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Top Analyst Downgrades (CRZO, LDK, LUKOY, MBLX, PLLL)These are some of the top analyst downgrades and negative research calls we are seeing this Thursday morning with about two hours until the market opens:
JON C. OGG Tagged: CRZO, LDK, LUKOY, MBLX, PLLL      Source: 247 Wall Street | 12 Mar 2009 | 11:44 am Madoff 'due to enter guilty plea'Bernard Madoff arrives at court and is expected to plead guilty to all 11 charges linked to his alleged $50bn fraud.Source: BBC News | Business | World Edition | 12 Mar 2009 | 11:43 am Citi Starts Online Broker Coverage (SCHW, ETFC, AMTD)Citigroup has initiated coverage of the discount and online brokerage universe this morning. There is a mix of coverage in the call rather than a positive or negative for the whole group.:
JON C. OGG Tagged: AMTD, ETFC, SCHW      Source: 247 Wall Street | 12 Mar 2009 | 11:37 am World stocks drop after recent rallyEuropean and Asian stock markets were mostly lower Thursday, led down by Tokyo on profit-taking following recent strong gains on signs of recovery in the financial sector. "A late fall...Source: RSS feed - channel BNewsBusiness | 12 Mar 2009 | 11:37 am Stage set for Madoff plea in New York court drama (Reuters)
Source: Yahoo! News: Business | 12 Mar 2009 | 11:37 am World stocks drop after recent rally (AFP)
Source: Yahoo! News: Stock Markets News | 12 Mar 2009 | 11:36 am Hector Sants says bankers should be 'very frightened' by the FSAHector Sants the chief executive of the Financial Services Authority has promised a more "intrusive and direct style of supervision" and warned that bankers should be "very frightened" of the watchdog.Source: Telegraph Finance | 12 Mar 2009 | 11:31 am Questions remain in Madoff dramaBernard Madoff's statement to FBI investigators on December 11 that 'there is no innocent explanation' helps explain his intention to plead guilty at a hearing and the speed with which his case appears to be movingSource: Financial Times - US homepage | 12 Mar 2009 | 11:29 am World markets dip ahead of crucial G20 meeting (AP)
Source: Yahoo! News: Stock Markets News | 12 Mar 2009 | 11:26 am Oil rebounds above $43LONDON (Reuters) - Oil rose above $43 a barrel on Thursday after falling more than $3 in the last two sessions on the back of U.S. data showing a further build in fuel stocks.Source: Reuters: Business News | 12 Mar 2009 | 11:24 am Wall Street points to lower open ahead of data (AP)
Source: Yahoo! News: Stock Markets News | 12 Mar 2009 | 11:23 am Jobless: 4 states above 10%As unemployment soared in January, four states' jobless rates climbed higher than 10%, according to federal data released Wednesday.Source: Business and financial news - CNNMoney.com | 12 Mar 2009 | 11:22 am Second Life on notice: You will be suedSource: Business and financial news - CNNMoney.com | 12 Mar 2009 | 11:19 am BMW 2008 profits collapseGerman luxury auto manufacturer BMW on Thursday reported an 89.5-percent slump in 2008 net profit and a loss for the fourth quarter, with the dividend to be cut by about two thirds. Net...Source: RSS feed - channel BNewsBusiness | 12 Mar 2009 | 11:15 am Stock futures point to drop; retail sales eyed (Reuters)
Source: Yahoo! News: Business | 12 Mar 2009 | 11:13 am Stock futures point to drop; retail sales eyed (Reuters)
Source: Yahoo! News: Stock Markets News | 12 Mar 2009 | 11:13 am Stock futures point to drop; retail sales eyed(Reuters) - Stock futures pointed to a lower open on Wall Street on Thursday, on rekindled fears over the global economic outlook and the stability of the financial system.Source: Reuters: Business News | 12 Mar 2009 | 11:13 am Roche wins Genentech with raised $46.8 billion offerZURICH (Reuters) - Roche Holding AG has struck a deal with Genentech Inc to acquire all outstanding shares in the U.S. biotech group for $46.8 billion, or $95 a share, the Swiss drugmaker said on Thursday.Source: Reuters: Business News | 12 Mar 2009 | 11:11 am Roche wins Genentech with raised $46.8 billion offer (Reuters)
Source: Yahoo! News: Business | 12 Mar 2009 | 11:11 am Madoff heads for court to admit $50bn fraud$Bernard Madoff, the disgraced Wall Street financier, will appear in court today and is expected to plead guilty to a $50 billion ($£36 billion) investment fraud in a move that is likely to see him jailed for the rest of his life.Source: Latest Business News from Times Online | 12 Mar 2009 | 11:06 am Big Pharma's new landscapeWhen Merck's $41 billion acquisition of Schering-Plough was announced Monday, it confirmed a major trend toward consolidation in Big Pharma. The deal came only six weeks after the announcement of Pfizer's takeover of Wyeth for $68 million and as Roche enters into final talks for their takeover of Genentech.Source: Business and financial news - CNNMoney.com | 12 Mar 2009 | 10:58 am Stock rally faces a testAfter its first two-day winning streak in five weeks, Wall Street may have trouble getting that third gain in a row Thursday.Source: Business and financial news - CNNMoney.com | 12 Mar 2009 | 10:58 am UPDATE 2-Saab cuts 750 jobs, says courted by Swedish group* Saab gives notice to 750 employees at Trollhattan plantSource: RSS feed - channel BNewsBusiness | 12 Mar 2009 | 10:55 am Greek terror group: Citibank attacked over crisisA Greek militant group threatened in a statement published Thursday to continue its bombing campaign, saying recent attacks against Citibank were in response to the international financial...Source: RSS feed - channel BNewsBusiness | 12 Mar 2009 | 10:51 am South Carolina: Jobless rate soarsIt's not easy to find a job in South Carolina these days.Source: Business and financial news - CNNMoney.com | 12 Mar 2009 | 10:50 am Bernard Madoff expected to plead guilty in court dramaHe is expected to plead guilty in the austere surroundings of courtroom 24b in New York's federal courthouse.Source: Telegraph Finance | 12 Mar 2009 | 10:47 am Roche to take over Genentech for $46.8 billionSwiss pharmaceutical giant Roche said Thursday it has agreed to buy California-based Genentech for $46.8 billion in a takeover described as the largest in Swiss corporate history. The...Source: RSS feed - channel BNewsBusiness | 12 Mar 2009 | 10:45 am Sants tells City to be 'frightened' of the FSAThe head of the Financial Services Authority (FSA) gave warning today of a new era of tougher and more intrusive regulation as he sought to fend off criticism that the regulator had failed in its mandate to properly police the City.Source: Latest Business News from Times Online | 12 Mar 2009 | 10:44 am Oil prices rebound above $42 in LondonOil prices rebounded back above 42 dollars on Thursday as market attention focused firmly on OPEC's weekend output meeting, traders said. Oil prices plunged on Wednesday after figures...Source: RSS feed - channel BNewsBusiness | 12 Mar 2009 | 10:44 am Iraq shoe thrower jailed for three yearsA Baghdad court has sentenced an Iraqi reporter who hurled his shoes at former US president George W. Bush to three years in prison, a verdict his family claimed was politically motivatedSource: Financial Times - US homepage | 12 Mar 2009 | 10:42 am UPDATE 1-India's Reliance resumes oil output from east coastNEW DELHI, March 12 (Reuters) - India's Reliance Industries Ltd resumed crude oil production from its east coast MA-1 field on March 8 following an emergency shutdown in December, Upstream Regulator V...Source: RSS feed - channel BNewsBusiness | 12 Mar 2009 | 10:39 am Insurer Aegon posts net loss of euro1.2 billion in 4QAegon NV, the Dutch insurer that owns Transamerica in the U.S., reported a net loss of euro1.2 billion ($1.53 billion) in the fourth quarter, due mostly to falling values of investments.Source: RSS feed - channel BNewsBusiness | 12 Mar 2009 | 10:34 am UPDATE 6-Roche wins Genentech with raised $46.8 bln offer(Adds further details on Avastin, valuation; updates shares)Source: RSS feed - channel BNewsBusiness | 12 Mar 2009 | 10:34 am UPDATE 6-Roche wins Genentech with raised $46.8 bln offer(Adds further details on Avastin, valuation; updates shares)Source: RSS feed - channel BNewsBusiness | 12 Mar 2009 | 10:34 am Earnings Watch: Updates, advisories and surprisesA roundup of the latest corporate earnings reports and what companies are saying about future quarters.Source: MarketWatch.com - Top Stories | 12 Mar 2009 | 10:31 am EU imposes duties on biodieselRead full story for latest details.Source: Business and financial news - CNNMoney.com | 12 Mar 2009 | 10:30 am China consumers ready to spend a bit more: surveyBEIJING (Reuters) - Chinese urban consumers are slightly more confident about their future incomes, encouraging them to want to spend a little more and save less, according to a quarterly central bank survey released on Thursday.Source: Reuters: Business News | 12 Mar 2009 | 10:30 am Nintendo: At Least People Can Still Afford Games
Nintendo has been able to buck that trend with its least expensive and smallest product, the DS, or dual screen portable game player. Sales of the electronics product passed 100 million units worldwide this month. Hitting that mark took a little over four years. The landmark may be good news for Nintendo’s portable, but is probably bad news for more expensive products such as the Sony (SNE) PS3 and Microsoft (MSFT) Xbox. The ascent of an inexpensive game from the video console industry’s upstart is another sign that the broad consumer market does not want complex products. They want something cheap, fun, and easy to use. A Nintendo DS costs $129 at Amazon.com. A PS3 runs $400, and the games for the machine are expensive. Which does the nearly tapped out consumer buy? The DS. Douglas A. McIntyre Tagged: MCD, MSFT, SNE, WMT      Source: 247 Wall Street | 12 Mar 2009 | 10:26 am Roche seals $47bn Genentech dealDrugs company Roche agrees to merge with Genentech, buying the remaining shares in the US firm for $46.8bn.Source: BBC News | Business | World Edition | 12 Mar 2009 | 10:11 am Currencies: Japanese yen rallies as economic fears riseJapan's yen makes across-the-board gains in currency trading, rising amid signs the rally in equity markets won't have any staying power and amid renewed worries about the global economic outlook. The dollar gains on the other major currencies. Foreign-exchange traders await word from Switzerland's central bank.Source: MarketWatch.com - Top Stories | 12 Mar 2009 | 10:10 am Unemployment Picks Up Speed While Bailout Slows
On another front, data from the states shows that four now have unemployment rates above 10% and some have recorded joblessness well in excess of 9%. All of those numbers indicate that the recession is picking up speed. At the same time, the rescue packages which are supposed to help salvage part of this year are starting to get bogged down. Several senators have told President Obama that they do not have the votes to pass the newly proposed budget without changes. That could lead to several weeks of debate. Those are weeks that the economy does not have. Instead of one coordinated program to bolster the economy, financial, and credit systems there are a number of piecemeal solutions. Freddie Mac (FRE) yesterday said it would need $30 billion in new funding. AIG (AIG) got billions of dollars in additional assistance and a restructuring of its obligation to the government just last week. The Wall Street Journal is reportingthat several large insurance companies may need substantial aid. Those who may put their hands out include MetLife (MET), The Hartford (HIG), and Prudential (PRU). Instead of being able to get out in front of problems like unemployment, foreclosures, and the faltering banking and insurance industries, the government is falling inexorably behind. The remaining question is whether there is any chance at all that it can catch up, even a little. Douglas A. McIntyre Tagged: AIG, FRE, HIG, MET, PRU      Source: 247 Wall Street | 12 Mar 2009 | 10:06 am Stage set for Madoff plea in New York court dramaNEW YORK (Reuters) - Bernard Madoff, accused of running the biggest fraud in Wall Street history, is expected to plead guilty on Thursday in what is shaping up to be a courtroom drama featuring denunciations by investors and a renewed push by prosecutors to jail him immediately.Source: Reuters: Business News | 12 Mar 2009 | 9:54 am Mamma Mia Bollywood and 3D prove a recession buster for CineworldViewers flocking to 3D films the recordbreaking blockbuster Mamma Mia and Bollywood releases helped Cineworld profits more than double.Source: Telegraph Finance | 12 Mar 2009 | 9:51 am Liechtenstein eases bank secrecyLiechtenstein is to conform with OECD rules on tax co-operation and swap data with governments to combat tax fraud.Source: BBC News | Business | World Edition | 12 Mar 2009 | 9:50 am Roche Buyout: For Genentech (DNA), A Game Well Played
