General Motors Corp. (NYSE: GM) is doing almost whatever it can to get aggressive in cost cuts and streamlined operations ahead of its first post-bailout review next week. Some of the cuts were...
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U.S. stock market futures traded slightly lower Tuesday as investors awaited details of President Obama's plan to rescue banks and a vote on a stimulus package.
U.S. stock futures trade lower as investors await the details of President Obama’s plan to rescue banks and a vote on a stimulus package, both viewed by the president as key in getting the economy on track.
WASHINGTON (Reuters) - U.S. Treasury Secretary Timothy Geithner will lay out a rescue plan on Tuesday that will rely on public and private funds to take $500 billion of bad assets off banks' books, sources said.
Reuters - U.S. Treasury Secretary Timothy Geithner will lay out a rescue plan on Tuesday that will rely on public and private funds to take $500 billion of bad assets off banks' books, sources said.
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. Source: Business and financial news - CNNMoney.com | 10 Feb 2009 | 1:41 pm
Keith Chegwin remembered for shows such as Swap Shop explains his attitude to investing and describes his best and worst buys. Source: Telegraph Finance | 10 Feb 2009 | 1:34 pm
The dollar got an early boost against most foreign currencies Tuesday before the Obama administration was set to unveil an overhaul of the financial rescue plan and the Senate appeared ready to pass its economic stimulus bill. Source: Business and financial news - CNNMoney.com | 10 Feb 2009 | 1:33 pm
Sovereign wealth fund Temasek Holdings says its portfolio contracted last year as the economic downturn chipped away at the value of its investments. Source: BBC News | Business | World Edition | 10 Feb 2009 | 1:29 pm
ZURICH (Reuters) - UBS posted the biggest annual loss in Swiss history and said it would cut a further 2,000 investment banking jobs as it looks to rebuild its damaged wealth management brand.
The former heads of banks bailed out by the British state amid the credit crunch gave unreserved apologies Tuesday for their conduct, and agreed changes to the bonus system were needed. ... Source: RSS feed - channel BNewsBusiness | 10 Feb 2009 | 1:26 pm
NEW YORK, Feb 10 (Reuters) - BP Plc reported a process upset in an unspecified unit at its 265,000 barrel per day refinery in Carson, California, on Monday, according to a company environmental filing... Source: RSS feed - channel BNewsBusiness | 10 Feb 2009 | 1:25 pm
NEW YORK, Feb 10 (Reuters) - Omnicom Group Inc reported a 14 percent drop in quarterly earnings as advertising spending slumped badly at the end of the year, but its profit and revenue showed more resilience... Source: RSS feed - channel BNewsBusiness | 10 Feb 2009 | 1:22 pm
Feb 10 (Reuters) - Cubist Pharmaceuticals Inc said it got a letter from Teva Parenteral Medicines Inc notifying it had filed with U.S. health regulators for approval to market a copy-cat version of Cubist's... Source: RSS feed - channel BNewsBusiness | 10 Feb 2009 | 1:20 pm
NEW YORK, Feb 10 (Reuters) - Qwest Communications International Inc posted a smaller quarterly profit but beat Wall Street expectations as the telephone company saved money from cutting 1,700 jobs in... Source: RSS feed - channel BNewsBusiness | 10 Feb 2009 | 1:18 pm
LONDON (Reuters) - Oil rose toward $41 a barrel on Tuesday, lifted by expectations that the approval of an $800 billion-plus stimulus package by the U.S. government would boost demand for oil in the world's largest energy consumer.
South Korea's Daewoo Logistics says it may delay its giant plan to plant corn in Madagascar following the recent violence in the African nation. Source: BBC News | Business | World Edition | 10 Feb 2009 | 1:07 pm
NEW YORK, Feb. 10 /PRNewswire-USNewswire/ -- MetLife Foundation today announced grants to five food banks. The grants, which total $250,000, will help the food banks respond to... Source: RSS feed - channel BNewsBusiness | 10 Feb 2009 | 1:05 pm
ADLIE, Va., Feb. 10 /PRNewswire/ -- The vetting process for new politicians can be an excruciating affair. However, details get missed now and then. In his new book, "Next... Source: RSS feed - channel BNewsBusiness | 10 Feb 2009 | 1:05 pm
* Share price down by 0.12 pct on Tuesday (Updates with '09 net profit forecast, details, background) Source: RSS feed - channel BNewsBusiness | 10 Feb 2009 | 1:03 pm
WILMERDING, Pa., Feb. 10 /PRNewswire-FirstCall/ -- Wabtec Corporation (NYSE: WAB) said its MotivePower subsidiary has been awarded an option order to build an additional 20... Source: RSS feed - channel BNewsBusiness | 10 Feb 2009 | 1:02 pm
European Union finance ministers agreed Tuesday to coordinate the way they could tackle toxic assets on banks' balance sheets that have frozen lending and aggravated the recession. They... Source: RSS feed - channel BNewsBusiness | 10 Feb 2009 | 1:01 pm
Cable & Wireless (C&W) said today that it had laid off 600 people from
Thus, the smaller rival it acquired, to achieve cost savings of £7 million. Source: Latest Business News from Times Online | 10 Feb 2009 | 1:00 pm
NEW YORK (Reuters) - Stock futures signaled a lower opening on Tuesday as investors worried that the Obama administration's plans to shore up the financial sector and stimulate the economy may not be enough to ease the worst financial crisis since the 1930s.
AP - Wall Street pointed toward a lower opening Tuesday ahead of the government's unveiling of a revamped bank rescue plan and the expected Senate approval of a massive economic stimulus package.
Reuters - Stock futures signaled a lower opening on Tuesday as investors worried that the Obama administration's plans to shore up the financial sector and stimulate the economy may not be enough to ease the worst financial crisis since the 1930s.
Reuters - Stock futures signaled a lower opening on Tuesday as investors worried that the Obama administration's plans to shore up the financial sector and stimulate the economy may not be enough to ease the worst financial crisis since the 1930s.
Reuters - UBS posted the biggest annual loss in Swiss history and said it would cut a further 2,000 investment banking jobs as it looks to rebuild its damaged wealth management brand.
UBS reported the biggest corporate loss in Swiss history but ruled out a sale of its troubled investment banking business despite growing trading losses Source: Financial Times - US homepage | 10 Feb 2009 | 12:48 pm
UBS Posts $6.9B Quarter Loss (NYT)
We've seen a lot of posturing in the past couple of weeks out of UBS: the pre-announcement on behalf of the government; that they're not going to close their Investment Banking arm. It appears the effort was well justified:
"UBS, the Swiss banking giant that sought help from the nation's central bank last year, said Tuesday it lost 8.1 billion Swiss francs, or $6.9 billion, in the fourth quarter as it continued to write down the value of some debt assets and wealth management clients withdrew funds.
The loss, which was bigger than some analysts expected, compares with a not-gain of 13 billion francs in the fourth quarter of 2007 and a profit in the third quarter of last year."
This Morning Is A Game Of Sit And Wait (Reuters)
The full details are set to be dropped at 11:00 ET, but the MM outlets are calling for a $500B mix of public and private capital to pull the assets of the books of the banks. You have to look at this with skepticism: there needs to be a very real consideration that funds aren't going to seek to aid the President in his recovery plan, though I admit that the psychological impact of having the two forces united in this goal would be a strong indicator of resolve going forward.
"U.S. Treasury Secretary Timothy Geithner will lay out a bank-rescue plan on Tuesday that will rely on public and private funds to take $500 billion of bad assets off banks' books, sources said.
The plan would also extend a Federal Reserve program aimed at shoring up consumer lending to the troubled mortgage sector, allowing the U.S. central bank to extend up to $1 trillion in loans to holders of a wide variety of asset-backed securities, according to sources."
Kevin Bacon Lands New HBO Film (AP)
We were all worried when Mr. Hollywood lost his ass in the Madoff run; it's good to see he's back at the table making some money:
"The 50-year-old actor was in town for the D.C. premiere of his new HBO film "Taking Chance," at the Motion Picture Association of America. The film premieres Feb. 21 on HBO.
Shares listed in London’s top index pared some of February’s gains on Tuesday as energy stocks skidded and mineral extractors traded lower as investors await news on U.S. plans to shore up its banking sector and economy.
NEW YORK (Reuters) - Pepsi Bottling Group Inc reported better-than-expected quarterly results on Tuesday, helped by cost-cutting and productivity improvements.
These are some of the top pre-market analyst downgrades and negative research calls we have seen from Wall Street with more than two hours to open this Tuesday morning:
Capstone Turbine (CPST) Cut to...
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Twitter could start to charge companies a 'membership fee' for using the microblogging service to connect with their customers according to cofounder Biz Stone. Source: Telegraph Finance | 10 Feb 2009 | 12:31 pm
LONDON (Reuters) - MillerCoors, the combined U.S. operations of Molson Coors Brewing Co and SABMiller Plc , said on Tuesday fourth-quarter underlying net income rose 16.5 percent, as it accelerated its cost-savings targets.
These are some of the top pre-market analyst upgrades and positive calls we have seen this Tuesday morning with well over two hours until the market opens:
AXA (AXA) Started as Buy at...
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Fears of increasing protectionism in Europe overshadow EU finance ministers' talks and prompt plans for a special summit. Source: BBC News | Business | World Edition | 10 Feb 2009 | 12:21 pm
WASHINGTON (Reuters) - The recession-bound U.S. economy is still expected to resume growing in the second half of this year, but at an even slower pace than previously thought as consumers spend cautiously, the Blue Chip survey of 52 economists said on Tuesday.
In-depth
report - they're sorry, but are they guilty? | Analysis
- Sam Coates | As
it happened - the hearing in full Source: Latest Business News from Times Online | 10 Feb 2009 | 12:11 pm
European shares fell for the first time in six sessions on Tuesday, with oil producers among the worst performers as investors wait for details of a plan to shore up the U.S. economy and banking system.
European Union finance ministers were struggling to define a common response to the financial crisis and recession, with the atmosphere full of tensions over protectionism, public finances and bank rescue schemes Source: Financial Times - US homepage | 10 Feb 2009 | 12:08 pm
Israelis voted in a tight election race, with right-wing opposition leader Benjamin Netanyahu bidding to oust the centrist party of foreign minister Tzipi Livni Source: Financial Times - US homepage | 10 Feb 2009 | 12:05 pm
Retailer calls in administrators for its lossmaking lifestyle division leaving the future of more than 800 staff in the balance. Source: Telegraph Finance | 10 Feb 2009 | 12:04 pm
PARIS (Reuters) - The auto industry is caught up in a catastrophe that has spread across the globe as even the key emerging markets that manufacturers had banked on for growth have now ground to a halt, a top executive said on Tuesday.
Reuters - The auto industry is caught up in a catastrophe that has spread across the globe as even the key emerging markets that manufacturers had banked on for growth have now ground to a halt, a top executive said on Tuesday.
The world's second largest chipmaker United Microelectronics Corp reports a big quarterly loss as demand for chips falls. Source: BBC News | Business | World Edition | 10 Feb 2009 | 11:46 am
President Barack Obama used his first prime-time news conference to push Congress to approve his administration's economic stimulus plan, saying only the federal government can break the "vicious cycle" now gripping the U.S. economy. Source: Business and financial news - CNNMoney.com | 10 Feb 2009 | 11:43 am
US Treasury Secretary Timothy Geithner is due to announce how he intends to spend the remaining $350bn of the bail-out fund. Source: BBC News | Business | World Edition | 10 Feb 2009 | 11:30 am
The failure of the banking and credit systems are happening faster than most analysts had predicted. RBC Capital yesterday predicted that 1,000 banks could fail in the US over the next two...
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Troubled Swiss banking group UBS said Tuesday that it will cut another 2,200 jobs at its investment banking arm and restructure its wealth management operations as it reported a hefty 8.1 billion Swiss francs ($7 billion) fourth-quarter loss.
AP - World stock markets mostly fell Tuesday as investors awaited a key Senate vote on the U.S. administration's economic stimulus plan and U.S. Treasury Secretary Tim Geithner's bank rescue plan.
The dark clouds over the stock market have presented investors with at least one silver lining: A number of mutual funds that were previously closed to new investors have reopened in recent months. Source: Business and financial news - CNNMoney.com | 10 Feb 2009 | 11:24 am
Question: I've been sticking with my investments in the hopes that the market will recover, but I'm tired of seeing the value of my portfolio continue to drop. Should I just sell everything, put the proceeds into money-market funds and bonds and wait until we see an upturn before getting back in the market? Or should I hang in there with my present portfolio of stocks and mutual funds? Eric Rosenberg, Little River, South Carolina Source: Business and financial news - CNNMoney.com | 10 Feb 2009 | 11:24 am
TOKYO (Reuters) - Aozora Bank warned on Tuesday that its annual net loss would widen to $2.1 billion, and it replaced its chief executive as it aims to forge a less risky strategy focused on commercial lending in Japan.
