Washington's leaders have been pushing many policy buttons to stem the worsening housing and credit crisis. They've yet to find the off button, however, and that's prompting a search for more-aggressive solutions.
This week's decision by Citigroup Inc. to bail out seven investment entities and bring $49 billion in assets onto its balance sheet effectively killed one of the centerpieces of the Bush administration's approach. Treasury Secretary Henry Paulson has pushed a giant rescue plan for off-the-books funds saddled with mortgage-backed debt, but banks have mostly done the painful work themselves.
Some other policy moves are getting under way, including a plan to freeze interest rates for some subprime mortgage borrowers and the Federal Reserve's move to offer banks special funding at lower-than-usual rates so they can lend more. The Fed has cut its key short-term rate by a full percentage point since August, and markets expect it to continue.
Still, if those steps fail to calm homeowners and markets, as some investors expect, debate is likely to grow about what levers remain. Some with an interventionist bent are raising proposals amounting to federal bailouts for homeowners facing foreclosure and the revival of New Deal-era programs. Earlier this month, the Mortgage Bankers Association said home foreclosures in the third quarter hit their highest rate since at least 1972.
"There needs to be a bias towards activism," said Lawrence Summers, secretary of the Treasury under President Clinton, in an interview. "Policy has been behind the curve for months now. The dangers of doing too little are much greater than the dangers of doing too much in this context."
Others on the conservative or libertarian side say the best move may be to do nothing. They contend the government must be careful about anything that props up home prices because it would delay the point at which investors -- in both real estate and mortgage-backed securities -- believe prices have touched bottom.
"The financial erosion will come to an end when the prices of homes and equity in homes stabilize, probably not before," said former Federal Reserve Chairman Alan Greenspan in an interview.
This past week, the Center for American Progress, a liberal think tank, proposed that the government buy some mortgage-backed securities and create a new agency, the Family Foreclosure Rescue Corp. It would issue new, more affordable fixed-rate mortgages for those facing foreclosure whose homes are worth less than what they owe.
"There will be a louder discussion about do variations on this theme make sense, and could you pull it off?" says Ellen Seidman, a former economic adviser in the Clinton administration now at the New America Foundation.
Alex Pollock, a resident fellow at the American Enterprise Institute, a market-oriented Washington think tank, says Congress and the White House should review the history of a defunct federal agency known as the Home Owners' Loan Corp., created in 1933 when thousands of banks were failing and millions of Americans couldn't pay their mortgages.
The agency acquired distressed mortgages from banks at a discount and refinanced them on easier terms. It was wound up in 1951 and returned a small surplus to the U.S. Treasury, Mr. Pollock says. He says it's unclear whether the U.S. eventually might need another such agency but not too early to start work on contingency plans.
Hundreds of thousands of homeowners are stuck with subprime mortgages that are about to get more expensive to maintain as rates automatically jump. Rising foreclosures put further pressure on home prices, sucking into the maelstrom homeowners who had hoped to avoid the mess. The way these mortgages were packaged and sold to investors has spread the contagion to Wall Street, where banks have already announced tens of billions of dollars in losses.
One question is what exactly Washington policy makers should be trying to prevent. Does every homeowner facing foreclosure deserve help, or just some of them -- and how should the deserving be identified? At what point do banks' problems raising funds become a public concern?
The plan recently announced by the mortgage industry, with Bush administration support, could freeze interest rates on hundreds of thousands of troubled subprime mortgages that are set for rate increases over the next two years. But it won't help everyone. Borrowers can't have defaulted already. Some critics say the plan amounts to a rescue for the irresponsible, while others, particularly Democrats, say it won't fend off foreclosure for enough people.
A Treasury spokeswoman declined to discuss what options the administration is now considering.
The Senate Friday voted 93-1 to approve long-delayed legislation to expand the role of the Federal Housing Administration, which insures home mortgages against the risk of default. The legislation, supported by the White House, would raise limits on the size of mortgages the FHA can insure. The current limit of $362,790 would rise to $417,000. The House has already passed a similar bill, and the two versions must now be reconciled.
"Everyone I talk to...is predicting an extremely difficult housing year in 2008," said Sen. Jack Reed, a Rhode Island Democrat, after the vote. "If we don't act promptly in many different ways, and this is one, I think we will be rightfully criticized."
Pending on Capitol Hill are bills to make it easier for bankruptcy judges to help borrowers remain in their homes, tighten regulation of mortgage lenders and brokers, and give government-sponsored mortgage investors Fannie Mae and Freddie Mac more scope to finance home loans.
The political pressure for action is likely to intensify as the 2008 elections approach, and Fannie and Freddie are likely to get more attention. Though they are owned by private shareholders, the companies were chartered by Congress, and federal regulators have a big influence over them. Fannie and Freddie already are playing a much bigger role in financing mortgages because other investors, scared off by soaring defaults and falling home prices, are retreating.
But Fannie and Freddie are limited in how much more they can do. Heavy losses in the third quarter, and expectations of more red ink to come, forced them in recent weeks to scramble to raise a combined $13 billion in fresh capital by selling preferred shares. By law, they can't own or guarantee single-family mortgages that exceed the "conforming loan" limit, currently $417,000 in the continental U.S.
Their main regulator, the Office of Federal Housing Enterprise Oversight, or Ofheo, has placed a temporary limit on their holdings until they can redress problems with accounting and risk controls.
If Fannie and Freddie report results for 2007 on a timely basis in February, Ofheo will seriously consider removing the caps, which would allow them to buy more mortgages, James Lockhart, director of the regulatory agency, said in an interview. After that, Ofheo also will look at whether it can eliminate or scale back the current requirement that they hold 30% more capital than usual.
Sen. Charles Schumer, a New York Democrat, says Fannie and Freddie should be given marching orders to devote more money to refinancing subprime loans, something he has proposed in legislation that is currently stalled. "They're needed at this moment," he said in an interview.
While such steps might help homeowners, they won't directly address the reluctance of financial institutions to lend to one another and the sudden hesitation among investors to hold risky assets.
Last Wednesday the Fed unveiled, in concert with four other central banks, a new method by which it would "auction" low-rate loans to banks totaling up to $40 billion. Options for the future include expanding the auctions and lowering interest rates rapidly. But Fed officials, worried about rising inflation, believe markets overestimate how far the central bank can go.
--Michael R. Crittenden contributed to this article.
From WSJ on-line
...read more...
Saturday, December 15, 2007
Friday, December 14, 2007
Inflation Accelerated Last Month
By KELLY EVANSDecember 14, 2007 5:20 p.m.
An unexpectedly large jump in consumer prices last month suggested inflationary pressures haven't receded and the Federal Reserve may have less latitude than markets believe to lower interest rates to cushion the economy.
Ken Goldstein of the Conference Board discusses factors that will continue driving consumer prices. Kelsey Hubbard reports.
The Labor Department reported that its November consumer price index rose by a seasonally adjusted 0.8% from October, the largest monthly gain in two years and a 4.3% yearly increase.
Energy prices, which jumped 5.7% over the month, accounted for more than two-thirds of the gain. But core consumer prices, which exclude energy and food, rose 0.3% from October and 2.3% over the year.
Economists had expected core prices to rise just 0.2%. Fed policy makers follow the lesser-known personal consumption expenditures price index, and economists believe that when that index is reported next week it will still show inflation at or above the top of the 1.5%-to- 2% range policy makers consider price stability.
That said, the latest data gives credence to the Fed's stated concerns that inflation pressures remain, and that persistently high overall inflation could yet boost public expectations of future inflation, which can become self-fulfilling.
That realization caused both stock and bond markets to fall on Friday; as the prospect of interest-rate relief receded a bit. Markets still expect the Fed to cut short-term rates again at the end of January, but they trimmed the odds.
Kenneth Beauchemin, U.S. economist with research firm Global Insight, noted the sharp rise in consumer prices "may well be the first clear sign that months of soaring and volatile energy prices are seeping their way into consumer prices at large."
Stephen G. Cecchetti, a global finance professor at Brandeis International Business School, called the consumer price index numbers "scary" because price pressures were widespread in the report. Apparel prices jumped 0.8% in November while shelter and medical care costs also rose faster than expected.
The rise in consumer prices comes on the heels of a similar sharp increase in producer prices last month and signs of inflationary pressures elsewhere in the economy. Producer, or "wholesale," prices jumped 3.2% in November -- the biggest monthly gain since 1973 -- and 7.6% from a year earlier. Rising prices for food, tires, and other household goods -- unless matched by higher wages -- threaten to crimp consumer spending, the behemoth of economic growth.
REAL TIME ECONOMICS
• Read the latest news and analysis on the economy at WSJ.com's Real Time Economics blog.
• Economists React: 'Not a Good Report'
Despite rising oil prices and other signs pointing to accelerating inflation in recent months, many economists have been more focused on whether economic growth is about to stall. But a surprisingly strong report on November retail sales, released Thursday, and the Fed's latest report on industrial production, released Friday, has prompted some analysts to rethink whether the economy is headed toward recession.
The Fed report showed that output at U.S. factories, mines, and utilities rose 0.3% in November after dropping a revised 0.7% in October.
J.P. Morgan economist Abiel Reinhart noted that "in the near-term, industrial production will probably remain soft as inventory growth decelerates, auto production declines, and housing-related products remain a drag on manufacturing."
Manufacturing output rose 0.4% in November after falling 0.6% in October. Manufacturing capacity utilization ticked up 0.2% to 79.9% but remains below the recent trend, suggesting output may be weak in coming months.
Ethan Harris, chief U.S. economist at Lehman Brothers, said he expects that the current slowdown in the economy will take some pressure off prices. "Slower growth means weaker commodity prices and a weaker labor market [so] a lot of the inflation worries we have now will dissipate in the new year."
But he added that an unexpectedly resilient economy could fuel inflation.
"You've got a big wild card thrown into the economic outlook -- this energy and food price shock that's both hurting growth and raising inflation risks," Mr. Harris said. "This creates a lot of difficulty for policy making. Somebody 'up there' doesn't like [Fed Chairman] Ben Bernanke."
Write to Kelly Evans at kelly.evans@wsj.com
From WSJ On-line ...read more...
An unexpectedly large jump in consumer prices last month suggested inflationary pressures haven't receded and the Federal Reserve may have less latitude than markets believe to lower interest rates to cushion the economy.
Ken Goldstein of the Conference Board discusses factors that will continue driving consumer prices. Kelsey Hubbard reports.
The Labor Department reported that its November consumer price index rose by a seasonally adjusted 0.8% from October, the largest monthly gain in two years and a 4.3% yearly increase.
Energy prices, which jumped 5.7% over the month, accounted for more than two-thirds of the gain. But core consumer prices, which exclude energy and food, rose 0.3% from October and 2.3% over the year.
Economists had expected core prices to rise just 0.2%. Fed policy makers follow the lesser-known personal consumption expenditures price index, and economists believe that when that index is reported next week it will still show inflation at or above the top of the 1.5%-to- 2% range policy makers consider price stability.
That said, the latest data gives credence to the Fed's stated concerns that inflation pressures remain, and that persistently high overall inflation could yet boost public expectations of future inflation, which can become self-fulfilling.
That realization caused both stock and bond markets to fall on Friday; as the prospect of interest-rate relief receded a bit. Markets still expect the Fed to cut short-term rates again at the end of January, but they trimmed the odds.
Kenneth Beauchemin, U.S. economist with research firm Global Insight, noted the sharp rise in consumer prices "may well be the first clear sign that months of soaring and volatile energy prices are seeping their way into consumer prices at large."
Stephen G. Cecchetti, a global finance professor at Brandeis International Business School, called the consumer price index numbers "scary" because price pressures were widespread in the report. Apparel prices jumped 0.8% in November while shelter and medical care costs also rose faster than expected.
The rise in consumer prices comes on the heels of a similar sharp increase in producer prices last month and signs of inflationary pressures elsewhere in the economy. Producer, or "wholesale," prices jumped 3.2% in November -- the biggest monthly gain since 1973 -- and 7.6% from a year earlier. Rising prices for food, tires, and other household goods -- unless matched by higher wages -- threaten to crimp consumer spending, the behemoth of economic growth.
REAL TIME ECONOMICS
• Read the latest news and analysis on the economy at WSJ.com's Real Time Economics blog.
• Economists React: 'Not a Good Report'
Despite rising oil prices and other signs pointing to accelerating inflation in recent months, many economists have been more focused on whether economic growth is about to stall. But a surprisingly strong report on November retail sales, released Thursday, and the Fed's latest report on industrial production, released Friday, has prompted some analysts to rethink whether the economy is headed toward recession.
The Fed report showed that output at U.S. factories, mines, and utilities rose 0.3% in November after dropping a revised 0.7% in October.
J.P. Morgan economist Abiel Reinhart noted that "in the near-term, industrial production will probably remain soft as inventory growth decelerates, auto production declines, and housing-related products remain a drag on manufacturing."
Manufacturing output rose 0.4% in November after falling 0.6% in October. Manufacturing capacity utilization ticked up 0.2% to 79.9% but remains below the recent trend, suggesting output may be weak in coming months.
Ethan Harris, chief U.S. economist at Lehman Brothers, said he expects that the current slowdown in the economy will take some pressure off prices. "Slower growth means weaker commodity prices and a weaker labor market [so] a lot of the inflation worries we have now will dissipate in the new year."
But he added that an unexpectedly resilient economy could fuel inflation.
"You've got a big wild card thrown into the economic outlook -- this energy and food price shock that's both hurting growth and raising inflation risks," Mr. Harris said. "This creates a lot of difficulty for policy making. Somebody 'up there' doesn't like [Fed Chairman] Ben Bernanke."
Write to Kelly Evans at kelly.evans@wsj.com
From WSJ On-line ...read more...
Sunday, November 18, 2007
Chrysler Considers Slashing
Chrysler LLC, looking to return to profitability by 2009, is considering branding changes that would further simplify its product portfolio while helping to cut as many as 1,000 dealers.