After months of bargaining, Genentech got a price of $95, a 26% premium over where it traded before the first offer was made. What is more extraordinary is that, while the bickering over price went on, the DJIA dropped 40%. A big premium became, by comparison to the markets, a huge one. So, the Genetech board hung on to get a better deal and Roche gave in and will write a check for $47 billion. Genentech played a good game. The firm always knew that Roche desperately needed to buy it. Genentech has a number of very valuable drugs, and they are biotech products which are hard to re-engineer. Roche, like most other Big Pharma operators, has products which will lose patent protection soon. Generic drug companies will step in and offer must less expensive versions of those treatments. Big Pharma is dying. Biotech has become the future of the industry. Last year, Genentech made $5.3 billion of profit on $13.4 billion in sales. It has more than $9 billion in cash and long-term investments and adds to that pile each quarter. That speak volumes. Douglas A. McIntyre Tagged: DNA      Source: 247 Wall Street | 12 Mar 2009 | 9:44 am Stanford will not talk to inquiryBillionaire American financer Sir Allen Stanford refuses to talk to US regulators investigating his alleged $8bn (£5.6bn) fraud.Source: BBC News | Business | World Edition | 12 Mar 2009 | 9:41 am Roche clinches takeover deal with GenentechRoche has struck a deal with Genentech agreeing to buy all the remaining shares in the US-based pharmaceuticals company for $46.8 billion ($£34 billion).Source: Latest Business News from Times Online | 12 Mar 2009 | 9:34 am Profits increase at Standard LifeLife assurer Standard Life reports a better-than-expected 6% rise in annual profits, helped by cost cuts.Source: BBC News | Business | World Edition | 12 Mar 2009 | 9:33 am UK recession winners: Top fiveNot all consumerdependant businesses have come unstuck during the recession some retailers and leisure firms have come into their own as people become more discerning about where and how to spend their limited disposable income. Here are five recession winners:Source: Telegraph Finance | 12 Mar 2009 | 9:26 am London Markets: Mineral extractors pressure London's top index; FTSE down 0.9%London shares lose ground on Thursday as mineral extractors give back some recent gains and banks also decline but stocks remain well off lows hit earlier in the week.Source: MarketWatch.com - Top Stories | 12 Mar 2009 | 9:18 am Gates regains top spot in Forbes rich listMicrosoftfounder Bill Gates is the richest man again, overtaking investor Warren Buffett, as the global financial meltdown wiped $2,000bn from the net worth of the world's billionaires, Forbes Magazine saidSource: Financial Times - US homepage | 12 Mar 2009 | 9:12 am Why Buy A New Car When You Can Build One?
It is not unusual for the typical American car owner to have a 5-year-old vehicle with 100,000 miles on it. At this point the car will not have a warranty and generally it is owned outright by the driver. Car owners are waiting much longer before trading their old autos in for new ones. A generation ago, it was not unusual for middle class Americans to buy a new model every two or three years. That is no longer an option even with car prices and incentives as attractive as they have ever been. The American consumer is frankly too terrified to take on a monthly payment that could be in the hundreds of dollars to buy or lease a new car. The car owner who has a 2002 Mercury Grand Marquis probably paid about $30,000 for it. The car is probably worth $5,000 now. A person with modest experience and skills with auto repairs can rebuild that car for about $5,000. The car will need new breaks. It will cost $500.00 to replace the breaks with all the parts. Approximately $800 will be required to replace most of the moving parts in the air conditioning system. Another $200 will get the owner a new exhaust system. It is likely that the alternator will also need to be replaced after 5 years for $250. The internal light bulbs will run $3 each. Broken head lights are another $50 each. The big expenses are major repairs to the drive train and internal engine. A new fly wheel, along with an axle shaft, differential bearing, and wheel bearing could cost as much as $900, all required to rehab that drive train. The internal engine has cylinder heads which cost $600, sealed pistons at $250, a head gasket set for $215, a timing set for $265, and a $60 oil pan. A new set of reasonably priced tires will cost $400. Finally the repair manual will cost $200. The total cost of upgrading the car so that it will run another 2 years, of course, assumes that the owner has about $3000 worth of tools. People clearly do not replace everything that is run down in their cars all in one day. That is at the core of the dilemma that the car companies face. It is probably less expensive to repair a car over time than it is to buy a new one. This change in the habits of American car buyers will not go away as the recession ends. Consumers have learned a too painful lesson. There is nothing attractive enough about anything that is new, whether it is a car, a digital camera or a boat to justify financial anxiety. By most estimates sales of light vehicles in the United States in 2009 will drop to about 10 million. Three years ago that number was closer to 16 million. Even if the economy begins to expand at the same rate at which it was in the middle of this decade, the potential car buyer has a long list of reasons to keep the one he has. The dilemma facing the car companies is that owners in the recession hope that they can keep their cars operable by spending a few hundred dollars a year on repairs.       Source: 247 Wall Street | 12 Mar 2009 | 9:12 am FTSE 100 treads water as gains for property companies offsets weaker minersThe FTSE 100 down 17pc so far this year treaded water in early trading in London as declines among mining shares were offset by a better performance from property companies.Source: Telegraph Finance | 12 Mar 2009 | 9:08 am The Internet Becomes Ma Bell’s Step Child
Comcast sells phone service known as VoIP, Voice over Internet Protocol, which began to be commercially used in 1995. The cable company now has 6.5 million subscribers talking over the internet instead of traditional landlines which have been used for more than 100 years. VoIP has damaged the tradition phone operators because it is marketed for as little as $25 a month and is available to almost anyone with cable television service. The cable TV sales forces simply tell customers that they can watch movies and talk on the phone for one fee. At that point, the traditional phone company often loses a client. The rise of VoIP is a nearly perfect defense of monopolies. Since AT&T stopped being the national phone company, cable operators have become providers of voice services and telephone companies now market home TV service and broadband. Through the three decade process that turned Comcast into a phone company and Verizon and AT&T into television providers, the customer has hardly been well-served. To have an internet connection, phone line, cell phone, cable TV, satellite TV, and a home alarms system, a typical household probably has to keep customer service contact information for half a dozen companies. A broken phone is often due to a faulty TV wire or internet connection. Douglas A. McIntyre Tagged: CMCSA, T, VZ      Source: 247 Wall Street | 12 Mar 2009 | 9:05 am DiscontentKazakhstan's people suffer as its economy flopsSource: BBC News | Business | World Edition | 12 Mar 2009 | 9:04 am Energy projects power Amec profitsAmec the energy and power consultancy and engineering group reported a 66pc rise in annual profit and said it was expecting a better 2009 despite increased market uncertainty.Source: Telegraph Finance | 12 Mar 2009 | 9:04 am Banks to claw back £27bn by raising ratesBritain's mortgage lenders could make almost £27bn extra this year by widening the margin between what they charge borrowers and pay to savers according to new research.Source: Telegraph Finance | 12 Mar 2009 | 9:03 am Buffett sees buying opportunities in U.S.: report(Reuters) - Warren Buffett said he sees buying opportunities in the United States for his company, Berkshire Hathaway Inc , as prices fall and bidders drop out, Bloomberg reported.Source: Reuters: Business News | 12 Mar 2009 | 8:57 am Indications: U.S. stock futures point to lower Wall Street openU.S. stock futures head south on Wall Street Thursday, with stocks overseas lower on the view a sustained turnaround for stocks can’t be called yet, while Genentech agrees to a buyout worth $48.6 billion from Roche.Source: MarketWatch.com - Top Stories | 12 Mar 2009 | 8:52 am Most Asian markets down on global economic uncertaintyMost Asian markets end lower Thursday, giving up gains from the previous session, as concerns about the global economy persist.Source: MarketWatch.com - Top Stories | 12 Mar 2009 | 8:47 am Carrefour profits hit by downturnProfits at the world's second-biggest retailer, Carrefour, fell 45% last year after it was hit by the economic slowdown.Source: BBC News | Business | World Edition | 12 Mar 2009 | 8:42 am Genentech accepts Roche bid at $95 a shareRoche and Genentech end their protracted takeover effort with a friendly accord under which the Basel health care major will pay $95 a share for the 44% of the South San Francisco biotech giant it doesn't already own.Source: MarketWatch.com - Top Stories | 12 Mar 2009 | 8:40 am G20 needs to urgently tackle the drop in global tradeGlobal trade has so far fallen a third of the way towards the 65pc drop seen in the Great Depression.Source: Telegraph Finance | 12 Mar 2009 | 8:39 am London stocks down at open (AFP)
Source: Yahoo! News: Stock Markets News | 12 Mar 2009 | 8:39 am Asia Markets: Asian investors may find a refuge in goldThe appeal of the gold market may be luring more investors in Asia as weak economic data zap investor sentiment in the region, particularly in Japan and China, but analysts are still waiting for gold to truly shine.Source: MarketWatch.com - Top Stories | 12 Mar 2009 | 8:37 am Upbeat Morrisons sees profit riseThe UK's fourth-biggest grocer Morrisons says it is making "good progress" as it reports a 7% rise in annual profits to £655m.Source: BBC News | Business | World Edition | 12 Mar 2009 | 8:31 am Traffic jam to cash flowEgyptian man tells how he made money from Cairo's congestion, as part of the BBC Africa economy weekSource: BBC News | Business | World Edition | 12 Mar 2009 | 8:28 am Inmarsat cautiously optimistic as profits jumpInmarsat the UK satellite company that provides communications services said 2008 earnings rose 55pc on growth across all business sectors and that it's "well positioned" against an economic slowdown.Source: Telegraph Finance | 12 Mar 2009 | 8:20 am New rise in foreclosures 'a shock'The foreclosure picture suddenly darkened again in February.Source: Business and financial news - CNNMoney.com | 12 Mar 2009 | 8:18 am Morrisons is recession winner as profits jumpMorrisons has emerged as a clear winner from recession Britain after attracting more than half a million new customers a week.Source: Telegraph Finance | 12 Mar 2009 | 8:16 am Aegon focusing on capital, costs after $1.5 billion lossDutch insurer Aegon says it will continue to focus on cutting costs and freeing up capital in 2009 as it confirms it lost 1.18 billion euros ($1.51 billion) in the fourth quarter of 2008.Source: MarketWatch.com - Top Stories | 12 Mar 2009 | 8:16 am Roche reaches $47bn Genentech dealThe Swiss drug group raised its offer for the US biotechnology company to $95 a share to secure a friendly deal, which comes amid a wave of consolidation in the pharmaceuticals sectorSource: Financial Times - US homepage | 12 Mar 2009 | 8:08 am Media Digest 3/12/2009 Reuters, WSJ, NYTimes, FT, Bloomberg
