive amounts of credit from the nation's financial system.

Community banks, which typically have $1 billion in assets or less, logged a 1.5% increase in outstanding loans as of the end of the fourth quarter. The largest institutions, with assets of more than $100 billion, suffered a 3.4% decline.

By continuing to make prudent loans, not only will community banks help the U.S. economy recover, but they also stand to benefit from the new business, according to the two regulatory chiefs.

"Community bankers are vitally important to our country and our economy," said Bair.
Hectic week in Washington

Friday's comments by Bernanke and Bair cap what has been a particularly busy week for the Fed chief and other regulators.

On Wednesday, Bernanke and fellow members of the Fed's Federal Open Market Committee, which sets interest rates, unveiled plans to purchase massive amounts of government debt over the next six months to help keep long-term rates low and get credit flowing again.

In a televised interview with 60 Minutes last Sunday, Bernanke said that a "depression" can be avoided, but he acknowledged that a full economic recovery will take time and that the financial system must be fixed in order for the recession to end.

Next week, Bernanke is slated to testify before Congress about the government's extensive efforts to rescue AIG and the controversy over the insurer's decision to pay $165 million in bonuses. Treasury Secretary Timothy Geithner will also appear at that hearing.

Thursday, March 19, 2009

Auto parts makers get $5B bailout

The Treasury Department announced a $5 billion program to help embattled U.S. auto parts makers, the latest attempt to stabilize problems in the nation's troubled auto sector.

The program will insure that parts suppliers get the money owed to them for their products, no matter what happens to their automaker customers. Concerns about whether General Motors (GM, Fortune 500) or Chrysler LLC could be forced into bankruptcy are making it difficult for the parts makers to get loans they need to operate.
0:00 /1:14Will automakers deliver?

The program also allows the parts makers to sell their receivables, or the money owed to them by the automakers, into the program at a modest discount. This is expected to provide them with desperately needed funding and help unlock credit more broadly in the supplier industry.

The $5 billion is coming from the Troubled Asset Relief Program, the fund set up to bailout banks and financial institutions.

A member of the Obama administration's auto industry task force, who spoke to reporters on the condition that his name not be used, said the decision to help suppliers should not be taken as a sign that the task force has made a decision on further support for GM and Chrysler.

GM and Chrysler have already received $17.4 billion in loans and they are asking for up to $21.6 billion more in loans.

The auto task force has until March 31 to determine if the two companies' turnaround plans will allow them to be viable in the future and whether they should get additional funds. The task force member said some announcement would be made by the group before the March 31 deadline.

But the task force member said it was important to put the program to help suppliers in place first because of the risk that they could run out of cash and have to stop operations before there is a decision on the help for GM and Chrysler.

"Unlike GM and Chrysler, they have yet to receive any help at all from the government, even though they are suffering from some of the same problems," said the task force member. "As we've been doing our work, it became clear to us that addressing this particular problem is of great urgency."

Only suppliers identified by the major U.S. automakers will be eligible to participate in the program. GM and Chrysler have agreed to participate in order to get help for their suppliers.

Ford Motor (F, Fortune 500), which has yet to receive a bailout from the federal government, will not participate in the program. If it were to do so, it would have to issue the government warrants for stock in the company and agree to some limitations on pay and restructuring plans. Still, the company said in a statement it supported the program.

"These actions support all automakers that are reliant on a healthy U.S. supply chain," Ford said in the statement. "Ford does not need to participate in the program as we remain viable and expect no issues with continued payment to our suppliers."

The task force member admitted this provision gives GM and Chrysler life-and-death power over their key suppliers, but he said they realistically already have that leverage. He added that it would be impossible for the government to sort through which suppliers are critical and which could be allowed to fail.