MORE ON CHRYSLER
• Chrysler Will Dump Some Models, Dealers10/18/07
• Big Three's Other Woe: Too Many Dealers06/18/07
A plan now being discussed calls for Chrysler dealers to sell all of the auto maker's passenger cars under the Chrysler name. Dodge dealers would exclusively offer pickup and commercial trucks, while Jeep dealers would sell Jeep and sport-utility vehicles, according to three dealers familiar with the discussions.
Such a scenario would allow Chrysler to drop some of its overlapping products that essentially compete with one another, such as the Dodge Avenger and Chrysler Sebring, which are both midsize sedans but marketed under different names. Fewer products could also mean a reduction in dealers, which would weed out poor-performing dealerships that have excess inventory and resort to incentives that hurt profitability.
"This is just one of the plans they are studying," said a dealer who was informed of the idea. "At the end of this year, they expect to have a plan for the future."
Chrysler co-President Jim Press, speaking at a media briefing last month, suggested that the auto maker simplify its product lineup. Mr. Press, who until September was president of Toyota Motor Co.'s North American operations, questioned the need to divide Chrysler's resources to market both a Chrysler Town & Country minivan and a Dodge Caravan. Mr. Press spent 37 years with Toyota, which in comparison has fewer and more profitable dealerships in the U.S.
Chrysler spokesman Rick Deneau said, "I would not interpret Jim Press's comments about product overlap as an indication we will segregate vehicle types by brand."
The broad scope of the plan further underscores how fast and deep Cerberus Capital Management LP is willing to go to turn around Chrysler after buying an 80.1% stake in the company in August.
Chrysler, which is facing sluggish U.S. sales because of housing-market weakness and high fuel prices, this month announced an expansion of a restructuring plan unveiled in February, saying it would cut its North American hourly work force almost in half by 2010. The company has also made several high-profile executive appointments since Cerberus took over.
Meantime, Chrysler executives have also now decided to kill the entire PT Cruiser line after the 2009 model year, according to a dealer who was told of the decision this past week. The move further expands the auto maker's push to eliminate slower-selling models. Chrysler, in announcing the expanded restructuring this month, said that it was dropping the PT Cruiser convertible, Chrysler Pacifica, Chrysler Crossfire and Dodge Magnum.
From WSJ On-Line ...read more...
MORE ON CHRYSLER
• Chrysler Will Dump Some Models, Dealers10/18/07
• Big Three's Other Woe: Too Many Dealers06/18/07
A plan now being discussed calls for Chrysler dealers to sell all of the auto maker's passenger cars under the Chrysler name. Dodge dealers would exclusively offer pickup and commercial trucks, while Jeep dealers would sell Jeep and sport-utility vehicles, according to three dealers familiar with the discussions.
Such a scenario would allow Chrysler to drop some of its overlapping products that essentially compete with one another, such as the Dodge Avenger and Chrysler Sebring, which are both midsize sedans but marketed under different names. Fewer products could also mean a reduction in dealers, which would weed out poor-performing dealerships that have excess inventory and resort to incentives that hurt profitability.
"This is just one of the plans they are studying," said a dealer who was informed of the idea. "At the end of this year, they expect to have a plan for the future."
Chrysler co-President Jim Press, speaking at a media briefing last month, suggested that the auto maker simplify its product lineup. Mr. Press, who until September was president of Toyota Motor Co.'s North American operations, questioned the need to divide Chrysler's resources to market both a Chrysler Town & Country minivan and a Dodge Caravan. Mr. Press spent 37 years with Toyota, which in comparison has fewer and more profitable dealerships in the U.S.
Chrysler spokesman Rick Deneau said, "I would not interpret Jim Press's comments about product overlap as an indication we will segregate vehicle types by brand."
The broad scope of the plan further underscores how fast and deep Cerberus Capital Management LP is willing to go to turn around Chrysler after buying an 80.1% stake in the company in August.
Chrysler, which is facing sluggish U.S. sales because of housing-market weakness and high fuel prices, this month announced an expansion of a restructuring plan unveiled in February, saying it would cut its North American hourly work force almost in half by 2010. The company has also made several high-profile executive appointments since Cerberus took over.
Meantime, Chrysler executives have also now decided to kill the entire PT Cruiser line after the 2009 model year, according to a dealer who was told of the decision this past week. The move further expands the auto maker's push to eliminate slower-selling models. Chrysler, in announcing the expanded restructuring this month, said that it was dropping the PT Cruiser convertible, Chrysler Pacifica, Chrysler Crossfire and Dodge Magnum.
From WSJ On-Line ...read more...
Saturday, November 17, 2007
i like to recommend a good website.
it's focus on technical analysis....
u can chose stocks based on the source u like
hope u guys like it!!
www.tradetrek.com ...read more...
it's focus on technical analysis....
u can chose stocks based on the source u like
hope u guys like it!!
www.tradetrek.com ...read more...
Friday, November 2, 2007
Citi's Fat Cats Take a Drubbing in DeclineFriday
BOSTON -- Wall Street firms encourage the top brass to own equity in order to align their interests with those of ordinary stockholders. It's good to know the system works -- even if, so far, the main result is the satisfaction of knowing that the big shots are feeling your pain.
Take Citigroup, where board members and senior management are losing big money as the bank's deepening crisis sends its shares into freefall.
Their total losses on stock and options this year? Nearly half a billion dollars.
That's right. Thirty board members and top executives have seen nearly $500 million wiped off the value of their shares and options.
Even for Citigroup's well-heeled head honchos, this is a lot of dough. And it shows that anyone who believes the wealthy can be wholly insulated from the knock-on effects of the subprime meltdown is dreaming. The news comes at fears of writedowns and mounting losses sent the stock plummeting to a fresh four-year low.
The figures on personal losses at the top of the bank come from an analysis of Citigroup's public filings.
They include a $52 million loss suffered just by Mr. Establishment himself -- executive committee chairman Bob Rubin, Bill Clinton's former Treasury Secretary and a leading figure in the Democratic Party.
Rubin holds 345,000 shares along with 4.6 million share options at exercise prices ranging from $33.44 to nearly $50. In January his holdings were valued at $75 million.
Today: Just $23 million.
Mexican banker Roberto Hernandez has seen his fortune reduced by about $220 million. Hernandez joined the board after selling Citigroup his bank, Banamex, six years ago. That deal has left him with 14.56 million Citigroup shares.
Most of the other losses have been borne by company executives. But the powerful and connected outside directors haven't been spared completely. Movers and shakers like former CIA head John Deutsch and Johns Hopkins chairman Michael Armstrong are out a million bucks or two.
The figures provide an indication of the pressure on chief executive Chuck Prince to turn the ship around quickly or walk the plank. Speculation about Prince's fate is growing following the dramatic ousting of Stan O'Neal, his counterpart at Merrill Lynch .
Citigroup stock, which began the year at $53.88, fell below $39 yesterday amid growing fears of write-downs and capital needs. One Wall Street analyst even questioned whether the dividend was safe. The last time the shares were this low was in October 2003.
According to the most recent company filings, directors and senior management owned 25.3 million shares. The value of those shares has plunged by $404 million this year to $956 million.
Top figures also held 10.7 million stock options. Most, or 7.7 million, were held by five senior executives -- Prince, Rubin, wealth management boss Sallie Krawcheck, Chief Operating Officer Bob Druskin, and Vice Chairman Stephen Volk. Based on exercise prices ranging from $32.05 up to $55.88, those options have lost another $72 million in value.
That brings the total to $476 million.
One caveat: It's an estimate. And it is not complete. The figure, for example, does not include losses on another 3 million stock options held by other senior figures, where the exercise prices are unknown. Nor the effect on any stock granted since the last proxy statement.
Citigroup's top brass are standing by Prince for now, but of course fine words butter no parsnips -- and float no yachts.
As O'Neal just learned, the end comes quickly when it comes.
From Yahoo Finance
...read more...
Take Citigroup, where board members and senior management are losing big money as the bank's deepening crisis sends its shares into freefall.
Their total losses on stock and options this year? Nearly half a billion dollars.
That's right. Thirty board members and top executives have seen nearly $500 million wiped off the value of their shares and options.
Even for Citigroup's well-heeled head honchos, this is a lot of dough. And it shows that anyone who believes the wealthy can be wholly insulated from the knock-on effects of the subprime meltdown is dreaming. The news comes at fears of writedowns and mounting losses sent the stock plummeting to a fresh four-year low.
The figures on personal losses at the top of the bank come from an analysis of Citigroup's public filings.
They include a $52 million loss suffered just by Mr. Establishment himself -- executive committee chairman Bob Rubin, Bill Clinton's former Treasury Secretary and a leading figure in the Democratic Party.
Rubin holds 345,000 shares along with 4.6 million share options at exercise prices ranging from $33.44 to nearly $50. In January his holdings were valued at $75 million.
Today: Just $23 million.
Mexican banker Roberto Hernandez has seen his fortune reduced by about $220 million. Hernandez joined the board after selling Citigroup his bank, Banamex, six years ago. That deal has left him with 14.56 million Citigroup shares.
Most of the other losses have been borne by company executives. But the powerful and connected outside directors haven't been spared completely. Movers and shakers like former CIA head John Deutsch and Johns Hopkins chairman Michael Armstrong are out a million bucks or two.
The figures provide an indication of the pressure on chief executive Chuck Prince to turn the ship around quickly or walk the plank. Speculation about Prince's fate is growing following the dramatic ousting of Stan O'Neal, his counterpart at Merrill Lynch .
Citigroup stock, which began the year at $53.88, fell below $39 yesterday amid growing fears of write-downs and capital needs. One Wall Street analyst even questioned whether the dividend was safe. The last time the shares were this low was in October 2003.
According to the most recent company filings, directors and senior management owned 25.3 million shares. The value of those shares has plunged by $404 million this year to $956 million.
Top figures also held 10.7 million stock options. Most, or 7.7 million, were held by five senior executives -- Prince, Rubin, wealth management boss Sallie Krawcheck, Chief Operating Officer Bob Druskin, and Vice Chairman Stephen Volk. Based on exercise prices ranging from $32.05 up to $55.88, those options have lost another $72 million in value.
That brings the total to $476 million.
One caveat: It's an estimate. And it is not complete. The figure, for example, does not include losses on another 3 million stock options held by other senior figures, where the exercise prices are unknown. Nor the effect on any stock granted since the last proxy statement.
Citigroup's top brass are standing by Prince for now, but of course fine words butter no parsnips -- and float no yachts.
As O'Neal just learned, the end comes quickly when it comes.
From Yahoo Finance
...read more...
Tuesday, October 30, 2007
Stocks struggle ahead of Fed
Stocks struggle ahead of Fed
After rallying last week on bets of a rate cut, Wall Street takes a breather Tuesday amid weak consumer confidence reading, Merrill CEO resignation; oil prices drop.
NEW YORK (CNNMoney.com) -- The Dow slipped and the broader market ended mixed Tuesday, after a choppy session in which investors mulled weaker economic news and lower oil prices ahead of an expected interest rate cut from the Federal Reserve Wednesday.
The Dow Jones industrial average (Charts) lost 0.6 percent. The S&P 500 (Charts) index lost around 0.7 percent.
The Nasdaq composite (Charts) ended little changed, after having been on both sides of the unchanged line through the session. The tech-heavy index ended the previous session at a 2007 high and its highest close in nearly seven years.
Ahead of the Fed meeting, investors will take a look at the third-quarter gross domestic product growth report, the construction spending report and the Chicago PMI, a regional read on manufacturing.
Earnings are due Thursday morning from Alcatel-Lucent (Charts), Kraft Foods (Charts), Sunoco (Charts, Fortune 500) and others.
A weak consumer confidence report, disappointment about Procter & Gamble's forecast and the resignation of Merrill Lynch's CEO were among the factors dragging on the session. Strength in technology and a drop in oil prices were among the positives.
Stocks rose last week and Monday as Fed hopes overshadowed record oil prices as high as $93 a barrel, and a weak dollar. After such a run, stocks saw a broader retreat Tuesday morning. But the Nasdaq managed to recover by the close, thanks to select tech gainers, including Microsoft (Charts, Fortune 500), Apple (Charts, Fortune 500) and Google (Charts, Fortune 500).
"The market is waiting for the next shot in the arm and the Fed is likely to provide it tomorrow," said Georges Yared, chief investment strategist at Yared Investment Research.
Federal Reserve officials meeting Tuesday and Wednesday are expected to cut the fed funds rate, a key short-term interest rate, by a quarter-percentage point to 4.50 percent.
The Fed cut rates last month by a half-percentage point in an attempt to both loosen up the credit market and stop the housing market collapse from sending the broader economy into a recession.
It was the first rate cut in four years and at the time the bankers indicated that inflation fears had receded.
However, with oil prices near all-time records and gold prices near 26-year highs, concerns remain about pricing pressure and the strength of the consumer. Investors will be looking for the statement accompanying Wednesday's decision to address these issues, as well as other recent signs that economic growth continues to slow.
That run up in oil prices and spate of weaker economic news was reflected in the Conference Board's October consumer confidence index, released Tuesday morning. Confidence fell to its lowest level in two years, versus forecasts for it to hold steady.
Another economic report, the S&P/Case-Shiller housing index showed U.S. home prices fell in August for the eighth consecutive month.
In corporate news, Merrill Lynch (Charts, Fortune 500) said Chairman and CEO Stanley O'Neal is retiring from the firm, as expected, one week after the brokerage said it lost $8 billion in the third quarter due to bad mortgage bets.
Merrill shares fell 2.8 percent and dragged on other financial stocks.
Procter & Gamble (Charts, Fortune 500) reported higher quarterly earnings that edged expectations, but issued a current-quarter outlook that disappointed some investors, sending the stock down 3.7 percent. (Full story).
Fellow Dow stock Boeing (Charts, Fortune 500) continued to rise on late Monday news that it is boosting its share buyback plan by $7 billion and that it is announcing a quarterly dividend of 35 cents per share.