Reuters reports that the world economy is shrinking as the G20 meeting approaches. Reuters reports that US foreclosure filings were up last month. Reuters writes that Ford’s (F) deal with the UAW cut hourly wages to about $55. Reuters reports that Twitter is not seeking a merger. Reuters reports that Cuomo says Merrill may have mislead Congress. Reuters reports that the World Bank says the global economy will shrink 1.2% this year. The Wall Street Journal reports that the next big decision is whether insurance companies get bailouts. The Wall Street Journal reports that Nigeria’s growth is being hurt by lower oil prices. The Wall Street Journal reports that Obama and Geithner got low grades for running the economy according to a survey by the paper. The Wall Street Journal reports that the US is seeking a bigger war chest for the IMF. The Wall Street Journal reports that Ebay (EBAY) is moving back from online retailing. The Wall Street Journal reports that Nortel is in talks to sell units to rivals. The Wall Street Journal writes that Japan’s economic contraction was less than originally thought. The Wall Street Journal reports that Freddie Mac (FRE) posted at $24 billion loss. The Wall Street Journal writes that Google (GOOG) will tie ads to web behavior. The Wall Street Journal reports that Apple (AAPL) introduced a talking iPod. The Wall Street Journal reports that National Semiconductor will cut staff. The Wall Street Journal reports that mortgage lenders want a change in the homeowner bailout plan. The Wall Street Journal reports that joblessness rose sharply in several states. The Wall Street Journal reports that jobless claims are a good proxy for the recovery. The Wall Street Journal reports that the recovery will weigh on China’s four big banks. The Wall Street Journal reports that Fidelity is launching funds for investors who want to avoid some of the market turmoil. The Wall Street Journal reports that TALF investors are worried about collateral damage. The Wall Street Journal reports the the government is considering giving Boeing (BA) and Northrup each a part of a US tanker deal. The Wall Street Journal reports that Toyota (TM) is worried about the health of parts suppliers. The Wall Street Journal reports that global demand for smartphones is down. The New York Times reports that Google (GOOG) will release a free phone manager. The FT writes that the US wants IMF funds to triple. Bloomberg reports that “Libor creep says credit markets risk freezing on distrust of policy making.” Douglas A. McIntyre Tagged: AAPL, DNA, EBAY, F, FRE, GOOG, TM      Source: 247 Wall Street | 12 Mar 2009 | 8:00 am Europe Markets: Oil producers, mineral extractors weigh in EuropeEuropean shares lose ground on Thursday, with oil producers and mineral extractors among the weakest performers and banks also coming under a bit of selling pressure.Source: MarketWatch.com - Top Stories | 12 Mar 2009 | 7:54 am Liechtenstein eases bank secrecy rulesLiechtenstein has further eased its strict bank secrecy rules by committing to OECD standards on transparency and information exchange in tax mattersSource: Financial Times - US homepage | 12 Mar 2009 | 7:50 am Victims worry Madoff will take secrets to graveDisgraced financier Bernard Madoff is expected to plead guilty Thursday to charges related to running a massive pyramid scheme. But many of his ruined investors aren't pleased; they worry that he will take his secrets to prison with...Source: New Zealand Herald - Business | 12 Mar 2009 | 7:50 am Morrisons profits up 7% on cheap food demandWm Morrison, Britain's fourth-largest supermarket chain, has defied the recession to announce a 7 per cent surge in full-year profits, as growing numbers of customers flocked to stores to buy its cheaper range of food.Source: Latest Business News from Times Online | 12 Mar 2009 | 7:48 am Shell names new finance chiefOil giant Royal Dutch Shell on Thursday names Simon Henry as its next chief financial officer, succeeding Peter Voser who is set to become the group’s chief executive in July.Source: MarketWatch.com - Top Stories | 12 Mar 2009 | 7:41 am Mexico's most wanted man makes it onto the Forbes rich listMexico's most wanted man Joaquin Guzman makes it to Forbes' latest list of the world's billionaires.Source: BBC News | Business | World Edition | 12 Mar 2009 | 7:35 am Auto slump weighs on February retail sales (Reuters)Reuters - Slumping demand for new cars likely drove U.S. retail sales into the red during February after a surprise January rise, according to a poll of 76 economists by Reuters.Source: Yahoo! News: Business | 12 Mar 2009 | 7:26 am Auto slump weighs on February retail salesWASHINGTON (Reuters) - Slumping demand for new cars likely drove U.S. retail sales into the red during February after a surprise January rise, according to a poll of 76 economists by Reuters.Source: Reuters: Business News | 12 Mar 2009 | 7:26 am Asia Markets 3/12/2009
The Nikkei fell 2.4% to 7,198 The Hang Seng was off a fraction to 11,930. The Shanghai Composite dropped .2% to 2,134.       Source: 247 Wall Street | 12 Mar 2009 | 7:19 am Australian stocks: Market up under 1pcMELBOURNE - Australian share market opened higher after early gains from the big miners and a marginal rise on Wall Street overnight. At 1010 AEDT, the benchmark S&P/ASX200 was 27.2 points, or 0.84 per cent higher at 3271.6,...Source: New Zealand Herald - Business | 12 Mar 2009 | 7:07 am Carl Icahn versus Lions Gate: It's warTalks over the corporate raider's request for board seats break down after he refuses to stop accumulating stock. A proxy fight is looming. ...Source: RSS feed - channel BNPaperBusiness | 12 Mar 2009 | 7:00 am The revival of Mt. WatermanThe family-run ski resort, which reopened last year after a six-season closure, has a small-town feel, and that's the way regulars like it. ...Source: RSS feed - channel BNPaperBusiness | 12 Mar 2009 | 7:00 am Madoff investors await his pleaFor some alleged victims, an expected admission of guilt offers little satisfaction. Today is the day that people...Source: RSS feed - channel BNPaperBusiness | 12 Mar 2009 | 7:00 am No benefit to motorists in a 'hot fuel' fix, state panel saysCalifornia Energy Commission says the costs of compensating for gasoline temperature would outweigh the gains in fuel volume.Amid allegations of conflict of interest, the five members of the California Energy Commission voted unanimously Wednesday to tell lawmakers there was no benefit to fixing service station pumps to end an inequity that may be costing Californians millions of dollars a year. Source: L.A. Times - Business | 12 Mar 2009 | 7:00 am Big L.A. landlord Meruelo Maddux may file for bankruptcyThe company reports steep losses in the fourth quarter and says it is unable to meet its debt payments.Meruelo Maddux Properties Inc., the largest landlord in downtown Los Angeles, on Wednesday reported steep losses in the fourth quarter and said it may file for Chapter 11 bankruptcy protection. Source: L.A. Times - Business | 12 Mar 2009 | 7:00 am Obama vows tougher financial regulations while pressing nations on stimulusU.S. calls for foreign governments to boost the total commitment to the International Monetary Fund by $500 billion to assure economic aid for poor nations.President Obama on Wednesday called for greater efforts by foreign governments to stimulate their economies in the fight against the global recession. But he also pledged an equal commitment to toughen regulation of financial institutions, a priority in Europe and elsewhere. Source: L.A. Times - Business | 12 Mar 2009 | 7:00 am Investors profiting from -- and fixing -- the financial crisisThe latest development in the mortgage market fomenting outrage in the streets and condemnation across the media spectrum is the spectacle of rich investors -- Wall Street traders, hedge fund operators, even former executives of the detested Countrywide Financial Corp. -- buying up delinquent home loans, reworking terms for borrowers, and selling them off to new investors at a handsome profit.Source: L.A. Times - Business | 12 Mar 2009 | 7:00 am China exports plummet a record 26% in FebruaryThe larger-than-expected figure heightens worries among investors over the economy. But a separate report indicates that the government's stimulus plan may be starting to work. ...Source: RSS feed - channel BNPaperBusiness | 12 Mar 2009 | 7:00 am Stocks extend rally on Wall StreetThe major indexes post gains for a second straight day, with financial shares again leading the way. The Dow edges up 3 points.Most major stock indexes finished higher Wednesday, building on Tuesday's big rally and fueling hope that Wall Street's turnaround has some legs to it. Source: L.A. Times - Business | 12 Mar 2009 | 7:00 am Obama vows tougher financial regulations while pressing nations on stimulusU.S. calls for foreign governments to boost the total commitment to the International Monetary Fund by $500 billion to assure economic aid for poor nations. ...Source: RSS feed - channel BNPaperBusiness | 12 Mar 2009 | 7:00 am The revival of Mt. WatermanThe family-run ski resort, which reopened last year after a six-season closure, has a small-town feel, and that's the way regulars like it.At Mt. Waterman ski and snowboard park, the vintage two-seater chairlifts are a bit on the rickety side, and equipment pokes through the snow near a huddle of no-frills buildings and plastic picnic tables scattered halfway up the slope. Source: L.A. Times - Business | 12 Mar 2009 | 7:00 am Madoff investors await his pleaFor some alleged victims, an expected admission of guilt offers little satisfaction.Today is the day that people who entrusted their money to Bernard L. Madoff have anxiously awaited. Source: L.A. Times - Business | 12 Mar 2009 | 7:00 am Carl Icahn versus Lions Gate: It's warTalks over the corporate raider's request for board seats break down after he refuses to stop accumulating stock. A proxy fight is looming.Setting the stage for a nasty proxy fight, activist shareholder Carl Icahn halted talks with Lions Gate Entertainment Corp. over his request for board seats. The breakdown occurred Wednesday after the investor refused to stop accumulating stock in the film and television studio. Source: L.A. Times - Business | 12 Mar 2009 | 7:00 am Irvine-based Fisker will run its plug-in on Canadian batteriesAdvanced Lithium Power of Vancouver will provide the batteries for the high-end Karma. Fisker Automotive Inc.'s...Source: RSS feed - channel BNPaperBusiness | 12 Mar 2009 | 7:00 am China exports plummet a record 26% in FebruaryThe larger-than-expected figure heightens worries among investors over the economy. But a separate report indicates that the government's stimulus plan may be starting to work.Chinese exports plunged a record 26% in February, far more than analysts' expectations, raising concerns among some investors that the world's third-largest economy may be worse off than they thought. Source: L.A. Times - Business | 12 Mar 2009 | 7:00 am Freddie Mac seeks $30.8 billion in aid after massive 2008 lossThe government-controlled mortgage company also announced a replacement chief executive. Freddie Mac, facing mounting...Source: RSS feed - channel BNPaperBusiness | 12 Mar 2009 | 7:00 am Freddie Mac seeks $30.8 billion in aid after massive 2008 lossThe government-controlled mortgage company also announced a replacement chief executive.Freddie Mac, facing mounting damage from the U.S. housing crisis, said Wednesday it would ask the government for nearly $31 billion in additional aid after posting a gargantuan loss of more than $50 billion last year. Source: L.A. Times - Business | 12 Mar 2009 | 7:00 am Stocks extend rally on Wall StreetThe major indexes post gains for a second straight day, with financial shares again leading the way. The Dow edges up 3 points. ...Source: RSS feed - channel BNPaperBusiness | 12 Mar 2009 | 7:00 am NZ stocks: Market little changedThe New Zealand share market ended little changed on a day with a lot of news. A smaller than expected cut in the official cash rate to 3 per cent from 3.5 per cent moved the currency market but not the share market. A maintained...Source: New Zealand Herald - Business | 12 Mar 2009 | 6:16 am Currency: Dollar climbs after OCR decisionThe New Zealand dollar leapt when the Reserve Bank of New Zealand cut the official cash rate today by less than many investors expected. The adoption of a "glide path" from here on in by the central bank has investors thinking...Source: New Zealand Herald - Business | 12 Mar 2009 | 6:14 am World's billionaire club falls 30%, Forbes says in its annual tallyThe richest got poorer last year, relatively speaking. Bill Gates is No. 1 again.Source: RSS feed - channel BNPaperBusiness | 12 Mar 2009 | 5:40 am NZ's richest man climbs world's billionaire's listNew Zealand's richest man Graeme Hart has scorched up the rankings of the world's billionaires, according to Forbes Magazine. The 53-year-old's estimated worth this year was US$4.5 ($9) billion, down from US$5.1b last year, but...Source: New Zealand Herald - Business | 12 Mar 2009 | 5:34 am Asia-Pacific markets on the defensiveHONG KONG, March 12 Japanese shares fell 1 per cent on Thursday and other Asian markets were on the defensive as investors viewed rare gains this week as overdone in light of a shaky global economy and...Source: RSS feed - channel BNPaperBusiness | 12 Mar 2009 | 4:57 am U.S. foreclosure filings rise in FebruaryNEW YORK (Reuters) - U.S. home foreclosure activity resumed its upturn in February after a brief dip, despite numerous programs meant to quell the record pace of failing mortgages, RealtyTrac reported on Thursday.Source: Reuters: Business News | 12 Mar 2009 | 4:28 am Protect Your Money: A Special Report (Magazine Cover)Editor’s note: As the market’s woes drag on into 2009, investors are looking for something—anything—to serve as an alternative to stocks. In this special report, SmartMoney examines three of those alternatives—bond funds, cash accounts and gold—to see where the opportunities and the pitfalls lie.