"There unfortunately will continue to be failures in the supply base," he said. "This program does not solve fundamental revenue or profitability issues."
Suppliers still have financial problems

Suppliers employ more U.S. workers between them - about 500,000 -- than the three major U.S. automakers do directly. And with job losses continuing to batter the overall U.S. economy, Treasury Secretary Tim Geithner said this was a program that needed to be put in place.

"The Supplier Support Program will help stabilize a critical component of the American auto industry during the difficult period of restructuring that lies ahead," he said in a statement.

The Original Equipment Suppliers Association, a trade group, for the industry praised the new program. The group had asked for up to $18.5 billion in federal help, but Ann Wilson, the group's senior vice president for government affairs, said this was an important stopgap.

"This plan comes at a critical time for suppliers," she said.

GM praised the program in a statement. Chrysler did not have any immediate comment.

When GM and Chrysler shut down much of their production in January due to excess inventory of cars caused by weak sales, it caused a cash crisis for the parts makers who depended on the flow of payments from the automakers.

Widespread bankruptcies were expected in the sector in the coming weeks without government help. Shares of Visteon (VSTN), the major supplier for Ford Motor (F, Fortune 500), fell to a price of below 10 cents this month on reports it was nearly out of cash.

In addition, auditors for American Axle (AXL) have said there is doubt about its ability to stay in business in the current environment. Shares of American Axle soared 43% following Thursday's announcement from the Treasury, while Visteon shares jumped 75% in over the counter trading. The stock still only trades for 28 cents though.

Other parts maker stocks surged as well. Shares of Lear (LEA, Fortune 500) gained 77%, while TRW Automotive (TRW, Fortune 500) gained 30% and ArvinMeritor (ARM, Fortune 500) rose 25%.

Wilson agreed with the auto task force member that the program won't be enough to stop some suppliers from going bankrupt, due to the severe production cutbacks announced by virtually all automakers with U.S. assembly plants.

"This is not going to staunch all the bleeding. There's no doubt about that," she said. "Any plan the government came up with could not address all those concerns."


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Wednesday, March 18, 2009

Oil falls $2 as gasoline supply jumps

Oil prices fell further Wednesday after a government report said supplies of gasoline soared unexpectedly.

At 11:50 a.m. ET, crude prices were down $2.13, or 4.3%, to $47.03 a barrel. Oil traded down $1.07 just prior to the report's release.

In its weekly inventory report, the Energy Information Administration said stockpiles of gasoline increased by 3.2 million barrels in the week ended March 13.

Analysts were expecting an decrease of 2.1 million barrels, according to a consensus estimate compiled by Platts, an energy information provider.

"These continued increases show the supply-demand balance is tight, which points toward risk for further deterioration in the market," said Chris Lafakis, economist at Moody's

Crude supplies increased by 2 million barrels, matching estimates. The EIA report also said distillates, which are used to make heating oil and diesel fuel, rose by 100,000 barrels. Analysts expected supplies to rise 400,000 barrels.

The sluggish global economy has hammered consumer demand for oil, which in turn has caused a glut in supply.

Amid layoffs, pay cuts and general uncertainty about the future of the economy, consumers have scaled back their use of energy. Oil prices have plummeted from a record high of $147.27 a barrel last summer.

OPEC: In response to growing stockpiles, the Organization of Petroleum Exporting Countries - whose members produce about 40% of the world's crude - has been pressured to put a floor under prices.

At an OPEC meeting March 15, the group agreed to reduce supply by a further 800,000 barrels a day to complete promised supply cuts.

Saudi Arabia, the largest oil exporter in the world, doesn't need to cut production more in order to account for other OPEC nations, Oil Minister Ali al-Naimi said in an interview in Vienna.

Member countries Iran and Nigeria are overproducing by 50%, Lafakis said.

"Saudi Arabia has cut more than it was asked to," he said, "They're picking up the slack, and they won't want to institute more cuts without more compliance from these cheating nations."

Lafakis said he didn't expect OPEC to institute more production cuts between now and its next meeting in May. Only "material events" - not a mere continuation of the sluggish economy - could spark cuts, he said.