With trust in banks at its lowest ebb building societies have the advantage - but they need to give savers something. Source: Telegraph Finance | 10 Feb 2009 | 11:23 am
AFP - European stock markets slid Tuesday, reversing recent gains, as cautious investors awaited news from Washington on a major US financial recovery plan and a huge economic stimulus package.
Dear Annie: My company has slashed several thousand jobs in two waves of layoffs, one in December and another about two weeks ago. I manage a department that used to have 41 people in it, and now numbers 28 (not counting me). Thank God I didn't personally have to let anyone go -- my employer's policy is to have HR handle the whole thing -- but we were a fairly tight-knit group, and now I see signs that my staff is demoralized and discouraged. Source: Business and financial news - CNNMoney.com | 10 Feb 2009 | 11:17 am
Three former members of the Monetary Policy Committee have formed a shadow
economic forum to highlight the shortcomings of the Bank of England’s
rate-setting body and present alternative options for policy makers. Source: Latest Business News from Times Online | 10 Feb 2009 | 11:15 am
GM (GM), Ford (F), and Chrysler better pick up the pace of their sales in China. It is about the only place where anyone is buying cars. China car sales slowed a bit in the second half of last year,...
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It has probably occurred to the management at Dow Chemical (DOW) that it can not win a suit brought by Rohm and Haas (ROH) to force Dow to complete its buyout.
The early read on the merger agreement...
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The Russian government denies reports that the country's banks want it to help them restructure $400bn of their foreign debts. Source: BBC News | Business | World Edition | 10 Feb 2009 | 10:58 am
The euro trimmed losses versus the U.S. dollar and Japanese yen Tuesday after a Russian banking group denied a news report that it had asked the Russian government to reschedule as much as $400 billion in debt.
Monetary authorities in China are likely to roll out further reductions in interest rates this year after data released Tuesday showed consumer price- increases eased for the ninth straight month while wholesale inflation dropped 3.3% in January.
The slumping pound did little to help British exports in December, but imports
dropped sharply as the cost of foreign-made goods spiralled and demand
slumped, resulting in the narrowest trade gap for one and half years and
offering a sliver of hope for the economy. Source: Latest Business News from Times Online | 10 Feb 2009 | 10:47 am
The UK's deficit on trade in goods with the rest of the world fell to a one and a half year-low in December, figures show. Source: BBC News | Business | World Edition | 10 Feb 2009 | 10:44 am
It is hard to understand what is happening with the Chinese economy. The central government says that GDP grew almost 7% in the fourth quarter. At the same time, it admits that 20 million migrant...
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JJB Sports, the struggling retailer, today announced plans to call in the
administrators for its loss-making fashion chains, leaving more than 800
jobs under threat. Source: Latest Business News from Times Online | 10 Feb 2009 | 10:38 am
GM (GM) is preparing to go through another round of layoffs. It has hopes, which are probably futile, that it can push out enough people, in addition to getting creditor concessions and supplier...
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How many banks will fail in the US over the next year as the recession deepens? Answering that is like trying to guess whether a poker player will draw an ace on any given hand. Someone may have a...
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China leapfrogs the US to become the world's largest auto market, according to figures from the Chinese state media. Source: BBC News | Business | World Edition | 10 Feb 2009 | 10:31 am
Most of the focus of the recession has been on the US and China. It makes sense to try to examine economic activity in the world’s largest consuming economy and the world’s largest exporting economy...
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Glasgow game developer T-Enterprise has a game out called Credit Crunch Chaos. In it, players try their hands at being Gordon Brown, whose game objective it is to secure £50 notes with a British flag. The UK Telegraph reports:
A survey has revealed that only 28 per cent of business leaders have confidence in the Prime Minister’s ability to lead us out of the economic crisis.
The findings have inspired Glasgow games development company T-Enterprise to launch a new viral game called Credit Crunch Chaos. T-Enterprise’s managing director, Sadia Chishti, said: “Businesses are feeling the effect of the current economic climate and are losing confidence in the Prime Minister.
“This game allows you to take on the role of the Prime Minister and see if you can run the economy any better. As well as giving some light entertainment, it may make people think about how difficult Gordon Brown’s job actually is.”
A survey by ComRes of 200 leading business figures found that just 28 percent were confident of Brown’s ability, down from 42 percent in a similar poll conducted last October.
Sir Fred Goodwin the former boss of RBS and Andy Hornby exchief of HBOS come face to face today with MPs on the Treasury Select Committee led by John McFall. Source: Telegraph Finance | 10 Feb 2009 | 10:01 am
Asian share markets end mixed, with indexes moving in a narrow range as investors awaited a Senate vote on the U.S. stimulus package. Mainland Chinese shares were the best performers of the day.
AFP - London stocks fell in early trade on Tuesday after finishing up the day before as investors awaited the outcome of a massive US stimulus package.
The scale of the downturn in world trade was underlined by figures on Tuesday from airport operator BAA showing a 16pc plunge in cargo moved by air. Source: Telegraph Finance | 10 Feb 2009 | 8:58 am
With the recentlyhumbled banking establishment up for interrogation before MPs this week we take a look at public grillings and grovelling apologies throughout history. Source: Telegraph Finance | 10 Feb 2009 | 8:41 am
The credit crunch drove a 24 per cent fall in the number of longhaul
passengers flying from Gatwick last month and a 6.3 per cent slide in
travellers across all of BAA's airports including Heathrow and Stansted. Source: Latest Business News from Times Online | 10 Feb 2009 | 8:34 am
Australia is a land of droughts, tropical floods and raging bushfires. But the scale of the fires that devastated rural communities in the state of Victoria at the weekend was on a scale never seen before Source: Financial Times - US homepage | 10 Feb 2009 | 8:02 am
The agreement could force the disgraced money manager to pay a fine and return money to investors. The Securities... Source: RSS feed - channel BNPaperBusiness | 10 Feb 2009 | 8:00 am
Pfizer Inc., the world's biggest drug maker, said Monday that it would begin disclosing all sizable payments it makes to doctors, including those who test experimental drugs in people, a first for the... Source: RSS feed - channel BNPaperBusiness | 10 Feb 2009 | 8:00 am
She had been found guilty last year in a separate case of conspiring with insurance salesman James Halstead to bilk investors. ... Source: RSS feed - channel BNPaperBusiness | 10 Feb 2009 | 8:00 am
Major indexes hew close to unchanged. Officials may act today on financial overhaul and stimulus plans. Stocks... Source: RSS feed - channel BNPaperBusiness | 10 Feb 2009 | 8:00 am
The state average rises to $2.215 a gallon, leading increases in most of the country. Nationwide, the average reaches $1.926, up 3.4 cents from a week earlier. ... Source: RSS feed - channel BNPaperBusiness | 10 Feb 2009 | 8:00 am
FCC Commissioner Jonathan S. Adelstein makes a Southern California swing to appeal for help. Federal regulators... Source: RSS feed - channel BNPaperBusiness | 10 Feb 2009 | 8:00 am
Put this in the "Wait, really?" category: Steve Wozniak, the computer programmer who co-founded Apple Inc., Monday was named a contestant on the upcoming season of "Dancing With the Stars." Source: RSS feed - channel BNPaperBusiness | 10 Feb 2009 | 8:00 am
News that Bob Lutz will leave comes right before the carmaker's survival plan is due. If GM is going to reinvent... Source: RSS feed - channel BNPaperBusiness | 10 Feb 2009 | 8:00 am
Text to speech is a highlight of the slimmer, faster Kindle 2, set for release Feb. 24 at a price of $359. The much-coveted first model sold out in November. ... Source: RSS feed - channel BNPaperBusiness | 10 Feb 2009 | 8:00 am
PERTH - The benchmark S&P/ASX200 index was down 19.9 points, or 0.57 per cent, at 3,488.7, while the broader All Ordinaries index shed 17.2 points, or 0.5 per cent, to 3,428.6.
On the Sydney Futures Exchange at 1622 AEDT, the March... Source: New Zealand Herald - Business | 10 Feb 2009 | 7:52 am
Asian stocks fell for a second day led by materials and consumer companies after President Barack Obama said the US economy faces a "fullblown crisis." Source: Telegraph Finance | 10 Feb 2009 | 7:47 am
The New Zealand sharemarket drifted downwards today as Telecom slipped 6 cents and investors bided their time.
The benchmark NZSX-50 index closed at 5pm at 2750.05, down 16.510 points, or 0.6 per cent from 2766.56. There were 34... Source: New Zealand Herald - Business | 10 Feb 2009 | 6:52 am
The New Zealand dollar was today driven by overseas events, a scene likely to continue until the end of the week.
At 5pm the kiwi was worth US53.14 cents, up nearly half a cent from US52.68 at the same time yesterday.
It reached... Source: New Zealand Herald - Business | 10 Feb 2009 | 5:39 am
Inflation at the consumer level in China fell to a 30-month low, giving the central bank plenty of room to cut interest rates further to support the economy and stave off the threat of deflation Source: Financial Times - US homepage | 10 Feb 2009 | 5:15 am
IBM is set to accelerate its push into the emerging cloud computing business with a new cloud computing division whose head will report directly to Sam Palmisano, the company's chief executive officer and chairman Source: Financial Times - US homepage | 10 Feb 2009 | 5:03 am
The first weeks of every year bring a blizzard of travel industry data: fourth-quarter and full-year financial reports, granular traffic stats, analyst pronouncements, and all sorts of statistical minutia.
It's rather dull stuff, frankly, but this year I plowed through it all with a single-minded determination to find the proverbial silver lining to the current collapse of travel. No such luck. The silver linings weren’t just elusive. They were non-existent. See for yourselves:
Things Are Bad All Over If you harbored any lingering hopes that travel's woes were either shallow or segmented, forget it. Travel is in decline across the board.
Forty of the nation's 50 largest airports suffered a downturn in commercial aircraft departures. That's dreadful news considering the most recently released statistics only cover the 12 months ending last June—and the biggest cuts in airline capacity, about 10 percent, didn't come until after Labor Day. Despite that late-in-the-year seat capacity reduction as well as the sharp drop of fuel prices, the fourth quarter was calamitous for the nation's largest airlines. They lost a cumulative $1.5 billion before special charges and extraordinary items like fuel-hedging losses (see below).
Even Amtrak is suffering. It carried 28.7 million passengers in 2008, a record number. In the last three months of the year, however, traffic declined slightly compared to the last three months of 2007 and passenger loads were 5 percent below the railroad's projections.
Worst. January. Ever. The first month of the year is never a good one for travel, but this January will go down as the worst one in recent decades. The nine largest U.S. carriers all saw traffic declines. The slump ranged from modest (2.2 percent at Delta Air Lines) to huge (8.2 percent at Northwest Airlines) to alarming (11.7 percent at American Airlines and 12.4 percent at United Airlines).
The decline of the hotel industry was even more pronounced. For the week that ended January 31, just 48 percent of the nation's estimated 4.5 million hotel rooms were occupied, average daily revenue fell 7.3 percent and the all-important revpar (revenue per available room) tumbled a startling 19 percent. Only one of the nation's top 25 hotel markets—Tampa-St. Petersburg, host of the Super Bowl—was able to register a year-over-year increase in all three categories.
Laid Low Up Front As discussed in last week's column, airlines are disproportionately reliant on revenue from business travelers buying business- and first-class tickets. Unfortunately, that is the part of the airline business unraveling fastest. British Airways, the most carefully watched among international carriers, recorded an eye-popping 13.7 percent drop in premium traffic last month.
"We're seeing a significant degradation in front cabin RASM [revenue per available seat mile] with a combination of lower front cabin yields and [passenger] load factors," added Continental Airlines president Jeff Smisek. "Business travelers appear to have shifted their flying from the front to the back" of the plane. Airlines are also preparing for a permanent reduction of up front flying. United Airlines, for example, says its overall premium-class passenger capacity is being slashed by 20 percent as it completes the installation of new business- and first-class cabins.