ON Semiconductor (Charts) shares slumped 16 percent in unusually active Nasdaq trade after the company reported lower third-quarter earnings that missed estimates and gave a fourth-quarter revenue forecast that is below analysts' estimates.
Around 63 percent of the S&P 500 September quarter earnings have been reported, with growth on track to have fallen 1.3 percent from a year ago, according to the latest Thomson Financial figures. That makes the quarter the weakest in at least five years.
Market breadth Tuesday was negative. On the New York Stock Exchange, losers beat winners 5 to 3 on volume of 1.22 billion shares. On the Nasdaq, decliners topped advancers by 3 to 2 on volume of 2.18 billion shares.
U.S. light crude oil for December delivery fell $3.15 to settle at $90.38 a barrel on the New York Mercantile Exchange after settling at a record $93.53 a barrel Monday. Crude reached a record $93.80 during the session Monday.
COMEX gold for December delivery fell $4.80 to settle at $787.80 an ounce.
A variety of stocks in the oil and metals sectors fell along with the price of the raw commodities, including Exxon Mobil (Charts, Fortune 500) and Alcoa (Charts, Fortune 500).
Treasury prices were little changed, with the yield on the benchmark 10-year note at 4.38 percent, little changed from late Monday. Bond prices and yields move in opposite directions.
In currency trading, the dollar slipped a bit versus the euro after falling to another all-time low against the European currency Monday. The dollar rose against the yen.
Saturday, October 27, 2007
Microsoft PostsStrong ProfitsAs Tech Thrives
Microsoft Corp.'s best quarterly revenue growth in eight years, helped by a surge in sales for the Windows operating system, capped a strong earnings season for the technology industry that has made it a rare bright spot for investors this fall.
Microsoft's 23% boost in net income, reported after the 4 p.m. close of markets, lifted its shares more than 10% in after-hours trading, making America's third-largest company by market value some $30 billion more valuable. Its surprisingly strong earnings, after years of lackluster growth that some investors took as a sign of a plateau, showed that Microsoft has maintained its dominant position in technology even as hot Internet companies garner much of the public's attention.
Steve BallmerMORE ON MICROSOFT
• BizTech: Businesses Are Funding Microsoft's Google Chase
• Microsoft Bets on Facebook Stake and Web Ad Boom10/25/07
• Microsoft, RIM Battle in Consumer Market10/23/07
• Microsoft's Halo 3 Busts Games Record9/27/07
• Inside Microsoft's Plan to Bring In Outside Talent 9/26/2007
• Microsoft Goes Behind the Scenes In Google Fight 9/24/2007
The personal computer continues to expand its role as a workhorse in businesses and staple in the home. Microsoft's performance was driven largely by sales of the same two products that were key performers back in 1999 when it enjoyed its last growth surge: the Office software package and Windows, the foundation for most of the world's PCs.
The Redmond, Wash., company's results follow strong earnings last week from chip makers Intel Corp. and Advanced Micro Devices Inc. Those companies pointed to demand for laptop computers and growth in emerging markets such as China and India. Earlier this week, Apple Inc. posted a 67% jump in profit and a 29% increase in revenues amid rising sales of its Mac computers.
Overall, the PC industry, sometimes perceived as a mature business, grew more than 14% in the third quarter, according to research firms Gartner and IDC.
"Consumers are driving an enormous amount of growth, especially as they move to portables and higher-end desktops," says Todd Bradley, an executive vice president at Hewlett-Packard Co. in charge of the PC business. He said India and China are fueling H-P's sales as consumers and small businesses in those countries join the computer age. PC shipments in Asia increased 23.4% in the third quarter, according to Gartner.
Microsoft's revenue rose 27% from a year earlier to $13.76 billion for the quarter ended Sept. 30. Net profit rose to $4.29 billion, or 45 cents a share, from $3.48 billion, or 35 cents a share, a year ago.
Microsoft's shares rose more than 10% in after-hours trading. During regular trading yesterday on the Nasdaq Stock Market, Microsoft shares rose 74 cents to $31.99 at 4 p.m., giving it a market capitalization of $300 billion.
The company still faces a struggle against Google Inc. and other Internet stars that are reaping the biggest benefits from growth in online advertising. Microsoft's search engine remains far behind Google's in popularity.
Microsoft's online-services group posted an operating loss of $264 million in the third quarter, wider than the $102 million loss in the same period a year ago, though revenue jumped 25% in the quarter to $671 million. The loss comes in large part from investments in banks of computers, called data centers, that run Microsoft's online services.
In an effort to boost its presence in online advertising, Microsoft agreed Wednesday to invest $240 million for a 1.6% stake in the social-networking site Facebook Inc., valuing the closely held startup at $15 billion.
An even bigger long-term threat for Microsoft is the emergence of Internet services that match PC software such as the Office package, which includes programs such as Microsoft Word, PowerPoint and Excel for spreadsheets. Google and others are experimenting with ways to offer such functions free of charge, with the revenue coming from online advertising. Over time, some users might find less need to buy from Microsoft.
For now, demand is strong for Office and Windows, including Windows Vista, introduced last year, and its predecessor, Windows XP. Quarterly sales at the Windows division jumped 27% to $3.37 billion. Revenue and profit also grew at a double-digit pace in the division that sells Office.
Vista has generally underwhelmed reviewers, but many consumers end up with it when they buy new PCs that come with Vista by default. Microsoft executives said they were surprised that a majority of Windows sales came from pricier versions of XP and Vista that include features such as better photo-editing software.
The real test of Vista will come over the next year as more large businesses face the choice of whether to roll out the software broadly. Many corporate buyers remain skeptical that benefits of Vista will outweigh the costs and challenges of switching to it.
Companies like Webcor Builders, a San Mateo, Calif., commercial builder with around 700 employees, are helping to boost Microsoft and the PC makers. Gregg Davis, chief information officer of Webcor, says his company is upgrading its PCs with laptops that include new Microsoft software such as Office 2007. Webcor plans to roll out 200 new laptops in the next two months, and will complete the deployment by mid-2008.
"We're always upgrading," says Mr. Davis.
Microsoft said the revenue growth in the third quarter was its fastest since 1999, when the dot-com boom was in full swing. The growth is even more significant because Microsoft today has two and a half times the revenue it did eight years ago. "To be able to grow as fast as we did eight years ago...is a pretty momentous achievement," said Microsoft's chief financial officer, Chris Liddell, in an interview.
Microsoft's revenues got a boost from the weak dollar, which raises the value of sales overseas when converted into dollars.
One noteworthy contributor in the quarter was the Xbox 360 videogame console and the Halo 3 videogame, which together nearly doubled revenue in Microsoft's entertainment division to $1.9 billion for the quarter. The group moved into the black, posting a profit of $165 million compared with a loss in the same period of the previous year of $142 million.
Despite the strong run of tech earnings, the industry by itself can't hold up the U.S. economy, which some believe is headed for a downturn triggered by the housing slump. Business and government spending on technology accounts for just 4% to 5% of annual output in the U.S., according to Forrester Research. "Tech is a bright spot in the economy, with emphasis on the word spot," says Andy Bartels, a Forrester analyst.
But tech makes up a much bigger portion of the stock market -- some 16.6%, according to Standard & Poor's. The strong earnings at Apple, Intel and others have helped keep stock indexes near record highs even as financial institutions take big hits connected to mortgages gone bad.
--Don Clark and Pui-Wing Tam contributed to this article
From WSJ on-line
...read more...
Microsoft's 23% boost in net income, reported after the 4 p.m. close of markets, lifted its shares more than 10% in after-hours trading, making America's third-largest company by market value some $30 billion more valuable. Its surprisingly strong earnings, after years of lackluster growth that some investors took as a sign of a plateau, showed that Microsoft has maintained its dominant position in technology even as hot Internet companies garner much of the public's attention.
Steve BallmerMORE ON MICROSOFT
• BizTech: Businesses Are Funding Microsoft's Google Chase
• Microsoft Bets on Facebook Stake and Web Ad Boom10/25/07
• Microsoft, RIM Battle in Consumer Market10/23/07
• Microsoft's Halo 3 Busts Games Record9/27/07
• Inside Microsoft's Plan to Bring In Outside Talent 9/26/2007
• Microsoft Goes Behind the Scenes In Google Fight 9/24/2007
The personal computer continues to expand its role as a workhorse in businesses and staple in the home. Microsoft's performance was driven largely by sales of the same two products that were key performers back in 1999 when it enjoyed its last growth surge: the Office software package and Windows, the foundation for most of the world's PCs.
The Redmond, Wash., company's results follow strong earnings last week from chip makers Intel Corp. and Advanced Micro Devices Inc. Those companies pointed to demand for laptop computers and growth in emerging markets such as China and India. Earlier this week, Apple Inc. posted a 67% jump in profit and a 29% increase in revenues amid rising sales of its Mac computers.
Overall, the PC industry, sometimes perceived as a mature business, grew more than 14% in the third quarter, according to research firms Gartner and IDC.
"Consumers are driving an enormous amount of growth, especially as they move to portables and higher-end desktops," says Todd Bradley, an executive vice president at Hewlett-Packard Co. in charge of the PC business. He said India and China are fueling H-P's sales as consumers and small businesses in those countries join the computer age. PC shipments in Asia increased 23.4% in the third quarter, according to Gartner.
Microsoft's revenue rose 27% from a year earlier to $13.76 billion for the quarter ended Sept. 30. Net profit rose to $4.29 billion, or 45 cents a share, from $3.48 billion, or 35 cents a share, a year ago.
Microsoft's shares rose more than 10% in after-hours trading. During regular trading yesterday on the Nasdaq Stock Market, Microsoft shares rose 74 cents to $31.99 at 4 p.m., giving it a market capitalization of $300 billion.
The company still faces a struggle against Google Inc. and other Internet stars that are reaping the biggest benefits from growth in online advertising. Microsoft's search engine remains far behind Google's in popularity.
Microsoft's online-services group posted an operating loss of $264 million in the third quarter, wider than the $102 million loss in the same period a year ago, though revenue jumped 25% in the quarter to $671 million. The loss comes in large part from investments in banks of computers, called data centers, that run Microsoft's online services.
In an effort to boost its presence in online advertising, Microsoft agreed Wednesday to invest $240 million for a 1.6% stake in the social-networking site Facebook Inc., valuing the closely held startup at $15 billion.
An even bigger long-term threat for Microsoft is the emergence of Internet services that match PC software such as the Office package, which includes programs such as Microsoft Word, PowerPoint and Excel for spreadsheets. Google and others are experimenting with ways to offer such functions free of charge, with the revenue coming from online advertising. Over time, some users might find less need to buy from Microsoft.
For now, demand is strong for Office and Windows, including Windows Vista, introduced last year, and its predecessor, Windows XP. Quarterly sales at the Windows division jumped 27% to $3.37 billion. Revenue and profit also grew at a double-digit pace in the division that sells Office.
Vista has generally underwhelmed reviewers, but many consumers end up with it when they buy new PCs that come with Vista by default. Microsoft executives said they were surprised that a majority of Windows sales came from pricier versions of XP and Vista that include features such as better photo-editing software.
The real test of Vista will come over the next year as more large businesses face the choice of whether to roll out the software broadly. Many corporate buyers remain skeptical that benefits of Vista will outweigh the costs and challenges of switching to it.
Companies like Webcor Builders, a San Mateo, Calif., commercial builder with around 700 employees, are helping to boost Microsoft and the PC makers. Gregg Davis, chief information officer of Webcor, says his company is upgrading its PCs with laptops that include new Microsoft software such as Office 2007. Webcor plans to roll out 200 new laptops in the next two months, and will complete the deployment by mid-2008.
"We're always upgrading," says Mr. Davis.
Microsoft said the revenue growth in the third quarter was its fastest since 1999, when the dot-com boom was in full swing. The growth is even more significant because Microsoft today has two and a half times the revenue it did eight years ago. "To be able to grow as fast as we did eight years ago...is a pretty momentous achievement," said Microsoft's chief financial officer, Chris Liddell, in an interview.
Microsoft's revenues got a boost from the weak dollar, which raises the value of sales overseas when converted into dollars.
One noteworthy contributor in the quarter was the Xbox 360 videogame console and the Halo 3 videogame, which together nearly doubled revenue in Microsoft's entertainment division to $1.9 billion for the quarter. The group moved into the black, posting a profit of $165 million compared with a loss in the same period of the previous year of $142 million.
Despite the strong run of tech earnings, the industry by itself can't hold up the U.S. economy, which some believe is headed for a downturn triggered by the housing slump. Business and government spending on technology accounts for just 4% to 5% of annual output in the U.S., according to Forrester Research. "Tech is a bright spot in the economy, with emphasis on the word spot," says Andy Bartels, a Forrester analyst.
But tech makes up a much bigger portion of the stock market -- some 16.6%, according to Standard & Poor's. The strong earnings at Apple, Intel and others have helped keep stock indexes near record highs even as financial institutions take big hits connected to mortgages gone bad.
--Don Clark and Pui-Wing Tam contributed to this article
From WSJ on-line
...read more...
Thursday, October 25, 2007
"Black Thursday"
Shanghai Composite -- China's stock market drops almost 5% this Thursday.
I know that a lot of people have positions related to China's stock market, so i think it's an important issue to discuss the reason why it drops and the future trend of the market.
There are lots of view about the reason why it drops. Like the news of the exchange of the A share and the H share. and the new issue of the China Petroleum & Chemical Corp in the market.
I personally think that the main reason is the most simple one -- the market is just too heat!!
Too many "hot money" flow into the market, which cause the stock price are over-valued. Actually i will think that the drop is a good think for the market. It can prevent the market too heat and prevent the bubble economy.
Hope to see someone can share other view of the marekt!! ...read more...
I know that a lot of people have positions related to China's stock market, so i think it's an important issue to discuss the reason why it drops and the future trend of the market.