Gasoline: The national average price for a gallon of regular unleaded gasoline increased to $1.92, up 1 cent from the previous day, according to motorist group AAA.

Fed rate decision: The Federal Reserve's Open Market Committee will end a two-day meeting in which policy makers will decide how to stimulate the economy.

The Fed could keep the benchmark interest rate as low as 0%. The group is scheduled to issue a statement at 2:15 p.m. ET.

With the benchmark rate already at a record-low range of 0-0.25%, traders will instead look to the statement for hints on the economic outlook and announcements of additional efforts to boost the financial system.

"More than any other meeting in recent history, this one's baked into the cake already," Lafakis said. "The market always looks at the Fed, but this time they're not expecting too much."

Outlook: Oil prices will likely rise to $56 a barrel by year's end, Lafakis said

"The economy could get worse, but if it does, OPEC will come in with more cuts," he said. "Member countries have shown they can stop inventory from rising if they are focused on it."

Crude prices will probably bottom around $40 a barrel, with a possible decline to $35 - but nothing like the lows of December and January, Lafakis said.

In the long-term, Lafakis said he expects oil prices to rise to $85 in 2011 and decline back to $70 in 2014.

Sunday, March 15, 2009

Bernanke: Recovery to begin next year

Federal Reserve Chairman Ben Bernanke said on Sunday that government officials are laying the groundwork for an economic revival and that a "depression" can be avoided - acknowledging however that a full recovery will take time and that there are still obstacles.

"We're working on it. And I do think that we will get it stabilized, and we'll see the recession coming to an end probably this year. We'll see recovery beginning next year. And it will pick up steam over time," Bernanke said in a rare public interview airing on "60 Minutes," according to a transcript released by CBS.

When asked about the risks of a "new American depression," Bernanke responded, "I think we've averted that risk. I think we've gotten past that."

Key to a full recovery, said Bernanke, is stabilization of the banking system -- an argument the Fed chairman has made repeatedly.

Bernanke also defended government actions taken thus far, as well as the decision last fall to let Wall Street firm Lehman Brothers fail while at the same time stepping in to save insurance giant American International Group.

Bernanke said the Fed did not have powers to save Lehman because the firm did not have sufficient assets to post as collateral. In contrast, AIG (AIG, Fortune 500) has vast insurance operations that it can sell off to repay government loans.

AIG has since received $170 billion in bailout funds, in part to cover its obligations to banks worldwide. These banks had taken out insurance from AIG against the default of risky bonds. AIG collected hefty premiums from those contracts, but did not have sufficient reserves to pay out claims.

Though Bernanke said he understands public outrage over using taxpayer dollars to prop up AIG, which made "unconscionable bets," he thinks the government had little choice.

"At that period, I felt we were pretty close to a global financial meltdown," Bernanke said.

Bernanke indicated that similar decisions may be necessary with other big financial institutions, which are now undergoing "stress tests" to evaluate their ability to withstand extreme financial shocks.

He made clear he would seek to avoid massive bank failures - but not that he would seek to prop up sick banks indefinitely.

"They are not going to fail. But what we can do, should it be necessary, is try to wind it down in a safe way. So, for example, in the case of AIG, we've prevented a bankruptcy, because of the chaos that would create. But we're also demanding that AIG divest itself, sell off its - subsidiaries, and use the proceeds to pay back the government."

Bernanke, from a modest background in Dillon, S.C., said his chief aim in focusing on the financial sector is to ultimately help the economy at large. "I've never been on Wall Street. And I care about Wall Street for one reason and one reason only - because what happens on Wall Street matters to Main Street."

Meanwhile, Bernanke indicated some government efforts are already paying off, seen in lower mortgage rates, stable money-market funds and more business lending.

The interview comes at a fragile time for the U.S. economy. Though the U.S. stock market soared 10% in the past week and several economic readings showed some firming, there still is no shortage of anxiety.