Lost in the Hedges Things are so bad in travel that even the good news—plunging oil prices—has a negative effect. The large hub-and-spoke airlines were reluctant to hedge fuel costs as prices rose throughout the decade, then leapt in too late as oil prices surged as high as $147 last year. The result? Huge hedging losses as prices sank as low as $34 in December. Delta Air Lines, for instance, reported a $507 million loss on its hedges in the forth quarter. United Airlines lost $370 million. But even Southwest Airlines, whose fuel-hedging strategy is legendary, was blindsided. It took a $117 million charge in the fourth quarter and has all but abandoned its hedging for the next few years. Like a Virgin The travel industry's biggest publicity hound, Sir Richard Branson, talked about launching a U.S.-based airline for seven years before Virgin America finally made its debut in August, 2007. Then his minions spent almost as time trying to keep the privately held carrier's financial results out of the Department of Transportation’s public files. Now we know why. According to statistics released last week, the airline lost $175.4 million in the first three quarters of 2008 on revenue of just $259.6 million. In the third quarter, Virgin America's unit revenue (8.8 cent per mile) was far below the industry norm and its costs (13 cent per mile) far above the industry average. And it had just $25.4 million in cash. Needless to say, Branson, a British citizen restricted by U.S. law to minority-stakeholder status, is looking for new domestic investors.
Hotel Junk The rapid expansion of the lodging industry this decade was partially fueled by mixed-used developments that stressed residential condominiums and time-share projects as much as traditional guestrooms. Condo projects ground to a halt in the housing crash, of course, but "vacation ownership" (industry jargon for time shares) has also tanked. In the fourth quarter, for example, Starwood Hotels, parent of Westin, Sheraton, W, and other lodging brands, reported revenues from vacation ownership and residential sales decreased 48.7 percent compared to 2007. Fitch, the credit rating agency, promptly reduced Starwood to junk status.
Cashless in Chicago The woes of Chicago-based United Airlines are well known and frequently chronicled. But now the nation's second-largest airline is burning through cash and selling or mortgaging assets and renegotiating loan covenants to keep its corporate head above water. The carrier consumed almost $1 billion in the fourth quarter and ended the year with just $2 billion in unrestricted cash. That's no more cash than US Airways, about half United's size, has on hand.
Seldom Heard Discouraging Words If all these figures don't distress you, consider this discouraging pronouncement from Southwest Airlines: "Fleet growth plans are suspended indefinitely," said chief executive Gary Kelly. Southwest saying it won't grow is the real-world equivalent of Chicken Little warning the sky is falling. The former intra-Texas carrier has recorded 36 consecutive years of profit and grown into to the nation's fifth-largest carrier. Most of that growth has come while traditional competitors have struggled during recessions. In 2009, however, Southwest expects to shrink by 4 percent.
And, of course, the Fine Print… If you must have a silver lining, try Frontier Airlines. Flying in Chapter 11 since last April, Frontier reported a net operating profit of $18.7 million in December. That means the Denver-based carrier might find the funding it needs to exit bankruptcy.
What’s better than a company that pays a steady dividend? A company with a history of increasing dividends, year in and year out. While there’s no guarantee their shares won’t decline, a dividend payment can mitigate losses. And companies that increase dividends usually can withstand economic shocks, says Gary Stroik, coauthor of the book "All About Dividend Investing." Even in difficult times, they tend to be managed well enough to return a growing amount of cash to shareholders—kind of like getting a pay raise every year. Standard & Poor’s calls such companies “aristocrats,” and they’ve lived up to their name. While the S&P lost 9 percent (including reinvested dividends) over the past decade, the aristocrats gained 44 percent.
Of course, that’s not to say dividend stocks are a sure bet. Dividend stocks tend to lag in the early stages of a bull market, when investors gravitate to more growth-oriented names. And as corporate profit growth slows, a slowdown in dividend increases looks inevitable. Still, the market decline has led to some impressive dividend yields, especially compared with what money-market funds and short-term government bonds are offering.
We looked for stocks with a steady history of increasing their dividends, solid balance sheets and good prospects to keep the cash flowing to shareholders. For added safety, we took a look at dividend-coverage ratios to make sure the companies had enough cash to pay their dividends—and still invest in their businesses. Think of them as tortoises for your portfolio; they may not be the quickest stocks out of the gate, but their slow, steady gains should ultimately win the race.
BP
Dividend Yield: 7.3%
BP (BP) has managed to raise its dividend in all but one year since 1993, including other times when oil prices were in free fall. BP has other things going for it too: strong cash flow, promising new sources of oil and gas to replace its reserves, and a CEO determined to cut costs. “It’s a good turnaround story over the next couple years,” says JPMorgan analyst Kim Fustier.
BP has had its setbacks, including a Texas refinery explosion and a pipeline spill in Alaska. But analysts say those widely publicized problems—along with the plunge in crude prices—have created a buying opportunity. BP’s stock performance has trailed that of rivals like Chevron and Exxon Mobil. And it’s ramping up production at big facilities in the Gulf of Mexico and Texas, following shutdowns due to accidents and hurricane damage.
With the global economy expected to slow, and demand weakening in developing markets like China, analysts see BP’s earnings falling 43 percent, to $4.64 a share, in 2009. BP makes more money from “upstream” production than rivals like Shell, so it’s more at risk of a shortfall should oil prices tumble further, notes Fustier. But many industry experts think the plunge in crude prices will only lead to shortages later, as oil companies cut back on exploration and global demand heats up again. The long-term trends still favor fossil fuels for the vast bulk of world energy use. And despite low oil prices, BP should make enough cash to support its dividend. Even with oil around $40 a barrel, says Gheit, “there’s no risk to the dividend.”
Altria
Dividend Yield: 8.1%
For years many investors have all but written off cigarette makers, figuring that with health concerns and mountains of litigation, their days as profitable enterprises were numbered. For just as long, Altria (MO), formerly known as Philip Morris, has proven them wrong. With about half the U.S. tobacco market, Altria is a steady cash generator, thanks to a product some just can’t give up—regardless of its cost or the tough economic times. That has enabled the maker of Marlboro, Parliament and other cigarettes to boost its dividend in 39 of the past 41 years.
Of course, Altria and others in the industry could be in for a bumpy ride over the near term. Federal taxes on cigarettes are expected to rise this year as the government looks for ways to offset its ballooning budget deficit. That will likely cut cigarette sales. But some experts think Altria could actually benefit from some of the moves the government is considering. (The tobacco firm has supported Democrats’ push for Food & Drug Administration oversight of the industry.) Regulation could reduce the company’s future legal liabilities and limit marketing, which could give an edge to established players like Altria. “It may not be a short-term boost,” says Daniel Clifton, head of policy research at Strategas Research Partners, “but over the long run, it’s going to be very good for the company.”
For investors with a longer time frame, many of the near-term risks are manageable, analysts say. The company’s strong cash flow means there’s little risk the company’s dividend streak will end, says Elliot Larner, analyst at the Tweedy, Browne Worldwide High Dividend Yield Value fund, which has a small interest in Altria. Even after taking on about $10 billion in debt for its recent acquisition of smokeless tobacco maker UST Inc., Larner says Altria’s balance sheet shows little strain, with a debt-to-equity ratio of just over 50 percent.
Vodafone Group
Dividend Yield: 6.8%
Life without cell phone service? Money managers who own shares of Vodafone (VOD) find it hard to imagine, and that gives them comfort in the world’s largest mobile-phone operator—even in a worldwide recession. “People would just as soon give up food as their phone,” says Michael Fogarty, director of international equity research for UMB Asset Management. “And that’s not just in rich countries.”
The slumping economy has chipped away at Vodafone’s revenue, especially in hard-hit places like Spain and the U.K., but the company has tried to offset the impact by cutting costs, restructuring operations and reducing capital spending. After years of acquisitions, Vodafone is focusing on improving its profit margins, which already are among the best in the industry, says Cliff Remily, comanager of the Thornburg Investment Income Builder fund, which holds the stock.
Vodafone is running into stiffer competition in some European markets and collecting fewer roaming charges as customers cut back on travel. A deeper global recession could force customers to dial back mobile usage even more than expected, and that could slice into Vodafone’s robust cash flow. Like some other telecom firms, Vodafone needs to go to the troubled credit markets to refinance debt that’s maturing in coming months. But short of “Armageddon and revenue falling off a cliff,” UMB’s Fogarty expects the company to be able to refinance without much trouble.
The U.K.-based company generates enough cash to provide about three times the coverage needed to pay its dividend. Plus, Vodafone executives gave investors added comfort late last year when they decided to smooth out dividend increases by raising the payout by a set percentage, rather than linking it to fluctuating profits. The next increase in the already hefty payout is expected to be 3.2 percent. At eight times this year’s earnings, analysts say, Vodafone’s shares are bargain-priced. “It’s not one in the portfolio you lose a lot of sleep over,” says Remily.
PPG Industries
Dividend Yield: 5.4%
PPG Industries (PPG), expanding from its roots as Pittsburgh Paint & Glass, has been transforming itself into a maker of high-end coatings and specialty chemicals. Last year the company spent $3 billion to buy Dutch company SigmaKalon, which makes architectural, marine and industrial coatings. The acquisition gives PPG a big sales boost in Europe. The company also shed its longtime automotive and replacement-glass business‹two lines being hammered by slumping car sales. The firm had a rough fourth quarter and surprised Wall Street with earnings that fell short of estimates. “This is the toughest economy I’ve seen,” says Chief Financial Officer William Hernandez. But he adds that PPG has been restructuring to prepare for the downturn and should pull out with ample cash to pay down debt and boost the dividend.
The Sigma-Kalon acquisition boosted PPG’s debt-to-capital ratio above 50 percent—historically high for the company. The firm’s continued exposure to the weak auto and construction industries also hurts, and sales of architectural and aerospace products could take a hit with the slowdown in Asian economies, where PPG does a lot of business. The upshot, according to Deutsche Bank analyst David Begleiter: “substantial headwinds” for PPG in 2009. Still, some analysts think the stock already has these pressures baked into the price. It’s fallen more than 30 percent over the past year and trades at about 11 times estimated 2009 earnings of $3.36 a share. Analysts say t this year’s expected cash flow is enough to cover the current dividend three times over.
Bristol-Myers Squibb
Dividend Yield: 5.4%
Corporate executives almost always say their stock is a good value. But Bristol-Myers Squibb (BMY) CEO James Cornelius backs it up with hard cash. He bought $2.3 million worth of shares on the open market last year‹the first big purchase by a Bristol insider in more than five years.
But that’s hardly the only reason analysts like this drugmaker, which has nearly $20 billion in annual sales. The company makes one of the world’s top-selling drugs, Plavix, a blood-thinning agent. Along with its partners, it recently introduced new drugs for rheumatoid arthritis, hepatitis B, HIV/AIDS and cancer. It has more than $8 billion in cash, which it can use to make acquisitions or license drugs from other firms. And it expects to increase earnings 10-15 percent this year.
The big challenge for Bristol is what to do about the “patent cliff” it will face in 2012, when three of its biggest sellers, including Plavix, face competition from generic drugs. Those three drugs account for more than a third of sales, and analysts worry that the pipeline, while promising, doesn’t include enough potential hits to fill the hole. One key will be whether Bristol’s restructuring plan pays off. The firm has been shedding slow-growth businesses and cutting costs. It plans to spin off part of its Mead Johnson nutrition unit to raise more cash. Cornelius has outlined a strategy of buying a “string of pearls”‹small but profitable biotech drugs that could make up for patent losses. He’s also signaled that he’ll be disciplined with the cash; he dropped out of the running for ImClone last year after Eli Lilly trumped his $5.4 billion offer for the biotech firm.
Perhaps most compelling is the stock’s value compared with other big drug companies. The shares trade at a price/earnings multiple of about 12 times estimated 2009 earnings of $3.8 billion‹a 15 percent premium to the drug industry average. Yet Bristol is increasing profits at more than double the sector’s rate. And it offers one of the highest dividend yields. Says S&P equities analyst Herman Saftlas, “If they hit enough singles and doubles, they’ll offset the lack of home runs.
You can search for stocks with strong dividends—or you can let fund managers do it for you (for a fee). The latter option is getting popular; late last fall, according to Lipper, investors began putting more money into dividend-oriented funds, even as they continued to yank money out of other stock funds. Below, three funds that suffered last year but have had strong track records.
2008 ranking: Top 2 percent Five-year ranking: Top 1 percent Annual expenses: $99 per $10,000 invested
More than 80 percent of this socially responsible fund’s holdings pay dividends. Manager Todd Ahlsten thinks the nation is in for a long, messy recession, so he has been filling his fund with stocks of “everyday businesses” whose goods and services will continue to be relevant despite economic woes. Holdings include trash haulers (Waste Management), health care conglomerates (Johnson & Johnson) and a technology juggernaut (Microsoft). Ahlsten was down 23 percent last year but still handily beat most of his peers and the broader stock market. The fund is among the best-performing large-company core mutual funds over the past one-, three-, five- and 10-year periods, according to Morningstar, and it attracted about $750 million in net inflows of new assets from investors in 2008.