There are lots of view about the reason why it drops. Like the news of the exchange of the A share and the H share. and the new issue of the China Petroleum & Chemical Corp in the market.
I personally think that the main reason is the most simple one -- the market is just too heat!!
Too many "hot money" flow into the market, which cause the stock price are over-valued. Actually i will think that the drop is a good think for the market. It can prevent the market too heat and prevent the bubble economy.
Hope to see someone can share other view of the marekt!! ...read more...
Result of the 3rd quarter report....
Kostolany, the famous european specelator said that no one can effect the market by him/herself, only the investor's fear and untrust of the market do!!
This week, a lot of companies announced their third quarter report. As we can see,
the companies that have good performance on their report not result in the rise of the stock price. Take Amazon for example, its stock price drop 15% on the day they anounced the report. The report shows that it has almost "four times" profit than the same period last year.
But the pretty number is lower than the predict of the wall street analyists which make the stock price drops.
If we take closer look on the report result and the performance of the stock, we can easily found out that they are not highly related. The stock price depends on the mind of the investors.
What do u guys think?! ...read more...
This week, a lot of companies announced their third quarter report. As we can see,
the companies that have good performance on their report not result in the rise of the stock price. Take Amazon for example, its stock price drop 15% on the day they anounced the report. The report shows that it has almost "four times" profit than the same period last year.
But the pretty number is lower than the predict of the wall street analyists which make the stock price drops.
If we take closer look on the report result and the performance of the stock, we can easily found out that they are not highly related. The stock price depends on the mind of the investors.
What do u guys think?! ...read more...
What do think about this?
What we learn from our textbook is that we have to diversify our investment and reduce the risk. "Eggs should not be put in one basket". However, Buffet said that "You should put all your eggs in just one basket!!!" What do you guys think about this?
...read more...
Saturday, October 20, 2007
Guess what? I got 100 !
" The good news, sir, is that Harris was able to sell off our losing stocks. The bad news is that Simpson here bought them from Harris."This cartoon is not funny, cuz maybe it's my story. My ranking is 100 out of 116 today at the Virtual Stock Excange competition.... I wish I got a 100 score on my exam on monday. ã… _ã… ; ...read more...
The "Most" Series..
These are not directly related to investing, but interesting articles.
(from Business week.)
The World's Most Expensive Restaurants
A new list from Zagat Survey calls London the most expensive city in the world in which to eat. But it has lots of company
By Jennifer FishbeinThe world has no shortage of big-ticket restaurants, and even if you've never set foot in one, you likely could rattle off those cities with the highest concentration of them: London, Tokyo, Paris, Vancouver—yes, Vancouver. Average per-person tabs in British Columbia's largest city might run $39, paltry compared with those in Osaka, Kobe, or Kyoto, where restaurant meals cost an average of $65, according to Zagat Survey. But the Canadian city rivals New York ($39) for the title of priciest dining capital in North America. And meals in Montreal cost an average of $1.71 more than in Los Angeles. Surprised? Click on for a look at some of the poshest eateries in the cities ranked by Zagat as the most expensive in the world to dine. All prices are per person.
America's Most Toxic Cities
The metropolitan areas with the highest number of contaminated sites per capita in the nation
By Maya RoneySource of data: Environmental Data Resources (EDR), http://www.edrnet.com/. Databases include federal, state, municipal, and tribal records of contaminated sites. Most databases updated on a quarterly or biannual basis.EDR defines site contamination as the presence of man-made chemicals or other alteration in the natural soil environment. This type of contamination typically arises from the rupture of underground storage tanks, application of pesticides, percolation of contaminated surface water to subsurface strata, leaching of wastes from landfills, or direct discharge of industrial wastes to the soil.Contaminated site totals on our list also include the following:1) Leaking storage tanks: tanks that store petroleum or other hazardous substances that can harm the environment and human health.2) Corrective action reports: large commercial sites that are identified by the Environmental Protection Agency (EPA) as requiring corrective action because of a hazardous spill or leak.The sites in these two types of EPA classifications are some of the most polluted and can typically generate dangerous health ramifications such as vapor intrusion, according to EDR.
America's Most Affordable Housing Markets 2007
The most affordable housing markets in each state, according to Coldwell Banker's 2007 Home Price Comparison Index
By Maya RoneyWhat is the difference between an average home in Beverly Hills, Calif., and a similar one in Killeen, Tex.? About $2.1 million, according to Coldwell Banker's 2007 Home Price Comparison Index (HPCI), which ranked Beverly Hills and Killeen as the least and most affordable housing markets in the U.S., respectively. The HPCI evaluates market conditions in 317 metropolitan areas by looking at homes that are approximately 2,200 square feet, with four bedrooms and 2.5 bathrooms. On average, a house like this in Beverly Hills sells for $2.2 million, while in Killeen, it goes for a just fraction of that cost, at $136,725. Take a look at our slide show to find out which are the most and least affordable markets in your state. ...read more...
(from Business week.)
The World's Most Expensive Restaurants
A new list from Zagat Survey calls London the most expensive city in the world in which to eat. But it has lots of company
By Jennifer FishbeinThe world has no shortage of big-ticket restaurants, and even if you've never set foot in one, you likely could rattle off those cities with the highest concentration of them: London, Tokyo, Paris, Vancouver—yes, Vancouver. Average per-person tabs in British Columbia's largest city might run $39, paltry compared with those in Osaka, Kobe, or Kyoto, where restaurant meals cost an average of $65, according to Zagat Survey. But the Canadian city rivals New York ($39) for the title of priciest dining capital in North America. And meals in Montreal cost an average of $1.71 more than in Los Angeles. Surprised? Click on for a look at some of the poshest eateries in the cities ranked by Zagat as the most expensive in the world to dine. All prices are per person.
America's Most Toxic Cities
The metropolitan areas with the highest number of contaminated sites per capita in the nation
By Maya RoneySource of data: Environmental Data Resources (EDR), http://www.edrnet.com/. Databases include federal, state, municipal, and tribal records of contaminated sites. Most databases updated on a quarterly or biannual basis.EDR defines site contamination as the presence of man-made chemicals or other alteration in the natural soil environment. This type of contamination typically arises from the rupture of underground storage tanks, application of pesticides, percolation of contaminated surface water to subsurface strata, leaching of wastes from landfills, or direct discharge of industrial wastes to the soil.Contaminated site totals on our list also include the following:1) Leaking storage tanks: tanks that store petroleum or other hazardous substances that can harm the environment and human health.2) Corrective action reports: large commercial sites that are identified by the Environmental Protection Agency (EPA) as requiring corrective action because of a hazardous spill or leak.The sites in these two types of EPA classifications are some of the most polluted and can typically generate dangerous health ramifications such as vapor intrusion, according to EDR.
America's Most Affordable Housing Markets 2007
The most affordable housing markets in each state, according to Coldwell Banker's 2007 Home Price Comparison Index
By Maya RoneyWhat is the difference between an average home in Beverly Hills, Calif., and a similar one in Killeen, Tex.? About $2.1 million, according to Coldwell Banker's 2007 Home Price Comparison Index (HPCI), which ranked Beverly Hills and Killeen as the least and most affordable housing markets in the U.S., respectively. The HPCI evaluates market conditions in 317 metropolitan areas by looking at homes that are approximately 2,200 square feet, with four bedrooms and 2.5 bathrooms. On average, a house like this in Beverly Hills sells for $2.2 million, while in Killeen, it goes for a just fraction of that cost, at $136,725. Take a look at our slide show to find out which are the most and least affordable markets in your state. ...read more...
Google Earnings Beat Estimates - Again!
Google Earnings Beat Estimates—Again
The search megalith reported stellar third-quarter earnings, though it warned that margins may thin as it makes needed investments
by Catherine Holahan
The Google stand at the Frankfurt Book Fair, Oct. 10, 2007 Getty Images
As a company that regularly beats Wall Street's earnings estimates, Google needed to blow away expectations on Oct. 18 to impress investors who have propelled the stock to record highs in recent days in anticipation of yet another blockbuster quarterly announcement. Anything less and investors would sell off the stock as they had in past quarters when Google just met or narrowly exceeded analysts' projections.
Google (GOOG) did not disappoint. The search-advertising Goliath said third-quarter net revenue rose 61%, to $3.01 billion, a number that takes into account the amount Google pays Web site owners to put ads on their pages. That soundly beat analysts' average estimate for sales of $2.9 billion. Not counting the amount of stock awarded to employees, earnings per share rose to $3.91, beating forecasts of $3.78 a share. "We had a very strong quarter across the board," said Chief Financial Officer George Reyes.
Wall Street assumed that Google's revenues, minus traffic-acquisition costs, would grow about 57% from the prior year. They also assumed that Google could hit that number despite an anticipated credit-crunch-related slowdown in financial-services advertising, one of the largest Web marketing categories. "When you have a company that has performed as consistently as they have to the upside, there is an inherent expectation that gets built into performance," says Derek Brown, an Internet analyst at Cantor Fitzgerald. "They are larger, growing faster, and are more profitable than any company in the Internet sector by a wide margin."
Google owes its growth mainly to its dominant share of the online advertising market. Google captures roughly 32% of the $21.4 billion in U.S. advertising spending, according to an Oct. 16 report by research firm eMarketer. Google is especially adept at search advertising, which comprises more than 40% of the U.S. online advertising market.
Now Google is racing to gain a larger slice of other forms of online advertising, including display advertising, the term given to ads that run in a fixed spot on a Web page. That's why Google agreed to acquire ad network DoubleClick for $3.1 billion (BusinessWeek.com, 9/28/07) earlier this year.
Google is also taking steps to get into video advertising, a segment that eMarketer estimates could comprise more than 13% of the online advertising market in four years, up from 8.2% this year. In August, Google announced plans to embed ads in YouTube videos. "We have a really nice ad that shows up in the bottom half of the video," Google co-founder Sergey Brin said during the analyst call.
Google's forays into other advertising arenas are still early, and its success is by no means guaranteed. A deal that lets Google place ads on News Corp.'s (NWS) social network, MySpace, is going well, according to Google, but it's still not a resounding success. "It is obviously a challenge because there is so much inventory and people can be distracted by many different things," Google co-founder Larry Page said on the conference call. "So there are a lot of things that make it hard."
One thing that makes it difficult to carve a slice of new areas of advertising is the cost. Google executives have pledged that they will continue to spend money on the infrastructure improvements and the personnel necessary to innovate around new ad formats. During the earnings call, CFO Reyes cautioned analysts that such investment could take a toll. "Margins may decline as we continue to invest in our business," said Reyes.
Despite the blockbuster quarter, analysts expressed some concern that Google may be investing too much, too quickly. During the call, several analysts posed pointed questions about Google's decision to hire an additional 2,100 employees during the quarter. Google blamed a less-than-amazing performance last July in part on hiring more aggressively than it had initially planned (BusinessWeek.com, 7/20/07). Chief Executive Eric Schmidt tried to allay concerns, saying, "this is an area where we need to spend more time and focus on what is the appropriate rate…We are paying a lot of attention to head count."
But for now, it's hard for even cautious analysts to be negative about Google's numbers.
Holahan is a writer for BusinessWeek.com in New York .
...read more...
Thursday, October 18, 2007
Fear!!
Fear is definitely one of the hurdles for investors. I think, many investors who cannot have good performance because of their fear. They may easily believe any negative news, rumors, or uncertain economic factors; thus, they may be easily impacted by the decline of their stocks price than roughly sell their stock. However, the decline may be just a short phenomenon. Take my own experience as an example. Two weeks ago, because of the decline of oil price, my Exxon Mobil dropped about $5. Actually it is not a big amount of money. However, I was affraid that the stock price will kept going down so I sold the position. However, after a short perid, it price unexpectedly goes up. Until today, its price is much higher than what I sold before. Therefore, in my opinion, trust your company is very important. I remember professor told us in the class, you only buy the company that you believe. I feel so pity. If I can overcome my fear, maybe today I can earn more.
...read more...
Monday, October 15, 2007
Home Woes May Take Further Toll
Bernanke Warns DownturnLikely to Hamper GrowthThrough Early Next Year
By SUDEEP REDDYOctober 16, 2007
Two weeks before the Federal Reserve's next meeting on interest-rate policy, Fed Chairman Ben Bernanke said yesterday the economy is performing much as expected: The housing market is continuing to deteriorate, but financial markets are under less stress in the wake of the central bank's actions last month.
In a speech to the New York Economic Club, Mr. Bernanke said the housing downturn is likely to remain "a significant drag" on economic growth through early 2008. He said that strong income growth has so far propped up consumer spending even in the face of signs -- which he called "quite tentative" -- of a cooling labor market.
• The News: Federal Reserve Chairman Ben Bernanke said pressure on financial markets has been reduced since the recent turmoil, increasing the likelihood of moderate economic growth. While the housing sector continues to deteriorate, income growth is propping up consumer spending.
• What's Next: Fed officials don't appear inclined to cut rates further without signs that the housing downturn is spilling over into consumer or business spending.
"It remains too early to assess the extent to which household and business spending will be affected by the weakness in housing and the tightening in credit conditions," he said, according to the prepared text of his remarks.
His remarks indicate Fed officials will keep a close eye on data to gauge the condition of the economy but didn't suggest an inclination to cut interest rates further when policy makers meet on Oct. 30 and Oct. 31. The Fed on Sept. 18 lowered its target for the benchmark federal-funds rate to 4.75% from 5.25%, the first cut in four years, in an attempt to prevent a broader economic downturn fueled by the housing sector's sharp decline and credit-market turmoil.
The Fed's action sparked a rise in stock prices, which hit a record last week, and eased pressure in the credit markets. At the same time, consumer prices have faced "moderate increases" despite higher costs for oil and other commodities and a weaker dollar.
Mr. Bernanke said the improvement in the financial markets "increases the likelihood of achieving moderate growth" in the economy, while keeping prices stable. He cautioned that "considerable strains remain" in financial markets. He also acknowledged the risk of reducing rates -- a nod to concerns that such moves will encourage some investors to take even more risks.