At issue: It is still unclear how the financial sector bailout strategy will address the problems caused by mortgages weighing down bank balance sheets. There is also concern about the nation's debt burden because of the $787 billion economic stimulus package enacted last month and other federal spending programs. And job losses and foreclosures continue to mount.

Still, Bernanke sought to look past these immediate problems. "I just have every confidence that as we get through this crisis, that our economy will begin to grow again, and it will remain the most powerful and dynamic economy in the world."

Help is coming for small businesses

President Barack Obama and Treasury Secretary Tim Geithner on Monday will announce administration plans to make lending to small businesses more attractive, two senior administration officials confirmed.

Many small businesses, drowning from dried up coffers and unpaid bills, are having a tough time getting loans from lenders.

Christina Romer, who heads the Council of Economic Advisers, said Sunday the government would pump "a significant amount" of money into boosting small business lending, but she did not reveal a total figure.

"We know that small businesses are the engine of growth in the economy, and we absolutely want to do things to help them," Romer said on NBC's "Meet the Press."

The senior administration officials said the administration's plan deals with two programs handled by the Small Business Administration.

The first one, the "7(a) program," allows small businesses to get loans of up to $2 million backed by the federal government through the SBA. Currently, the government guarantees up to 85 percent of loans below $150,000, and up to 75 percent of larger loans. Under the administration's plan, the government will temporarily increase the loan guarantee to 90 percent as an incentive to banks to lend.

The administration believes this increase will reduce the risk lenders face when they make loans to borrowers who cannot find credit elsewhere, and ultimately give the banks more confidence to sell and make more loans, the officials said.

The second program, the "504 program," guarantees up to $4 million worth of economic development projects for small businesses. Starting Monday, the administration will temporarily eliminate fees for lenders and borrowers on any new 504 applications. The aim is to reduce the costs to both borrowers and lenders participating in the program, the officials said.

The administration will also temporarily eliminate the up-front fees for 7(a) loans that banks charge borrowers. These fees go up to 3.75 percent for larger loans. The administration believes this will decrease the cost of borrowing for small businesses and make it easier for them to get the credit they need to make new investments, the officials said.

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Monday, March 9, 2009

For Dow, another 12-year low

Stocks tumbled Monday, with the Dow and S&P 500 ending at fresh 12-year lows, as Merck's $41 billion purchase of Schering-Plough failed to distract investors from worries about the economy.

The Dow Jones industrial average (INDU) lost 80 points, or 1.2%, to end at 6,547.05, its lowest point since April 15, 1997.

The S&P 500 (SPX) index lost nearly 7 points or 1%, to end at 676.53, its lowest point since Sept. 12, 1996.

The Nasdaq composite (COMP) lost 25 points or 2%, to end at 1,268.64, its lowest point since Oct. 9, 2002.

"We're seeing more of the same," said John Buckingham, chief investment officer at Al Frank Asset Management. "With an absence of good news, the path of least resistance is down."

Yet, with the Dow and S&P 500 both down over 25% year to date, and investor sentiment at or near record lows, a short, sharp rally could be in the works, he said.

"To the extent that you get some piece of good news, you could see a big rally," Buckingham said. "But right now every rally attempt is being met with selling."

Since closing at its all-time high of 14,164.53 on Oct. 9, 2007, the Dow has lost nearly 54%. The S&P 500, which also hit its high of 1565.15 on Oct. 9 has lost around 57%.

"Valuations are reasonably attractive outside of financials, but most investors are in defensive mode," said Thomas Nyheim, portfolio manager at Christiana Bank & Trust Company. "They've seen too many losses and are sitting on the sidelines."

Nyheim said stocks aren't likely to make a bigger move up until later in the year. In the short term, investors will be keeping an eye on the fluctuations in the credit markets, and the weekly and monthly employment figures.