2008 ranking: Top 15 percent Five-year ranking: Top 15 percent Annual expenses: $69 per $10,000 invested
Fund manager Tom Huber made big bets on financial stocks last year and lived to tell the tale. “It’s almost as important what you don’t own as what you own,” says Huber, whose focus on balance-sheet risk and management teams steered him away from Lehman Brothers and Bear Stearns and toward US Bancorp and insurance brokerage Aon. His 33 percent loss, while painful, put him ahead of the S&P 500 and most large-cap managers. The sometime polo player looks for firms likely to gain market share and come out stronger after the recession. In the meantime, he says, “I’m getting paid to wait with yields of 2 to 4 percent, which doesn’t sound bad right now.”
Tweedy, Browne Worldwide High Dividend Yield Value (TBHDX)
2008 ranking: Top 6 percent Five-year ranking: Not applicable Annual expenses: $137 per $10,000 invested
This fund, which launched at the end of 2007, invests globally; comanager Robert Wyckoff says that about two-thirds of assets are invested outside the U.S., mainly in Western Europe. Its managers look for high-yielding, beaten-up companies whose businesses show signs of improving. Unlike some funds that aim to provide dividend income to shareholders, the managers like to reinvest the dividends to bolster long-term total returns; they cite studies showing that following such a practice during market downturns helps investors recoup losses faster. The fund was down 29 percent in 2008 but avoided the 40 percent–plus declines logged by many of its global peers. Holdings include cigarette maker Altria, automotive firm Genuine Parts and Dutch manufacturer AkzoNobel.
Each month, the unemployment numbers grow more staggering. Since January 2008, more than four million people have lost their jobs, pushing the nation's unemployment rate to 7.6% -- a 16-year high, according to the Bureau of Labor Statistics.
While no state's work force remains unscathed, some are faring better than others. Wyoming and the Dakotas, for example, boast unemployment rates of under 4% (well below the 9.3% that’s plaguing California), according to the BLS's statewide data for December. Meanwhile, certain metro areas in Texas, including Houston and Dallas, actually experienced job growth in 2008.
The economic stimulus plan proposed by President Obama could help stem some of the bleeding in other, harder hit parts of the country as well. The plan proposes to create (or save) three to four million jobs over the next two years through investments in infrastructure, health care, energy and other areas. Should the plan get passed, the rate at which job losses have been mounting could start to retreat as early as April, says Dean Baker, co-director of the Center for Economic and Policy Research, a Washington, D.C.-based nonpartisan think tank.
For workers grappling with unemployment -- or foresee a layoff in their near future -- one way to focus your career search is to seek out regions of the country with the most favorable conditions (those with low unemployment rates and perhaps even job creation taking place) and could stand to benefit from the stimulus plan.
We took a look at the White House's stimulus plan and the BLS's state and metropolitan data to do just that. (The number of jobs the plan proposes to create can be found here. We divided those numbers by Census Bureau data on each state's labor force to figure out just how many jobs per capita the plan aims to create. On average, we calculated that one job per every 41 eligible workers in each state will be created or saved.)
Wyoming has a 3.4% unemployment rate, the lowest in the country thanks to its heavy exposure to oil and gas exploration as well as coal mining, says Warren Bland, an economic geographer at California State University, Northridge. President Obama's push for the use of clean-coal technology could also help the state win more jobs in the future, says Ross DeVol, director of regional economics at the Milken Institute.
Texas
The Lone Star state isn’t so lonely anymore. This low-tax, low-regulation, low-wage state, attracts plenty of businesses, says Cal State's Bland. (Major employers include AT&T (T), Dell (DELL) and ExxonMobil (XOM).) The job opportunities and low cost of living help keep college students in Texas post-graduation, he says. The state is also home to three metropolitan areas that saw the biggest increase in employment in the country between in 2008: Houston, Dallas and San Antonio (in that order). Austin came in fifth. Should the stimulus package pass, expect to see even more jobs in energy and infrastructure, says Milken's DeVol.
D.C./Northern Virginia
Yes, D.C. has a miserable unemployment rate of 8.8%. But when combined with the surrounding cities of Alexandria and Arlington, Va., that rate drops to a much more respectable 4.7% -- the second lowest in the country among large metropolitan areas. Not only that, but D.C. stands to benefit handily from the stimulus plan, which aims to create (or save) one new job for every 25 workers. Government work related to the military, lobbying or think tanks are already in high demand, says Bland. Another hiring bright spot should the stimulus pass? Administrative jobs in the government, says Baker.
Utah
Utah's unemployment rate is the fifth lowest in the country at 4.3%. Graduates from its two most popular universities – Brigham Young University and the University of Utah – are launching start-up companies that develop medical devices and software, says DeVol. Some of the state’s largest employers include medical facility operator Intermountain Health Care and computer equipment maker Novell (NOVL). The state could benefit from the stimulus's planned increase in spending on health care, breeding opportunities for both nurses and those in information techology, says DeVol.
Oklahoma
Oklahoma’s employment outlook is a far cry from that of the Dust Bowl era. Known for producing and distributing wheat, corn and cotton, the state reaped some nice profits from its agricultural roots last year, says Bland. It was also helped by its exposure to the oil and natural gas industries. Not only that but the state's capital, Oklahoma City, currently boasts a 4.6% unemployment rate, the lowest of all the larger metropolitan areas. Some of the state’s big employers include Devon Energy (DVN), Chesapeake Energy (CHK) and utility company Oklahoma Gas & Electric, a unit of energy-services provider OGE Energy (OGE). The stimulus bill could add an extra jolt to the state's energy sector, which could help create posts for engineers and technicians positions, says DeVol.
When Emerson Electric started its streak of dividend increases in 1966, Lyndon Johnson was president. More than four decades later, the St. Louis industrial giant is still at it. Its latest dividend increase put the annual payout at $1.32, which works out to a yield of about 4%. Other companies sport higher yields, but they can come with some baggage, like a sour industry outlook or a spotty record of dividend increases. In contrast, companies like Emerson often have lower yields but brighter long-term growth prospects. They also tend to have strong cash flow even in rough economies, notes Don Taylor, manager of the Franklin Rising Dividend fund. "Quality is key these days," he says.
Here are two picks with decades of dividend increases, strong balance sheets and steady-eddy businesses for these rocky times.
EMERSON ELECTRIC
Dividend Yield: 4%
Crashing economies are hardly good news for industrial stocks. So what's so great about a 119-year-old firm that makes tools, electrical switches and thousands of other products in 265 manufacturing locations around the world? While Emerson (EMR) certainly isn't recession-proof, it boasts a healthy balance sheet, with $1 billion in cash and a low debt-to-capital ratio. And it's developed a set of energy-saving technologies and services that could boom once the economy gets back on track. All told, Emerson is positioned to be "one of the best industrial performers in 2009," says Nicholas Heymann, an analyst with Sterne Agee.
With factories in China, Mexico, Eastern Europe and Southeast Asia, St. Louis-based Emerson can quickly shift production to take advantage of the most favorable local currency and brightest business prospects. And that's helped Emerson steadily increase profits, including a 12 percent boost last year, to $3.9 billion. "We've been through these times before," Emerson CEO David Farr tells SmartMoney, "and we know how to adjust."
Emerson should also get a lift in coming years from global efforts to cut carbon emissions and improve energy efficiency. The company makes highly efficient compressors and should see strong sales growth as countries like China impose tough new energy standards for heating and air conditioning equipment. Its cooling systems for data centers also help companies lower their fuel bills. And it recently launched a suite of wireless devices for oil-and-gas and chemical plants designed to bring their vast networks of pipes and equipment into the digital age and make them run more efficiently.
Of course, Emerson still faces hurdles as companies scale back plans for big industrial projects. The firm expects capital spending to drop sharply in the U.S. and Europe, and its appliance-and-tool division-heavily exposed to the U.S. housing market-isn't likely to recover soon. Yet those factors seem to be priced into the stock, says Michael Schneider, an analyst with R.W. Baird. In the meantime, the company is committed to returning 50 to 60 percent of its operating cash flow to shareholders via stock buybacks and dividends.
Even if earnings per share drop 14 percent this fiscal year, to $2.68, as Wall Street forecasts, Emerson should still have plenty of money left to pay the dividend‹and continue raising it. "We've always had an enormous focus on cash," says Farr. "That way, we know we can control our own destiny."
SYSCO
Dividend Yield 4.0%
When Sysco (SYY) founder John Baugh began distributing frozen foods in 1946, eating out was as rare as a blizzard in Texas. More than 60 years and hundreds of acquisitions later, the Houston-based company delivers food to thousands of restaurants, schools and hospitals. It runs one of the most efficient businesses in the industry, has a clean balance sheet and produces a gusher of cash. Put it all together and the result is a steady dividend: Sysco has raised its payout every year since going public in 1970, and it shows no sign of ending that streak, even as the recession weighs on many of the food distributor's customers.
One reason is efficiency. Sysco recently reorganized its distribution network, using software to help it consolidate orders and reduce empty cargo space on trucks. The result: 62,000 fewer trucks on the road, lower costs and more cash. "You hear a lot of companies described as cash machines," says Andrew Wolf, food and drug merchandising analyst at BB&T. "But if there was ever a company that cliché was intended for, it's Sysco."
Sysco isn't about to escape the recession-70 percent of its business comes from restaurants, and many of them are suffering as consumers eat at home to save money. Over the past decade, the company increased its dividend an average of 17 percent a year, while profits rose an average of 15 percent. Dividend increases will likely be smaller as earnings growth slows to single digits. Still, any growth at all puts it ahead of most companies. Sysco also has a stock buyback plan, which it could reduce before having to chip away at its dividend, says Robert Millen, manager of the Jensen Fund, which owns the shares. "We feel they have a cushion," he adds.
The company is also better positioned than rivals because it does more than deliver food, often acting as a consultant helping customers identify the most lucrative parts of their business and even assisting in planning their menus. And when a restaurant is looking to cut costs, Sysco can offer its own branded food-as diverse as salmon cakes and bananas Foster pies-giving customers more food for the price they were paying before. That ability to help customers cut costs is something few rivals can match, says Parnassus director of research Ben Allen.
The company's strong balance sheet, with total debt to capital of 37 percent, gives it an edge during this downturn to keep growing, especially with its largest rival, US FoodService, saddled with debt after a leveraged buyout. As a result, Allen thinks Sysco has an open field to take share from smaller, struggling rivals and extend its North American lead. Over the nearer term, analysts say Sysco could benefit from the tailwind of easing commodity costs. "Barring a depression, they can take a pretty big hit from here and still generate enough cash for the dividend," Wolf says.
The market has been so transfixed by the fate of the president's proposed stimulus bill that fourth-quarter earnings have been pushed briefly out of the spotlight. That's probably just as well. By week's end three-quarters of the S&P 500 and most of the 30 components of the Dow Jones Industrial Average will have reported results. As with just about every other data point investors are getting these days, the numbers ain't pretty: The constituents of the S&P are poised to report their first aggregate net loss ever.
As lousy corporate earnings and outlooks pile up like body bags, bulls can take comfort in the fact that the market has remained resilient. As for bears, they can look at the same data and fret that the market still looks overpriced. Either way, it's clear the psychological importance of the stimulus bill is critical these days. After all, the market didn't rise last week on corporate earnings.
"What drove the S&P 500 up 5.2% last week to its first rise in five weeks?" asked Ed Yardeni, president of Yardeni Research, in a Monday report. "Hopes that the latest stimulus package and bank rescue plan will get the U.S. economy going again."
Should the market be disappointed in the outcome of the proposed stimulus package and rescue plan, well, look out below. The debate on Capitol Hill has been a handy distraction from the appalling data. A stall out in Washington and a refocus on earnings is a one-two punch the market doesn’t much need.
Perhaps more worrisome is that the market is still more expensive than it was a year ago. As of Feb. 6 the S&P 500 still sported a trailing P/E of nearly 21, according to The Wall Street Journal Market Data Group. A year ago it fetched little more than 18 times trailing earnings. By that reckoning, stocks hardly look cheap.
Naturally stocks are forward looking, but with analysts' estimates having been far too high for far too long, it's difficult to get too excited over projections. As recently as September the Street expected the S&P to post a fourth-quarter earnings growth rate of more than 50%, according to Thomson Reuters. Cut to today and the S&P "growth" rate is forecast to contract by more than 40% -- a swing of nearly 100 percentage points. It's also the worst quarterly showing since Thomson Reuters began tracking the data 10 years ago.