"In such situations, one must also take seriously the possibility that policy actions that have the effect of reducing stress in financial markets may also promote excessive risk-taking and thus increase the probability of future crises," Mr. Bernanke said.
Still, he said, investors who made those risky bets in housing, through subprime mortgages for people with weaker credit, "have sustained significant losses" and mortgage firms that issued the loans have failed.
More fallout is expected from the housing downturn. The decline in residential construction has directly shaved three-quarters of a point off economic growth for the last year and a half. Tighter standards for mortgages are expected to depress construction activity further while also pushing prices lower.
The housing downturn hadn't led to "significant spillovers" into household and business spending as of the Fed's September meeting, Mr. Bernanke said. He said financial markets and consumers could still take a hit as a result. "Investors are continuing to reassess the risks they face and have not yet fully regained confidence in their ability to accurately price certain types of securities," he said. "The ultimate implications of financial developments for the cost and availability of credit, and thus for the broader economy, remain uncertain."
From wallstreetjournal on-line
...read more...
Bernanke Warns DownturnLikely to Hamper GrowthThrough Early Next Year
By SUDEEP REDDYOctober 16, 2007
Two weeks before the Federal Reserve's next meeting on interest-rate policy, Fed Chairman Ben Bernanke said yesterday the economy is performing much as expected: The housing market is continuing to deteriorate, but financial markets are under less stress in the wake of the central bank's actions last month.
In a speech to the New York Economic Club, Mr. Bernanke said the housing downturn is likely to remain "a significant drag" on economic growth through early 2008. He said that strong income growth has so far propped up consumer spending even in the face of signs -- which he called "quite tentative" -- of a cooling labor market.
• The News: Federal Reserve Chairman Ben Bernanke said pressure on financial markets has been reduced since the recent turmoil, increasing the likelihood of moderate economic growth. While the housing sector continues to deteriorate, income growth is propping up consumer spending.
• What's Next: Fed officials don't appear inclined to cut rates further without signs that the housing downturn is spilling over into consumer or business spending.
"It remains too early to assess the extent to which household and business spending will be affected by the weakness in housing and the tightening in credit conditions," he said, according to the prepared text of his remarks.
His remarks indicate Fed officials will keep a close eye on data to gauge the condition of the economy but didn't suggest an inclination to cut interest rates further when policy makers meet on Oct. 30 and Oct. 31. The Fed on Sept. 18 lowered its target for the benchmark federal-funds rate to 4.75% from 5.25%, the first cut in four years, in an attempt to prevent a broader economic downturn fueled by the housing sector's sharp decline and credit-market turmoil.
The Fed's action sparked a rise in stock prices, which hit a record last week, and eased pressure in the credit markets. At the same time, consumer prices have faced "moderate increases" despite higher costs for oil and other commodities and a weaker dollar.
Mr. Bernanke said the improvement in the financial markets "increases the likelihood of achieving moderate growth" in the economy, while keeping prices stable. He cautioned that "considerable strains remain" in financial markets. He also acknowledged the risk of reducing rates -- a nod to concerns that such moves will encourage some investors to take even more risks.
"In such situations, one must also take seriously the possibility that policy actions that have the effect of reducing stress in financial markets may also promote excessive risk-taking and thus increase the probability of future crises," Mr. Bernanke said.
Still, he said, investors who made those risky bets in housing, through subprime mortgages for people with weaker credit, "have sustained significant losses" and mortgage firms that issued the loans have failed.
More fallout is expected from the housing downturn. The decline in residential construction has directly shaved three-quarters of a point off economic growth for the last year and a half. Tighter standards for mortgages are expected to depress construction activity further while also pushing prices lower.
The housing downturn hadn't led to "significant spillovers" into household and business spending as of the Fed's September meeting, Mr. Bernanke said. He said financial markets and consumers could still take a hit as a result. "Investors are continuing to reassess the risks they face and have not yet fully regained confidence in their ability to accurately price certain types of securities," he said. "The ultimate implications of financial developments for the cost and availability of credit, and thus for the broader economy, remain uncertain."
From wallstreetjournal on-line
...read more...
Business this week
Oct 11th 2007From The Economist print edition
A consortium led by Royal Bank of Scotland won a lengthy takeover battle for ABN AMRO after Barclays dropped its bid for the Dutch bank, citing a lack of shareholder support. In the biggest-ever deal in the financial-services industry, the RBS-led group will pay euro72 billion ($101 billion) for ABN, which will be split among the consortium's members: RBS takes ABN's wholesale business and Asian operations, Spain's Santander gets its Italian and Brazilian units, and Fortis, a Belgian-Dutch group, its Dutch retail-banking business. See article
The British Treasury extended its guarantee of customer deposits at Northern Rock to include new accounts. The bank was bailed out by the Bank of England last month after reporting difficulties raising cash during the credit-market crisis. Several private-equity firms are weighing a takeover. Meanwhile, officials from Britain's Financial Services Authority admitted to a parliamentary committee that they had made mistakes leading up to Northern Rock's problems, which resulted in the first run on a British bank in generations.
Boeing said that it would, after all, have to postpone the first deliveries of its new 787 Dreamliner. The company had given reassurances that despite production mishaps and a short test-flight programme the first delivery would take place on schedule next May. That date has now been pushed back to late November or December 2008. See article
Chrysler and the United Auto Workers union reached a tentative contract agreement similar in scope to that signed between the UAW and General Motors two weeks ago. A strike at Chrysler that began just hours before the negotiations concluded was halted.
Gary Forsee stepped down as chief executive of Sprint Nextel when America's third-biggest mobile-phone operator lowered its profit forecast for the year. Mr Forsee oversaw the $38 billion merger of Sprint and Nextel Communications, but the company is losing customers. Its planned $5 billion project for new WiMax broadband services is thought to be in doubt.
SAP, the world's leading producer of business software, made its biggest acquisition when it agreed to buy Business Objects for euro4.8 billion ($6.7 billion).
Beer buddies
SAB Miller and Molson Coors said they were merging their brewing operations in the United States in a joint venture, enabling them to compete better with Anheuser-Busch, America's biggest beermaker. See article
Cadbury Schweppes confirmed that it would spin off its North American beverages arm in a de-merger rather than seek a buyer. Before the recent turmoil in the money markets private-equity groups had expressed an interest in the business, which includes Dr Pepper and 7UP among its brands.
SLM, a student-loan company better known as Sallie Mae, filed a lawsuit seeking a $900m break-up fee from a group of private-equity investors that wants to renegotiate a buy-out. Led by JC Flowers, the group made a $25 billion offer for Sallie Mae in April, but says recent government legislation that reduces subsidies to student lenders has had a materially adverse effect on the deal.
A consortium led by JPMorgan and which includes an Australian infrastructure fund won the auction of Britain's Southern Water in a deal worth £4.2 billion ($8.4 billion). The seller is Royal Bank of Scotland.
The European Union and China reached an accord on the flow of Chinese textile exports that sets up a new monitoring system. Quotas that were stiffened after Chinese clothing imports surged into Europe in 2005 are set to expire at the end of this year. The agreement between the two powers is an attempt to stave off a repeat of the “bra wars” of two years ago.
The latest employment data for America showed an extra 110,000 payroll jobs in September. The Bureau of Labour Statistics also revised the figure for August from a loss of 4,000 jobs to a gain of 89,000.
The Baltic Exchange Dry Index, a measure of shipping costs for commodities such as grains, coal and iron ore, passed the 10,000 mark for the first time. One factor adding to the cost of freight is the drought in Australia. Asian countries that rely on Australian cereals have had to seek their wheat elsewhere, meaning some vessels have been tied up by travelling farther than expected to load cargo.
...read more...
A consortium led by Royal Bank of Scotland won a lengthy takeover battle for ABN AMRO after Barclays dropped its bid for the Dutch bank, citing a lack of shareholder support. In the biggest-ever deal in the financial-services industry, the RBS-led group will pay euro72 billion ($101 billion) for ABN, which will be split among the consortium's members: RBS takes ABN's wholesale business and Asian operations, Spain's Santander gets its Italian and Brazilian units, and Fortis, a Belgian-Dutch group, its Dutch retail-banking business. See article
The British Treasury extended its guarantee of customer deposits at Northern Rock to include new accounts. The bank was bailed out by the Bank of England last month after reporting difficulties raising cash during the credit-market crisis. Several private-equity firms are weighing a takeover. Meanwhile, officials from Britain's Financial Services Authority admitted to a parliamentary committee that they had made mistakes leading up to Northern Rock's problems, which resulted in the first run on a British bank in generations.
Boeing said that it would, after all, have to postpone the first deliveries of its new 787 Dreamliner. The company had given reassurances that despite production mishaps and a short test-flight programme the first delivery would take place on schedule next May. That date has now been pushed back to late November or December 2008. See article
Chrysler and the United Auto Workers union reached a tentative contract agreement similar in scope to that signed between the UAW and General Motors two weeks ago. A strike at Chrysler that began just hours before the negotiations concluded was halted.
Gary Forsee stepped down as chief executive of Sprint Nextel when America's third-biggest mobile-phone operator lowered its profit forecast for the year. Mr Forsee oversaw the $38 billion merger of Sprint and Nextel Communications, but the company is losing customers. Its planned $5 billion project for new WiMax broadband services is thought to be in doubt.
SAP, the world's leading producer of business software, made its biggest acquisition when it agreed to buy Business Objects for euro4.8 billion ($6.7 billion).
Beer buddies
SAB Miller and Molson Coors said they were merging their brewing operations in the United States in a joint venture, enabling them to compete better with Anheuser-Busch, America's biggest beermaker. See article
Cadbury Schweppes confirmed that it would spin off its North American beverages arm in a de-merger rather than seek a buyer. Before the recent turmoil in the money markets private-equity groups had expressed an interest in the business, which includes Dr Pepper and 7UP among its brands.
SLM, a student-loan company better known as Sallie Mae, filed a lawsuit seeking a $900m break-up fee from a group of private-equity investors that wants to renegotiate a buy-out. Led by JC Flowers, the group made a $25 billion offer for Sallie Mae in April, but says recent government legislation that reduces subsidies to student lenders has had a materially adverse effect on the deal.
A consortium led by JPMorgan and which includes an Australian infrastructure fund won the auction of Britain's Southern Water in a deal worth £4.2 billion ($8.4 billion). The seller is Royal Bank of Scotland.
The European Union and China reached an accord on the flow of Chinese textile exports that sets up a new monitoring system. Quotas that were stiffened after Chinese clothing imports surged into Europe in 2005 are set to expire at the end of this year. The agreement between the two powers is an attempt to stave off a repeat of the “bra wars” of two years ago.
The latest employment data for America showed an extra 110,000 payroll jobs in September. The Bureau of Labour Statistics also revised the figure for August from a loss of 4,000 jobs to a gain of 89,000.
The Baltic Exchange Dry Index, a measure of shipping costs for commodities such as grains, coal and iron ore, passed the 10,000 mark for the first time. One factor adding to the cost of freight is the drought in Australia. Asian countries that rely on Australian cereals have had to seek their wheat elsewhere, meaning some vessels have been tied up by travelling farther than expected to load cargo.
...read more...
How to Protect Your Portfolio
How to Protect Your Portfolio
We asked investment managers to share their favorite techniques for safeguarding clients' portfolios against a bear market
by David Bogoslaw
Once burned, twice shy. Even though the major stock indexes are trading at record highs and concerns about a possible credit crunch-led recession have abated slightly, many of today's investors have vivid memories of the market meltdown of 20 years ago. No surprise, then, that one feature distinguishing the current stock market from the one that crashed in October, 1987, is evidence of more caution among investors.
It wasn't that way back when Gordon Gekko of Wall Street was telling investors that "Greed is good." Twenty years ago, traders in thrall to the possibilities of making money by exploiting the differentials between stock index futures and the underlying stock indexes were buying and selling without covering themselves with an opposing transaction, a strategy that would have afforded them some protection when their bets went sour.
Today, they're much more likely to put safeguards in place to hedge against downside risks. Since 1987, the average daily trading volume of options has more than tripled, with index options in particular seeing growth in volume, open interest, and liquidity.
More Players, More Protective Tools
The primary difference between today's index futures market and that of 20 years ago is that there's now a much larger pool of participants, including hedge funds, creating a more diverse and liquid market, says Scott Warren, managing director of equity products at the Chicago Mercantile Exchange, which specializes in index futures. Circuit breakers in the futures, cash, and options markets that temporarily halt trading after a drop of a certain percentage also limit the magnitude of bearish events, he says.
In addition to the market's much greater ability to absorb large buy and sell orders of stocks and options, there's also a much better understanding of the strengths and limitations of protection strategies, says Jim Bitman, senior instructor at the Chicago Board of Options Exchange's Options Institute. "People still remember 2001 and 2002 a little bit, so they're probably trying to take some protective measures," and leaving more money on the sidelines, says Jody Team, president of Team Financial Strategies in Lewisville, Tex.
To protect clients' portfolios, money managers are using a host of sophisticated hedging tools intended to offset risk to their core stock holdings. One such tool: inverse index funds. These so-called bear funds are designed to move in the opposite direction of the index to which they are benchmarked, such as the Standard & Poor's 500-stock index.
Inverse Index Investing
The inverse index mutual funds at Rydex Investments don't short the indexes themselves. Instead, they use derivatives such as index futures, which can be traded and rolled over into later periods more cheaply than shorting the stocks themselves, says Jim King, director of portfolio management at Rydex. They're still at risk of losing money, but they can't lose any more than they put into the fund, King says. Investors are "long" the fund, while the fund takes the short positions, but the returns are the same as if clients were actually short the index. "It's up to us to keep the fund from losing more money than it has," he says.
Inverse funds can be especially useful in retirement accounts, where investors don't otherwise have options to short the market. Among the 11 inverse funds that Rydex manages are a few that give shareholders twice the leverage to the underlying index. The Inverse S&P 500 2x Strategy, for instance, gives investors twice as much return for each percentage move down in the S&P 500, but it also generates double the loss for any uptick in the index.