When economic trouble threatens, Americans start nesting—staying at home and wrapping themselves in a cocoon of security and familiarity. Nightclubs and theme parks lose ground to board games and TV marathons. Sleek steel coffee tables give way to plush, puffy sofas. Sayonara, designer sushi; howdy, Crock-Pot chili. Read the rest of our special report:
SMARTMONEY ® Layout and look and feel of SmartMoney.com are trademarks of SmartMoney, a joint venture between Dow Jones & Company, Inc. and Hearst SM Partnership. © 1995 - 2009 SmartMoney. All Rights Reserved. Source: SmartMoney.com | 12 Mar 2009 | 4:00 am The Pitfalls of Prepaid Cards (Deal of the Day)Credit-card issuers are cracking down on cardholders, slashing their credit limits and even closing their accounts. As a result, many skittish consumers are turning to prepaid cards. On the surface, prepaid cards seem like a "safer" way to spend. Backed by major issuers, such as Visa (V), MasterCard (MC) and Discover (DFS), these cards can be used just like regular credit cards -- with the exception that holders can only spend up to the amount they've deposited into their account. There's no risk of overcharging (and getting hit with an over-the-limit fee) or potential damage to a credit score since the cards don't represent a line of credit. In fact, parents have long turned to prepaid cards as a tool to teach teenagers how to spend responsibly. But there are drawbacks to this convenient shopping option. Among them: hefty fees that can add up to hundreds of dollars if you're not careful. Here's what you need to know: Fees, fees and more feesPrepaid cards may not come with the sky high late-payment fees or APRs of traditional credit cards, but they do carry a slew of other charges. “[Prepaid card issuers are] pretty creative with coming up with random fees,” says Curtis Arnold, founder of credit-card information site CardRatings.com. Cardholders can get hit with a fee when they activate their card, call customer support, withdraw money from an ATM, refill their card or order a replacement card. To activate Visa's prepaid RushCard, issued by Manufacturers and Traders Trust Company, for example, you'll have to shell out $19.95. Lose your Green Dot MasterCard or Visa issued by Columbus Bank & Trust? That will be $10 to replace it. And if you want to put more money into your Account Now Visa card issued by Palm Desert National Bank, well, that will cost you $4.95. “We encourage consumers to compare [these cards]. Read exactly how the fees work, and find a card that suits your specific needs,” says Jennifer Tramontana, spokeswoman for the Network Branded Prepaid Card Association, an industry trade group. (See our table for some of the better prepaid card deals currently being offered). Settling payment disputes can take much longerFirst, the good news: Prepaid cards come with the same zero liability loss protection that Visa or MasterCard-branded credit cards do, meaning your funds will be protected if the card is lost. However, the process to dispute charges for defective merchandise or unauthorized purchases is much harder to navigate with a prepaid card than it is with a credit card. When you see a mistake on your monthly credit card bill, for example, you can withhold your payment. But with a prepaid card, you’ve already made the payment and now have to try to get the money back. So while you may get the same protections, it will take a lot longer to get reimbursed, explains Ben Woolsey, marketing and consumer research director at CreditCards.com. The FDIC may not insure your lossesYou might find comfort in the AmEx or Visa logo on the face of the card, but what really counts is whether the issuing bank is FDIC-insured, says Arnold. The FDIC insures the deposits of more than 8,000 banks and financial institutions across the country. Should the bank that issued your card go under, the FDIC will reimburse you up to $250,000 per account (until Dec. 31, 2009, after which up to $100,000 in deposits will be covered). To find out if your card is FDIC insured, check the issuing bank's web site, or the FDIC’s site. It will do nothing for your credit scoreUnlike credit cards, prepaid cards have no bearing on your credit score -- and that can be both a good and bad thing. “With a few exceptions, you’re not going to get reported to the credit bureaus [by using prepaid cards]", says Arnold. The problem is that while these cards can't harm your score, they also can't help it either. Regular credit card usage, paying bills on time and having a lengthy credit history all factor into a healthy credit score. But no matter how long you use that prepaid card, it just won't count. Prepaid Cards That Will Cost You LessThere are plenty of prepaid cards out there for consumers to choose from. Here are a few whose fees are a little more palatable than others.
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Editor’s note: As the market’s woes drag on into 2009, investors are looking for something—anything—to serve as an alternative to stocks. In this special report, SmartMoney examines three of those alternatives—bond funds, cash accounts and gold—to see where the opportunities and the pitfalls lie.
Investors have been trained to think of stocks as the way to get big returns. But a growing group suggest that investing-thrill seekers should look at, of all things, bonds. Some bonds are priced so low (and sporting yields so high), it’s as if investors expect the company or state agency that issued them to go bankrupt this year—an unlikely prospect. Throw in the fact that bonds tend to outperform stocks during recessions and investors might have the chance to race away with profits without taking a huge amount of risk.
To be sure, some types of bonds have already picked up steam, and not all areas of the market look cheap. Last fall investors flocked to Treasury bonds, the debt issued and guaranteed by Uncle Sam, because regardless of how bad the economy gets, the Feds can always print more money to pay off the bonds. In all, they bought about $1.5 trillion of these types of bonds, driving up the price and creating unattractive yields. Indeed, the price of long-term government bonds jumped nearly 34 percent last year, which has essentially shut out investors from many of the deals.
But some investment pros contend that other bond breeds—ones issued by companies or state and local governments—are still bargains. Big, stable firms like IBM and PepsiCo recently issued 10-year bonds paying more than 7.5 percent—more than two percentage points higher than the rates they offered on similar debt issued not even a year earlier. Analysts say even high-yield bonds (often called junk bonds) are attractive, even after some recent gains. “Some of these things are trading as if the world is going to end,” says Keith Berlin, vice president of fixed income with the Fund Evaluation Group, an institutional asset manager in Cincinnati. Municipal bonds—the debt cities and states issue to cover the cost of building roads, sewers, hospitals and other projects—also look promising. These types of bonds normally offer lower yields than a corresponding Treasury bond, because an investor usually doesn’t have to pay taxes on interest from a municipal bond. But right now munis as a group are offering much higher yields.
Naturally, bonds still have drawbacks. If the recession considerably worsens, healthy companies and municipalities could run into financial trouble, hindering their abilities to pay off debts and likely depressing bond prices even further. Bonds could also underperform if the economy recovers quickly, which could send investors racing to the stock market. Bonds “won’t be exciting” if stocks stage a big rally, says Don Whalen, a financial planner in Alpharetta, Ga., who still advises clients to keep a balanced portfolio of stocks and bonds.
Nevertheless, bonds could still provide better returns with less risk than stocks in 2009. With investors already showing a renewed interest in higher-yielding bonds, experts say one way to go is bond funds, which tend to be less volatile than owning individual bonds. For our picks, we looked for funds specializing in five areas of the bond world that have the best prospects. The five we selected all have solid long-term records and reasonable expenses. They should be reliable earners for these rocky times.
Osterweis Strategic Income (OSTIX)
Expense Ratio: 1.3%
Yield: 6.2%
Assets: $224 million
5-year Average Annual return: 3.2%
Comment: Designed to weather all market cycles, the fund recently has been adding short-term corporate debt.
Osterweis Strategic Income rocketed out of the gate in 2003, gaining 16.6 percent—four times the bond market’s returns that year—and since then it’s beaten 98 percent of other multisector funds, with annualized gains of 3.4 percent. The fund’s manager, Carl Kaufman, holds a wide range of bonds, from corporate debt to “busted convertibles,” bonds that, had they met certain conditions, would have been transformed into stock. Certain types of bonds fare better in different credit and interest-rate cycles, he says, and he adjusts the mix based on his view of which types have the most upside and least risk. Lately, he’s found attractive yields on short-term debt issued by companies such as Home Depot and Xerox. He generally sticks with firms that have strong cash flow and ample money to pay off their debts. Last fall he bought software maker Novell, which had $1.1 billion in cash and securities on hand—10 times the amount needed to cover its debts.
Since the fund holds only about 50 bonds, it can take a significant hit if only a few investments go awry. The fund was down 5.5 percent last year because Kaufman says he was too quick to invest in high-yield bonds. And the ongoing credit crisis has made it difficult for many corporate bond fund managers to buy corporate debt at the lowest prices. If the credit crunch persists, it could potentially dampen future returns. Still, Kaufman’s style has paid off over the long term. The companies he invests in don’t have to beat Wall Street earnings projections or even post a quarterly profit, he says. “We just have to get the general direction right.”
T. Rowe Price Tax-Free Income (PRTAX)
Expense Ratio: 0.5%
Yield: 4.8%
Assets: $1.7 billion
5-year Average Annual return: 2.0%
Comment: The managers combine shoe-leather site visits with bond analysis to outperform rival funds.
When he was deciding whether to invest in the bonds of a retirement community last year, Konstantine Mallas didn’t just look at the community’s balance sheet and bond price. Mallas donned a hard hat and toured the community’s construction site in Rockville, Md. He talked to the site’s foreman to make sure the project was on schedule and, most important, on budget. The shoe-leather approach helps Mallas decide which municipal bonds to buy for the T. Rowe Price Tax-Free Income fund that he comanages with Mary Miller. The fund invests in bonds issued by states and localities to build big projects, such as highways and high schools.