Stocks mustered gains Friday - at the end of a rough week - with the Dow and S&P 500 bouncing off 12-year lows following a bleak February jobs report.

On Tuesday morning, Federal Reserve Chairman Ben Bernanke speaks at the Council on Foreign Relations in Washington, D.C. about financial reforms to handle risk in the economy.

In addition, the government will release a report on January wholesale inventories.

Drugmaker Merger: Dow component Merck (MRK, Fortune 500) said it's buying Schering-Plough (SGP, Fortune 500) in a $41.1 billion cash-and-stock deal that is aimed at helping the company better compete with pharmaceutical industry leader Pfizer. Merck shares slipped 7.7% and Schering shares rallied over 14%.

Banks: A variety of bank shares bounced back, with Bank of America (BAC, Fortune 500) leading the way, rising over 19%. Other gainers included Wells Fargo (WFC, Fortune 500) and US Bancorp (DEL). The KBW Bank (BKX) index added 5.3%.

Over the weekend, reports in Fortune and other publications named some of the companies that benefited from the government's multi-billion bailout of insurer American International Group (AIG, Fortune 500).

The counterparties to billions in credit default swaps included U.S. based firm Goldman Sachs (GS, Fortune 500) as well as European firms Deutsche Bank (DB), UBS (UBS) and Société Générale among others.

Other movers: Some of the economically-sensitive stocks that have gotten pummeled lately bounced back, including Dow components Alcoa (AA, Fortune 500), Caterpillar (CAT, Fortune 500), General Motors (GM, Fortune 500) and General Electric (GE, Fortune 500).

GE rallied after it said it was selling bonds guaranteed by the U.S. government.

But other Dow components slumped, including DuPont (DD, Fortune 500), AT&T (T, Fortune 500), Procter & Gamble (PG, Fortune 500), Hewlett-Packard (HPQ, Fortune 500) and IBM (IBM, Fortune 500).

StemCells (STEM) and Geron (GERN), two biotechs that engage in stem cell research, rallied Monday after President Obama reversed a Bush-era policy that limited federal aid for stem cell research.

Market breadth was negative. On the New York Stock Exchange, losers beat winners seven to three on volume of 1.56 billion shares. On the Nasdaq, decliners topped advancers by more than two to one on volume of 2.08 billion shares.

Also in play: Comments from influential investor Warren Buffett that the economy has fallen off a cliff, but that it will recover.

Bonds: Treasury prices rose, lowering the yield on the benchmark 10-year note to 2.91% from 2.87% Friday. Treasury prices and yields move in opposite directions.

Lending rates tightened. The 3-month Libor rate rose to 1.31% from 1.29% Friday, while the overnight Libor rate rose to 0.33% from 0.32% Friday, according to Libor is a bank-to-bank lending rate.

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

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

U.S. light crude oil for April delivery rose $1.55 to settle at $47.07 a barrel on the New York Mercantile Exchange.

COMEX gold for April delivery fell $24.70 to settle at $918 an ounce.

Sunday, March 8, 2009

Next exit: The Bernanke interchange

The exit ramp that Ben Bernanke was looking for Saturday had only a little to do with getting the U.S. economy back on the road to recovery.

The Federal Reserve chairman attended a ceremony naming the Interstate-95 interchange that leads travelers into his hometown of Dillon, S.C.

"I must confess that, until recently, I did not realize that highway interchanges were named after people," Bernanke said in remarks prepared for delivery and released by the Federal Reserve. "But, as I thought about it, I realized that it is indeed a high honor for someone whose job is focused on supporting the economy."

"Efficient transportation is crucial to economic development," he added.

The Fed chairman's comments were primarily a review of his years in Dillon, working at odd jobs such as construction and waiting tables at the South of the Border attraction that's the town's main claim to fame.

Bernanke's words are usually scrutinized for indications of his thinking on the economy. But the only relevant remark came after he mentioned another young person from Dillon, Ty'Sheoma Bethea, whose "We are not quitters" letter to President Obama - concerning the poor physical condition of her school - earned her a mention in his speech to Congress last month.