A Little Leverage Goes a Long Way
One reason for the popularity of these extra-leveraged bets, also known as ultra funds, is that they give investors the same amount of exposure as the regular fund, with a commitment of only half the money. But because they're twice as risky, King says Rydex tries to make sure customers understand the implications and prefers they work with financial advisers instead of buying directly from Rydex.
Of course, leverage has to be used wisely. The use of stock index futures accelerated selling pressure in the 1987 crash, but King says that was primarily a result of the way they were used, as opposed to a fundamental flaw in the instruments themselves. "It all comes down to the degree of leverage," he says. "Our funds are leveraged at most 2 to 1. A person using index futures could get leverage approaching 10 to 1 if he wanted to. That's where folks get into trouble. They take on a lot of leverage, where even a small move in the market can wipe out their position."
The trick to making money from inverse funds is to invest in them before stock prices start to fall, as the fund becomes more expensive to own afterward, says King.
A Healthy Margin
Having been caught in the downdraft in October, 1987, losing a lot of his clients' money, Joseph Biondo Sr. believes in keeping portfolio protection simple. Since the large amount of money borrowed on margin to boost positions was a key contributor to both the 1929 and 1987 crashes, "we limit the amount of margin we'll have a client use to 20% instead of the 50% cap that regulations [allow]," says Biondo, the founder and senior portfolio manager of Biondo Investment Advisors in Milford, Pa.
For a client who has put up $100,000 to buy $200,000 in stock, it takes just a 50% drop in the market to wipe out the initial investment and force the investor to use the remaining $100,000 to pay back the loan. "We'll only borrow 20% to buy stock, so essentially stocks have to go down 80% for a client to be bankrupt instead of 50%, and that's never happened," he says.
Hedging with Exposure to All Asset Classes
There seems to be an unspoken belief in the financial industry that history repeats itself, but Bill Neubauer, an independent financial planner in Miami, says he tries to position his clients for crises that haven't been seen before.
For Neubauer, the only way to really minimize risk is through extreme diversification, by adding more asset classes that behave differently from one another. Four years ago, he began adding real estate to clients' portfolios. Then he began to shift toward greater international exposure in all asset classes, expanding from stocks to include bonds, currencies, and real estate. International assets now account for 70% of his clients' portfolios, which total roughly $30 million.
"For them to have a hedging function, they have to be in fairly meaningful quantities," at least 5% of the total portfolio, he says. "The thing people really worry about is correlations and negative correlations being tossed out the window when everything goes down at once." Dispersing his clients' portfolios among five or six major asset classes and 18 subclasses has produced a much smoother ride, he says.
Targeting Vulnerable Sectors
Investors can also hedge based on a belief that one type of stock will do worse than other types under certain economic conditions. Team, of Team Financial Strategies, invests in inverse funds that track the Russell 2000 index because he thinks an economic downturn would be much harder on smaller-cap companies. But he balances that by concentrating his long positions in a small number of stocks that are owned by a few value-oriented fund managers he trusts and that trade at a discount of at least 30% to multiples like price-to-sales and price-to-earnings.
Exchange-traded funds that target particular sectors are another sharp tool for building protection into a portfolio. Kipley Lytel, managing partner at Montecito Capital Management in Montecito, Calif., has been buying shares of UltraShort Financials ProShares (SKF), an inverse index ETF, on the belief that financial stocks are overpriced and still vulnerable to the credit crisis. "So as financials go down, we'll make money." Montecito's portfolio also includes hard assets like commodities, as well as high-yield and hybrid equity funds, like Hussman Strategic Growth Fund (HSGFX), that can buy index put options.
The burgeoning portfolio protection strategies probably deserve most of the credit for keeping a lid on irrational exuberance, but the additional caution may also reflect the aging of the biggest investor population, the baby boomers. "They're a little more senior and mature. There's a realization that sensible returns—between 7% and 15%—are acceptable, where there was time in the 1990s and late 1980s when people wanted high 10s, low 20s returns," says Biondo. "As people get a little smarter and older, they realize that's not reality and that if you get those types of returns, they're short-lived."
Bogoslaw is a reporter for BusinessWeek's Investing channel .
...read more...
We asked investment managers to share their favorite techniques for safeguarding clients' portfolios against a bear market
by David Bogoslaw
Once burned, twice shy. Even though the major stock indexes are trading at record highs and concerns about a possible credit crunch-led recession have abated slightly, many of today's investors have vivid memories of the market meltdown of 20 years ago. No surprise, then, that one feature distinguishing the current stock market from the one that crashed in October, 1987, is evidence of more caution among investors.
It wasn't that way back when Gordon Gekko of Wall Street was telling investors that "Greed is good." Twenty years ago, traders in thrall to the possibilities of making money by exploiting the differentials between stock index futures and the underlying stock indexes were buying and selling without covering themselves with an opposing transaction, a strategy that would have afforded them some protection when their bets went sour.
Today, they're much more likely to put safeguards in place to hedge against downside risks. Since 1987, the average daily trading volume of options has more than tripled, with index options in particular seeing growth in volume, open interest, and liquidity.
More Players, More Protective Tools
The primary difference between today's index futures market and that of 20 years ago is that there's now a much larger pool of participants, including hedge funds, creating a more diverse and liquid market, says Scott Warren, managing director of equity products at the Chicago Mercantile Exchange, which specializes in index futures. Circuit breakers in the futures, cash, and options markets that temporarily halt trading after a drop of a certain percentage also limit the magnitude of bearish events, he says.
In addition to the market's much greater ability to absorb large buy and sell orders of stocks and options, there's also a much better understanding of the strengths and limitations of protection strategies, says Jim Bitman, senior instructor at the Chicago Board of Options Exchange's Options Institute. "People still remember 2001 and 2002 a little bit, so they're probably trying to take some protective measures," and leaving more money on the sidelines, says Jody Team, president of Team Financial Strategies in Lewisville, Tex.
To protect clients' portfolios, money managers are using a host of sophisticated hedging tools intended to offset risk to their core stock holdings. One such tool: inverse index funds. These so-called bear funds are designed to move in the opposite direction of the index to which they are benchmarked, such as the Standard & Poor's 500-stock index.
Inverse Index Investing
The inverse index mutual funds at Rydex Investments don't short the indexes themselves. Instead, they use derivatives such as index futures, which can be traded and rolled over into later periods more cheaply than shorting the stocks themselves, says Jim King, director of portfolio management at Rydex. They're still at risk of losing money, but they can't lose any more than they put into the fund, King says. Investors are "long" the fund, while the fund takes the short positions, but the returns are the same as if clients were actually short the index. "It's up to us to keep the fund from losing more money than it has," he says.
Inverse funds can be especially useful in retirement accounts, where investors don't otherwise have options to short the market. Among the 11 inverse funds that Rydex manages are a few that give shareholders twice the leverage to the underlying index. The Inverse S&P 500 2x Strategy, for instance, gives investors twice as much return for each percentage move down in the S&P 500, but it also generates double the loss for any uptick in the index.
A Little Leverage Goes a Long Way
One reason for the popularity of these extra-leveraged bets, also known as ultra funds, is that they give investors the same amount of exposure as the regular fund, with a commitment of only half the money. But because they're twice as risky, King says Rydex tries to make sure customers understand the implications and prefers they work with financial advisers instead of buying directly from Rydex.
Of course, leverage has to be used wisely. The use of stock index futures accelerated selling pressure in the 1987 crash, but King says that was primarily a result of the way they were used, as opposed to a fundamental flaw in the instruments themselves. "It all comes down to the degree of leverage," he says. "Our funds are leveraged at most 2 to 1. A person using index futures could get leverage approaching 10 to 1 if he wanted to. That's where folks get into trouble. They take on a lot of leverage, where even a small move in the market can wipe out their position."
The trick to making money from inverse funds is to invest in them before stock prices start to fall, as the fund becomes more expensive to own afterward, says King.
A Healthy Margin
Having been caught in the downdraft in October, 1987, losing a lot of his clients' money, Joseph Biondo Sr. believes in keeping portfolio protection simple. Since the large amount of money borrowed on margin to boost positions was a key contributor to both the 1929 and 1987 crashes, "we limit the amount of margin we'll have a client use to 20% instead of the 50% cap that regulations [allow]," says Biondo, the founder and senior portfolio manager of Biondo Investment Advisors in Milford, Pa.
For a client who has put up $100,000 to buy $200,000 in stock, it takes just a 50% drop in the market to wipe out the initial investment and force the investor to use the remaining $100,000 to pay back the loan. "We'll only borrow 20% to buy stock, so essentially stocks have to go down 80% for a client to be bankrupt instead of 50%, and that's never happened," he says.
Hedging with Exposure to All Asset Classes
There seems to be an unspoken belief in the financial industry that history repeats itself, but Bill Neubauer, an independent financial planner in Miami, says he tries to position his clients for crises that haven't been seen before.
For Neubauer, the only way to really minimize risk is through extreme diversification, by adding more asset classes that behave differently from one another. Four years ago, he began adding real estate to clients' portfolios. Then he began to shift toward greater international exposure in all asset classes, expanding from stocks to include bonds, currencies, and real estate. International assets now account for 70% of his clients' portfolios, which total roughly $30 million.
"For them to have a hedging function, they have to be in fairly meaningful quantities," at least 5% of the total portfolio, he says. "The thing people really worry about is correlations and negative correlations being tossed out the window when everything goes down at once." Dispersing his clients' portfolios among five or six major asset classes and 18 subclasses has produced a much smoother ride, he says.
Targeting Vulnerable Sectors
Investors can also hedge based on a belief that one type of stock will do worse than other types under certain economic conditions. Team, of Team Financial Strategies, invests in inverse funds that track the Russell 2000 index because he thinks an economic downturn would be much harder on smaller-cap companies. But he balances that by concentrating his long positions in a small number of stocks that are owned by a few value-oriented fund managers he trusts and that trade at a discount of at least 30% to multiples like price-to-sales and price-to-earnings.
Exchange-traded funds that target particular sectors are another sharp tool for building protection into a portfolio. Kipley Lytel, managing partner at Montecito Capital Management in Montecito, Calif., has been buying shares of UltraShort Financials ProShares (SKF), an inverse index ETF, on the belief that financial stocks are overpriced and still vulnerable to the credit crisis. "So as financials go down, we'll make money." Montecito's portfolio also includes hard assets like commodities, as well as high-yield and hybrid equity funds, like Hussman Strategic Growth Fund (HSGFX), that can buy index put options.
The burgeoning portfolio protection strategies probably deserve most of the credit for keeping a lid on irrational exuberance, but the additional caution may also reflect the aging of the biggest investor population, the baby boomers. "They're a little more senior and mature. There's a realization that sensible returns—between 7% and 15%—are acceptable, where there was time in the 1990s and late 1980s when people wanted high 10s, low 20s returns," says Biondo. "As people get a little smarter and older, they realize that's not reality and that if you get those types of returns, they're short-lived."
Bogoslaw is a reporter for BusinessWeek's Investing channel .
...read more...
Saturday, October 13, 2007
Income-Inequality Gap Widens
The richest Americans' share of national income has hit a postwar record, surpassing the highs reached in the 1990s bull market, and underlining the divergence of economic fortunes blamed for fueling anxiety among American workers
The wealthiest 1% of Americans earned 21.2% of all income in 2005, according to new data from the Internal Revenue Service. That is up sharply from 19% in 2004, and surpasses the previous high of 20.8% set in 2000, at the peak of the previous bull market in stocks.
The bottom 50% earned 12.8% of all income, down from 13.4% in 2004 and a bit less than their 13% share in 2000.
The IRS data, based on a large sample of tax returns, are for 'adjusted gross income,' which is income after some deductions, such as for alimony and contributions to individual retirement accounts. While dated, many scholars prefer it to timelier data from other agencies because it provides details of the very richest -- for example, the top 0.1% and the top 1%, not just the top 10% -- and includes capital gains, an important, though volatile, source of income for the affluent.
The IRS data go back only to 1986, but academic research suggests the rich last had this high a share of total income in the 1920s.
Scholars attribute rising inequality to several factors, including technological change that favors those with more skills, and globalization and advances in communications that enlarge the rewards available to 'superstar' performers whether in business, sports or entertainment.
In an interview yesterday with The Wall Street Journal, President Bush said, 'First of all, our society has had income inequality for a long time. Secondly, skills gaps yield income gaps. And what needs to be done about the inequality of income is to make sure people have got good education, starting with young kids. That's why No Child Left Behind is such an important component of making sure that America is competitive in the 21st century.'
Jason Furman, a scholar at the Brookings Institution and an adviser to Democratic politicians, said: 'We've had a 30-year trend of increasing inequality. There was an artificial reduction in that trend following the bursting of the stock-market bubble in 2000.'
The IRS data don't identify the source of increased income for the affluent, but the boom on Wall Street has likely played a part, just as the last stock boom fueled the late-1990s surge. Until this summer, soaring stock prices and buoyant credit markets had produced spectacular payouts for private-equity and hedge-fund managers, and investment bankers.
One study by University of Chicago academics Steven Kaplan and Joshua Rauh concludes that in 2004 there were more than twice as many such Wall Street professionals in the top 0.5% of all earners as there are executives from nonfinancial companies.
Mr. Rauh said 'it's hard to escape the notion' that the rising share of income going to the very richest is, in part, 'a Wall Street, financial industry-based story.' The study shows that the highest-earning hedge-fund manager earned double in 2005 what the top earner made in 2003, and top 25 hedge-fund managers earned more in 2004 than the chief executives of all the companies in the Standard & Poor's 500-stock index, combined. It also shows profits per equity partner at the top 100 law firms doubling between 1994 and 2004, to over $1 million in 2004 dollars.