The fund’s research-intensive focus has paid off. Mallas’s fund has outperformed Morningstar’s national municipal bond fund category every year for the past five years. Last year’s 5.8 percent decline was still 3.6 percentage points higher than the average rival fund’s. Muni bonds, as a group, were hammered last year, as some investors worried that the recession would hurt the ability of some states and towns to cover their debts (unlike the federal government, local governments can’t print more money). But that sell-off has pushed the yields on many muni bonds to all-time highs. The yields on some 30-year muni bonds are now 24 percent higher than comparable 30-year Treasury bonds. Yields on munis normally are 10 to 15 percent lower than a comparable Treasury. Mallas’s fund currently yields 4.8 percent, and considering munis’ tax-favored treatment, that equates to an effective 7.5 percent after-tax yield for people in the highest tax bracket.
Most of the fund’s bonds are high-quality securities, rated AA, on average. In today’s tough economy, Mallas particularly likes revenue bonds issued to fund essential services, like water and sewer systems. He recently added bonds issued by the water company in DeKalb County, Ga., and New York’s Long Island Power Authority. Through the new economic stimulus plan, states will be getting money and that could lead to a rally in munis, which would push prices higher and yields lower. Even so, Mallas expects munis’ yields to remain relatively compelling for a while. It will certainly keep him busy in a market often stereotyped as sleepy. “There’s something different about every credit,” he says. “You can’t rest on your laurels.”
Janus High-Yield (JAHYX)
Expense Ratio: 0.9%
Yield: 11.5%
Assets: $392 million
5-year Average Annual return: -0.1%
Comment: “Junk” bonds form the core of this fund’s holdings, although it avoids the highest yielding (and riskiest) debts.
After last year, investors might cringe at the mere mention of high-yield bonds, the debt from companies that are considered to be in some sort of financial distress. As a group, high-yield bonds were down 26 percent in 2008, the worst performance of any bond class. But now junk bonds yield, on average, almost 20 percent, and many pros think that type of potential makes the group attractive. For investors who can handle the risk, Janus High-Yield might be a good choice.
Run by Gibson Smith and Darrell Watters, the fund mainly holds bonds with a B rating or above. Those are still high-yield bonds, but they aren’t the highest-yielding, riskiest loans. The fund has beaten 92 percent of other high-yield funds over the past five years, but it’s not coasting on past performance. Janus recently added more bond analysts and new computer-modeling systems to better manage risk. “We don’t want to put our shareholders in harm’s way,” says Smith, who also oversees Janus’s fixed-income team.
One tactic that’s working: sticking with asset-rich firms. For example, Smith and Watters built a stake in Dole, the fruit company that has been stymied by higher tariffs in Europe. If things get worse, the company’s land holdings in Hawaii could be sold to repay bondholders. In this kind of market, “you want downside protection,” says Smith.
Granted, investors might still be in for a roller-coaster ride. Analysts expect the default rate on corporate bonds, now at nearly 4 percent, to accelerate considerably. Historically, returns for high-yield bonds have been very low when defaults have crept up, says Martin Fridson, a high-yield investing veteran and head of Fridson Investment Advisors. And a big collapse of one high-yield company—like General Motors—could trigger another group sell-off.
For his part, Smith acknowledges that “a lot of companies won’t survive” the credit crunch. But the fund has been durable, beating its benchmark index in the last two bad debt markets. The fund’s 11.5 percent yield offers a buffer against another downturn in the market. “By nature I’m risk-averse,” says Gibson, who likes to ski in his leisure time, though never off-trail. That cautious approach just might be exactly what an investor wants in a high-yield manager.
Templeton Global Bond (TEGBX)
Expense Ratio: 1.3%
Yield: 8.3%
Assets: $11.1 billion
5-year Average Annual return: 6.0%
Comment: The fund invests heavily in foreign country debt. It also aims to profit off interest-rate swings.
Hanging out with government officials isn’t unusual for Michael Hasenstab, 35, the manager of the Templeton Global Bond fund. He can often be found in capitals from Malaysia to Mexico, talking interest rates and currencies with the country’s top bankers and finance ministers. Racking up the frequent-flier miles appears to have helped. Since he took over the fund in 2001, it has beaten 96 percent of other world bond funds, with a 10.5 percent annualized return. Even last year, when most rival funds lost money, it gained 5.8 percent. “Last year was the best stress test we could have imagined,” Hasenstab says.
Hasenstab mainly holds government bonds, including sizable stakes in the debt of emerging nations. But he will move into currencies or sovereign debt (bonds issued in a foreign currency). In 2008 his moves included a bet against the euro, which paid off handsomely in the second half of the year, and buying government bonds from New Zealand and Korea. It’s an eclectic approach, he says, that “allows us to minimize risks of any individual countries.”
That may be true, but some of his moves may give investors pause. He bought Iraqi sovereign debt a couple of years ago, at the height of the country’s civil strife, and he currently holds long-term Russian bonds, denominated in dollars. “We think the probability of default by Russia is fairly low,” he says. And the Iraqi debt was profitable, he adds. Still, other funds with less exposure to emerging markets may not be as risky, notes Morningstar analyst Eric Jacobson. And getting all the currency moves right, Jacobson says, “can be tricky.”
For his part, Hasenstab argues that his ability to bet against currencies and interest rates helps him profit off different stages in foreign business cycles. But he does admit to one downside in his style. “There’s no magic pill for the jet lag,” he says.
Dodge & Cox Income (DODIX)
Expense Ratio: 0.4%
Yield: 5.7%
Assets: $13.8 billion
5-year Average Annual return: 2.2%
Comment: A bread-and-butter bond fund, it invests in high-quality corporate bonds and government-backed mortgage securities.
Dodge & Cox likes to keep things simple in its eponymous bond fund. Run by an investment committee, the fund doesn’t use derivatives or leverage and mostly sticks with the meat and potatoes of the bond world: high-quality corporate debt, government-backed mortgage securities and a smattering of Treasurys thrown in the mix. “We believe in building yield into the portfolio,” says Dana Emery, a Stanford graduate and committee member who helped start the fund in 1989. “But we try to do it in a careful way.”
“Caution” is a big buzzword in the bond world. But at Dodge & Cox, prudence really seems to be ingrained in the culture—and it pays off for shareholders. If a bond makes it into the fund, the team aims to hold it at least three years, even if it takes a short-term dip. Going back to the late ’90s, the fund has gained an average of 5.1 percent a year. Those aren’t eye-popping returns. But as an intermediate-term bond fund, it isn’t designed to shoot the lights out, and it has beaten 86 percent of other funds in its category over the past decade. “They take a long-term view,” says Morningstar analyst Dan Culloton. “And they’re very consistent.”
The fund has long been a fan of the cable business and added to its positions last year, when yields on some cable-company bonds rose near 9 percent. With millions of customers and monthly income streams, the cable companies should have no trouble paying their debts, says Emery. She likes railroad bonds for similar reasons. “They’re basically oligopolies,” she says of companies like CSX and Union Pacific. And the bonds in the fund are backed by collateral such as multimillion-dollar locomotives.
If there’s a downside to this approach, it’s that the managers don’t like to trade much. Annual turnover is only 24 percent, which keeps expenses down, but it hurt in last year’s fast-moving market, when corporate bonds sold off and investors flocked to Treasurys. The fund lost just under 1 percent, while its benchmark index gained 5.2 percent. “Not having enough exposure to Treasurys hurt us,” Emery says, blaming the underperformance on “dysfunction” in the bond market. Assuming things return to normal, though, the fund should get back to its winning ways.
Read the rest of our special report:
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“Can the stock market go to zero?” someone asked me the other day. No, I told her, because the assets and earning power of companies will always be worth something, and because as some companies fail, others become stronger, and because if prices keep plunging, dividend yields will eventually grow too fat to ignore.
Then I walked away quietly second-guessing myself, and just for a moment slipped into a financially nihilistic day dream about stocking an Adirondack cabin with canned beans and drinking water.
Some well-known companies have gone to zero, though, and not just ones that are in or teetering near bankruptcy. Companies like Eastman Kodak (EK), Humana (HUM) and RealNetworks (RNWK) have negative enterprise values. That’s the cost to buy all of their shares and pay off their debt while applying their available cash to the transactions. Seemingly, a buyer who can afford all of the shares can end up being paid to own these companies.
Of course, these companies aren’t truly free, or even necessarily cheap. Let’s look at possible explanations of the price for each.
In Eastman Kodak’s case, its net cash stockpile of more than $1 billion dwarfs its stock market value of just over $600 million, but investors are likely eyeing the rate at which the company is burning cash. Eastman was unprofitable when it entered this recession. Management thinks sales will drop 12% to 18% this year. The company is laying off thousands of workers, but in the short term, layoffs cost money. Standard & Poor’s recently lowered Eastman’s debt rating to six notches below investment grade, citing its cash consumption.
Humana has a whopping $6.6 billion in cash and short-term investments, compared with a stock market value of just $3.5 billion. But those numbers mislead because of how health insurers account for money likely to be paid to their insured in coming quarters. Humana lists accounts payable of $4.7 billion, which for purposes of figuring out the company’s takeover price, ought to be added in. The result is a low but positive enterprise value — perhaps warranted, considering all the talk in Washington about making health care more affordable at the expense of health plan profits.
RealNetworks is debt-free, holds cash and short-term investments of around $370 million and is valued by the stock market at $274 million. Barbara Coffey, who covers the stock for Kaufman Brothers, an investment bank, says the negative enterprise value is perhaps owed to the perception that the company is quickly burning cash, since earnings from a joint venture with Viacom don’t show on RealNetworks’ financial statements as operating cash flow. That aside, the company still competes with Apple (AAPL) for digital music sales. That seemed a difficult enough business even before consumers stopped spending.
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Editor’s note: As the market’s woes drag on into 2009, investors are looking for something—anything—to serve as an alternative to stocks. In this special report, SmartMoney examines three of those alternatives—bond funds, cash accounts and gold—to see where the opportunities and the pitfalls lie.
Before the market crashed, John Hayes never gave much thought to cash. A retired car salesman from Chicago, Hayes used to go online to see how his stock and bond funds were doing. But now he's scouring the Web for better rates and higher yields -- anything to eke out a decent return on his $350,000 cash stockpile.
It isn't easy. The yield on Hayes's money-market fund has dropped by more than a third, and the once-high rate on his savings account has fallen too. He could earn more on a certificate of deposit, but he'd rather not tie up his money. And he's certain inflation is lurking, ready to whittle away his purchasing power if he can't earn some interest. It's more than a little frustrating, he says: "I want to be conservative, but I'd still like to get something."
Preach it, brother. Investors are sitting on a record amount of cash, only to wonder what the heck to do with it. The credit crisis shook the bond market right along with stocks, leaving cash as the most reliable place to seek short-term shelter. There's nearly $4 trillion in money-market funds, and bank deposits grew 11 percent last year, to almost $8 trillion, as savers bailed out of other investments. And cash isn't losing its cachet anytime soon: In response to the market meltdown and recession, the savings rate is expected to grow to more than 5 percent in 2009, higher than it has been in 15 years.
But the financial crisis has also made the calculus of cash more complicated than ever. The Federal Reserve has cut rates and kept them low, making it harder for investors to earn a decent return. The average money-market fund now earns just 0.77 percent, or $770 a year on a $100,000 investment, and some savings accounts pay less than 0.5 percent. At the same time, the crisis has made some banks so desperate for deposits that they're paying more than 2.5 percent on some high-yield savings accounts. That could be a difference of $2,000 a year on a $100,000 account.