"Well, neither are the American people, despite the economic challenges we now confront," said Bernanke, echoing the girl's comment. "For our part, at the Federal Reserve, we will continue to forcefully deploy all the tools at our disposal as long as necessary to support the restoration of financial stability and the resumption of healthy economic growth."

Bernanke goes back to work in the coming week, speaking Tuesday in Washington on reforms to address financial system risk. The week after, he'll chair the Fed's policy-making body, which has kept interest rates near 0% in an effort to restart liquidity in the financial markets.

Thursday, March 5, 2009

11% of mortgages are troubled

More than 11% of all American homeowners who hold a mortgage are either delinquent or in foreclosure, according to an industry report released Thursday.

The percentage of mortgage borrowers at least one month behind in their payments - but not in foreclosure - rose to nearly 8% during the fourth quarter of 2008, according to the National Delinquency Report from the Mortgage Brokers Association (MBA). That is the highest rate of delinquency ever recorded by the survey, which began in 1972, and reflects a record 13% jump compared to the third quarter.

"Subprime ARM loans and prime ARM loans, which include Alt-A and pay-option ARMs, continue to dominate the delinquency numbers," Jay Brinkman, chief economist for the MBA, said in a prepared statement. "Nationwide, 48% of subprime ARMs were at least one payment past due, and in Florida over 60% of subprime ARMs were at least one payment past due."

The number of homes in the foreclosure process rose to 3.3%, an increase of 0.33 percentage points from the quarter before and up 1.26 percentage points from a year earlier. That represents nearly 1.5 million homes at risk of sliding all the way through foreclosure.

Combined, the number of frequencies and loans in foreclosure came to 11.18%, the highest ever recorded by the MBA.
Delaying tactics

And even though the number of loans entering into the foreclosure process remained steady, the number of loans stuck there was particularly high, according to Brinkman.

"This is mainly attributable to various state and local moratoria on foreclosure sales, the Fannie Mae and Freddie Mac halt on foreclosure sales announced in late November, a general reluctance by servicers to proceed with evictions in the last few weeks of December and a slowing down caused by an overburdened legal process in some areas," he said.

Because of the moratoria, the number of loans very far past due, 90 days or more, jumped sharply to 3% from 2.2% a quarter earlier. In the past, many of those loans would have been cleared out of the system by lenders completing the foreclosure process.

Even though delinquencies are still driven by problems with non-traditional mortgage loans, Brinkman said more fundamental, historic causes of foreclosure are also making an impact.

"The delinquency rates continue to climb across the board for prime fixed-rate and subprime fixed-rate loans - loans whose performance is driven by the loss of jobs or income rather than changes in payments," he said.

Five states - California, Nevada, Arizona, Florida and Michigan - once again dominated delinquency statistics during the quarter, but the number of loans 90 days late or more also increased significantly in New York, Louisiana, Texas, Georgia and Mississippi.

Tuesday, March 3, 2009

$700M for small business in Obama's budget

The Small Business Administration is still waiting for a detailed budget and breakdown of its financial priorities for the next fiscal year, but the budget overview President Barack Obama released last week earmarks around $700 million to support the agency in 2010, enough for it to back $28 billion in loans to small businesses.

The money allocated in the 2010 fiscal budget comes on top of the $730 million in funding the SBA received from the stimulus bill, which will support emergency lending initiatives through September 2010.

Though a detailed budget proposal won't be available for several weeks, the $700 million Obama's budget recommends to fund the agency would be enough to sustain the SBA's existing lending and educational programs, and to advance administrative priorities like improving the agency's loan accounting and other IT systems.

"[The budget] is comparatively more than most of the recent years," said SBA spokesman Mike Stamler.