Of the 10 sectors of the S&P, only health care, consumer staples and utilities are reporting year-over-year quarterly earnings growth, according to Thomson Reuters. As for the other seven losers, financials alone is reporting a drop of more than 700%. Indeed, just last week the S&P's growth rate dropped more than five percentage points because of an unexpected loss from Wells Fargo (WFC) and a wider-than-expected loss from Prudential Financial (PRU). Shudder to think what a few more nasty surprises could do.
Finally, the "beat rate," or percentage of companies posting better-than-expected earnings, stands at 55%, according to Bespoke Investment Group, the weakest reading in about eight years. Bears will argue that the number has to reach levels not seen since the 2000-02 bear market, while bulls will point to it as a sign that things aren't as bad as they seem, Bespoke says, noting that "only the market will eventually tell us who is right."
Until then all we have are the latest fundamentals and they aren't very reassuring. With all eyes on Washington, D.C., and a dismal earnings season coming to a merciful end (save for retailers, most of which have yet to report their own bad news), sitting on the sidelines seems a reasonable course of action for the time being. Try as they might, earnings, outlooks and valuation aren't making a very compelling case for equities these days.
JIM CRAMER'S CELEBRITY IS BIGGER THAN EVER. As financial markets came apart in October, more than 600,000 viewers turned to his Mad Money show -- the biggest crowd since the Nielsen Company started tracking the CNBC series. He is giving advice to huge audiences on NBC's Today Show and getting awestruck coverage in Esquire magazine.
And why not? An earthquake has hit Wall Street, and the 53-year old broadcaster has spent more time there than most any TV journalist. The guy is a hardworking genius with a word of advice for everyone...many words of advice, actually. He dispenses thousands of Buy/Sell recommendations a year and has declared that those stock picks will help you get rich.
The only regrettable thing about any of this is that CNBC and Cramer won't meaningfully discuss how his advice pans out.
Cramer's recommendations underperform the market by most measures. From May to December of last year, for example, the market lost about 30%. Heeding Cramer's Buys and Sells would have added another five percentage points to that loss, according to our latest tally.
To his credit, Cramer's Sells "made money" by outperforming the market on the downside by as much as five percentage points (depending on the holding period and benchmark). His Buys, however, lost up to 10 percentage points more than the market.
These batting averages represent his stock-picking over a stretch of time, but Cramer is wildly inconsistent, and the performance of individual picks varies widely. So widely, in fact, that it is impossible to know with confidence that any sample of Cramer's recommendations will enable you to outperform the market.
These facts don't mean that viewers should avoid his informative and entertaining show -- they should just be wary of his stock picks.
OTHER CAREFUL, HONEST EXAMINATIONS of the CNBC star showed the same underperformance -- including several independent studies by finance researchers, and a 2007 review by Barron's that found the only way to reliably profit from Cramer's stock picks was to short them (see "Shorting Cramer," Aug. 20, 2007).
That seems to be what smart traders have done, from the evidence of options-market activity examined by a finance professor, who found that betting against Mad Money's Buy recommendations can yield 25% in a month.
The recent performance of Mad Money's stocks resembles past periods in another striking way. Our research reveals that the stocks Cramer picks as Buys have been rising versus the market for several days in advance of his show, while his Sells have been falling. This doesn't prove there is a leak in the tight security surrounding CNBC's show. It could merely mean that Cramer and his staff are heavy-footed in their research. Or it could mean that his stocks are primarily momentum plays. That is the network's explanation. "Jim likes to recommend 'what is working'," said CNBC communications vice president Brian Steel in a written response Friday. "So it is no surprise there would be movement in these stocks prior to Jim mentioning them."
In any event, these pre-show moves are the probable cause of Cramer's underperformance. As the stocks revert to the market's trend in the weeks after the show, Cramer's followers get hurt [See chart below]. Like any active-investing strategy, Cramer's advice must always be measured against the market return that his viewers could get in an index fund.
IT IS RARE THAT ANYONE BEATS the market over time, so there is no disgrace in the underperformance of Mad Money's stocks. The stocks featured in Barron's bullish stories did even worse than the market last year. ("Oops! We Missed the Mark in '08," Jan. 19)
Yet the last time Barron's inquired about Cramer's stock-picking, CNBC responded with cherry-picked success stories; lawyers; calls to Dow Jones executives; and an end to Barron's regular presence on CNBC. Cramer shouted to his viewers that we were know-nothings and assured them that his Mad Money picks had "killed" the Standard & Poor's 500 index. This time around, CNBC wouldn't let us near their headliner and said our questions were aimed at helping CNBC's less-watched rival, Fox Business News (owned by News Corp. , as is Barron's).
"You wrote a premeditated hatchet job to curry favor with your new bosses at News Corp.," said CNBC's Steel on Friday. "[Cramer] doesn't consider you a journalist."
The pre-show moves made by Mad Money stocks relative to the market were first observed by doctoral students at Northwestern's Kellogg School in a 2006 working paper. After hearing from an indignant CNBC, co-author Joseph Engelberg stopped labeling the moves "information leakage." When Barron's asked in 2007 about the pre-show moves we had found in Mad Money stocks, CNBC scrambled $100,000 worth of lawyers and sternly explained the broadcast lockdown procedures at the Mad Money set.
In the recent seven-month period, the pre-show runs are still the most dramatic thing about Cramer's stocks. We found that his bullish picks had risen 4% against the S&P in the two weeks ahead of his recommendation, while his bearish selections had dropped more than 7%. This action looks all the more interesting when compared with the pre-show activity in stocks that Cramer considers only when asked by a caller during the show's "Lightning Round." As the chart below shows, there are almost no market-excess moves before he tells a Lightning Round caller to Buy, while the Lightning Round Sells make but a fraction of the pre-show moves of previously prepared Sells.
MEASURING SUCH MOVES was easy, thanks to the tools available at EventVestor.com, a startup created by Wharton Business School and Merrill Lynch alumnus Anju Marempudi, with the advice of finance professors. Hedge funds and investor-relations firms are using EventVestor to study the returns of stocks around events like dividend cuts and earnings preannouncements.
So we got a record of the Mad Money recommendations from a source that Cramer endorses as the definitive way to track his performance. It is a trailing six-month database updated daily at TheStreet.com, the Website that Cramer brought public in the dot-com boom (see it yourself at MadMoney.TheStreet.com).
We then poured Cramer's data into EventVestor. Event-study tools like EventVestor aren't hard to understand. They simply track the performance of stocks over identical periods; for example, 10 trading days before through 45 trading days after each Mad Money show (as illustrated in the chart). You can leave out the impromptu advice he gives callers during the Lightning Round -- which Cramer has said shouldn't count toward his performance, even though the next-day stock moves show that Lightning Round watchers take him at his word when he tells them to Buy.
Looking at just the 650-odd recommendations Cramer prepared for the show's Discussion or Feature blocks between June and December, his bullish picks underperformed the S&P by about 3.5 percentage points over the 45 trading days after each show. His bear calls turned a slim profit of one point versus the market -- with all of the profit coming the day after broadcast, so viewers would do well to ignore Cramer's occasional urging that they wait five days before following his calls. You can even isolate the stocks of companies whose executives Cramer interviews and usually endorses -- those endorsed stocks dropped six points versus the S&P in the 45 days following the interviews. Considered separately, Cramer's Lightning Round Sell recommendations did better than those he prepared, while his Lightning Buys did even worse than those he prepped. [For charts of these results, and others, see Barrons.com.] It is reasonable to measure Cramer's stocks over such a relatively brief interval because -- as CNBC points out -- he isn't running a fund in which he reviews each position daily.
But the network and Cramer have alternatively argued that his picks are meant as long-term investments, so we also measured their performance from each show date through the end of the year. On that basis, Cramer's Buys finished five percentage points behind the Nasdaq and 10 points behind the Dow, while his Sells were one point less profitable than the Nasdaq but five points more profitable than the Dow.
Cramer bashers and acolytes typically argue in anecdotes. His critics remind you that he scolded a caller "No! No! No! Bear Stearns is fine! Do not take your money out!" just days before the firm collapsed in March. But boosters brag of his Oct. 6 market call on the Today Show, when he said: "Whatever money you may need for the next five years, please take it out of the stock market. Right now!"
That Oct. 6 advice saved investors "millions," said CNBC's Steel, by allowing folks to escape the market's 15% plunge through December. In fact, says Steel, that single piece of advice means Cramer beat the market, if you credit the 15% to his performance through Oct. 6. Of course, Cramer went on to make 800 more recommendations through December -- most of them Buys. Cramer would have saved investors even more, said Steel, had they put 20% of their assets in cash on Sept. 19, as he suggested. "Jim made two of the greatest prepared bearish calls of all time," crowed Steel.
We gamely worked through the details of CNBC's argument: Ending the measurements on Oct. 6 makes Cramer look worse, with his recommendations losing eight percentage points against the S&P. If you then spot him the Today Show 15%, as Steel insists, Cramer would finish the year seven points ahead of the market.
If readers don't buy CNBC's complicated argument, it has others. "Jim's advice is nuanced, complex and often qualified on either a future price or a specific market event," said Steel, who says that even Cramer's official Mad Money database misses nuances. It is kind of bizarre to hear the network impugn the Website that carries Cramer's endorsement as the record of "exactly what I say, when I said it, and how I feel about each stock now." He urges -- "passionately" -- that his show's performance be measured with those data.
When Barron's asked CNBC for their own preferred database of Mad Money recommendations, we heard something equally strange: The investment news channel keeps no track record of its stockpicker's Buys and Sells. "The show as it is currently produced," said Steel, "isn't set up to track every stock Jim mentions every day as if it was a fund."
Instead, Steel demanded that Barron's join him in watching six months of recorded shows so that he could decide whether Cramer really meant that viewers should buy or sell a stock. He said Cramer's Website had misinterpreted recommendations on four dates- for example, putting down a Buy recommendation when Cramer meant it sarcastically.
In other words, CNBC wanted to debate its horse bets after knowing how the races ended. There is no way such a post hoc selection could be as credible as the record made at the time of each show (and before the recommendation's outcome is known) by Cramer's official Website. That would also be the time for Cramer to correct confusion in the record he tells viewers to rely on. Still, we recalculated Mad Money's returns without the four dates that Steel says had errors: Cramer's performance was precisely as bad without them.
The finding that Mad Money lags the market has been replicated using other records of Cramer's picks, too. University of Dayton finance professor Carl Chen used the third-party Website called MadMoneyRecap.com to study options-market trading in stocks that Cramer recommended. Chen found signs that the smart money bets against Cramer's Buy recommendations by using short-term in-the-money puts. Those bets could earn over 25% in a month, Chen concludes, at the expense of Cramer's fans.
CNBC's evasiveness about Mad Money's performance can't be attributed to Cramer, since the network wouldn't let us talk to the star. We were scolded that we didn't understand the mind of a genius. "Barron's and News Corp.'s repeated attempts to take Jim down have been a complete and utter failure," said spokesman Steel.
The Bottom Line By most measures, Jim Cramer did worse than the market, but CNBC and the TV journalist have taken few steps to clarify his exact performance for his show's growing audience.
Rainbow's End fun park operator New Zealand Experience reported an 18.4 per cent fall in net profit to $590,000 for the half year to the end of December.
The result was a direct consequence of significantly lower visitor numbers... Source: New Zealand Herald - Business | 10 Feb 2009 | 4:24 am
The economic crisis is the worst seen in more than a century, surpassing even the Great Depression, a British minister said in comments reported today.
Children's secretary Ed Balls told supporters in the northern English city... Source: New Zealand Herald - Business | 10 Feb 2009 | 4:00 am
Barack Obama warns Americans that economic crisis could turn into catastrophe if the federal government does not take decisive action to create jobs and stabilise the financial sector Source: Financial Times - US homepage | 10 Feb 2009 | 3:41 am
President Obama held his first prime-time press conference tonight, making the case for his massive stimulus package. Kai Ryssdal speaks with our Washington bureau chief John Dimsdale about the campaigning the president is doing to sell his plan to Congress. Source: Marketplace | 10 Feb 2009 | 3:35 am
NEW YORK (AP) - Circuit City will finally flicker out when its last 567 stores close this year, but the bankruptcy of America's second-largest electronics retailer will ripple across the US economy for years.
In its wake will be... Source: New Zealand Herald - Business | 10 Feb 2009 | 3:30 am
The balance sheet appears to be in fine fettle at natural health products company Comvita.