More challenging still, the options for cash have exploded. Between banks and money funds, investors have roughly 9,200 places to put short-term cash and access to all of them via the Internet. Brokers, meanwhile, are selling from separate lists of CDs, with their own terms and conditions. And no matter what you choose, there can be penalties, fees and disclosures that you'll miss without a magnifying glass. Even financial professionals find it confusing, says Bob Laura, a wealth manager at First National Bank in Howell, Mich., who's been buying CDs for clients recently. "You have to be extra careful."
Especially now. Forecasters predict the economy will get worse before it gets better, so investors may find themselves on the sidelines for a while. Another reason cash reigns today: With unemployment on the rise, having an emergency fund no longer feels like a luxury you can get around to eventually. So with an eye toward safety, returns and the fine print, we looked at three ways to keep your cash without losing your shirt.
With bailouts and financial scandals in the headlines daily, Richard Dukas started to worry that, with more than $1 million in one bank, he'd put too many eggs in one shaky basket. So one day last fall, during the 18-block walk from Manhattan's Port Authority Bus Terminal to his office, Dukas stopped at three banks, buying a $100,000 six-month certificate of deposit at each. No comparison-shopping for Dukas, who owns a public-relations firm in New York. "I just wanted it to be safe," he says.
CDs, also called time deposits, are essentially a contract with a bank. In exchange for a set rate, the customer agrees to leave money in the bank for a defined period. Every bank sets its own rates, and experts say it's fair to assume that the higher the rate, the more a bank needs your money-possibly because it's in trouble. Rates on 12-month CDs currently hover just under 3 percent, but Jason Sherman, a small-business owner in Oak Park, Ill., recently found a 4.35 percent interest from GMAC Financial, part-owned by beleaguered General Motors. (A GMAC spokesperson says the bank is well capitalized.)
Sherman figures that even if the bank were to go under, the Federal Deposit Insurance Corp. would cover his losses. Investors who bought what were called CDs from the now-infamous Stanford International Bank weren't so lucky. The government says the bank put the money into illiquid assets and that it didn't have FDIC insurance. An FDIC spokesperson says investors can check the FDIC Web site to see if their bank is insured. If it is, the government insures deposits and interest up to $250,000; the limit is scheduled to drop back to $100,000 after Dec. 31.
Buying from a broker, however, means learning a whole new playbook. Brokerages buy CDs from banks and sell them to investors; then the CDs trade like bonds. Hold them to maturity and they're like any other CD: You get your principal back, plus interest. But investors who need the money early are at the mercy of the market-a fact that brokers, who don't devote a lot of time to managing cash, aren't always diligent about explaining. Unlike banks, which spell out penalties for cashing in before the due date, brokerages typically sell your CD to someone else. If the interest rates are higher than when you bought it, you could lose money. That's why experts recommend buying CDs that come due in three-month increments; that way, an investor will always have some cash coming in.
For more than 40 years, money-market funds offered the ease of savings accounts, the privileges of checking and rates better than both. It didn't matter how the funds worked-they just did. But the credit crisis has sent yields to new lows. "We've been shocked," says Adam Miller, a financial planner in Colorado who has used such funds to hold his clients' cash for years. "Now we've got to be more creative."
Most investors know that money funds invest in different kinds of short-term debt. Some buy only Treasury bills, others invest in government agency debt, while prime funds add corporate bonds to the mix. It is corporate debt that forced the notorious Primary Reserve fund to break the buck. Its investors lost 3 percent, their supposedly liquid cash was frozen for months, and money-fund investors everywhere ran for the übersafety of Treasurys, driving yields almost to zero. The Treasury Department, trying to stop a panic, insured investors' money-fund balances as of Sept. 19. (The program is set to expire Apr. 30 but could be extended.)
These days many money-market funds pay less than $100 a year on a $100,000 investment, and fund companies are waiving fees and expenses to keep investors from losing money. Some, like JPMorgan, intend to allow their Treasury and government funds to invest in corporate bonds that are now, as a result of the financial crisis, also insured by the FDIC. That might mean higher yields-so the firms could stop waiving those fees and expenses. But will they be safe? Connie Bugbee, of money-fund research firm iMoneyNet, says she's not worried. But, she adds, "there are still some risks. These are not Treasury securities." Investors who are comfortable with those risks might be better off in prime funds, but even there, the top fund is paying just 1.38 percent.
Even with the crummy yields, money funds still have advantages. Brokerage money funds offer flexibility for investors who want to jump quickly in and out of the stock market, and wealthy investors in high-tax states might prefer a tax-exempt money fund, which invests in that state's municipal bonds. But otherwise, Bugbee recommends savings accounts and CDs, noting that even a 2 percent yield would beat money funds.
As the economy worsened, Linda Mastaglio, a small-business owner in Van, Texas, made sure she had six months of expenses, $70,000, set aside in case of emergency. But over the course of last year, her savings account rate dropped to 1.8 percent-a far cry from the 3 percent she got when she first socked away the money. Mastaglio can't find a better-paying Plan B, and she isn't pleased: "How frustrating is this?"
Plenty of banks today advertise high rates for everyday products like checking and savings accounts. But as Mastaglio found, there's usually a catch. Some accounts offer a high rate, but just for the first three months; others require high minimums to qualify for the best rate. In some cases, the rate drops if customers use their debit card too seldom-or too often. There's nothing nefarious about all this, but it makes for a lot of fine print to read.
Still, investors willing to put up with the rules can find good deals in unusual places. Long considered investment dogs, some interest-bearing checking accounts are now offering competitive payouts. At ING Direct, depositors with a balance of $50,000 earn 1.75 percent. (Slightly better than an ING savings account, but not as much as most six-month, $50,000 CDs.) About 560 community banks offer rates on checking of up to 6 percent, even on low balances-as long as the investor banks online and uses a debit card a few times a month. It's all up to the bank, says Gallup consultant Douglas Berlon. "They're all looking at their own balance sheets and pricing accordingly."
Finding the highest rates isn't hard. Bankrate.com keeps a daily tally and rates banks' supposed safety with a five-star system. At MoneyAisle.com, banks bid for customers' accounts. Only highly rated banks participate, says CEO Mukesh Chatter, but combing through the terms and conditions is up to the user. One sneaky fee to watch out for: pricey ATM charges that could eat up your interest. In 2008 investors paid almost $3.50, on average, to use an out-of-network ATM. Hit the cash machine twice a week with fees like that and at 2.5 percent interest, you'd need to maintain a balance of more than $14,000 just to cover your annual charges.
Read the rest of our special report:
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Today, Bernard Madoff is expected to plead guilty to fraud, perjury and other felonies in connection with an alleged $65 billion Ponzi scheme. Ever since this fraud was exposed, there’s been no shortage of scolds willing to point out the red flags -- obvious in retrospect. But an investment scam -- or a cheating broker -- is a lot harder to spot in the moment. Here are five signals to dig deeper before investing:
Outta sight returns: Other than a CD or a bond held to maturity, there’s no investment on the market that guarantees a steady return. And there’s no investment that only goes up. Anyone promising a consistent, high rate of return, year in and year out, isn’t giving you the full story.
Vague on the details: Anyone managing your money should be willing to explain exactly what investments she’s buying and why -- in language you can understand. A lot of investment professionals retreat to jargon, which doesn’t necessarily make them cheaters, but if your request for details in plain English isn’t respected, that’s a bad sign.
Mind games: When the Consumer Fraud Research Group listened to hundreds of tapes of scam artists pitching investments, they found that the psychological push was strong. Watch out for sales people who promise exclusivity -- "not everyone can get this product, you know" -- or scarcity -- "and it won’t be available forever." While all sales tactics have an element of pressure or persuasion, no reputable advisor should object to you taking time to think through your options.
Missing documents: Every stock and mutual fund has a prospectus; every bond has an offering circular. In spite of so much advice to the contrary, few people ever read these documents. Fine. They should at least exist, and your broker should be willing and able to make them available before he takes your money.
You know it in your gut: Many Madoff investors acknowledged they suspected he wasn’t doing what he said he was. They just didn’t think he was stealing. And the returns were too good to walk away. In fact, most investment fraudsters tip their hands in one way or another -- or in several.
They’re counting on investors to be greedy enough to quash any reservations.
Need a second opinion? The Financial Industry Regulatory Authority built a Scam Meter to tell you just how many red flags that “sure thing” raises.
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YOU PROBABLY ALREADY know that selling your home at a profit provides one of the greatest tax breaks around. Singles can avoid federal income taxes on gains of up to $250,000, and married couples (filing jointly) can exclude up to $500,000. Of course, to qualify you must have owned and used the property as your main residence for at least two of the past five years.
But what if your ownership period was shorter than that and you sold last year? Fact is, you could still be eligible for at least a partial break on your 2008 return. Tax law stipulates that if you sold your home because of your job, health considerations or certain unforeseen circumstances (such as a divorce or separation, a pregnancy that results in multiple births or the death of someone whose primary residence is your household), you qualify for a prorated (in other words, reduced) gain exclusion. And this prorated exclusion will probably still be enough to shelter your entire gain.
Example: Say you and your spouse sold your home last year after owning it for just 18 months. The reason for the sale: job transfer. Luckily for you, the home appreciated even during the short time you lived there (a rarity these days). Under the prorated gain-exclusion rule, you and your spouse can exclude up to $375,000 of profit on your joint return. Here's the math: You owned and used your old home for 18 months, instead of the required 24. Divide 18 by 24, and you get 75%. Three-quarters of the "normal" $500,000 joint-return allowance equals $375,000. Not too shabby — in most cases, that should be more than enough to completely shelter your gain from any federal tax.
The tax results would be the same if the sale of your home were necessary because of health reasons. (If, for example, you developed chronic knee problems and were forced to sell your two-story colonial and move into a one-story ranch-style home.) Just be sure to get a letter from your doctor to back you up should you get audited. And keep that letter with your permanent tax records.
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Editor’s note: As the market’s woes drag on into 2009, investors are looking for something—anything—to serve as an alternative to stocks. In this special report, SmartMoney examines three of those alternatives—bond funds, cash accounts and gold—to see where the opportunities and the pitfalls lie.
Dr. James Comazzi recently made an unusual purchase for his 13 employees. The Sonora, Calif., cardiologist sold $200,000 of mutual funds in the employee pension plan and used the proceeds to buy gold coins. He sees the new investment, now stored at a bank, as an insurance policy against tough times.
The rush is on. Across the country ordinary Americans are buying gold as if they’re hard-core “goldbugs,” the longtime fans who believe the precious metal is always the best investment. Spooked by the stock market crash and the deepening recession, investors bought a net $9.7 billion worth of gold last year through exchange-traded funds, according to the World Gold Council.
Anxious buyers are also scooping gold coins as fast as the government can produce them. From September 2008 through January, the U.S. Mint sold 816,500 American Eagle gold coins—more than triple the sales from the same period a year earlier—and is now rationing some types of coins until it can catch up with booming demand. Gold dealers say demand skyrocketed immediately after the bankruptcy of brokerage giant Lehman Brothers in mid-September. “Investors are scared,” says David Beahm, vice president for economic research at Blanchard & Co., a large New Orleans–based coin dealer. “They’re looking for something that won’t go to zero overnight.”