The SBA's budget fluctuates drastically from year to year thanks to the agency's disaster-lending program, which directly makes loans to businesses and homeowners affected by disasters like fires, floods and hurricanes. In years with significant disasters, such as 2005's Hurricane Katrina, the SBA's total budget spikes into the billions.

But the agency's core budget, to fund its administrative programs and its flagship lending initiatives, has been whittled away over the past decade. Programs that once received subsidies, such as the SBA's 7(a) and 504 programs that guarantee a portion of bank loans made to qualifying small companies, are now generally expected to support themselves through the fees they charge participants.

Small business advocate Nydia M. Velázquez, chairwoman of the House Committee on Small Business, offered mild criticism of the proposed funding levels.

"While this [budget] is an important step, more needs to be done," she said in a statement. "Just as the SBA's programs were not created overnight, we cannot expect that they will be revitalized overnight. Still, I know President Obama shares my commitment to our nation's small businesses and I will work with the administration to ensure that SBA has sufficient resources to perform its mission."

Obama's proposed budget supports up to $17.5 billion in loan guarantees through the SBA's 7(a) program, as part of the $28 billion in small business loans from banks that the SBA is authorized to insure.

That's a higher loan volume than the SBA has backed in any other year this decade. Last year, the SBA backed $12.8 billion in loans through the program, a 12% drop from 2007's total. Reduced demand from entrepreneurs and banks' reluctance to issue small business loans, even with the SBA's guarantees, have contributed to the decline.

Ford's sales plunge 48%

Ford Motor reported Tuesday that sales fell 48% in February, kicking off a series of reports expected to show that last month was the worst yet for the auto industry during this recession.

Ford sold 96,044 cars and light trucks in the U.S. during the month, a bit better than the January sales total.

The weak demand was broadbased -- sales of virtually every model Ford had on the market a year ago fell more than 10%.

Sales forecaster had estimated that Ford's sales would be down 50% from year-earlier levels, roughly in line with the declines expected at General Motors (GM, Fortune 500) and Chrysler LLC, which will report later in the day.

But Ford (F, Fortune 500) and its U.S. rivals aren't the only automakers expected to be hit by the current downturn.

Edmunds forecasts declines of more than 33% at Japanese automakers Toyota Motor (TM), Honda Motor (HMC) and Nissan (NSANY). Overall industrywide sales are forecast to fall at least 40% to a seasonally adjusted annual rate of between 9.1 million to 9.3 million.

That would be the worst sales rate since December 1981. The sales rate was 9.5 million in January.

"The economic and competitive environment remains challenging," said Ken Czubay, Ford's vice president of sales and marketing, in a statement.

Ford also announced it is cutting production in North America during the second quarter by 38% to keep supply in line with the reduced demand.

The lower outlook for industrywide sales has prompted GM and Chrysler, which have received $17.4 billion in federal loans between them, to ask for another $21.6 billion in federal assistance to see them through the downturn.

Ford, which went into the current crisis with a better cash position, has thus far not asked for federal loans. But it has requested a $9 billion line of credit in case sales don't improve soon.

Monday, March 2, 2009

Construction spending at four-year low

U.S. construction spending dropped in January to its lowest level in more than four years, according to a government report on Monday, dragged down by the residential slump.

The Commerce Department said spending on construction projects dropped 3.3% to a seasonally adjusted annual rate of $986.2 billion, the lowest since June 2004, after tumbling 2.4% the previous month.

Analysts polled by Reuters were expecting a 1.5% decline in overall construction spending in January. Compared to the same period a year ago, construction spending dived 9.1%.

Private residential spending, at the heart of the U.S. economic contraction, fell 2.9% in January after December's 4.4% drop. Compared to the same period last year, spending was down 28%. The level of spending, at a $291.5 billion rate, was the lowest in more than 10 years.

Spending in the nonresidential private sector on a range of structures from factories, lodging, offices and power plants fell 4.3% in January, versus a 1.2% decline the previous month.

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