In a market update to the New Zealand stock exchange on the second half trading of 2009, the Bay of Plenty company said it was trading profitably... Source: New Zealand Herald - Business | 10 Feb 2009 | 3:00 am
Auckland boat maker Sealegs has told the stock exchange its plans for a rights issue have been put on hold.
Sealegs chief executive and director David McKee Wright said the board "considers current economic conditions will not... Source: New Zealand Herald - Business | 10 Feb 2009 | 2:30 am
The collapse of a prominent Wellington building company is being called a sign of the times.
The Wellington franchise of David Reid Homes has gone into liquidation, with reports of subcontractors being left tens of thousands of... Source: New Zealand Herald - Business | 10 Feb 2009 | 2:30 am
AP - The top cop at the Securities and Exchange Commission is leaving the government less than a week after receiving an angry dressing-down before Congress over the agency's failure to detect a massive alleged fraud scheme.
WASHINGTON - The Securities and Exchange Commission has announced an agreement with disgraced money manager Bernard Madoff that could eventually force him to pay a civil fine and return money raised from investors.
The partial... Source: New Zealand Herald - Business | 10 Feb 2009 | 2:00 am
Updating the grid to tap renewable energy from opposition faces a big obstable: opposition to new high-voltage power lines from landowners and environmentalists. Source: Business and financial news - CNNMoney.com | 10 Feb 2009 | 12:40 am
President Obama cleared the biggest hurdle in his fight to push through his
$827 billion economic stimulus plan after winning a crucial vote in the
Senate yesterday.$ Source: Latest Business News from Times Online | 10 Feb 2009 | 12:22 am
AP - The Securities and Exchange Commission on Monday announced an agreement with disgraced money manager Bernard Madoff that could eventually force him to pay a civil fine and return money raised from investors.
AP - The Securities and Exchange Commission on Monday announced an agreement with disgraced money manager Bernard Madoff that could eventually force him to pay a civil fine and return money raised from investors.
The two leading forces in the investment industry are considering a joint bid for BankUnited Financial, a troubled Florida-based bank with $14bn in assets, according to people familiar with the matter Source: Financial Times - US homepage | 10 Feb 2009 | 12:03 am
Nissan will cut 20,000 jobs worldwide as its chief executive warned that the
global automotive industry was in turmoil and the recession the worst he has
known. Source: Latest Business News from Times Online | 10 Feb 2009 | 12:00 am
Retailers rang up their strongest sales growth for more than six months in
January, as consumers defied the recession to adopt a “carry on spending”
tactic in new year sales, a key survey suggests today. Source: Latest Business News from Times Online | 10 Feb 2009 | 12:00 am
The Kuwait Investment Authority would consider increasing its support for Dow Chemical's disputed takeover of Rohm & Haas if the terms of the deal were changed to account for the downturn, a person familiar with the matter says Source: Financial Times - US homepage | 9 Feb 2009 | 11:21 pm
Reuters - Accused Wall Street swindler Bernard Madoff has agreed to a permanent freeze on his assets without admitting or denying fraud charges in a civil case against him, a U.S. regulator said on Monday.
AFP - The US Securities and Exchange Commission said Monday its enforcement chief has quit, following criticism over apparent failure to uncover the alleged 50 billion dollar investment scam run by mastermind Bernard Madoff.
Bob Lutz, General Motors vice-chairman and product planning chief, will retire at the end of the year, bringing down the curtain on a larger-than-life career Source: Financial Times - US homepage | 9 Feb 2009 | 10:20 pm
Re: John Mack's offer last week to Morgan Stanley IBD analysts: apparently the buyout options were put on the table for second and thirds only, the deal being $27,000 and $32,000, respectively, to walk away from the Lebanese Lothario. Supposedly, they've got ten days to make a decision, ahead of the bank's additional round of cuts. Knowing how indecisive the MS'ers can be, and that the number of other firms offering free desserts is few and far between, this is going to be a tough one. So let's lend a hand:
Reuters - A top White House economic aide said on Monday that the Obama administration would push private investors to buy compromised mortgage-related assets that are clogging bank balance sheets. Source: Yahoo! News: Business | 9 Feb 2009 | 9:47 pm
Reuters - More than 1,000 U.S. banks, or one in eight lenders, may fail in the next three to five years as commercial loan losses rise, compounding problems from record mortgage delinquencies and soaring home equity loan defaults, RBC Capital Markets said on Monday.
Dartmouth College, the smallest school in the Ivy League, will fire 60 employees after its endowment value fell $700 million, or 18 percent, because of the global recession.
An additional 70 employees have accepted buyouts and 28 others will have their hours reduced, the college in Hanover, New Hampshire, said today in a statement. The school will increase undergraduate tuition 4.8 percent, raising the total cost of attendance to $49,974 a year, starting in September, and will expand financial aid.
Dartmouth joins Harvard University and Yale University among Ivy League schools in the northeastern U.S. that are slashing budgets after fund losses. Harvard, in Cambridge, Massachusetts, lost 22 percent, not including investments in private equity and real estate, in the four months ended Oct. 31, and said its losses for the fiscal year may be 30 percent. Yale in New Haven, Connecticut, said its endowment fell 25 percent in five months. Outlays from Dartmouth's fund contribute 35 percent of the budget, excluding professional schools.
-- With more than $800 billion in federal spending on tap, Selectman Erik Filkorn says people in his Vermont town are hoping at least some of the economic stimulus money would help rebuild their roads and bridges. Filkorn himself isn't counting on it.
-- On Tuesday, U.S. Treasury Secretary Tim Geithner is expected to unveil the government's latest plan for helping troubled banks. Early reports say it's something of a public/private partnership. Economist Adam Posen of the Peterson Institute says the big problem is that American leaders still are getting flexing enough muscle.
Bonus: A note from the U.K., after the jump.
Dan McNamee, who sent the photo for today's podcast, writes from London:
I took this photo on the way back to the office from a meeting in London. The situation here is pretty grim and the general outlook of the people here is quite negative.
I work as an attorney in London focusing on large financial transactions (IPOs and high yield debt). Or, at least I did. Life has definitely changed with all the bank layoffs and with layoffs at other law firms. Young bankers fleeing back to their home country as bonuses shrink along with the pound and job opportunities.
More charts based on White House data about the impact of the stimulus on each state.
Let's start with the percentage of families made eligible for a new American Opportunity Tax Credit. I divided the numbers presented in the White House release by the number of family households indicated on a spreadsheet produced by the Census Bureau. Here, you see a lot of difference among various parts of the country. Nine percent of families in the District of Columbia stood to benefit, compared to only three percent in New Hampshire.
Next, to determine the percentage of of working-age adults who'd receive an additional $100 per month in unemployment insurance benefits under the stimulus plan, I divided the numbers presented by the number of adults between the ages of 18 and 64 reported by the Census Bureau:
The darker the state, the more residents are eligible for the American Opportunity Tax Credit.
Unsurprisingly, Michigan, which has the nation's highest unemployment rate, tops the list at 16.4 percent, followed, strangely, by Wisconsin (15.6 percent), where the unemployment rate is below the national average.
The New York Timesreports that the Obama administration will soon announce a new bank bailout plan that that features the establishment of an "aggregator" bad bank to rescue the U.S. banking system from its huge, and rapidly growing, overhang of "toxic" assets.
The good news appears to be an inclusion of some encouragement to the private sector to invest alongside the government. Unfortunately, early indications are that the scale and true risk of private capital will be very limited, putting private investors in a passive role in those elements where they can make the greatest contribution—valuation and work-out management.
If so, it's likely that the bad bank structure will fail for the reasons the earlier approaches have failed—lack of transparency, of competition, of clear principles and incentives, and of true private at-risk capital. As such, a bad bank would be yet another expensive lost opportunity to restore the private financial sector and its essential flow of funds to enterprise and consumers.
We would suggest an alternative approach: make the participation of private capital the centerpiece of any bailout plan, using it in full partnership with government funds to buy the toxic assets through a broad group of newly capitalized secondary financial institutions.
By establishing these new "TARP Investment Companies" ("Tarpics"), the government would achieve faster and more efficient valuation of the toxic assets, a greater range of options for banks seeking liquidity, significant support for restarting the critical secondary markets, and proper incentives for managers to maximize toxic asset value. Done properly, it would reduce both the amount of taxpayer funds required and the duration of the rescue.
The original TARP legislation of last fall envisioned the government buying toxic assets, but that idea was quickly set aside for a fundamental problem: How and at what price should the government purchase bad loans and other toxic assets?
If the price were at "market," all financial institutions would suffer meaningful asset impairments, and many would become instantly technically insolvent. Of course, any price above "market" would have come at taxpayer expense, as a real subsidy to the financial sector. In addition, bad assets are diverse and disparate, so the original idea of a seller's auction had no practical meaning.
The asset-pricing problem remains insolvable, but, we argue, it's essentially irrelevant. If banks are to resume their role as loan generators, these assets must be removed from their oversight, and the sooner the better. At any reasonable asset valuations, many of these institutions are already essentially insolvent and require recapitalization, regulatory forbearance, or both.
Hiding an implicit capital infusion in an administered price for toxic assets further muddles the accuracy of bank accounts and prevents the re-emergence of asset markets. Only greater transparency and confidence in the restoration of true asset markets will entice private capital back to the banking sector.
Far better to utilize decentralized private capital and resulting competition to push up the price of the toxic assets. By some estimates, there is upwards of $400 billion of private capital available either in limited partnership fund commitments (which will be surrendered by general partners if not utilized in the next few years) or with institutions searching for a way to capitalize upon the distressed loan markets.
Instead of a centralized TARP or guarantees against losses, the government should encourage decentralization and clear capital commitments, offering to match the equity capital provided by any reputable for-profit managers in forming these new investment vehicles.
If necessary, the government could offer to match Tarpic private equity on a two-to-one, three-to-one, or greater basis. It could also lever equity returns by purchasing subordinated debt of the new entities.
The key is speed and simplicity; the plan will marshal private capital quickly only by establishing a clear template (including meaningful private investment minimums) under which the government will match investors' funds in creating the Tarpics.
This approach is not without precedent. The Small Business Administration has a long-standing program of partnering with private equity managers to deploy capital to small businesses through Small Business Investment Companies, or SBICs.
Various structural protections for the government in the SBIC program, such as fees for capital commitments, redemption periods and priority of capital, can be incorporated as appropriate as private capital begins to compete for access to Tarpic capital.
The key to our plan is that the government would be utilizing its TARP capital in the manner most likely to maximize the value of the toxic assets and the speed of their ultimate resolution.
By contrast, establishing the federal government as lead buyer of bad loans and securities will invariably politicize the clean-up of toxic assets. Instead of bringing to bear the creativity of private managers in maximizing value, the government's so-called bad bank will at least have to navigate the political optics of—if not the actual political interference in—its decisions.
Imagine trillions of dollars in bad residential and commercial real estate mortgages, consumer loans, and corporate debt from every region of the U.S. being worked out by a federal agency under the interested eyes of hundreds of congressmen, senators, and governors, plus unlimited numbers of mayors and political contributors.
At best, an aggregator bad bank will be hampered by the inevitable oversight questions—as to dispositions, corruption, choice of contractors, conflicts of interests, and "fair" representation of interest groups in the process.
At worst, political interference and genuine corruption will increase the cost and timetable of the bailout.
Whatever one may think of the theory of a government bad bank, in practice a bureaucracy managing trillions of dollars of heterogeneous assets is a recipe for disaster, and a likely drag on the re-establishment of functioning markets and new lending for many years. A government bad bank will further crowd out private capital when we need to encourage its deployment to restart lending.
To date, bailout efforts have been focused on major banks and other large traditional financial institutions. The government's efforts may have prevented a complete seizure of credit markets, but they certainly have failed to re-start credit growth.
Perhaps this is no longer a realistic goal for traditional financial institutions. Before our year of collapses, banks increasingly made mostly loans they could sell; it was the vigorous secondary market that provided the assurance of liquidity and valuation needed for the banks to fulfill their role of primary generator of assets.
The Tarpic plan we propose will re-start the secondary market that is now fundamental to the health of the entire financial sector. These new Tarpics may well become the successor healthy institutions that ultimately drive new credit growth.
The government's goal in any effort to work out toxic assets must be to save our financial system, not to save particular banks. Saving the system means restoring as quickly as possible and at lowest possible costs to the taxpayers the flow of credit to businesses and consumers.
Tarpics will be a key first step in the essential process of coaxing private capital back into the financial system for risky assets. Most importantly, for us taxpayers, it will decentralize the monumental task of financial cleanup, offering us our best hope of maximum recovery, quickest resolution, and lowest cost.Related Links Fannie Mae's Last Stand Worst of Times Defending TARP
You sort of knew it was percolating anyhow over in the UK, but it seems to have come to a boil (ahem).