Gold is often thought of as the currency of last resort, the one thing that retains its value when stocks, currencies and everything else are falling apart. But while the precious metal isn’t about to go to zero, it has a remarkably unreliable history. Yes, gold has more than tripled its value since 1999, trouncing the Standard & Poor’s 500 stock index. But gold’s long-term track record as an investment has been much shakier—inconsistent at best and a huge money loser at worst.
And in a puzzling twist, when stocks and the financial system were falling apart this past fall, gold prices fell hard, more than 30 percent from March through October. Whether gold, which trades at about $900 an ounce, (and briefly broke $1,000 in late February), will continue its decade-long climb is a multibillion-dollar question now that individuals are selling stocks, bonds and even houses to stock up on the precious metal.
The fascination with gold as a currency certainly isn’t new. The indestructible yellow metal has been used in coins since around 550 B.C. The United States has used paper money since the country was founded, but until 1933 savers could still bring U.S. paper money to the bank and exchange it for gold. However, gold has taken a backseat to paper currency since 1971, when President Nixon stopped pegging the value of the U.S. dollar to a fixed amount of gold. Gold buying surged around 1980, when the metal price soared as people sought something that would retain value during a period of rampant inflation. But when inflation waned, gold began a steady, two-decade-long price decline.
But gold investing has surged again, spurred by the ongoing financial crisis, both buyers and dealers say. Professional money managers also have turned to gold in increasing numbers. Steven Rogé, comanager of the Rogé Partners fund, bought gold through an ETF in November for the first time, seeking a hedge against inflation. Gold is viewed as good insurance because it should, in theory, retain its value even if inflation eats away the purchasing power of the dollar. Rogé thinks inflation could rise to 8 percent a year in three to five years, as the government spends hundreds of billions of dollars of borrowed money to jump-start the economy.
It’s the mom-and-pop investors, not the pros, who are causing problems for the U.S. Mint. The Mint has sold so many gold coins that it keeps running out of gold blanks—the metal discs that the Mint strikes with an eagle, buffalo or other image to turn it into a legal coin. One of the companies that makes the blanks for the Mint, Sunshine Minting, has more than doubled its gold production capacity in Coeur d’Alene, Idaho, and hired 15 new employees to handle the extra gold-related work, says Tom Power, the company’s president. Even so, he admits, “we’re way, way behind on trying to meet physical demand.”
Delays at the Mint have made it tougher for both suppliers and retail customers to get the gold they want. Wholesaler Michael Kramer had been used to an armored car pulling up outside his New York City vault, dropping off bullion and coins as often as three times a week. Now, he says, he gets only one delivery a week. At U.S. Coins in Houston, customers have had to wait nearly two weeks for the delivery of their gold, compared with less than a week before demand spiked last fall, says assistant manager Nick Koutsodontis.
But is gold really worth all the fuss? Last fall, when economic fears mounted and the stock market tanked—just the conditions that might ordinarily cause a run-up in gold—the spot price of gold inexplicably dipped. Gold hit a closing high of $1,003 an ounce in March 2008 on the collapse of Bear Stearns and inflation concerns, and fell to as low as $682 in October, even as global demand for gold bars was up 69 percent over the third quarter of 2007. Theories abound regarding what happened. Some say the massive deleveraging process—the unwinding of financial positions by hedge funds and banks—artificially pushed down the price of gold and other assets. Indeed, hedge funds were forced to sell high-quality assets, including gold, to meet margin calls and investor redemptions.
As long as the economy stays weak, some analysts expect gold to retain its luster. Inflation could return as the economy absorbs all the dollars injected into it by the U.S. government, potentially making gold a good hedge. Some professional investors are using gold as a placeholder because they don’t find any of the major currencies attractive, says Robert C. Doll, global chief investment officer of equities for BlackRock, an asset-management firm.
For his part, Kramer, the gold wholesaler, doesn’t care about gold’s actual price. He makes money off the spread, or the difference between what the Mint charges him and what he charges his customers. The Mint never increases the markup it charges Kramer over the spot price of gold, but Kramer has been able to increase his price to dealers. “Everyone’s making more money,” Kramer says. “Business is fun when it’s like this.”
Read the rest of our special report:
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Investors had been looking for a rally for weeks when they finally got one Tuesday. But that 379-point jump was short-lived. The Dow Jones Industrial Average struggled to post gains during the proceeding trading session. This up-and-down market has proven to be a difficult one to forecast. Here is a sampling of what some experts at the big brokerage houses had to say about the current market environment.
Who's Talking: Liz Ann Sonders, chief investment strategist, and Brad Sorensen, sector analyst, Charles Schwab
The Gist: Your portfolio’s most recent tumble probably makes the word "recession" start to sound almost optimistic. With the market at levels not seen since the mid-1990s — even after factoring in Tuesday’s pop -- more economists say we may be moving away from the “R” word (recession) and into the “D” word (depression). So, what’s the difference? Not much, according to Charles Schwab (SCHW). Sonders and Sorenson think the market may not bounce immediately, but that doesn’t mean it won’t bounce at all. And whether we end up in a deep recession or a mild depression, Schwab’s investing strategy will still hold, the analysts say. By Sonders’ and Sorensen’s estimation, the market’s most recent death spiral may have more to do with negative reactions to Obama’s budget proposal than the oncoming of a deep, drawn out depression.
So, assuming the market doesn’t crash and burn, whither to your portfolio? Sorensen recommends tech stocks, which still have good balance sheets and heaps of cash to invest in streamlining their businesses and products. Next up: healthcare. Investors over-reacted to the president’s decision to cut Medicare reimbursements, he says. The sector still boasts strong balance sheets and healthy dividend yields. On the fixed-income side, the strategist thinks now maybe be the time to trade cash or Treasuries for higher yielding alternatives like muni bonds, since state and local governments will start raking in federal stimulus money. And for a bit more juice to your returns, says Sorensen, look to corporate bonds.
Who's Talking: Jeffrey Saut, chief investment strategist and managing director of equity research at Raymond James & Associates
The Gist: Last week we brought you Saut’s recommendations for how to call the market bottom. This week, Saut backtracked a bit. He says there may not be the obvious “pornographic plunge” in the market that he previously described. Instead, there are two ways the bottom could play out: a “bang” or a “whimper.” The bang involves a selling climax, similar to the market lows of 1987. The “whimper,” he says, would be more similar to the bottoming of the market in 1974, when the market dried up gradually and then sputtered into a rally. Saut doesn’t venture a guess at which bottom scenario is in store, but he does think “the nadir is near.” Raymond James’ market sentiment readings are more bearish than ever. So whether the market ends with a whimper or a bang, which part of the investing world will recover first? Corporate bonds and copper have already bottomed, says Saut, so next in line should be stocks.
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AP - Dramatic changes in the global economy may merit restoring a federal rule aimed at preventing a massive plunge in a stock price caused by a rush of short sellers, the head of the Securities and Exchange Commission said Wednesday.
$$$ Economic gloom hits men harder than women [Reuters]
$$$ Madoff's Refusal to Admit Conspiracy Said to Have Scuttled Deal [Bloomberg]
$$$ Freddie asks Treasury for $30.8 bln after big quarterly loss [MarketWatch]
$$$ Cuomo Says Merrill Misled Congress [WSJ]
$$$ Audit Integrity Says, "I Dare You..." - Who Audits The 300 Worst Companies? [TRA]
Seriously, what the hell is the point if you can't cancel your return trip to the United States after being indicted there on charges of tax evasion and trading with Iran, remain on the FBI's most wanted list for years and years before finally snagging a presidential pardon, lose millions by investing with J. Ezra Merkin who, in turn, invested in Madoff, and still keep your goddamn super secret metals company secret?
Lifting the Veil at Glencore [The Wall Street Journal]
Steel Dynamics, Inc. (Nasdaq: STLD) gave updated guidance reading for its first quarter tonight. It is hard to get excited about the metals sector and Steel Dynamics in particular.
The company now expects a loss of -$0.40 to -$0.45 EPS rather than its previous earnings forecast of $0.05 to $0.10 EPS. The company says that this is due to continued weakness in market conditions.
The company did note that an estimated $70 million, almost $0.25 off of EPS, is related to non-cash inventory adjustments required to reflect current market conditions of the Flat Roll Division. This is driven by weaker-than-expected shipping volumes and continued weakness in the metals recycling segment.
It has also maintained that demand for steel products remained soft through February, causing lower production rates which were as low as 30% at some plants. The company’s steel operations are expected to report a pre-tax profit for the first quarter, but metals recycling is not.
Steel Dynamics is not offering any hope ahead. It calls its 2009 outlook “Clouded” and it can’t project volumes or financial metrics. It seems that its prior forecast for 2009 earnings to be comparable or close to 2008 will be more challenging. Our own take is that this may be an understatement of the year.
It claims that an improved cost structure and efficient operational strength will generate stronger margins and a “much improved earnings outlook” as its liquidity position continues to improve. Good luck on that, at least for the time being.
Steel Dynamics stock was down 4% at $8.55 today, and it fell by another near-10% to $7.70 in the after-hours session. Its 52-week trading range is $5.18 to $40.92.
JON C. OGG
Tagged: STLD
AP - Investors struggled but managed to turn Wall Street's best performance this year into a two-day advance. Stocks ended with modest gains Wednesday but the Dow Jones industrial average still recorded its first two-day climb since Feb. 5-6. The buying was far more subdued than on Tuesday when Citigroup Inc.'s upbeat assessment of its business sent investors rushing into the market, in part to cover bets that stocks would continue to slide.
AP - Investors struggled but managed to turn Wall Street's best performance this year into a two-day advance. Stocks ended with modest gains Wednesday but the Dow Jones industrial average still recorded its first two-day climb since Feb. 5-6. The buying was far more subdued than on Tuesday when Citigroup Inc.'s upbeat assessment of its business sent investors rushing into the market, in part to cover bets that stocks would continue to slide.
Two gainers in a row. Things are looking up!
The Obama Portfolio (Since Inception): +2.69%
Earlier: The Obama Portfolio
On today's Planet Money:
-- Nationalizing banks wouldn't cripple the economy, says Raghuram Rajan, former IMF chief economist and current University of Chicago professor, but it would be a step too far.
-- This week, Adam Davidson asked for your input on where to place blame for the economic crisis. Martin Wolf of the Financial Times reveals his answer.
-- When store owners run into trouble, they sometimes ask for a break on rent. Oklahoma City real estate guy Jim Parrack of Price Edwards and Co. tells us the trick to fielding requests.
Bonus: Unemployment by state, after the jump.
Download the podcast; or subscribe. Intro music: Ladyhawk's "I Don't Always Know What You're Saying." Find us: Twitter/ Facebook/ Flickr
Four states -- California, South Carolina, Michigan and Rhode Island -- registered unemployment rates above 10 percent in January 2009. The national rate, which rose to 8.1 percent in February, is expected to hit double digits by year end.
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We wouldn't go so far as to say that Bernie Madoff is headed off for Federal Pound Me In The Ass Prison, but it promises to be a decidedly unpleasant facility. Still, apparently one adjusts to the new decor after being disabused of the Hollywood prison projection. (Be that good or ill).
Bales, of Federal Prison Consultants, said his newly convicted clients typically expect the worst, their nightmares of prison rape fueled by television shows like "Oz" and movies like "The Shawshank Redemption." But once they end up behind bars, some inmates are pleasantly surprised to find that it's not as dangerous as they'd thought, he said.