The data highlight the political challenge facing Mr. Bush and the Republican contenders for president. They have sought to play up the strength of the economy since 2003 and low unemployment, and the role of Mr. Bush's tax cuts in both. But many Americans think the economy is in or near a recession. The IRS data show that the median tax filer's income -- half earn less than the median, half earn more -- fell 2% between 2000 and 2005 when adjusted for inflation, to $30,881. At the same time, the income level for the tax filer just inside the top 1% grew 3%, to $364,657.
Democrats, on the other hand, have sought to exploit angst about stagnant middle-class wages and eroding benefits in showdowns with Mr. Bush over issues such as health insurance and trade.
...read more...
The wealthiest 1% of Americans earned 21.2% of all income in 2005, according to new data from the Internal Revenue Service. That is up sharply from 19% in 2004, and surpasses the previous high of 20.8% set in 2000, at the peak of the previous bull market in stocks.
The bottom 50% earned 12.8% of all income, down from 13.4% in 2004 and a bit less than their 13% share in 2000.
The IRS data, based on a large sample of tax returns, are for 'adjusted gross income,' which is income after some deductions, such as for alimony and contributions to individual retirement accounts. While dated, many scholars prefer it to timelier data from other agencies because it provides details of the very richest -- for example, the top 0.1% and the top 1%, not just the top 10% -- and includes capital gains, an important, though volatile, source of income for the affluent.
The IRS data go back only to 1986, but academic research suggests the rich last had this high a share of total income in the 1920s.
Scholars attribute rising inequality to several factors, including technological change that favors those with more skills, and globalization and advances in communications that enlarge the rewards available to 'superstar' performers whether in business, sports or entertainment.
In an interview yesterday with The Wall Street Journal, President Bush said, 'First of all, our society has had income inequality for a long time. Secondly, skills gaps yield income gaps. And what needs to be done about the inequality of income is to make sure people have got good education, starting with young kids. That's why No Child Left Behind is such an important component of making sure that America is competitive in the 21st century.'
Jason Furman, a scholar at the Brookings Institution and an adviser to Democratic politicians, said: 'We've had a 30-year trend of increasing inequality. There was an artificial reduction in that trend following the bursting of the stock-market bubble in 2000.'
The IRS data don't identify the source of increased income for the affluent, but the boom on Wall Street has likely played a part, just as the last stock boom fueled the late-1990s surge. Until this summer, soaring stock prices and buoyant credit markets had produced spectacular payouts for private-equity and hedge-fund managers, and investment bankers.
One study by University of Chicago academics Steven Kaplan and Joshua Rauh concludes that in 2004 there were more than twice as many such Wall Street professionals in the top 0.5% of all earners as there are executives from nonfinancial companies.
Mr. Rauh said 'it's hard to escape the notion' that the rising share of income going to the very richest is, in part, 'a Wall Street, financial industry-based story.' The study shows that the highest-earning hedge-fund manager earned double in 2005 what the top earner made in 2003, and top 25 hedge-fund managers earned more in 2004 than the chief executives of all the companies in the Standard & Poor's 500-stock index, combined. It also shows profits per equity partner at the top 100 law firms doubling between 1994 and 2004, to over $1 million in 2004 dollars.
The data highlight the political challenge facing Mr. Bush and the Republican contenders for president. They have sought to play up the strength of the economy since 2003 and low unemployment, and the role of Mr. Bush's tax cuts in both. But many Americans think the economy is in or near a recession. The IRS data show that the median tax filer's income -- half earn less than the median, half earn more -- fell 2% between 2000 and 2005 when adjusted for inflation, to $30,881. At the same time, the income level for the tax filer just inside the top 1% grew 3%, to $364,657.
Democrats, on the other hand, have sought to exploit angst about stagnant middle-class wages and eroding benefits in showdowns with Mr. Bush over issues such as health insurance and trade.
Friday, October 12, 2007
Big Banks Push$100 Billion PlanTo Avert Crunch
Fund Seeks to PreventMortgage-Debt Selloff;Advice From Treasury
By CARRICK MOLLENKAMP, IAN MCDONALD and DEBORAH SOLOMONOctober 13, 2007; Page A1
In a far-reaching response to the global credit crisis, Citigroup Inc. and other big banks are discussing a plan to pool together and financially back as much as $100 billion in shaky mortgage securities and other investments.
The banks met three weeks ago in Washington at the Treasury Department, which convened the talks and is playing a central advisory role, people familiar with the situation said. The meeting was hosted by Treasury's undersecretary for domestic finance, Robert Steel, a former Goldman Sachs Group Inc. official and the top domestic finance adviser to Treasury Secretary Henry Paulson. The Federal Reserve has been kept informed but has left the active role to the Treasury.
The new fund is designed to stave off what Citigroup and others see as a threat to the financial markets world-wide: the danger that dozens of huge bank-affiliated funds will be forced to unload billions of dollars in mortgage-backed securities and other assets, driving down their prices in a fire sale. That could force big write-offs by banks, brokerages and hedge funds that own similar investments and would have to mark them down to the new, lower market prices.
The ultimate fear: If banks need to write down more assets or are forced to take assets onto their books, that could set off a broader credit crunch and hurt the economy. It could make it tough for homeowners and businesses to get loans. Efforts so far by central banks to alleviate the credit crunch that has been roiling markets since the summer haven't fully calmed investors, leading to the extraordinary move to bring together the banks.
In recent weeks, investors have grown concerned about the size of bank-affiliated funds that have invested huge sums in securities tied to shaky U.S. subprime mortgages and other assets. Citigroup, the world's biggest bank by market value, has drawn special scrutiny because it is the largest player in this market.
Citigroup has nearly $100 billion in seven affiliated structured investment vehicles, or SIVs. Globally, SIVs had $400 billion in assets as of Aug. 28, according to Moody's.
Such vehicles are formally independent of the banks that create them. They issue their own short-term debt, usually at relatively low interest rates reflecting their high credit rating. The vehicles use the money to buy higher-yielding longer-term assets such as securities tied to mortgages or receivables from midsize businesses seeking to raise cash.
Many SIVs had trouble rolling over their short-term debt in August because of concerns about the quality of their assets. That contributed to the broader seizing up of credit markets.
The Financial Services Authority, the United Kingdom's markets regulator, has suggested that U.K. banks consider participating in the plan, a person familiar with the situation said. HSBC Holdings PLC, the largest U.K. bank, has an affiliate SIV called Cullinan Finance Ltd. with $35 billion in senior debt. An HSBC representative wasn't immediately available to comment.
If the banks agree, the plan could be announced as early as Monday, people familiar with the matter said. Citigroup announces third-quarter earnings Monday. The tentative name for the fund is Master-Liquidity Enhancement Conduit, or M-LEC.
The plan is encountering resistance from some big banks. They argue that Citigroup is asking others to help bail out its affiliates and an industry-wide bailout isn't needed. Citigroup bankers created the first SIV in the late 1980s in London.
The new fund represents a way for Citigroup and other banks to "outlast the current market conditions that are so dry right now," says Jaime Peters, an analyst at Morningstar Inc.
Traditional buyers of debt issued by SIVs include money-market mutual funds, municipalities and other risk-averse investors attracted by the high credit rating of the vehicles.
By providing a receptacle for assets backed by subprime mortgages and other creations of Wall Street, the SIVs contributed to the big expansion of credit in recent years whose aftereffects are now roiling the economy.
The Citigroup plan would create a "superconduit," a fund backed by some of the world's biggest banks that would issue short-term debt and serve as a buyer of assets currently held by SIVs affiliated with the participating banks.
According to the people familiar with the plan, these assets include securities tied to U.S. mortgages as well as debt pools called collateralized debt obligations.
Because the superconduit would be backed by the big banks themselves, it's expected this would reassure investors and make them more willing to buy its short-term debt, or commercial paper.
The Citigroup proposal recalls the 1998 bailout of huge hedge fund Long Term Capital Management, which was reeling from bad bets on currencies and other investments. Seven big banks and investment banks, prodded by the Fed, banded together and prevented LTCM from collapsing.
Two banks in the discussions with Citigroup, Bank of America Corp. and J.P. Morgan Chase & Co., would participate not because they have SIVs -- they don't -- but because they would earn fees for helping arrange the superconduit, according to people briefed on the discussions. The superconduit's debt would be fully backed by participating banks, they said.
One supporter of the effort is Treasury Secretary Henry Paulson, who decided to assemble the banks after conversations with businesspeople who expressed concern about SIVs and their impact on the economy, said a person familiar with the matter.
It's the second time in two months that U.S. authorities helped arrange for financial institutions to discuss steps to avert a credit crisis. In mid-August, at the request of the New York Fed, financial leaders met with Fed officials who explained the Fed's steps to open up the supply of cash to the nation's banks.
The new plan would be challenging to pull off. Bank-affiliated SIVs selling assets into the superconduit will have to agree on how to price those assets. Some SIVs may value the securities differently. There have been several meetings since the initial Sunday meeting, both at Treasury and in New York.
For Citigroup Chief Executive Charles Prince, solving the bank's SIV is the latest fire that he needs to put out. Mr. Prince, under pressure to raise the bank's lagging performance, recently said third-quarter earnings would fall 60% from year-earlier levels owing to the August meltdown in global credit markets. Some investors and analysts have called for Mr. Prince's ouster. (See related article.)
SIVs are purposely kept off the balance sheets of the banks to which they are affiliated. One reason for this is that banks want to keep down the amount of assets on their balance sheets to reduce the amount of capital that regulations require them to keep.
Because SIVs are off the balance sheet, it is difficult for investors to size up the financial risks they pose. Off-balance-sheet liabilities played a major role in the 2001 collapse of Enron Corp., and the makers of accounting rules have generally sought to get affiliated entities back on the balance sheets of the companies creating them.
--Robin Sidel and David Reilly contributed to this article
From - The Wall Street Journal Online
...read more...
By CARRICK MOLLENKAMP, IAN MCDONALD and DEBORAH SOLOMONOctober 13, 2007; Page A1
In a far-reaching response to the global credit crisis, Citigroup Inc. and other big banks are discussing a plan to pool together and financially back as much as $100 billion in shaky mortgage securities and other investments.
The banks met three weeks ago in Washington at the Treasury Department, which convened the talks and is playing a central advisory role, people familiar with the situation said. The meeting was hosted by Treasury's undersecretary for domestic finance, Robert Steel, a former Goldman Sachs Group Inc. official and the top domestic finance adviser to Treasury Secretary Henry Paulson. The Federal Reserve has been kept informed but has left the active role to the Treasury.
The new fund is designed to stave off what Citigroup and others see as a threat to the financial markets world-wide: the danger that dozens of huge bank-affiliated funds will be forced to unload billions of dollars in mortgage-backed securities and other assets, driving down their prices in a fire sale. That could force big write-offs by banks, brokerages and hedge funds that own similar investments and would have to mark them down to the new, lower market prices.
The ultimate fear: If banks need to write down more assets or are forced to take assets onto their books, that could set off a broader credit crunch and hurt the economy. It could make it tough for homeowners and businesses to get loans. Efforts so far by central banks to alleviate the credit crunch that has been roiling markets since the summer haven't fully calmed investors, leading to the extraordinary move to bring together the banks.
In recent weeks, investors have grown concerned about the size of bank-affiliated funds that have invested huge sums in securities tied to shaky U.S. subprime mortgages and other assets. Citigroup, the world's biggest bank by market value, has drawn special scrutiny because it is the largest player in this market.
Citigroup has nearly $100 billion in seven affiliated structured investment vehicles, or SIVs. Globally, SIVs had $400 billion in assets as of Aug. 28, according to Moody's.
Such vehicles are formally independent of the banks that create them. They issue their own short-term debt, usually at relatively low interest rates reflecting their high credit rating. The vehicles use the money to buy higher-yielding longer-term assets such as securities tied to mortgages or receivables from midsize businesses seeking to raise cash.
Many SIVs had trouble rolling over their short-term debt in August because of concerns about the quality of their assets. That contributed to the broader seizing up of credit markets.
The Financial Services Authority, the United Kingdom's markets regulator, has suggested that U.K. banks consider participating in the plan, a person familiar with the situation said. HSBC Holdings PLC, the largest U.K. bank, has an affiliate SIV called Cullinan Finance Ltd. with $35 billion in senior debt. An HSBC representative wasn't immediately available to comment.
If the banks agree, the plan could be announced as early as Monday, people familiar with the matter said. Citigroup announces third-quarter earnings Monday. The tentative name for the fund is Master-Liquidity Enhancement Conduit, or M-LEC.
The plan is encountering resistance from some big banks. They argue that Citigroup is asking others to help bail out its affiliates and an industry-wide bailout isn't needed. Citigroup bankers created the first SIV in the late 1980s in London.
The new fund represents a way for Citigroup and other banks to "outlast the current market conditions that are so dry right now," says Jaime Peters, an analyst at Morningstar Inc.
Traditional buyers of debt issued by SIVs include money-market mutual funds, municipalities and other risk-averse investors attracted by the high credit rating of the vehicles.
By providing a receptacle for assets backed by subprime mortgages and other creations of Wall Street, the SIVs contributed to the big expansion of credit in recent years whose aftereffects are now roiling the economy.
The Citigroup plan would create a "superconduit," a fund backed by some of the world's biggest banks that would issue short-term debt and serve as a buyer of assets currently held by SIVs affiliated with the participating banks.
According to the people familiar with the plan, these assets include securities tied to U.S. mortgages as well as debt pools called collateralized debt obligations.
Because the superconduit would be backed by the big banks themselves, it's expected this would reassure investors and make them more willing to buy its short-term debt, or commercial paper.
The Citigroup proposal recalls the 1998 bailout of huge hedge fund Long Term Capital Management, which was reeling from bad bets on currencies and other investments. Seven big banks and investment banks, prodded by the Fed, banded together and prevented LTCM from collapsing.
Two banks in the discussions with Citigroup, Bank of America Corp. and J.P. Morgan Chase & Co., would participate not because they have SIVs -- they don't -- but because they would earn fees for helping arrange the superconduit, according to people briefed on the discussions. The superconduit's debt would be fully backed by participating banks, they said.