Barclays announced a top-level review of its bonus structure on Monday, amid a growing political clamour in Britain over rewards paid to bankers in the midst of the credit crunch.
Gordon Brown, British prime minister, said he was "angry" that Royal Bank of Scotland - a part-nationalised bank - was preparing to pay out £1bn ($1.5bn) in bonuses. Other ministers urged bankers to forgo their rewards.
The start of the bank bonus season has provoked a wave of anger towards bankers in Britain. On Monday the former bosses of RBS and HBOS will be grilled by MPs on how they led their institutions to the edge of collapse.
After Dick Fuld and the SEC we find it hard to imagine anything would be more entertaining, but we haven't seen Questions to the Prime Minister in a while.
Grade the following statement, made in 2000 by the Honorable Louis Stanton, the judge hearing the Bernie Madoff civil case:
Second, a stock split divides only the outstanding shares of a corporation. "Delaware law, which is controlling under the terms of the Agreement, defines `outstanding' stock as that which can be voted and therefore is `construed to mean stock in the hands of shareholders, not stock in the treasury.'"
(Satterfield v. Monsanto, 88 F.Supp.2d 288, March 27, 2000).
Is His Honor correct?
If not, why not?
Extra Credit: In light of this, is Judge Stanton competent to handle the complex Madoff civil case now before him?
We were, of course, worried when the rumors started that investors in Bill Ackman's "All Target, All The Time" fund might face limits on withdraws. We just knew it wouldn't turn out that way. That wasn't like the Bill we know.
William Ackman told investors in a hedge fund that invests only in Target Corp. he's "deeply disappointed" in its performance, and that those wishing to exit can do so in full next month.
"I apologize profusely for the fund's results to date," Ackman said in an investor letter dated Feb. 8. Ackman also offered a fee waiver for those who invest in his other Pershing Square funds.
Homeowners know that mortgage interest provides a valuable tax deduction, but this year the IRS has sweetened the pot for first time home buyers. The First-Time Homebuyer Credit provides incentive for those who haven’t owned a home in the past three years to buy one before July 1, 2009.
How to Take Advantage of the First-Time Homebuyer Credit
Buy a house between now (back to April 8, 2008) and before July 1, 2009.
- The credit is only good for the purchase of a main home located in the United States.
- Vacation homes and rental property are NOT eligible.
- For a custom built home, the purchase date is the first date you occupy the home.
Only first-time homebuyers or those who haven’t owned a home in the three years prior to a purchase qualify for the credit.
File the new IRS Form 5405, First-Time Homebuyer Credit on an original or amended 2008 return, or on a 2009 return.
- If you buy the home in 2008, you claim the first-time homebuyer credit on your 2008 tax return.
- If you buy the home before July 1, 2009, you can claim the credit on 2008 return, or on your 2009 return.
This credit not only reduces your tax bill dollar for dollar, it’s also fully refundable, which means it can be paid out even if you don’t owe any taxes or the credit is more than you owe.
How Much is the Credit?
The First-Time Homebuyer Credit is 10% of the purchase price of the home, with a maximum available credit of $7,500. It’s the same whether you’re single or married filing jointly. However, the limit is only $3,750 for a married person filing a separate return. If your home cost $75,000 or more, you’ll likely qualify for the maximum credit, but it’s subject to phase-outs (reductions) at incomes over $75,000 .
What’s the Catch?
There’s always got to be a catch, right? In this case it’s that the credit is actually more like an interest-free loan than a true credit. Taxpayers have to repay the credit in equal installments over fifteen years starting the second year after the year the credit is claimed.
To find out if you qualify, and to learn the other rules that may impact your eligibility and decision to claim the First-Time Homebuyer Credit, check out IRS.gov or call your friendly local tax professional!
NOTE: The information here refers to what is already in place. Plans for a more permissive and larger ($15,000 maximum) credit have passed the Senate and could become a reality if the economic stimulus packages is passed into law this week. If those measures pass, the IRS will need to state just how the credit will be administrered.
The new Kindle 2 was released during a press conference in New York this morning.The LA Times reports:
Just like Kindle 1.0, it’ll cost $359…It is .36-inch thick, 25% thinner than the iPhone. Earlier today, the Wall Street Journal broke the news that Stephen King would write a Kindle-only (for now) piece that includes a Kindle-like device. King…read from the work at the (press conference) event.
King’s involvement may say less about where Kindle may factor in the publishing production chain (an inevitable leap, discussions sure to follow) than it does about the author’s willingness to explore new technologies. In August 2008, he launched a Web-only animated series, “N.” For King, who’s made a habit of writing more than his publishers can keep up with, these new venues provide a way of getting his writing out into the world instead of waiting until it’s time for a new book.
But back to the Kindle 2. Its pages turn faster than the old Kindle. It’s 3G, so can download books anyplace with 3G networks. It will read text aloud to you. (Gizmodo was unimpressed and gave the robot-y voice a “meh.”) And it begins shipping Feb. 24.
The six-inch, 600×800 electronic paper display includes 16 shades of gray, compared to the 4 shades available on the original Kindle. Like its predecessor, Kindle 2 does not use backlighting in an effort to eliminate eyestrain and glare.
Kindle 2 also features a redesigned, more portable power charger. With one charge, the Kindle 2 will last up to five days with wireless turned on and for two weeks with wireless powered off, Amazon said.
The revamped e-reader comes with 2GB of memory, which will hold up to 1,500 books. The original Kindle came with 180MB of onboard memory, or about 200 books.
Some people love their Kindles. I’m sure the Kindle 2 will continue to impress. I’m not an early adopter, so I’m waiting around for the Kindle to either evolve into something that rolls up, or for its eye-friendly technology to become one with the Apple iPhone. Amazon certainly seems to be on the right track.
Rush Limbaugh, who understandably has a beef with Barack Obama, who basically said he impedes progress, has mentioned the No Stimulus petition on his show. Found here–and also mentioned on Fox–No Stimulus is exactly what it sounds like: A petition against the stimulus. Here’s the full text: http://nostimulus.com/
Dear Senator:
On behalf of the members of Americans for Prosperity, I am writing to urge you to vote against the so-called American Recovery and Reinvestment Act. Congress should not enact an expensive spending bill under the pretense of stimulus or recovery. No matter which amendments pass, the fundamental approach of dramatically increasing federal debt and spending is a mistake. We therefore urge you to vote NO and will rate a vote against the so-called stimulus as a Key Vote for Prosperity in our Congressional ratings.
As I write this letter, more than 42,000 (ed. 60,000 now) Americans have signed a petition on our web site, NoStimulus.com, and thousands more will likely sign it before you read this letter. They represent a growing majority of the American public who agree with the petition text:
“Congress should not enact an expensive spending bill under the pretense of stimulus or recovery. We cannot spend our way to prosperity, and such an expansion of the federal government will put a crushing burden on taxpayers in the long-term.”
Central planning and bigger government cannot solve our problems. Excessive borrowing to fund consumption was a major cause of our current economic crisis. The first rule of holes is to stop digging, and more than $1 trillion of additional borrow-and-spend big government will only throw more good money after bad. Instead of trying to pick winners and losers from Washington, Congress should cut spending, strip down burdensome regulations and allow individuals and free enterprise to flourish.
We therefore urge you to vote no on the stimulus, regardless of which amendments pass and regardless of any individual provisions that may look attractive.
Sincerely,
Tim Phillips
President
Americans for Prosperity
I imagine the people in charge still put all their faith in the free market and trickle-down economics. I’d like to see Tim Phillips come up with a detailed alternative plan to the stimulus package. I’m talking pages and pages of detail. Then I might consider beginning to listen.
Those of you doing research for a collection of forthcoming memoirs on the topic of being violently gang-raped know all too well that Bank of Amerillwide will be paying out bonuses for last year's work until 2012. Today we've received word that this adorable exercise has an official name. Disappointingly, it's not very fitting or descriptive, though we're sure you people can come up with something better.
Bonus pay, which was down on average about 80%, will be paid through a series of deferred vesting periods with staff set to receive the first 6% of the cash payout next month, followed by a set of subsequent cash payments over the next three years, Financial News has learned.
Seventy percent of the Bank of America bonus pool is being placed into a new plan called Additional Principal Programme, the first third of which will be paid out through a series of quarterly payments this year, followed by a second and third payout in February 2011 and February 2012.
The remaining 30% will be paid through an Equity Deferral Plan, which will be decided on sliding scale depending on an individuals total pay. The first vest from this pool will be next February, with staff receiving a third of their stock, this will be followed by two further vests in 2011 and 2012.
Securitizing debt is a key part of the credit markets, which are in trouble right now. Kai Ryssdal speaks with our senior business correspondent Bob Moon, who is at a securitization conference, about the state of the industry. Source: Marketplace | 9 Feb 2009 | 6:04 pm
The Congressional Budget Office director's blog posted a surprising bit on its blog last week. The CBO writes that the economic stimulus plan now in Congress would actually shrink the economy -- come 2019, the office says, "by 0.1 percent to 0.3 percent on net." Why?
The principal channel for this effect is that the legislation would result in an increase in government debt. To the extent that people hold their wealth in the form of government bonds rather than in a form that can be used to finance private investment, the increased government debt would tend to "crowd out" private investment--thus reducing the stock of private capital and the long-term potential output of the economy.
The negative effect of crowding out could be offset somewhat by a positive long-term effect on the economy of some provsions--such as funding for infrastructure spending, education programs, and investment incentives, which might increase economic output in the long run. CBO estimated that such provisions account for roughly one-quarter of the legislation's budgetary cost. Including the effects of both crowding out of private investment (which would reduce output in the long run) and possibly productive government investment (which could increase output) . . .
The CBO says the stimulus will help in the short run -- big quote after the jump. I'm hoping to look at this more over the next couple of days. Simon Johnson talked us through some of this on Friday. (Thanks to listener Waciuma Wanjohi and NPR's Maria Godoy for the link._
The CBO writes:
In a letter sent . . . to Senators Grassley and Gregg, CBO analyzed the macroeconomic effects of an initial Senate version of the stimulus legislation (the Inouye-Baucus amendment in the nature of a substitute to H.R. 1, which is the House stimulus bill). CBO estimates that the Senate legislation would raise output by between 1.4 percent and 4.1 percent by the fourth quarter of 2009; by between 1.2 percent and 3.6 percent by the fourth quarter of 2010; and by between 0.4 percent and 1.2 percent by the fourth quarter of 2011. CBO estimates that the legislation would raise employment by 0.9 million to 2.5 million at the end of 2009; 1.3 million to 3.9 million at the end of 2010; and 0.6 million to 1.9 million at the end of 2011.
In this economic climate, more consumers are negotiating with companies to lower prices on goods they would have never considered bargaining for before -- from cable prices to high speed Internet to rent. Joel Rose reports. Source: Marketplace | 9 Feb 2009 | 6:04 pm
To understand the economic crisis, you may want to grab a book. There are lots of business books available on the market right now. Kai Ryssdal speaks with Jack Covert and Todd Sattersten, authors of "The 100 Best Business Books of All Time," about which ones you should pick up. Source: Marketplace | 9 Feb 2009 | 6:04 pm
The head of the International Monetary Fund says the world's advanced economies are in a depression. Dan Grech breaks down what exactly a depression means and whether we are in one. Source: Marketplace | 9 Feb 2009 | 6:04 pm
Sports Illustrated's annual swimsuit issue is a big seller, generating 11 percent of the magazine's total revenue. But as advertising dollars disappear, the magazine is relying on more non-traditional places to turn a profit. Ashley Milne-Tyte reports. Source: Marketplace | 9 Feb 2009 | 6:03 pm
The Treasury Department is set to unveil a multibillion-dollar program to strengthen the housing market. Steve Henn explores some of the ways the new program could work. Source: Marketplace | 9 Feb 2009 | 6:03 pm
The idea of the government creating a 'bad bank' to buy up toxic assets faces a major hurdle -- how to finance it. To solve the problem, the government may partner with the private sector to get the bad stuff off the banks' balance sheets. Nancy Marshall Genzer reports. Source: Marketplace | 9 Feb 2009 | 6:03 pm
Remember the Wisconsin school districts that were horrified to learn they had invested $200 million in what are now toxic assets? The latest twist is that they are asking lawmakers for TARP money.
Joseph Kiriaki, executive director of the Kenosha Education Association wrote:
"Based on the similarities between the schools' troubled assets and AIG's troubled assets, shouldn't our schools receive equal treatment"
Kiriaki told me he wants the government to buy their toxic stuff and give them their full $200 million back.