Madoff, should he plead guilty as expected, will certainly want to select his facility of choice. (Sorry Bernie, Camp Cupcake of Martha Stewart fame is not an option). But, since our readers know more about anything than anyone, we thought we'd do a little survey.
Do you think Madoff will get his first pick?
According to Bales, that's likely to be the facility in Fairton, N.J. "It's one of the best places to do your time," said Bales. "They send a lot of senators there and attorneys."
We can keep track of ole Bernie with the Fairton News Wire blog, (ok, actually its just an automated feed blog, but that would have been rich!) and he will get to enjoy the culinary delights of the prison commissary:
In 1930 the Department of Justice authorized and established a Commissary at each Federal institution. The Commissary was created to provide a bank type account for inmate monies and for the procurement of articles not regularly issued as part of the institution administration. The purpose of individual inmate Commissary accounts is to allow the Bureau of Prisons to maintain inmates' monies while they are incarcerated. Family, friends, or other sources may deposit funds into these accounts.
Actually, it might be a little dangerous to let Bernie have a bank account, no?
No Club Fed for Madoff [CNNMoney]
AFP - Freddie Mac, the ailing US mortgage finance giant seized by the government, reported Wednesday a 2008 net loss of 50.1 billion dollars, bleeding nearly half of it the fourth quarter.
Earlier this week, Jennifer Klein of Jacksonville noticed a sign in a highway median that read, "Tenant Evictions. No Mess. Cheap $$$. Pay With Credit Card."
By the time she went back to take a picture, the sign was gone. Turns out it was for JaxEvictions, a service of Hetsler Mediation and Valuation, Inc. Look, someone's gotta kick those people out, right? Says the website:
"You could pay a lawyer over $1,000 for an eviction, but our prices START AT ONLY $350."
Florida, the Sunshine Foreclosure State
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's house. Via Cityfile, a guided tour of the questionably decorated Larchmont home that, we'll remind you, could be yours for the above market price of $1.635 million.
Earlier: Make Tim Geithner An Offer
Jolly elfin' CEOs are in, color copies are out. No, just fucking. JPM, too, was profitable in January and February, according to Dennis Kneale who was supposedly told this information by Jamie Dimon.
Not that we're in the can for the cricket-loving fraudster, but would you cooperate with the Securities and Exchange Commission? It's not like they've earned it. Anyway: CNBC reports that Sir Allen Stanford has "declined to cooperate with the SEC fraud probe," citing the fifth amendment.
Neel Kashkari, the Treasury's assistant secretary for financial stabilization, told a U.S. House subcommittee that the government shouldn't interfere with banks as they make their business decisions."However well-intended, government officials are not positioned to make better commercial decisions than lenders in our communities," Kashkari said in testimony Wednesday. "The government must not attempt to force banks to make loans whose risks they are not comfortable with or attempt to direct lending from Washington."
Kashkari Warns Against Government Micromanaging Banks [CNN Money
Boy Toy CEO Jamie Dimon gave "OHLM" the big Dimon endorsement while running a Q&A at the United States Chamber of Commerce just now.
A penny for your thoughts, DB...?
Today's green shoot comes from Jim who recently moved from Jersey City to San Francisco. He writes:
My planet money indicator is three weeks and one. I recently moved across the country for personal reasons and didn't have a new job lined up before taking the leap and moving here to follow my significant other. 3 weeks after I got here I'd received a great job offer, and it was from the first place I'd interviewed. My new job pays more than the old one and after a month I'm still thrilled with it and confident that I made the right choice. I expect to be employed there for a long time to come.
My industry (insurance) must have a shortage of people here. When I got here I posted my resume on monster and career builder and the other job websites. Since then I've had several headhunters call me, eager to send me on interviews. Recently I pulled my resumes down since I'm not looking for a job anymore and was tired of having to explain this to the callers. I keep hearing about how bad the economy is, but this has been, by far, the easiest job search of my life.
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In his morning note today, Carl Weinberg of High Frequency Economics writes:
"[T]he U.S. economy. . .seems to be the only one shedding workers faster than GDP is falling."
Which seems to hold a key to understanding what's happening in the American employment scene.
As Weinberg explains in an interview, output generally has to match up with staffing. "Otherwise, it squeezes your profits to death," he says.
America's gross domestic product fell by .8 percent in the fourth quarter of 2008, compared to the same period in 2007. Employment, meanwhile, dropped by 3 percent. Contrast that with the situation in Japan (GDP down 4 percent, with no change in employment) and the Eurozone (GDP down 1.2 percent, employment UP by 2. 5 percent).
Since labor amounts to 80 percent of the cost of doing business, companies need to keep staffing and output in balance. And since the weakest workers are usually let go first, Weinberg writes, employment should be falling faster than GDP.
That America registers just those conditions is a plus for American stocks, Weinberg reasons. "It's still bad, but not as bad as in other countries," he says.
But there's always a rub, right? Here, we have two. First is the obvious personal pain and disruption that come with layoffs. The second is that industrial production in the U.S. is down 10 percent, year-over-year.Weinberg's translation: Look out, manufacturing. Here come the layoffs:
The output data suggest that especially enormous layoffs in manufacturing are needed, and very soon, for companies in this sector to avoid catastrophic losses...Unless we see a depression-like drop in employment, commensurate with depression-like declines in industrial output, worse losses may be expected in manufacturing than in other sectors of the economy.
Tell it to Elkhart, Indiana, where unemployment is already at 18 percent after the local RV industry collapsed. The latest numbers from the Bureau of Labor statistics show overall manufacturing employment falling at just under 3 percent. If you look at the line for "production workers" only, you cross 10 percent -- in line with falling output.
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Yes, Bernie Madoff is heading for a guilty plea, and Citigroup has posted a profit. Let's take a wider view, courtesy of the BBC:
Chinese exports fell 25 percent in February. China's trade surplus went from $39.1 billion in January to $4.8 billion. (Bonus: Calculated Risk dives deep on this.
Norway's Government Pension Fund reminds us of the looming pension crisis, losing $92 billion in 2008.
And in the U.K., the Bank of England is starting its latest attempt to goose the economy, "quantitative easing" -- or what some of you, but not us, call "printing money."
The British plan calls for the Bank of England to create 75 billion pounds. It will offer to buy 2 billion pounds of government bonds from investors, in hopes of getting that cash out into the general economy as loans or business investments.
The BBC reports that the British have never tried this before:
These actions are unprecedented in the Bank's 315-year history but are now considered necessary as interest rates approach zero and deflation becomes a growing possibility.
There's still a first time for everything, even in a global recession.
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Worried about the state of your 401K? We all are. But there’s no need to panic. Chances are, you don’t need to use all of your 401K savings at once. If you take the right steps, your 401K investments will have a chance to recover. Below are five simple steps to help you rescue your 401K:
If you are close to retirement:
1. Delay your retirement. If you’re close to retirement, see if you can put in a few more years of work. This is especially important if your employer matches your 401K contributions.
If you retire in a declining market, you’re withdrawing money from an ever-shrinking 401K coffer. Your previous (bull market) payout calculations won’t work anymore, meaning that you risk ending up with very little very late in life.
2. Recalibrate your 401K withdrawal plan. If you have no choice but to retire, recalibrate your monthly expenses so that you don’t withdraw a larger percentage of your total 401K savings. Live off less for a while, then adjust when the market goes back up.
Everyone should:
3. Keep contributing. It pays to rack up investments, even when the market is losing. When the market goes back up—historically, it always has—the investments you put in during hard times will work in your favor. If your employer matches your contributions, max them out. The tax deduction will also come in handy.
4. Don’t cash out. If the heavy tax penalties don’t make you think twice, the upcoming bull market—whether it takes two years or two months to arrive—will leave you empty-handed. Moreover, the funds are creditor-proof, and can’t be confiscated if you file bankruptcy.
5. Revise your portfolio. If you need the money soon, put is somewhere safe, like a money market fund. If you have a while until you retire, consider diverting your funds into traditional safe bets, like mutual funds or corporate stocks in stable industries. Consult your financial advisor for specific advice. Take an active role in diversifying and/or rebalancing your portfolio. It won’t adjust itself for hard times.
Bonus tip: IRAs can offer more flexibility and fewer fees than 401Ks, depending on your lifestyle needs. A Roth IRA, for example, allows you to take out contributions without taxes or penalties. Further research or financial advice will help you determine with 401K/IRA combination suits you best.
Message in a fortune cookie Christopher T. Hall
Derek from Talent, Ore., applies Joshua Bearman's "Delicious Cake Futures" story, about a lunchroom economy, to the housing market collapse:
Listening to Josh's story from 3rd grade, I realized that for the past few years, I have felt similar as I watched home prices skyrocketing in our area (the Rogue Valley in southern Oregon has the city of Medford, one of the most overvalued markets in 2007 I believe).
I knew people who were buying homes (chocolate-dipped nutter butters) and it felt like with prices headed nowhere but up (abundance everywhere), I would never own a home (scarcity), would always be a renter, and like Josh, I would be doomed to raisins for the rest of my life.
Well, raisins taste pretty good right now. And I hope that you might do a program someday looking at this economy and the proposed bailouts from the viewpoint of people who rent and don't own as well as people who have very little.
I must tell you it drives me crazy that pundits and politicians continually assert that homeowner assistance must happen because foreclosures affect other homeowners through decreasing home values. While I sympathize with those hurting, it sometimes feels like renters are invisible citizens. I want prices to keep coming down.
By the way, I also want to wager with you that you cannot find a realtor that will tell you now is not a good time to buy a home. A home bought today is worth less tomorrow. So why are realtors telling people to try and catch a falling knife?
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A couple of months ago, media reports slammed American Express for canceling slews of customer accounts, seemingly at random and out of the blue. Now, they’re offering some customers $300 to pay off and close down their accounts. From the CreditMatters blog:
New York-based American Express will give you a $300 American Express prepaid card if you agree to say goodbye. American Express says that it is making this “deal” so that customers can “simplify” their finances. Sure. The offer, which isn’t available to everyone, requires a 14-digit RSVP code. Customers are receiving this offer via U.S. Postal and email.
You may be wondering why American Express doesn’t just close the accounts of these customers, which would save American Express $300. Here’s why: the $300 prepaid card is acting as an incentive for the customer to pay down the balance in an expeditious manner. The customer has exactly two months to get that balance paid off; if he or she does, the $300 card is theirs. Not a bad strategy by American Express.
Does the bribe mean that American Express wants to get rid of its less reliable customers? Not exactly. The Wall Street Journal says that people with excellent credit scores might actually be targets:
Ironically, an excellent credit score can actually serve as more of a bulls-eye than a shield, says Dennis Moroney, a research director and senior analyst for consulting firm Tower Group. He says banks figure they can limit cardholder backlash by targeting consumers with few debts and plenty of other accounts. That way, a closed account won’t have as much of a detrimental effect on their creditworthiness.
The article goes on to illustrate how one woman had her AmEx card canceled during her vacation, which left her stranded.
Americans spend a lifetime building up good credit. It is inane that a credit card company can close your account at whim–which will reflect negatively on your hard-earned credit score–refuse to warn you, and indeed target you for closure because it feels that you can handle the hit. It’s an abysmal way to handle customers, especially in light of the fact that the company is TARP-eligible (eg. the government will bail it out if necessary).
Will people go back to American Express after this? Does American Express, which has a strong international presence, even care about its American customers anymore? Credit card companies have always behaved badly, but this is breaking new ground.
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