One supporter of the effort is Treasury Secretary Henry Paulson, who decided to assemble the banks after conversations with businesspeople who expressed concern about SIVs and their impact on the economy, said a person familiar with the matter.
It's the second time in two months that U.S. authorities helped arrange for financial institutions to discuss steps to avert a credit crisis. In mid-August, at the request of the New York Fed, financial leaders met with Fed officials who explained the Fed's steps to open up the supply of cash to the nation's banks.
The new plan would be challenging to pull off. Bank-affiliated SIVs selling assets into the superconduit will have to agree on how to price those assets. Some SIVs may value the securities differently. There have been several meetings since the initial Sunday meeting, both at Treasury and in New York.
For Citigroup Chief Executive Charles Prince, solving the bank's SIV is the latest fire that he needs to put out. Mr. Prince, under pressure to raise the bank's lagging performance, recently said third-quarter earnings would fall 60% from year-earlier levels owing to the August meltdown in global credit markets. Some investors and analysts have called for Mr. Prince's ouster. (See related article.)
SIVs are purposely kept off the balance sheets of the banks to which they are affiliated. One reason for this is that banks want to keep down the amount of assets on their balance sheets to reduce the amount of capital that regulations require them to keep.
Because SIVs are off the balance sheet, it is difficult for investors to size up the financial risks they pose. Off-balance-sheet liabilities played a major role in the 2001 collapse of Enron Corp., and the makers of accounting rules have generally sought to get affiliated entities back on the balance sheets of the companies creating them.
--Robin Sidel and David Reilly contributed to this article
From - The Wall Street Journal Online
...read more...
Saturday, October 6, 2007
Record-breaking day on Wall Street
Record-breaking day on Wall Street
After jobs report, S&P 500 closes at all-time high; Dow hits all-time high during the session, but closes short of its record; Nasdaq hits 6-1/2 year high; bonds slump.
By Alexandra Twin, CNNMoney.com senior writer
October 5 2007: 5:55 PM EDT
NEW YORK (CNNMoney.com) -- Stocks rallied Friday after a strong September jobs report raised bets that the economy will be able to avoid a recession, despite the drag from the housing and mortgage market meltdown.
Bond prices slumped, boosting the corresponding yields on bets that if the economy is holding up better than thought, the Fed won't necessarily need to keep cutting interest rates.
The Dow Jones industrial average (Charts) gained almost 0.7 percent, briefly hitting a record trading high of 14,123.72 during the session before retreating.
The broader S&P 500 (Charts) index added almost 1 percent and closed at a new all-time high. During the session, the S&P 500 briefly hit a new all-time intraday high of 1561.91 before scaling back a bit.
The tech-heavy Nasdaq composite (Charts) gained around 1.7 percent, closing at a fresh 2007 record and its highest point since Feb. 2001.
The third-quarter earnings reporting period unofficially kicks off next week with a pair of Dow components - Alcoa on Tuesday and General Electric on Friday.
Employers added 110,000 jobs to their payrolls in August, just topping forecasts for a rise of 100,000. In addition, the August number was revised to a gain of 89,000 jobs from the originally reported loss of 4,000 jobs.
Despite the gain in payrolls, the unemployment rate, which is generated by a separate survey, rose to 4.7 percent in the month from 4.6 percent in the previous month. The gain was as expected.
The report seemed to hit that middle ground that stock investors crave, suggesting the economy is holding up, but not accelerating too quickly.
"Stand alone, this was a good employment report," said Gregory Miller, chief economist at SunTrust Banks. "In context, it probably doesn't change the underlying theme that this economy and this labor market have been stair-stepping downwards."
Overall it suggested that the economy hasn't fallen apart, but is also not reaccelerating too rapidly, Miller said.
Recent weak reports on manufacturing and durable goods orders had raised bets that problems in the housing sector were spreading to the broader economy.
While that still may prove to be true, the jobs report at least tempered worries about the extent of the pullback in the labor market.
Nonetheless, the heady days of the economy creating an average of 200,000 jobs a month have clearly passed, and some analysts are concerned that the full brunt of the housing market slowdown has yet to be felt in the jobs market.
"As good as the jobs report was, I don't think it changes the longer term problems with employment," said Ben Halliburton, chief investment officer at Tradition Capital Management.
Halliburton said that significant layoffs are still on the horizon related to the housing market and that this could hit the consumer. The consumer is already feeling the impact of a slower-growing economy, according to the latest holiday shopping outlook. (Full story).
Amid such concerns, next week's September retail sales report and reading on producer prices will be closely watched.
In terms of what it might mean for interest-rate policy, the report would seem to diminish the likelihood of the Federal Reserve cutting interest rates at its meeting at the end of the month, Miller said.
The report's inflation component seemed to support the Fed holding off. Average hourly earnings rose 0.4 percent after rising 0.3 percent in August. Economists thought wages would rise 0.3 percent.
Treasury prices slumped, boosting the corresponding yields on bets that the Fed won't cut rates at the end of the month. The selloff lifted the yield on the 10-year note to 4.63 percent from 4.51 percent late Thursday.
However, the possibility that the Fed won't cut again at the end of the month didn't seem to rattle stock investors as it might have a few weeks ago.
"For the stock market, sometimes it reads Fed easing as good news, sometimes not," Miller said. "I think for today, stock investors are reading the potential for no more Fed easing as positive because it means that conditions are not so bad that the Fed will need to ease."
Fed Vice Chairman Donald Kohn, speaking to the Philadelphia Chamber of Commerce Friday, said that while financial market conditions have improved since the Fed cut interest rates on Sept. 18, liquidity in the credit markets is not back to normal.
He also said that the Fed's policy action won't stem the problems in the economy for several quarters, with the housing market in particular likely to continue to lag for some time
In corporate news, Merrill Lynch joined the recent parade of financial companies warning about the earnings impact from the fallout in the housing and credit markets. Merrill said it will post a third-quarter net loss of about 50 cents per share and will write down about $5.5 billion.
Nonetheless, Merrill (Charts, Fortune 500) shares rose, with investors continuing to reward financial companies for not disappointing them even more with their earnings reports, relative to grim expectations. In addition, a sense that the worst is over for the sector has helped the stocks recently after a tough third quarter.
Bears Stearns (Charts, Fortune 500) is reportedly the focus of a criminal probe related to the collapse of two of its mortgage-related hedge funds. Yet, after sliding in the morning, Bear stock rebounded and closed higher.
Late Thursday, Research in Motion (Charts) reported higher quarterly earnings and revenue that beat expectations. The Blackberry maker also boosted its current-quarter profit forecast. Shares jumped nearly 13 percent Friday.
Also after the close Thursday, Alcoa (Charts, Fortune 500) said it will sell two of its divisions and that it will restructure another one. Shares of the Dow component rose 3 percent Friday.
Among other Dow gainers, GM (Charts, Fortune 500), American Express (Charts, Fortune 500) and Caterpillar (Charts, Fortune 500) all gained at least 2 percent.
Among other movers, Yahoo (Charts, Fortune 500) shares gained after an analyst report said that breaking up the company could boost its share value.
Apple (Charts, Fortune 500), Oracle (Charts, Fortune 500), RF Micro Devices (Charts) and Applied Materials (Charts, Fortune 500) were among the other big technology shares leading the charge.
Market breadth was positive. On the New York Stock Exchange, winners beat losers by more than 3 to 1 on volume of 1.26 billion shares. On the Nasdaq, advancers topped decliners by almost 3 to 1 on volume of 2.02 billion shares.
In currency trading, the dollar slipped versus the euro and gained versus the yen.
U.S. light crude for November delivery fell 22 cents to settle at $81.22 a barrel on the New York Mercantile Exchange.
COMEX gold for December delivery rose $3.40 to $747.20 an ounce.
-CCC Money.com-
...read more...
After jobs report, S&P 500 closes at all-time high; Dow hits all-time high during the session, but closes short of its record; Nasdaq hits 6-1/2 year high; bonds slump.
By Alexandra Twin, CNNMoney.com senior writer
October 5 2007: 5:55 PM EDT
NEW YORK (CNNMoney.com) -- Stocks rallied Friday after a strong September jobs report raised bets that the economy will be able to avoid a recession, despite the drag from the housing and mortgage market meltdown.
Bond prices slumped, boosting the corresponding yields on bets that if the economy is holding up better than thought, the Fed won't necessarily need to keep cutting interest rates.
The Dow Jones industrial average (Charts) gained almost 0.7 percent, briefly hitting a record trading high of 14,123.72 during the session before retreating.
The broader S&P 500 (Charts) index added almost 1 percent and closed at a new all-time high. During the session, the S&P 500 briefly hit a new all-time intraday high of 1561.91 before scaling back a bit.
The tech-heavy Nasdaq composite (Charts) gained around 1.7 percent, closing at a fresh 2007 record and its highest point since Feb. 2001.
The third-quarter earnings reporting period unofficially kicks off next week with a pair of Dow components - Alcoa on Tuesday and General Electric on Friday.
Employers added 110,000 jobs to their payrolls in August, just topping forecasts for a rise of 100,000. In addition, the August number was revised to a gain of 89,000 jobs from the originally reported loss of 4,000 jobs.
Despite the gain in payrolls, the unemployment rate, which is generated by a separate survey, rose to 4.7 percent in the month from 4.6 percent in the previous month. The gain was as expected.
The report seemed to hit that middle ground that stock investors crave, suggesting the economy is holding up, but not accelerating too quickly.
"Stand alone, this was a good employment report," said Gregory Miller, chief economist at SunTrust Banks. "In context, it probably doesn't change the underlying theme that this economy and this labor market have been stair-stepping downwards."
Overall it suggested that the economy hasn't fallen apart, but is also not reaccelerating too rapidly, Miller said.
Recent weak reports on manufacturing and durable goods orders had raised bets that problems in the housing sector were spreading to the broader economy.
While that still may prove to be true, the jobs report at least tempered worries about the extent of the pullback in the labor market.
Nonetheless, the heady days of the economy creating an average of 200,000 jobs a month have clearly passed, and some analysts are concerned that the full brunt of the housing market slowdown has yet to be felt in the jobs market.
"As good as the jobs report was, I don't think it changes the longer term problems with employment," said Ben Halliburton, chief investment officer at Tradition Capital Management.
Halliburton said that significant layoffs are still on the horizon related to the housing market and that this could hit the consumer. The consumer is already feeling the impact of a slower-growing economy, according to the latest holiday shopping outlook. (Full story).
Amid such concerns, next week's September retail sales report and reading on producer prices will be closely watched.
In terms of what it might mean for interest-rate policy, the report would seem to diminish the likelihood of the Federal Reserve cutting interest rates at its meeting at the end of the month, Miller said.
The report's inflation component seemed to support the Fed holding off. Average hourly earnings rose 0.4 percent after rising 0.3 percent in August. Economists thought wages would rise 0.3 percent.
Treasury prices slumped, boosting the corresponding yields on bets that the Fed won't cut rates at the end of the month. The selloff lifted the yield on the 10-year note to 4.63 percent from 4.51 percent late Thursday.
However, the possibility that the Fed won't cut again at the end of the month didn't seem to rattle stock investors as it might have a few weeks ago.
"For the stock market, sometimes it reads Fed easing as good news, sometimes not," Miller said. "I think for today, stock investors are reading the potential for no more Fed easing as positive because it means that conditions are not so bad that the Fed will need to ease."
Fed Vice Chairman Donald Kohn, speaking to the Philadelphia Chamber of Commerce Friday, said that while financial market conditions have improved since the Fed cut interest rates on Sept. 18, liquidity in the credit markets is not back to normal.
He also said that the Fed's policy action won't stem the problems in the economy for several quarters, with the housing market in particular likely to continue to lag for some time
In corporate news, Merrill Lynch joined the recent parade of financial companies warning about the earnings impact from the fallout in the housing and credit markets. Merrill said it will post a third-quarter net loss of about 50 cents per share and will write down about $5.5 billion.
Nonetheless, Merrill (Charts, Fortune 500) shares rose, with investors continuing to reward financial companies for not disappointing them even more with their earnings reports, relative to grim expectations. In addition, a sense that the worst is over for the sector has helped the stocks recently after a tough third quarter.
Bears Stearns (Charts, Fortune 500) is reportedly the focus of a criminal probe related to the collapse of two of its mortgage-related hedge funds. Yet, after sliding in the morning, Bear stock rebounded and closed higher.
Late Thursday, Research in Motion (Charts) reported higher quarterly earnings and revenue that beat expectations. The Blackberry maker also boosted its current-quarter profit forecast. Shares jumped nearly 13 percent Friday.
Also after the close Thursday, Alcoa (Charts, Fortune 500) said it will sell two of its divisions and that it will restructure another one. Shares of the Dow component rose 3 percent Friday.
Among other Dow gainers, GM (Charts, Fortune 500), American Express (Charts, Fortune 500) and Caterpillar (Charts, Fortune 500) all gained at least 2 percent.
Among other movers, Yahoo (Charts, Fortune 500) shares gained after an analyst report said that breaking up the company could boost its share value.
Apple (Charts, Fortune 500), Oracle (Charts, Fortune 500), RF Micro Devices (Charts) and Applied Materials (Charts, Fortune 500) were among the other big technology shares leading the charge.
Market breadth was positive. On the New York Stock Exchange, winners beat losers by more than 3 to 1 on volume of 1.26 billion shares. On the Nasdaq, advancers topped decliners by almost 3 to 1 on volume of 2.02 billion shares.
In currency trading, the dollar slipped versus the euro and gained versus the yen.
U.S. light crude for November delivery fell 22 cents to settle at $81.22 a barrel on the New York Mercantile Exchange.
COMEX gold for December delivery rose $3.40 to $747.20 an ounce.
-CCC Money.com-
...read more...
Subscribe to:
Posts (Atom)