The deal with AIG is more complicated than that though. And the argument was that AIG was too big to fail...
As you may have observed, a lot of heated emotion surrounds the whole BAC/MER deal, Of late, we've been barraged (in a good way!) by emails blistering with anger and a need for revenge, or at least the catharsis associated with letting it all out on the internet (ex. "Thought you'd be interested in my side of the story which is: F that hick Lewis. He wouldn't know what a commode on legs if it was sitting on his face. --J. Thain"). While we would never suggest you use Dealbreaker in lieu of professional counseling, as a full-service site, we must give voices to those who cannot be heard, like a human rights watch group or what have you. If anyone else has a message they'd like to more widely disseminate, send it our way. From the mailbag:
So far, BofA has laid off almost all of its 28 sales and trading first year analysts (5 or 6 remain, some of their desks haven't been through the "deselecting" process.)
For a bank that talked a lot in training about the strength of their "junior pipeline" - they sure don't actually give a shit. This includes firing analysts who were hired through on-campus recruiting programs at Princeton, Georgetown, UNC, Yale, etc.
Incoming analyst class, beware!
The United States Securities and Exchange Commission announced that on February 9, 2009, it submitted to the Honorable Judge Louis L. Stanton, a federal judge in the Southern District of New York, the consent of Bernard L. Madoff to a proposed partial judgment imposing a permanent injunction and continuing relief previously imposed in the preliminary injunction order, entered on December 18, 2008. Madoff consented to the partial judgment without admitting or denying the allegations of the SEC's complaint, filed on December 11, 2008. If the partial judgment is entered by the Court, the permanent injunction will continue to restrain Madoff from violating certain antifraud provisions of the federal securities laws. Also, the proposed partial judgment would continue against Madoff the relief imposed in the December 18, 2008 Order, including the order freezing assets. The proposed partial judgment would leave the issues of the amount of disgorgement, prejudgment interest and civil penalty to be imposed against Madoff to be decided at a later time. For purposes of determining Madoff's obligation to pay disgorgement, prejudgment interest and/or a civil penalty, the proposed partial judgment deems the facts of the complaint are established and cannot be contested by Madoff.
my company has been steadily downsizing since the new year--laying off three or four people (of about 150) every few weeks. i am part of a team that originally had two [people]; my co-[worker] was laid off and as a result, i'm finding myself with twice as much work to do. i have a feeling that many workers "left over" after downsizing are experiencing the same thing--they're having to do the work that the laid off workers would have done, in addition to their own jobs. while my company has laid off people, limited the hours we can work daily, and are considering making salary cuts, they don't yet seem to realize that less time and less employees generally means production will slow down. because of this, i and the other "survivors" are doing more work, in less time, and for less money.
I've so been there, and I'm guessing any number of you have, too. Chart proves it.
This week promises to be a great big economic rodeo, with the stimulus bill moving forward-ish in Congress and Treasury Sec. Tim Geithner set to announce the latest, greatest plan for saving the banks.
Simon Johnson and James Kwak ring in today with a look at the latter, on their Baseline Scenario:
Our unsustainable debt-fuelled boom, in other words, produced both the conditions for a major global financial disaster, and a political strengthening of the people who benefited most from the risk-taking and associated compensation packages that made this disaster possible. Ending the financial crisis is relatively straightforward - a forced recapitalization and change of ownership/management in the banking system - although this will not immediately lead to an economic recovery (more on that here). But seen in deeper political terms, decisive action to restructure large banks is almost impossible. Such action would require overcoming perhaps the single strongest interest group in the United States today.
Johnson and Kwak offer strong medicine for doing that: break up the banks until they're no longer too big to fail. Johnson's coming to a Planet Money podcast near you; meanwhile, don't miss his and Kwak's explainer on national debt.
The New York Times reports on Wikinvest, a wiki designed to give individuals trading advice it hopes will eventually be on par with professionally-trained humans:
Following the model of Wikipedia, the online encyclopedia that anyone can edit, Wikinvest is building a database of user-generated investment information on popular stocks. A senior at Yale writes about the energy industry, for example, while a former stockbroker covers technology and a mother in Arizona tracks children’s retail chains.
Wikinvest, which recently licensed some content to the Web sites of USA Today and Forbes, seeks to be an alternative to Web portals that are little more than “a data dump” of income statements and government filings, said Parker Conrad, a co-founder.
Users annotate stock charts with notes explaining peaks and valleys, edit company profiles and opine about whether to buy or sell. The site is creating a wire service with articles from finance blogs and building a cheat sheet to guide readers through financial filings by defining terms and comparing a company’s performance to competitors’.
One risk of the Wikinvest model is the manipulation of stock information. Wikinvest insures against that by requiring posters to cite sources, removing those who don’t, and ranking frequent, accurate contributors more highly. It also only covers trades associated with corporations valued at $100 million or more.
Wikinvest looks promising. For now, it’s a good supplemental resource, but I can only imagine it getting bigger as its legitimacy grows.
The Obama administration may be near a turning point in U.S. trade policy toward China, leaving industry executives pondering the impact on billions of dollars in global apparel and textile commerce.
At stake is a trading relationship involving $30.4 billion worth of products imported from China from January through November 2008. Industry and government experts speculate that President Obama is set to confront what many believe are China's undervalued currency and unfair trade practices.
In his first weeks in office, Obama and administration officials indicated they could move swiftly on China's currency, but they also said a deepening recession is not the time to engage in a trade war, referring to a "Buy American" provision some Democrats wanted in the economic stimulus package. Obama pledged during the campaign to examine the impact of trade on jobs and the economy, leading executives and experts to predict a new policy that could bring stricter interpretation and enforcement of anti-dumping and illegal subsidy laws, particularly relating to Chinese imports.
The controversial "Buy American" initiative seeks to ensure that only U.S. iron, steel, and manufactured goods are used in infrastructure projects. But the president has signaled that he wants to avoid being seen as a protectionist.
"I think it would be a mistake…at a time when worldwide trade is declining for us to start sending a message that somehow we're just looking after ourselves and not concerned with world trade," Obama said last week during a TV interview. "I think we need to make sure that any provisions that are in there are not going to trigger a trade war."
His remarks came after Canada and the European Union urged the "Buy American" provisions be dropped.
Retailers and apparel brands are producing clothing globally in a quota-free environment for the first time in three years, after the elimination on January 1 of quotas on 34 Chinese apparel and textile import categories that had been established in a bilateral accord in 2005. That agreement came about after global quotas were eliminated and Chinese imports to the U.S. surged.
"Clearly, Obama is looking beyond his campaign rhetoric to the realities of today's world," said Kevin Burke, president and chief executive officer of the American Apparel & Footwear Association. "In the atmosphere we are in right now, do we want to erect protectionist barriers that create a trade war? I don't think Obama wants to be leading a trade war."
The president's statement, however, followed tough talk on China and its currency policies from top administration officials. Treasury Secretary Timothy Geithner told members of the Senate Finance Committee that Obama believes China is manipulating its currency, which provoked strong words from China's premier. Then Vice President Joe Biden said the U.S. would "get blunter" with the Chinese to pressure the economic giant to "play by the rules" on trade and currency. Biden said the administration had not made a determination yet on whether China manipulates its currency.
"It's important to continue engagement with China and not give in to the protectionist sentiments," said Mark Jaeger, senior vice president and general counsel for Jockey International. "It's also important to enforce consistently both U.S. and Chinese obligations under various trade agreements. Trade with China is part of the economic solution, and we need to be sensitive to taking steps that undermine that important relationship."
Frank Kelly, former vice president of international trade compliance and government affairs for Liz Claiborne, and now running his own consulting firm, said Obama isn't a "protectionist" but he thinks the President will "tighten trade issues with China, and I think countervailing duties will be the big thing."
If Democrats in Congress prevail with currency manipulation legislation that could impose sanctions on China, Kelly said it will put "a big air of uncertainty over doing business in China."
Some sourcing executives are undeterred by a change in policy toward China and plan to stay the course.
"The early days of the Obama presidency are important for them to establish some bulkheads, but from our perspective and what's going on in the world, it's a footnote we'll take note of and monitor," said Jeff Streader, senior vice president of global sourcing for Guess Inc.
The company won't create a new strategy in anticipation of any policy changes from the U.S. government, he said. The global recession and mounting problems in China, including rising job losses as consumer demand for apparel plummets, are larger concerns for sourcing decisions, Streader said.
China's currency has been a flash point on Capitol Hill for years, but little action was taken under former president George W. Bush, who vowed to veto most of the legislation and chose to push China toward reform through diplomacy that coincided with the People's Bank of China ending a peg to the dollar in 2005, tying it instead to a basket of currencies, and then seeing the currency appreciate moderately.
China's subsidy programs and contaminated imports have also come under scrutiny and are on the fashion industry's radar because they spawned several pieces of punitive legislation last year that did not gain enough critical mass to move past the House and Senate to Bush's desk. Several members of Congress joined the domestic manufacturing sector in arguing that the yuan is undervalued by as much as 40 percent, which puts U.S. manufacturers at a competitive disadvantage against lower-priced Chinese imports. A more aggressive stance by Obama on China's currency could add impetus to some pending legislation that stalled last year.
"I'm not sure how much we can tell right now" in terms of how Obama will approach the currency issue, said Cass Johnson, president of the National Council of Textile Organizations, which is a member of the China Currency Coalition that has been lobbying for legislation that would make currency manipulation a subsidy and actionable under U.S. trade remedy laws. "But there will be action-provoking incidents soon that will give us more information about how his administration" will address trade and currency issues with China.
Johnson pointed to several barometers the industry is watching, including the Treasury report on currency in April and the anticipated reintroduction of a bill that would define currency manipulation as a subsidy, forcing Obama to take a position.
Most experts predict that Congress will pass legislation punishing China for its currency policy, but it's unclear on how strongly Obama will back it. An aggressive stance against China at a time when the U.S., China and the world is in a global recession might just be the kind of action Obama will try to avoid, at least in the short term. Terse words from China's Premier Wen Jiabao could make a lasting impression as Obama develops his trade policy.
"To allege that China is manipulating its currency exchange rate is completely unfounded,” Jiabao said in London on February 2, according to the official Chinese news agency Xinhua. He said China has been reforming its exchange rate since the second half of 2005, and added, "I think that it is confusing right and wrong when people who have been overspending blame those who lent them the money."
He said the U.S. and China would need to work together to move past the looming global recession.
"Geithner's comments set off some alarm bells in China," said Joseph Fewsmith, professor and director of the East Asian Studies Program at Boston University. "I think the background is that Obama is simply not a known quantity in China. I think the administration is very well aware of our complex and important relationship with China, and I can't imagine that anyone in the administration wants to set out a hard line against China, especially on currency issues, in these difficult economic times."
White House Press Secretary Robert Gibbs indicated last week that any significant determination about Chinese currency will be made this spring when the Treasury Department releases the first of its twice-yearly reports on the topic. Gibbs said Geithner's comments reflected Obama's stance throughout the campaign.
Former trade officials and industry executives are bracing for stronger action against China on several fronts, including anti-dumping and countervailing duty cases, as well as World Trade Organization cases. There is a pending WTO case against China on textile subsidies. Countervailing duties make it more expensive to import goods from countries deemed to be giving their producers inappropriate subsidies. Dumping occurs when goods are shipped into a country below market value or at less than the cost of manufacturing.
"The whole trading relationship with China will come under more scrutiny," said Scott Quesenberry, former special textile negotiator under the previous U.S. Trade Representative, Susan Schwab.
The Bush administration was willing to challenge China through official WTO channels and expressed concern about its currency, but stopped short of publicly labeling China a currency manipulator, he said.
"It is clear that there are political risks on the horizon and companies have got to manage those political risks," Quesenberry said. "It doesn't matter if they are huge multinationals or more limited fashion houses or they are a niche product."
David Spooner, former assistant secretary of commerce for import administration, said Obama's "tough line" on China on the campaign trail and the early signals from the administration indicate "at least a desire to be tougher."
Spooner expects approval of legislation reintroduced by House Ways & Means chairman Charles Rangel that would codify a Commerce Department decision last year to apply anti-dumping laws to nonmarket economies such as China.
"The issue of China and subsidy law will be litigated like crazy at both the Court of International Trade and at the WTO," Spooner said. "We'll also see a spike in anti-dumping and antisubsidy cases in 2009, as well as an increase in executive branch activity."
Altria
Vodafone Group
PPG Industries
Bristol-Myers Squibb
